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, 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
YOCREAM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Oregon 91-0989395
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
5858 N.E. 87th Avenue
Portland, Oregon 97220
(Address of Principal Executive (Zip Code)
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, 1999: 2,314,093 shares
YOCREAM INTERNATIONAL, INC.
CONTENTS
Page
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements 3 - 7
Balance Sheet as of April 30, 1999, 3
(unaudited) and October 31, 1998
Statements of Income for the 4
Three Months ended April 30, 1999 and 1998
Six Months ended April 30, 1999 and 1998
(all unaudited)
Statements of Cash Flows for the 5
Six Months ended April 30, 1999 and 1998
(all unaudited)
Notes to Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of 8 - 11
Financial Condition and Results of
Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of 12
Security Holders
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
YOCREAM INTERNATIONAL, INC.
BALANCE SHEETS
April 30, October 31,
1999 1998
ASSETS (unaudited) __________
Current assets
Cash and cash equivalents $ 282,621 $ 277,246
Accounts receivable, net 1,358,366 907,749
Inventories 2,309,645 1,917,125
Other current assets 277,131 254,325
Total current assets 4,227,763 3,356,445
Fixed assets, net 1,989,229 2,130,607
Deferred tax asset 678,000 818,000
Intangible and other long-term assets, net 258,744 250,605
$7,153,736 $6,555,657
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank $ 759,700 $ 782,800
Current portion of long-term debt 48,647 49,869
Current obligations under capital lease 36,402 48,105
Accounts payable 1,288,985 933,826
Other accrued liabilities 140,490 127,132
Total current liabilities 2,274,224 1,941,732
Long-term debt payable to related parties
and others, less current portion 124,179 147,284
Long term obligations under
capital lease, less current portion 8,144 15,321
Total liabilities 2,406,547 2,104,337
Shareholders' equity
Common stock, nor par value,
30,000,000 shares authorized;
2,372,593 shares issued 5,376,442 5,360,941
Accumulated deficit (417,367) (775,033)
Less common stock in treasury, 58,500 shares (211,886) (134,588)
Net shareholders' equity 4,747,189 4,451,320
$7,153,736 $6,555,657
The accompanying notes are an integral part of the financial statements.
YOCREAM INTERNATIONAL, INC.
STATEMENTS OF INCOME
(unaudited)
Three months ended Six months ended
April 30, April 30,
1999 1998 1999 1998
Sales $3,650,515 $2,218,294 $5,828,381 $3,832,229
Cost of sales 2,460,895 1,418,753 3,988,248 2,537,667
Gross profit 1,189,620 799,541 1,840,133 1,294,562
Selling and marketing
Expenses 385,688 294,328 669,308 565,879
General and administrative
Expenses 352,108 281,325 628,242 534,114
Income from operations 451,824 223,888 542,583 194,569
Other income (expenses)
Interest income 2,651 3,014 5,404 7,487
Interest expense (25,324) (36,460) (50,321) (74,062)
Other income 8,020
Other, net (22,673) (33,446) (44,917) (58,555)
Income before taxes 429,151 190,442 497,666 136,014
Income tax (provision)
Benefit (121,000) 50,000 (140,000) 50,000
Net income $ 308,151 $ 240,442 $ 357,666 $ 186,014
Earnings per common share:
Basic $.13 $.11 $.15 $.08
Diluted $.13 $.10 $.15 $.08
The accompanying notes are an integral part of the financial statements.
YOCREAM INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For the Six months ended April 30, 1999 and 1998
(Unaudited)
1999 1998
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income $ 357,666 $ 186,014
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 160,275 122,138
Gain on sale of equipment - (8,028)
Deferred income taxes 140,000 (50,000)
Change in assets and liabilities
Accounts receivable (450,617) 88,592
Inventories (392,520) (199,995)
Other current assets (22,808) 6,923
Other assets (8,139) (8,139)
Accounts payable 355,421 (116,735)
Other accrued liabilities 13,098 23,062
Net cash provided by 152,376 43,832
operating activities
Cash flows from investing activities:
Expenditures for plant and equipment (18,896) (120,468)
Net cash used in investing activities (18,896) (120,468)
Cash flows from financing activities:
Net decrease in line of credit (23,100) (267,200)
Proceeds from issuance of stock 15,500 223,233
Proceeds from bank equipment financing - 42,179
Principal payments on long term debt
and capital leases (43,207) (37,909)
Payments for treasury stock purchased (77,298) (23,253)
Net cash used in financing activities (128,105) (62,950)
Net increase (decrease) in cash
and equivalents 5,375 (139,586)
Cash and equivalents, beginning of period 277,246 414,194
Cash and equivalents, end of period $ 282,621 $ 274,608
The accompanying notes are an integral part of the financial statements.
YOCREAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
Note A - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
Accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments, which consist of normal recurring accruals, considered
necessary for a fair presentation have been included. Operating results for
the six months ended April 30, 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
April 30, October 31,
1999 1998
Inventories consist of
Finished goods $1,752,925 $1,462,681
Raw materials 446,855 336,821
Packaging materials and supplies 109,865 117,623
$2,309,645 $1,917,125
Note C - Earnings per share
Earnings per share are calculated as follows for the three months ended
April 30, 1999 and 1998:
Three Months Ended April 30, 1999
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $308,151 2,318,349 $.13
Effect of dilutive securities 54,412
Diluted earnings per share $308,151 2,372,761 $.13
NOTES TO FINANCIAL STATEMENTS - Continued
Three Months Ended April 30, 1999
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $240,442 2,261,422 $.11
Effect of dilutive securities 72,887
Diluted earnings per share $240,442 2,334,309 $.10
Earnings per share are calculated as follows for the six months ended
April 30, 1999 and 1998:
Three Months Ended April 30, 1999
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $357,666 2,318,629 $.15
Effect of dilutive securities 59,980
Diluted earnings per share $357,666 2,378,609 $.15
Three Months Ended April 30, 1999
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $186,014 2,256,786 $.08
Effect of dilutive securities 37,174
Diluted earnings per share $186,014 2,293,960 $.08
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
Sales
The Company's sales increased 65% to $3,650,515 for the second quarter, and
increased 52% to $5,828,381 for the six months ended April 30, 1999,
compared to the corresponding periods in 1998.
Since the second quarter of last year, the Company has been achieving record
increases in sales primarily due to the smoothie products introduced at that
time. Sales gains have also been achieved in fiscal 1999 due to the recent
penetration into the convenience store market with the Company's soft serve
frozen yogurt. In March the Company announced that it had recently signed a
two-year contract with Maverik Country Stores to provide soft-serve frozen
yogurt. Maverik Country Stores is a chain of 176 convenience stores located
in Utah, Idaho, Montana, Wyoming, Arizona, Nevada and Colorado. The Company
is also providing its dispenser smoothie product to Maverik for testing at
several of its 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.
The Company has a history of developing innovative products. A year ago the
Company had just developed its YOCREAM line of fruit smoothies, which are
adaptable to both blender and dispenser operation. Since this product was
introduced, it has accounted for much of the revenue increases, and is
expected to continue to drive the growth in fiscal 1999. In March, the
Company announced its new "Bountiful Harvest" all-natural bottled fruit
smoothie beverage developed for direct consumer purchase. This new beverage
introduction reflects the Company's strategy of building on its strengths.
Management believes that this product with over 40% fruit offers a unique
beverage for the health conscious consumer, at a competitive price. This
product is initially being offered in 150 Wal-Mart superstores. The Company
is also exploring opportunities for the sale of this product in the
foodservice and convenience store segments.
Gross Profit
The Company's gross profit margin for the second quarter decreased from
36.0% to 32.6%, and the gross profit margin for the six months decreased
slightly from 33.8% to 31.6% of sales. The fluctuations in gross profit
were primarily due to the change in sales mix, and the increase in costs
associated with the introduction of a new product.
Selling and Marketing Expenses
Selling and marketing expenses in the second quarter decreased, as a
percentage of sales, from 13.3% to 10.6% of sales, and for the six months
decreased from 14.8% to 11.5% of sales. Such expenses decreased as a
percentage of revenues, primarily due to the growth in sales.
General and Administrative Expenses
General and administrative expenses in the second quarter decreased, as a
percentage of sales, from 12.7% to 9.7% of sales, and for the six months
decreased from 13.9% to 10.8% of sales. Various expenses increased during
the second quarter, but overall general and administrative expenses
decreased, as a percentage of sales, primarily due to the growth in sales.
