SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended October 31, 1999.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
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
incorporation or organization) Identification Number)
5858 N.E. 87th Avenue 97220
Portland, Oregon (Zip Code)
(Address of Principal
Executive Office)
(Registrant's telephone number, including area code): (503)256-3754
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [X ]
The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $5,317,240 at January 19, 2000, based upon the
average bid and asked prices of the common stock on that date.
At January 19, 2000 there were 2,296,393 shares of the registrant's common stock
outstanding.
Documents incorporated by reference:
Part of Form 10-K into
Document which Incorporated
Portions of Proxy Statement for
2000 Annual Meeting of Shareholders Part III
TABLE OF CONTENTS
PART I Page
Item 1. BUSINESS.....................................................4
Item 2. PROPERTIES..................................................12
Item 3. LEGAL PROCEEDINGS...........................................12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.....................................................12
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDERS MATTERS................................13
Item 6. SELECTED FINANCIAL DATA.....................................14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................................15
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA........................................................19
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE......................19
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT..................................................19
Item 11. EXECUTIVE COMPENSATION......................................19
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.......................................19
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................................19
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.....................................20
SIGNATURES..............................................................23
PART I
Item 1: BUSINESS
General
YOCREAM INTERNATIONAL, INC. (the "Company") is a corporation organized under
the laws of the state of Oregon in 1977 originally under the name the Yogurt
Stand, Inc. The Company changed its name later that year to International
Yogurt Company, Inc. In 1999, the Company changed its name to its present name.
The Company makes, markets and sells frozen yogurt, sorbet, smoothie, and ice
cream products in a variety of premium, low-fat, and nonfat flavors in either
non-organic or organic formulations. The Company markets and sells these
products to and through a variety of businesses and outlets, including super-
markets, grocery stores, convenience stores, restaurants, hospitals, school
district food services, military installations, yogurt shops, fast food chains,
discount club warehouses, and other types of outlets. The Company's primary
product is YOCREAM(registered trademark) frozen yogurt, which is distributed
and sold nationwide. The Company also produces YOCREAM BLENDER SMOOTHIES,
SORBET BY YOCREAM (now packaged as YOCREAM FRUIT BLENDER SMOOTHIES and SORBET
TOO), YOCREAM DISPENSER SMOOTHIES, BOUNTIFUL HARVEST BOTTLED SMOOTHIES, YOCREAM
PURE made from 100% organic milk, and premium, lowfat, or nonfat ice creams. The
Company's general marketing strategy is to offer a broad selection of its
products at a price suitable for the relevant markets.
The Industry
The YOCREAM brand frozen yogurt and smoothie products produced by the Company
constitute only a portion of the relevant frozen dessert, snack and beverage
industry. The industry produces a diverse range of products, many of which
compete directly with the Company's YOCREAM frozen yogurt and smoothie products.
Many types of retail outlets make available to the public the Company's YOCREAM
frozen yogurt and smoothie products as well as other manufacturer's frozen
yogurt products and frozen dessert and snack items, with many outlets offering
competing products of several manufacturers. The retail consumer may obtain the
Company's products or competing products from narrowly oriented outlets such as
small yogurt shops or stands, many of which provide only a single product, to
supermarkets and discount club warehouse types of facilities, as well as from
many medium-sized businesses. Food service outlets or institutions, such as
restaurants, hospitals, and school districts, typically offer frozen desserts
and snacks of one manufacturer. Larger institutional businesses with their own
distribution systems may obtain their products directly from the Company,
whereas most businesses will obtain their products from national or regional
food distributors. Frozen desserts and snacks are often viewed as premium
products, and are somewhat resistant to finely-tuned price competition.
However, larger institutional customers for frozen dessert and snack products
often enter into contracts on the basis of price. Smaller businesses such as
restaurants and yogurt shops will often enter into agreements on the basis of
brand identification, reputation or other preferences.
