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 January 31, 1999.
[ ] 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
January 31, 1999: 2,316,593 shares
INTERNATIONAL YOGURT COMPANY
CONTENTS
Page
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements 3 - 7
Balance Sheet as of January 31, 1999, 3
(unaudited) and October 31, 1998
Statements of Income for the 4
Three Months ended January 31, 1999 and 1998
(all unaudited)
Statements of Cash Flows for the 5
Three Months ended January 31, 1999 and 1998
(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 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of 11
Security Holders
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNATIONAL YOGURT COMPANY
BALANCE SHEETS
January 31, October 31,
1999 1998
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 282,449 $ 277,246
Accounts receivable, net 742,079 907,749
Inventories 2,046,895 1,917,125
Other current assets 266,110 254,325
Total current assets 3,337,533 3,356,445
Fixed assets, net 2,061,557 2,130,607
Deferred tax asset 799,000 818,000
Intangible and other long-term assets, net 254,675 250,605
$6,452,765 $6,555,657
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank $ 886,800 $ 782,800
Current portion of long-term debt 49,869 49,869
Current obligations under capital lease 48,105 48,105
Accounts payable 740,172 933,826
Other accrued liabilities 111,060 127,132
Total current liabilities 1,836,006 1,941,732
Long-term debt payable to related parties
and others, less current portion 135,277 147,284
Long term obligations under
capital lease, less current portion 6,168 15,321
Total liabilities 1,977,451 2,104,337
Shareholders' equity
Common stock, nor par value,
30,000,000 shares authorized;
2,364,593 shares issued 5,360,942 5,360,941
Accumulated deficit (725,531) (775,033)
Less common stock in treasury, 48,000 shares (160,097) (134,588)
Net shareholders' equity 4,475,314 4,451,320
$6,452,765 $6,555,657
The accompanying notes are an integral part of the financial statements.
INTERNATIONAL YOGURT COMPANY
STATEMENTS OF INCOME
(unaudited)
For the three months ended January 31,1999 and 1998
1999 1998
Revenue $2,177,866 $1,613,935
Cost of sales 1,527,360 1,118,913
Gross profit 650,506 495,022
Selling and marketing expenses 283,624 271,557
General and administrative expenses 276,135 252,796
Income (loss) from operations 90,747 (29,331)
Other income (expenses):
Interest income 2,753 4,473
Interest expense (24,997) (37,598)
Other, net - 8,028
Income (loss) before income taxes 68,503 (54,428)
Provision for income taxes (19,000) -
Net income (loss) $ 49,503 $ (54,428)
Basic net income (loss) per share $ .02 $ (.02)
Diluted net income (loss) per share $ .02 $ (.02)
The accompanying notes are an integral part of the financial statements.
INTERNATIONAL YOGURT COMPANY
STATEMENTS OF CASH FLOWS
For the three months ended January 31, 1999 and 1998
(Unaudited)
1999 1998
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income (loss) $ 49,503 $ (54,428)
Adjustments to reconcile net
Income (loss) to net cash provided
By operating activities:
Depreciation 84,837 64,208
Gain on sale of equipment - (8,028)
Deferred income taxes 19,000 -
Change in assets and liabilities
Accounts receivable 165,670 224,698
Inventories (129,770) (125,088)
Other assets (18,524) (16,801)
Accounts payable (193,393) (85,954)
Other accrued liabilities (16,332) ( 95)
Net cash (used) provided by (39,009) (1,488)
operating activities
Cash flows from investing activities:
Expenditures for plant and equipment (13,119) (82,011)
Net cash used in investing activities (13,119) (82,011)
Cash flows from financing activities:
Net increase (decrease) in line of credit 104,000 (16,000)
Proceeds from bank equipment financing - 42,179
Proceeds from issuance of stock - 39,250
Principal payments on long term debt
and capital leases (21,160) (17,986)
Treasury stock purchased (25,509) -
Net cash provided by (used in)
financing activities 57,331 47,443
Net increase (decrease)in cash
and equivalents 5,203 (36,056)
Cash and equivalents, beginning of period 277,246 414,194
Cash and equivalents, end of period $ 282,449 $ 378,138
The accompanying notes are an integral part of the financial statement.
INTERNATIONAL YOGURT COMPANY
NOTES TO FINANCIAL STATEMENTS
Note A - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjust-
ments, which consist of normal recurring accruals, considered necessary for
a fair presentation have been included. Operating results for the quarter
ended January 31, 1999 are not necessarily indicative of the results that
may be expected for the year ending October 31, 1999. 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, 1998.
Note B - Inventories
Inventories consist of January 31, October 31,
1999 1998
Finished goods $1,551,725 $1,462,681
Raw materials 352,318 336,821
Packaging materials and supplies 142,852 117,623
$2,046,895 $1,917,125
Note C - Earnings per share
Earnings per share are calculated as follows for the three months ended
January 31, 1999 and 1998:
Three Months Ended January 31, 1999
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $49,503 2,318,908 $.02
Effect of dilutive securities - 65,548 -
Diluted earnings per share $49,503 2,384,456 $.02
NOTES TO FINANCIAL STATEMENTS - Continued
Three Months Ended January 31, 1998
Net Loss Shares Per-Share
(Numerator) (Denominator) Amount
Basic (loss) per share:
Net loss ($54,428) 2,241,499 ($.02)
Effect of dilutive securities - - -
Diluted (loss) per share ($54,428) 2,241,499 ($.02)
Options to purchase 131,000 shares at prices from $1.71 to $2.31 were
excluded from the diluted loss per share calculation, even though the
average price for the quarter was higher than the exercise prices, because
the effect would have been antidilutive.
