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, 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 (IRS Employer
incorporation or organization) Identification Number)
5858 NE 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, 1999: 2,305,193 shares
YOCREAM INTERNATIONAL, INC.
CONTENTS
Page
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements 3 - 7
Balance Sheet as of July 31, 1999, 3
(unaudited) and October 31, 1998
Statements of Income for the 4
Three Months ended July 31, 1999 and 1998
Nine Months ended July 31, 1999 and 1998
(all unaudited)
Statements of Cash Flows for the 5
Nine Months ended July 31, 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 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
YOCREAM INTERNATIONAL, INC.
BALANCE SHEETS
July 31, October 31,
1999 1998
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 167,222 $ 277,246
Accounts receivable, net 1,541,978 907,749
Inventories 2,424,036 1,917,125
Other current assets 259,185 254,325
Total current assets 4,392,421 3,356,445
Fixed assets, net 2,100,026 2,130,607
Deferred tax asset 524,800 818,000
Intangible and other long-term assets, net 262,436 250,605
$7,279,683 $6,555,657
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank $ - $ 782,800
Current portion of long-term debt 47,285 49,869
Current obligations under capital lease 15,330 48,105
Accounts payable 1,671,535 933,826
Other accrued liabilities 230,819 127,132
Total current liabilities 1,964,969 1,941,732
Long-term debt payable,
less current portion 212,176 147,284
Long term obligations under
capital lease, less current portion 4,319 15,321
Total liabilities 2,181,464 2,104,337
Shareholders' equity
Common stock, nor par value,
30,000,000 shares authorized;
2,391,343 shares issued 5,391,867 5,360,941
Accumulated deficit ( 22,568) (775,033)
Less common stock in treasury,
86,150 shares (271,080) (134,588)
Net shareholders' equity 5,098,219 4,451,320
$7,279,683 $6,555,657
The accompanying notes are an integral part of the financial statements.
YOCREAM INTERNATIONAL, INC.
STATEMENTS OF INCOME
(unaudited)
Three months ended Nine months ended
July 31, July 31,
1999 1998 1999 1998
Sales $4,846,763 $3,245,886 $10,675,144 $7,078,116
Cost of sales 3,378,361 2,328,030 7,366,610 4,865,701
Gross profit 1,468,402 917,856 3,308,534 2,212,415
Selling and marketing
expenses 507,672 334,102 1,176,981 899,982
General and administrative
expenses 399,505 314,607 1,027,746 848,724
Income from operations 561,225 269,147 1,103,807 463,709
Other income (expenses)
Interest income 2,605 2,715 8,009 10,201
Interest expense (15,716) (33,401) (66,037) (107,463)
Other income - - - 8,028
Other, net (13,111) (30,686) (58,028) (89,234)
Income before taxes 548,114 238,461 1,045,779 374,475
Income tax(provision)benefit (153,200) 75,000 (293,200) 125,000
Net income $ 394,914 $ 313,461 $ 752,579 $ 499,475
Earnings per common share:
Basic $.17 $.13 $.32 $.22
Diluted $.17 $.13 $.32 $.21
The accompanying notes are an integral part of the financial statements.
YOCREAM INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For the Nine months ended July 31, 1999 and 1998
(Unaudited)
1999 1998
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income $ 752,466 $ 499,475
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 244,793 182,950
Gain on sale of equipment - (8,028)
Deferred income taxes 293,200 (125,000)
Change in assets and liabilities
Accounts receivable (634,229) (303,758)
Inventories (506,911) (197,885)
Other current assets (4,858) 11,929
Other assets (11,831) (19,508)
Accounts payable 737,969 (79,749)
Other accrued liabilities 103,427 97,932
Net cash provided by
operating activities 974,026 58,358
Cash flows from investing activities:
Expenditures for plant and equipment (214,211) (286,441)
Net cash used in investing activities (214,211) (286,441)
Cash flows from financing activities:
Net decrease in line of credit (683,600) (178,200)
Proceeds from issuance of stock 15,501 305,039
Proceeds from bank equipment financing - 42,179
Principal payments on long term debt
and capital leases (80,673) (57,333)
Payments for treasury stock purchased (121,067) (23,253)
Net cash provided by (used in)
financing activities (869,839) 88,432
Net decrease in cash and equivalents (110,024) (139,651)
Cash and equivalents, beginning of period 277,246 414,194
Cash and equivalents, end of period $ 167,222 $ 274,543
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 nine months ended July 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
July 31, October 31,
1999 1998
Inventories consist of
Finished goods $1,678,365 $1,462,681
Raw materials 624,808 336,821
Packaging materials and supplies 120,863 117,623
$2,424,036 $1,917,125
Note C - Earnings per share
Earnings per share are calculated as follows for the three months ended
July 31, 1999 and 1998:
Three Months Ended July 31, 1999
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $394,914 2,312,585 $.17
Effect of dilutive securities 54,412 -
Diluted earnings per share $394,914 2,367,678 $.17
NOTES TO FINANCIAL STATEMENTS - Continued
Three Months Ended July 31, 1998
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $313,461 2,332,594 $.13
Effect of dilutive securities 82,297 -
Diluted earnings per share $313,461 2,414,891 $.13
Nine Months Ended July 31, 1999
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $752,579 2,316,614 $.32
Effect of dilutive securities 58,351 -
Diluted earnings per share $752,579 2,374,965 $.32
Nine Months Ended July 31, 1998
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $499,475 2,278,505 $.22
Effect of dilutive securities 52,301 (.01)
Diluted earnings per share $499,475 2,330,806 $.21
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 49% to $4,846,763 for the third quarter, and
increased 51% to $10,675,144 for the nine months ended July 31, 1999,
compared to the corresponding periods in 1998. Results for the nine months
ended July 31, 1999 exceeded sales and net income for the full 12 months of
fiscal 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 the 1999 second quarter, 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. During the 1999 third
quarter the Company added a chain of 56 coffee houses headquartered in
Boise, Idaho to its growing customer list.