Customers are motivated to purchase frozen desert and snack products on the
basis of taste, reputation, quality and price. Premium products tend to be less
sensitive to price. Some consumers will choose one frozen dessert and snack
product over another for health related reasons such as ingredients, calories
and additives. Manufacturers of frozen dessert and snack products may make
claims relating to the healthfulness of their products, including soy-based
frozen dessert products, as well as other non-fat or synthetic fat products.
Frozen dessert and snack products also compete with many other varieties of food
and dessert items.
Frozen yogurt and smoothie products have gained wider acceptance and
identification by a greater variety of demographic groups than when first
introduced into the frozen yogurt marketplace. The Company believes that frozen
dessert and snack products appeal to and are purchased by persons of all age
groups and both sexes. The claims of certain manufacturers related to the
healthfulness of their products may also increase the acceptance of those frozen
dessert and snack products.
The Company
Yocream International, Inc. operates within the health oriented frozen dessert,
snack, and novelty business. Focus is placed on manufacturing superior quality
products (e.g. frozen yogurt, organic, smoothies, etc.) for regional, national,
and worldwide foodservice and retail markets. Yocream International, Inc.'s
expertise in nationwide distribution, foodservice sales/marketing, R&D (e.g. new
product development) and manufacturing is enhanced through leveraging strategic
alliances and/or joint ventures (e.g. Cascadian Farm). These relationships are
developed to increase volume growth and profitability within those markets
served by the Company. Yocream International, Inc.'s foodservice YOCREAM
branded presence receives emphasis in selected geographic areas of the U.S.
where sales and marketing resources are focused on branded product expansion.
Companies for which Yocream International, Inc. manufactures (e.g.Costco,
Cascadian Farm, SYSCO, etc.), are provided outstanding price/value products that
meet their stringent quality standards.
Marketing Strategy
The Company's marketing strategy is to build customer brand awareness and
loyalty, as well as to develop and expand YOCREAM consumer brand identification,
by offering a broad selection of premium frozen yogurt, ice cream and smoothie
products. The Company believes it can achieve greater brand identification and
loyalty through advertising the features and benefits of its products, including
the successes it has enjoyed in certain competitive taste tests. The Company
also considers the broad distribution of its product critical to sales growth,
with its products now available in 37 states and 7 countries. The Company will
continue to strive for greater distribution within these markets.
The Company's management also believes that its ability to respond innovatively
to take advantage of changes in the retail, foodservice, and packaging
industries will permit greater availability and acceptance of its products. For
example, single serving containers are popular with some consumers and sales
channels and currently smoothie products are in demand.
In 1993, the Company began a concerted effort to obtain copacking and private
label business. The Company was successful in obtaining a contract to copack
the organically grown, All Fruit Sorbet produced for Cascadian Farm, a majority
owned subsidiary of General Mills. In November 1994, Cascadian Farm added to
its contract with the Company its organic frozen yogurt and ice cream lines as
well.
In August 1998, the Company also entered into an agreement to copack for Life
Source Nutrition Solutions. Their products include a 16 ounce vitamin fortified
smoothie and an 8 ounce vitamin fortified hard pack frozen yogurt cup.
In January 1996, the Company entered into a signage/sponsorship agreement with
the Oregon Arena Corporation, owner of the Rose Garden Arena in Portland,
Oregon. The Rose Garden Arena is the principal home arena for the National
Basketball Association franchise for the Portland Trail Blazers professional
basketball team. Certain advertising rights are granted under the agreement as
well as exclusivity regarding the sale of frozen yogurt, sorbet, and soft serve
ice creams within the Arena. The Company has developed a special product called
Blazers Swirl, a nonfat combination of non-dairy sorbet and nonfat frozen yogurt
that is being featured in the Arena.
In 1996, the Company began a nationwide introduction of 4 ounce single serve
cups of nonfat frozen yogurt and non-dairy sorbet products. These products were
introduced under the Company's own brand of "Soft Scoop by YOCREAM" and under
SYSCO's nationwide "Cool N' Classy" brand. The Company is the only supplier to
SYSCO for this product.