Income from Operations
The income from operations in the second quarter increased 102% to $451,824,
or 12.4% of sales. Six months results showed a gain of 179% to $542,583, or
9.3% of sales. 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 $308,151, or 8.4% of sales, and reflected a
28% increase over the same period last year. The results for the quarter
are after deducting a provision for taxes of $121,000, compared with a tax
benefit of $50,000 included in the 1998 quarterly results. The net income
for the six months was $357,666, or 6.1% of sales, and reflected a 92%
increase over the same period last year. The results for the six months are
after deducting a provision for taxes of $140,000, compared with a tax
benefit of $50,000 included in the 1998 results.
Net income in the first six months of fiscal 1999 has been reduced, for the
first time, 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 for financial reporting purposes, thus
the need for the current tax provision; however, federal and state operating
loss carryfowards aggregating approximately $2,600,000 and $1,680,000,
respectively, remain available to offset income for tax purposes in the
current and future 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 April 30, 1999, the Company's total borrowings under its bank line of
credit were $759,700, compared with $1,069,800 at April 30, 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 July 1, 1999.
Accounts receivable at April 30, 1999 and October 31, 1998 were $1,358,366
and $907,749, respectively. This increase of 49.6% is primarily attributable
to the increase in sales compared to the fourth quarter of last year. The
increase in sales is due to seasonal fluctuations in product demand, and the
substantial increase in sales related to the smoothie products and the
penetration of the convenience store segment. The current level is higher
than the April 30, 1998 total of $740,268 due to the current quarter's
growth in revenues described above.
Inventories at April 30, 1999 and October 31, 1998 were $2,309,645 and
$1,917,125 respectively. This increase of 20.5% is primarily spread between
increases in finished goods, and raw materials. The current level is higher
than the April 30, 1998 total of $2,008,196, primarily due to an increase in
raw materials necessitated by the growth in YOCREAM fruit smoothie sales.
At April 30, 1999 the Company had working capital of $1,953,533 compared
with $1,414,713 at October 31, 1998, and $1,310,979 at April 30, 1998. The
improvement is primarily due to increases in receivables and inventory, and
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 and supporting
software. A management committee has been formed to monitor the project,
evaluate risks, make contact with certain business partners, and formulate
contingency plans, as deemed appropriate. 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
At the Annual Meeting of Shareholders, which was held on March 24,
1999, the shareholders reelected John Hanna, Dave Hanna, Bill Rush,
and Carl Behnke as directors. Each of the five nominees received not
less than 2,189,441 votes, or 99.7% 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.
At the Annual Meeting of Shareholders, the shareholders also approved
an amendment to Article 1 of the Articles of Incorporation which
changed the name of the corporation from International Yogurt Company
to Yocream International, Inc. 2,189,336 shares were voted for the
amendment, 16,800 shares were voted against the proposal, and 428
shares abstained from voting for the proposal
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 3.6 Amendment to Article 1 of the Articles of
Incorporation changing the name of the corporation to Yocream
International, Inc. effective March 24, 1999 is filed herewith.
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:
YOCREAM INTERNATIONAL, INC.
Date: June 14, 1999 By: /s/ John N. Hanna
John N. Hanna, Chairman of the
Board, and Chief Executive Officer
Date: June 14, 1999 By: /s/ W. Douglas Caudell
W. Douglas Caudell, Chief
Financial Officer
EXHIBIT 3.6
STATE OF OREGON
Articles of Amendment - Business/Professional/Nonprofit
Registry Number: 118973-11
1) Name of Corporation Prior to Amendment: International Yogurt Company
2) State the Article Number(s) and Set Forth the Article as it is Amended to
Read:
Article I - The name of the corporation is Yocream International,
Inc., and its duration shall be perpetual.
3) The Amendment was Adopted On: March 24, 1999
4) Shareholder Action Was Required to Adopt the Amendment(s). The vote was
as follows:
Class or Series of Shares: Common Stock
Number of Shares Outstanding: 2,364,592
Number of Votes Entitled to be Cast: 2,364,592
Number of Votes Cast FOR: 2,189,336
Number of Votes Cast AGAINST: 16,800
5) Nonprofit Corporation Only: N/A
6) Execution: /s/ John N. Hanna, CEO
7) Contact Name: Harry M. Hanna
Daytime Phone Number: (503) 273-2700
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