From a broader perspective, the driving forces behind the year to year
revenue trends continue 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 offers a unique beverage for the health
conscious consumer, at a competitive price. This product is currently being
offered in approximately 200 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 third quarter increased from 28.3%
to 30.3%, and the gross profit margin for the nine months remained at
approximately 31% of sales. The improvements in gross profit were primarily
due to the increased sales volume, operating efficiencies, and cost
reductions.
Selling and Marketing Expenses
Selling and marketing expenses in the third quarter remained at
approximately 10.5% of sales, and for the nine months decreased from 12.7%
to 11% of sales. Such expenses decreased as a percentage of sales,
primarily due to the growth in sales.
General and Administrative Expenses
General and administrative expenses in the third quarter decreased, as a
percentage of sales, from 9.7% to 8.2% of sales, and for the nine months
decreased from 12% to 9.6% of sales. 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 third quarter increased 109% to $561,225,
or 11.6% of sales. Nine months results showed a gain of 138% to $1,103,807,
or 10.3% of sales. The improved results are primarily due to the
significant increase in sales with only slight increases in operating
expenses, over the same period last year.
Net Income
Net income for the quarter was $394,914, or 8.2% of sales, and reflected a
26% increase over the same period last year. The results for the quarter
are after deducting a provision for taxes of $153,200, compared with a tax
benefit of $75,000 included in the 1998 quarterly results. The net income
for the nine months was $752,579 or 7.1% of sales, and reflected a 50.7%
increase over the same period last year. The results for the nine months are
after deducting a provision for taxes of $293,200, compared with a tax
benefit of $125,000 included in the 1998 results. The net income for the
nine months exceeded the fiscal year 1998 net income of $702,703.
Net income in the first nine 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 carryforwards aggregating approximately $2,600,000 and $1,680,000,
respectively, remain available to offset income for tax purposes in the
current and future years. Consequently normal tax payments are not
required.
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 July 31, 1999, the Company's total borrowings under its bank line of
credit were $99,200, compared with $1,158,800 at July 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. Under the terms of the
line of credit agreement, as renewed in July 1999 the bank increased the
line limit to $2,000,000, subject to the Company being in compliance with
certain ratios and negative covenants, released its security interest in the
Company's receivables, inventories, and equipment, and reduced the interest
rate to prime. The agreement also provides the option to lock in subprime
rates on blocks of funds up to 90 days. The bank also extended the
agreement for two years. Consequently the amount outstanding at July 31,
1999 has been classified as a long-term liability.
Accounts receivable at July 31, 1999 and October 31, 1998 were $1,541,978
and $907,749, respectively. This increase of 69.9% is primarily attributable
to the increase in sales compared to the fourth quarter of last year. The
increase in sales is due 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 July 31, 1998 total of $1,132,618 due to the
current quarter's growth in revenues described above.
Inventories at July 31, 1999 and October 31, 1998 were $2,424,036 and
$1,917,125 respectively. This increase of 26.4% is primarily spread between
increases in finished goods and raw materials. The current level is higher
than the July 31, 1998 total of $2,006,086, primarily due to an increase in
raw materials necessitated by the growth in YOCREAM fruit smoothie sales.
At July 31, 1999 the Company had working capital of $2,427,000 compared with
$1,414,000 at October 31, 1998, and $1,483,000 at July 31, 1998. This
represents a 72% increase over October 1998, and an increase of 64% over
July 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 has assessed 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. Earlier this year, a management
committee was 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
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
On July 8, 1999 the Company filed Form 8-K reporting, under Item 5,
a stock buy back plan for up to 50,000 shares.
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: September 14, 1999 By: /s/ John N. Hanna
John N. Hanna, Chairman of the
Board, and Chief Executive Officer
Date: September 14, 1999 By: /s/ W. Douglas Caudell
W. Douglas Caudell,
Chief Financial Officer
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