The Company has developed its own marketing, sales and logistical departments.
A Director of Sales and Marketing teams with Regional Sales Managers, who in
turn work with 27 independent foodservice broker organizations on a nationwide
basis. The Company's traffic department now arranges for all of its product
shipments.
In June 1997, the Company announced a marketing agreement with Pocahontas Foods
USA, to jointly sell a branded counter-top freezer concept, merchandising both
SOFT SCOOP and YOCREAM Pure 4 ounce cup products. Pocahontas, a sales and
marketing association of 140 independent foodservice distributors nationwide,
has bundled YOCREAM as the sole dessert/snack concept into an innovative
branding program. The branded program is designed to deliver foodservice
operators a bundle of interchangeable consumer recognized branded food concepts,
including YOCREAM.
In May 1997, the Company launched YOCREAM, THE SMOOTHIE WAY, a smoothie line
featuring dairy and non-dairy base mixes, with recipes for blender operation.
While smoothies have been available for some time, the market in 1997 exploded.
According to an industry report, the number of juice/smoothie bars increased by
30% in 1997. The trend is being driven by the American consumer's interest in
finding healthy foods that are satisfying and tasty. Key Northwest-based
foodservice operators like Burgerville, Coffee People, and Taco Del Mar became
YOCREAM, THE SMOOTHIE WAY customers.
In October, 1997, the Company successfully test marketed YOCREAM, THE COMPLETE
FRUIT SMOOTHIE, an all natural complete fruit smoothie mix to be dispensed from
a smoothie machine or beverage dispenser and requiring no additional fruit, ice,
or juice. This smoothie line has been developed for high-volume operators like
concession stands, dining halls, and "all you can eat" restaurant operators,
many of which would have operational difficulties mixing, chopping, and
measuring ingredients prior to blending the final smoothie product. YOCREAM,
THE COMPLETE FRUIT SMOOTHIE can be dispensed in a few seconds, while it may take
minutes to make a smoothie with a blender.
In June 1998, YOCREAM THE SMOOTHIE WAY became YOCREAM BLENDER SMOOTHIES, and
YOCREAM, THE COMPLETE FRUIT SMOOTHIE became YOCREAM DISPENSER SMOOTHIES. This
move was made to further clarify the Company's smoothie concepts for customers.
In the second quarter of fiscal 1999, the Company began distribution of YOCREAM
SMOOTHIES BOUNTIFUL HARVEST, an extended shelf life, refrigerated, bottled
smoothie, to the retail grocery market.
International sales are selectively pursued by the Company on the basis of ease
of distribution and profitability. Marketing and sales abroad are currently
occurring in Canada, Mexico, Italy, Australia, and the Pacific Rim.
The Company, through its research and development efforts and its marketing
strategies, will continue to make known its ability to produce and distribute
unique high quality and good-for-you products.
Merchandise
The Company makes, markets and sells frozen yogurt in premium, lowfat, and
nonfat flavors, smoothies in a variety of flavors, and non-dairy sorbet in a
variety of flavors, bottled smoothies, as well as organic yogurt, organic ice
cream and other frozen desserts and snacks. These frozen products are available
in both soft serve liquid mix and hard pack forms.