Item 2. Management's Discussion and Analysis of Financial Condition and
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.
Results of Operations
Revenues
The Company's revenues for the first fiscal quarter ending January 31, 1999
were $2,177,866, up 34.9% compared to the corresponding quarter in 1998.
Over the last three years the percentage increase in first quarter revenues
has grown each year. In the first quarter of 1997, revenues were up 5.9%,
1998 was up 7%, and 1999 was up 34.9% compared to the corresponding quarter
in the prior year. The increase in the current quarter was primarily the
result of YOCREAM Smoothie sales and penetration of YOCREAM frozen yogurt
into convenience stores.
From a broader perspective, the driving forces behind the year to year
revenue trends continues to be due to the competitive success of the
Company's products, new product development capabilities, and long-term
customer alliances. The successes are also due to an established national
distribution system including a network of brokers and distributors, and
expanded direct sales activity. The strategy implemented in 1997 to
intensify direct sales activity through its own regional sales managers has
enabled the Company to better support its brokers and distributors, and
recently to penetrate the convenience store market segment.
A year ago the Company had just developed its YOCREAM line of fruit
smoothies, which are adaptable to both blender and dispenser operation.
Since its introduction, this product accounted for much of the revenue
increases, and is expected to continue to drive the growth in fiscal 1999.
Recently the Company has developed another YOCREAM smoothie drink which is
designed to be sold by retail stores, out of the refrigerated case along
with other juice and soft drink products. This product is scheduled to be
released in the second quarter and management expects that this product will
also be successful.
Gross Profit
The Company's gross profit margin decreased from 30.7% of revenues in the
1998 first quarter to 29.9% of revenues in the current quarter. The slight
decrease is primarily due to the change in sales mix.
Selling and Marketing Expenses
Selling and marketing expenses in the first quarter decreased from 16.8% to
13% of revenues for the quarter. Such expenses increased slightly over the
same period last year, but decreased as a percentage of revenues, primarily
due to the growth in revenues.
General and Administrative Expenses
General and administrative expenses decreased, as a percentage of
revenues,from 15.7% to 12.7% of revenues for the quarter. Such expenses
increased slightly over the same period last year, but decreased as a
percentage of revenues, primarily due to the growth in revenues.
Income from Operations
The income from operations was $90,747, or 4.2% of revenues, compared to a
loss of $29,331, or -1.8% of revenues, in the comparable quarter last year.
The improved results are primarily due to the significant increase in
revenues with only slight increases in operating expenses.
Net Income
Net income for the quarter was $49,503 compared with a loss of $54,428 in
the comparable quarter last year. Historically the Company has lost money
in the first quarter due to the seasonal nature of the demand for frozen
yogurt. The improved results are due to the growth in sales from the
Company's smoothie drink products and yogurt sales to convenience stores.
Net income in the current quarter was, for the first time, reduced by a
provision for income taxes. As of the end of fiscal 1998, the Company has
recognized substantially all of the deferred tax benefit of its net
operating loss carryforwards, thus the need for the current tax provision.
The provision will reduce the related deferred tax asset established in
prior years. Although the benefit of the net operating loss carryforwards
have been recognized for financial statement purposes, such losses are still
available to reduce taxable income over the next several years.
Liquidity and Capital Resources.
In recent years,the Company has financed its operations and expansion from
bank loans, operating leases, capital leases, stock sales, and internally
generated funds.
As of January 31, 1999, the Company's total borrowings under its bank line
of credit were $886,800, compared with $1,317,000 at January 31, 1998. The
reduction in the amount borrowed is due to the growth in operating results
and related cash flow over the past twelve months. The line permits
borrowings of up to $1,700,000 subject to the Company being in compliance
with certain ratios and negative covenants, and is collateralized by
qualified accounts receivable, inventories and loan insurance provided by a
governmental agency. Interest is at 1 percent over the bank's basic
commercial lending rate. The line is subject to renewal by May 1, 1999.
Accounts receivable at January 31, 1999 and October 31, 1998 were $742,079
and $907,749, respectively. This decrease of 18.3% is primarily attributable
to the seasonal decline in revenues compared to October 1998. The current
level is higher than the January 31, 1998 total of $604,162 due to the
current quarter's growth in revenues.
Inventories at January 31, 1999 and October 31, 1998 were $2,046,895 and
$1,917,125 respectively. This increase of 6.8% is spread between increases
in finished goods, raw materials and packaging materials. The current level
is higher than the January 31, 1998 total of $1,933,289, primarily due to an
increase in raw materials necessitated by the growth in YOCREAM fruit
smoothie sales.
At January 31, 1999 the Company had working capital of $1,501,527 compared
with $1,414,713 at October 31, 1998, and $951,568 at January 31, 1998. The
improvement is primarily due to the reduction in bank borrowings. This has
resulted from an increase in cash provided from operating activities over
the last year, and the proceeds from the exercise of stock options in fiscal
year 1998.
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 also expects its bank line to be
renewed or replaced at maturity. In the event that the Company's bank lines
were not renewed or replaced, the Company would need to curtail operations
substantially, seek additional capital, or both.
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
ready, and in late fiscal 1998 the Company completed a planned upgrade to
its network operating system, and replaced certain computers. Contact has
been made with certain business partners, and in the next few months the
Company plans further contacts with customers and suppliers. The Company
also plans to work with a computer consultant to review all of its hardware
and systems, as well as evaluating risks, and formulating 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: March 17, 1999 By: /s/ John N. Hanna
John N. Hanna, Chairman of the
Board, and Chief Executive
Officer
Date: March 17, 1999 By: /s/ W. Douglas Caudell
W. Douglas Caudell, Chief
Financial Officer
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