As of January 19, 2000, the Company had available for sale the following
products and flavors under its own YOCREAM brand name:
YOCREAM YOCREAM YOCREAM
Premium Soft Serve Fruit Blender Soft Scoop - 4 Ounce
Mix Smoothies
(and Sorbet, too) Very Berry Sorbet
Cheesecake Supreme Very Sorbet/Vanilla
Dutch Chocolate Kiwi Strawberry Splash Frozen Yogurt Swirl
French Vanilla Very Berry Vanilla Frozen Yogurt
Milk Chocolate Lemony Lime Chocolate Frozen Yogurt
Peanut Butter Mango Tango Strawberry Frozen Yogurt
Praline 'n Cream Orange Burst
Vanilla
YOCREAM FREE
YOCREAM No Sugar Added
Yogurt Blender
YOCREAM Smoothies Blueberry
Nonfat Soft Serve Cafe au Lait
Vanilla Chocolate
Apple Spice Chai Raspberry
Blueberry Burst Coffee Strawberry
Butter Brickle Vanilla
Cable Car Chocolate
Cappuccino YOCREAM
Cherry Almond Fruit Dispenser YOGURT STAND
Chocolate Classic Smoothies Nonfat Soft Serve
Country Vanilla
Egg Nog Berry Banana Chocolate
Fancy French Vanilla Island Lime Strawberry
Georgia Peach Mango Sunrise Vanilla
"Holiday" Chocolate Mint Orange Squeeze
Irish Mint
Island Banana YOCREAM
Kahlua YOCREAM Bountiful Harvest
Luscious Lemon Yogurt Dispenser 16oz Bottled Smoothie
New York Cheesecake Smoothies
Outrageous Orange Berry Banana
Peanut Butter Coffee Pineapple Orange
Pecan Praline Chai Strawberry Guava
Peppermint Stick Chocolate Mango Berry
Pumpkin - French Vanilla Latte
Very Strawberry Mocha
Very Boysenberry
Very Raspberry
White Chocolate
Macadamia
YOCREAM PURE YOCREAM PURE
ORGANIC ORGANIC
Nonfat Soft Serve Lowfat Hardpack Ice Cream
Chocolate Sensation 4 Ounce
Pure Vanilla Cream - Pure Vanilla
Strawberry Fields Pure Strawberry
Pure Chocolate
The Company sells the soft serve liquid mix to food service customers who
dispense it through a soft serve frozen dessert machine. This product is also
available in an unflavored natural form which permits the customer to add
desired flavors. In fiscal years 1999, 1998 and 1997 the soft serve liquid mix
accounted for approximately 55%, 75% and 63% of the Company's case sales.
The Company markets and sells its hard pack frozen dessert products in 4 oz.
containers to food service customers. Hard pack products are also produced in
4 oz. and pint containers under private label for Cascadian Farm, SYSCO, and
other companies. In prior years, hard pack products were also available in 1/2
gallon containers. In fiscal years 1999, 1998 and 1997 hard pack products of
all type containers accounted for approximately 8%, 7%, and 37% of the Company's
case sales.
The Company is also selling frozen yogurt products with no sugar added, which
are sweetened with aspartame. This product was introduced to the market place
in the spring of 1991, and in 1999, 1998 and 1997 it accounted for approximately
3%, 4% and 3% of total case sales.
The Company has developed a lower cost line of products under the label Yogurt
Stand, designed to compete in that part of the institutional market where price
is the most significant competitive factor. That line of the Company's products
includes three flavors and a plain mix that can be flavored by the end user with
flavor packets bearing the Yogurt Stand label.
The Company has also developed a product identified by the trademark SOFT SCOOP.
This product, introduced to the market place in fiscal year 1992, can be stored
and distributed at a higher temperature than standard hard pack frozen desserts.
It is currently being marketed to the food service industry under the brand name
SOFT SCOOP by YOCREAM, and it is packaged in a single serve four ounce size.
SORBET by YOCREAM is a product developed by the Company in 1995. It is a high
quality non-dairy product produced in several flavors in hardpack and soft serve
form. It is now marketed and packaged as YOCREAM BLENDER SMOOTHIES (and SORBET
too). (See below.)
YOCREAM PURE is a product that was developed and introduced by the Company in
1997. Made from 100% organic milk, all natural ingredients, and pasteurized,
YOCREAM PURE is targeted toward health conscious people who believe in the
benefits of organic foods. The line includes both nonfat soft serve and lowfat
hardpack ice creams which are available in the most popular flavors.
YOCREAM BLENDER SMOOTHIES (formerly YOCREAM THE SMOOTHIE WAY), were introduced
in May 1997. These products are in both yogurt and fruit formulations. The
base mix may be poured into a blender directly from the carton in liquid state,
or drawn from a soft serve machine into the blender. Depending on the recipe,
ice, fruit and/or juice are then blended with the base mix.
YOCREAM DISPENSER SMOOTHIES (formerly THE COMPLETE FRUIT SMOOTHIE), were
introduced in March 1998. This concept utilizes an innovative, all natural,
nonfat smoothie mix designed to be dispensed from a smoothie machine or frozen
beverage dispenser. The product requires no additions of fruit, ice, or juice
to make a smoothie. An operator simply pours it directly into a smoothie machine
or beverage dispenser. DISPENSER SMOOTHIES are available in fruit and yogurt
flavors, and also Chai and coffee.
Other products manufactured by the Company include organic sorbets and ice
creams that are packed under a customer's private label brand and a soft serve
lowfat ice cream mix sold to the Rose Garden Arena in Portland, Oregon.
Manufacturing Process
All of the manufacturing and packaging of the Company's products for domestic
sales occurs at its plant in Portland, Oregon. The Company utilizes a Canadian
dairy as a copacker for production of its products for the Canadian market. All
other products for international sales are produced in Portland and then
containerized for export.
While the manufacturing plant is capable of producing a full range of dairy
products and other fluid items, such as fruit based beverages, it primarily is
utilized to produce frozen yogurt, ice cream, sorbet and smoothies. The
facility is a fully licensed dairy and pasteurizes its products under USDA
certification and inspection. One unique feature of the facility is its ability
to produce under Organic Certification, organic ice creams, yogurts, and
sorbets. Throughout the facility, both organic and non-organic products can be
processed and packaged simultaneously while maintaining separation.
The manufacturing plant has two distinct packaging operations that are operated
simultaneously. One operation is for the filling of packages for soft serve
products and the other operation is for the production of ready to serve frozen
products. Within these two operations are a multitude of packaging sizes,
styles, and finished casing capabilities along with a full range of condiments
that can be added to the finished products.
Fiscal 1999 saw the addition of a second high speed filler machine to the wetmix
production line as well as improvements to the hardpack lines. These additions
resulted in a significant increase in production capacity and an increase in
overall plant utilization. Management estimates that plant utilization remains
at approximately 65% of capacity, based on the increased production capacity and
production output. Management expects to see plant utilization increase further
in the 2000 fiscal year, primarily from the Company's new specialty products and
through co-packing and private label business. At the present time, the Company
continues to fill and package product on only one shift and space is available
on the existing premises for low cost additions when increased capacity becomes
necessary.
Inventory and Backlog
The Company does not have a significant production backlog. Because of the
relatively short time period required to produce a finished product from the
receipt of an order by the Company, the Company strives to maintain a low level
of raw materials inventory. At October 31, 1999, raw material inventory levels
were higher than normal. Subsequent to year end, the Company is in the process
of implementing a new purchasing and inventory system which is expected to
enable the Company to reduce inventory levels. Inventory of finished goods is
maintained at levels to accommodate wide distribution of the Company's products
throughout the United States. Although the Company tries to estimate demand and
production schedules for its products, its customers generally place orders when
they require the Company's products, and customers expect delivery within a
short period of time.
Distribution and Significant Customers
The Company's products are distributed in 37 states and 7 countries.
Distribution is facilitated by buyer pick up or by transportation arranged by
the Company. The Company's products are generally shipped on refrigerated trucks
to all domestic locations.
While the Company experienced growth in all customer classifications, revenues
derived from it's largest customer, Costco Wholesale, represented 61%, 50%, and
41% of total revenues in the years ended October 31, 1999, 1998, and 1997. In
fiscal year 1989, the Company began selling soft serve frozen yogurt to Price
Club. Then after the merger between Costco and Price Club, Costco chose the
Company's soft serve frozen yogurt, over that of competitors, for its food
courts. During 1998, Costco selected Yocream to develop a very berry smoothie
to be offered in its food courts. Due to the consistently high-level of quality
and customer acceptance of these products and the efficient operation of
Costco's food courts, there has been a significant increase in its sales.
Furthermore, the longevity of this relationship is due to various factors,
including Yocream's distribution system and responsiveness to Costco's
operational and logistical requirements. Another significant factor is the
field support program that has been implemented in cooperation with an
independent broker. The support program includes an intensive sampling of
yogurt and smoothie products at all new warehouse openings. Management is
determined to maintain the quality of service that supports the longevity of
this relationship and expects that its business with Costco will continue to
grow.
Research and Development
The Company's research and development related activities include the
development of new flavors, the improvement of existing flavors, refinement of
manufacturing processes and the development of new products. Research also
occurs on a regular basis with respect to ingredients such as stabilizers and
emulsifiers. Furthermore, the Company has conducted activities regarding non-
fat and no sugar added products and various novelty items. The Company has also
developed a line of yogurt beverages including yogurt-juice and yogurt-coffee
combinations. New products include a line of smoothie products for blending or
automated operation. The most recent development of a new product is an all-
natural, ready to serve bottled fruit smoothie with an extended shelf life. The
Company's development activities occur at the Portland, Oregon facility.
Although a precise separation of accounts is not available, the Company
estimates total research and development expenditures for the year ended October
31, 1999, to have been $393,000, compared with $335,000 and $262,000 for the
years ended October 31, 1998 and 1997.
Advertising and Promotion
During the year ended October 31, 1999 such expenses totaled approximately
$310,000 representing 2.1% of net sales. These compare to $349,000, or 3.4% of
net sales in 1998; and $269,000, or 3.1% of net sales in 1997.
Seasonality
The Company's sales and earnings are somewhat seasonal with a greater percentage
occurring in the second and third calendar quarters or spring and summer months
and, to some extent, holiday periods. Management expects that the seasonality
of sales will continue to become less significant as a result of the copacking
and private brand business the Company has obtained and because of purchases
from new customers concentrated in the warmer climate areas.
Suppliers
Suppliers of the primary ingredient of the Company's products, raw milk, are
mostly based in the Pacific Northwest and obtain that raw milk from dairy farms
in northern Oregon and southern Washington. Because freshness and timeliness of
delivery are critical to the Company's products, the Company prefers local
suppliers. The Company's largest supplier of raw milk supplied approximately
94.7% of the Company's needs in fiscal year 1998 and the second largest supplier
provided approximately 5.3%. All supplies used by the Company are readily
available from a variety of suppliers. The Company has never experienced any
form of supply shortage.
Competition
The Company's products constitute a portion of a greater market which includes
all forms of yogurt-based frozen desserts, ice cream products and non-dairy
frozen desserts. The market for the Company's products is very competitive
because of the number of alternative products available and because of the
number of businesses producing competitive products. Competition in the frozen
dessert and ice cream industry has increased over the last several years as a
result of substantial increases in the number and kind of frozen dessert
products. Many of the companies that produce products which compete with those
of the Company are substantially larger and have significantly greater
resources. Increased competition from the established manufacturers and
distributors of frozen desserts, snacks and beverages can be expected in the
future.
The Company competes against different sets of manufacturers for each product it
markets. The Company's principal competitors for soft serve products include
Colombo (General Mills), Dannon, Eskimo Pie, and Honey Hill Farms. Key
competitors for the Company's hard pack frozen yogurt products include Ben and
Jerry's, Dryers, Haagen Dazs, and Wells Blue Bunny. Chief smoothie product
competitors include Colombo, Freshens, Miss Karen's, and Skigo (Quaker Oats).
In addition to the large primary competitors identified, the Company competes
with numerous small local and regional companies.
The Company's products are recognized in the marketplace for their high quality
and have competed well in this regard. For example, on July 27, 1989, the
Chicago Tribune listed YOCREAM as the best tasting of 13 national brands of
frozen yogurt on the basis of a test by seven independent judges. Through the
Company's national system of brokers and distributors the Company believes it
can compete effectively from the standpoint of service. Price competition,
however, has become intense in certain geographical areas as regional dairies
endeavor to introduce a limited line of frozen yogurt. The Company has responded
to price competition from regional dairies with its lower-priced products under
the Yogurt Stand label and to competition on quality with its YOCREAM brand
products. While the Company has experienced competitive success in the past, no
assurance can be given that the Company will continue to compete successfully
against other available products.
Other than direct competition for specific soft serve or hard pack frozen yogurt
products, the Company's products compete against certain other frozen dessert
items, such as ice cream. Specific competition comes from premium ice cream
makers such as Haagen-Dazs, Ben and Jerry's Homemade, Inc., Steve's Ice Cream
and other national and regional ice cream brands.
Trademarks and Trade Names
The Company registered as a trademark the name of its primary product, YOCREAM,
with the United States Patent and Trademark Office. This trademark is renewable
and, therefore, is of an indefinite term. That trademark is also registered in
Canada and may be renewed there upon expiration. Some of the Company's products
use that basic trade name with other words or designations, such as YOCREAM
LITE. In addition, the Company uses the trademarks "JUST SAY YO," "PURE
PLEASURE," "YOGURT STAND," "PURE PLEASURE, PURE FOOD, PURE ENVIRONMENT," "IT'S A
BELIEF, IT'S A LIFESTYLE," "SOFT SCOOP" and "YO CAFFE'". The Company has
registered or intends to register these trademarks in the United States and may
register the trademark YOCREAM in other foreign countries.
Employees
The Company employed 48 persons at October 31, 1999, all of whom were full-time
(35 hours per week or more.) None of the Company's employees are covered by
collective bargaining agreements, and management believes its employee relations
are good. The Company's sales representatives manage a network of national and
regional foodservice brokers. These are independent brokers and paid by
commissions on sales. The Company has never experienced a labor strike or work
stoppage.
Item 2: PROPERTIES
The Company is located in a 34,200 square foot facility at 5858 NE 87th Avenue,
Portland, Oregon 97220. Of this total space, the Company uses approximately
8,700 square feet for production, approximately 9,000 square feet for freezer
and refrigeration purposes, and approximately 4,500 for office space. The
Company has designated the remaining 12,000 square feet for warehouse purposes
and expansion of the Company's freezer and production facilities.
The lease of the Company's production and office facilities expired on May 14,
1994 and the Company exercised its option to purchase the property. In order to
preserve capital, the Board of Directors decided that the Corporation should
allow certain of its officers and directors to purchase the property, with the
Corporation then leasing it from them. Thereafter, John N. Hanna, David J.
Hanna and James S. Hanna, together with others, formed Pente Investments for the
purpose of purchasing the property and leasing it to the Corporation. In fiscal
year 1998, Pente Investments agreed to fund a 4,200 square foot facility to
provide for needed office space. The current lease as amended has a remaining
term of approximately 13 years and provides for a base rent of $14,335 per month
for the next two years and then increasing at approximately 3% per year
thereafter.
During 1999, the Company leased approximately 5,500 square feet of additional
dry warehouse space in a nearby facility. This lease expires in April 2001.
Other materially important property of the Company includes certain equipment
which it utilizes to manufacture and distribute its frozen yogurt products,
including standard dairy equipment, holding tanks and refrigeration units. In
addition, the Company leases other equipment under capital and operating leases.
Item 3: LEGAL PROCEEDINGS
As of the date of this Annual Report on Form 10-K, the Company had no material
litigation pending against it.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of security holders during the
final quarter of fiscal year 1999.
PART II
Item 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS.
The common stock of the Company is traded in the over-the-counter market and is
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") under the symbol YOCM. As of January 19, 2000, there were
2,296,393 shares of the common stock outstanding and there were 199 shareholders
of record estimated to represent approximately 900 beneficial holders based on
the number of individual participants in security position listings. On January
19, 2000 the closing bid and asked prices were $3-5/8 and $4, respectively.
The following table sets forth the high and low closing bid quotations for
quarterly periods in the two twelve month periods ended October 31, 1999 and
October 31, 1998. Such over-the-counter market quotations reflect inter-dealer
prices, without retail mark-up, markdown or commission and may not necessarily
represent actual transactions.
Twelve months Ended October 31, 1999 High Low
August 1, 1999 - October 31, 1999 $ 5 5/16 $4
May 1, 1999 - July 31, 1999 5 1/8 4 3/8
February 1, 1999 - April 30, 1999 5 1/4 3 3/4
November 1, 1998 - January 31, 1999 5 3/4 4 1/4
Twelve months Ended October 31, 1998 High Low
August 1, 1998 - October 31, 1998 $ 5 1/2 $3 3/4
May 1, 1998 - July 31, 1998 6 5/8 5 1/2
February 1, 1998 - April 30, 1998 5 7/8 4
November 1, 1997 - January 31, 1998 3 3/8 2 3/4
The Company has not paid dividends on its common stock since the stock began
public trading on November 17, 1987. The Company does not expect to pay cash
dividends on its common stock in the foreseeable future. The Company intends to
invest funds otherwise available for dividends, if any, on improving the
Company's capital resources.
Item 6: SELECTED FINANCIAL DATA.
The following selected financial data set forth below as of October 31, 1999,
1998 and for each of the three years in the period ended October 31, 1999 are
derived from the audited financial statements included elsewhere in this report
and are qualified by reference to such financial statements. The selected
financial data as of October 31, 1997, 1996, and 1995 and for each the two years
in the period ended October 31, 1996, are derived from financial statements not
included herein.
October 31
Balance Sheets 1999 1998 1997 1996 1995
Total Current Assets $4,637,304 $3,356,445 $3,380,607 $3,067,744 $2,876,583
Total Assets 7,356,915 6,555,657 5,810,593 5,353,622 5,036,716
Long-Term Debt 201,238 162,605 222,975 286,481 278,498
Shareholders' Equity 5,351,730 4,451,320 3,185,918 2,758,972 2,679,443
For the Years Ended October 31,
Statements of Income 1999 1998 1997 1996 1995
Sales $14,628,967 $10,206,524 $8,677,547 $7,922,144 $7,348,531
Income from
Operations(1) 1,468,445 616,079 386,318 104,729 312,820
Income before Taxes 1,424,066 502,703 274,546 6,733 183,118
Income Tax Provision
(Benefit) 406,000 (200,000) (159,000) - (121,766)
Net Income 1,018,066 702,703 433,546 6,773 304,884
Earnings per Common
Share-Basic .44 .31 .20 .00 .14
Earnings per Common
Share-Diluted .43 .30 .19 .00 .14
(1) Income from operations in 1996 is after deduction of unusual expenses
amounting to $143,527.
Item 7
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 revenues were $14,628,967, $10,206,524, and $8,677,547, for the
years ended October 31, 1999, 1998, and 1997, respectively. Over the last three
years revenues have increased 43.3% in 1999, 17.6% in 1998, and 9.5% in 1997.
This continuing trend of year to year revenue gains is primarily due to the
success of the Company's smoothie products introduced in 1998. 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.
The successes are also due to long-term customer alliances, such as that with
Costco Wholesale, an established national distribution system including a
network of brokers and distributors, and expanded direct sales activity.
Management expects this trend to continue due to the success of its products,
expanded alliances with other national companies, intensified direct sales
activity, and the introduction of new products.
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 2000. In March 1999, 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, or similar products in the foodservice and
convenience store segments, and is continuing to work on the development of new
products.
Gross Profit
The cost of sales, as a percentage of revenues, were 69.6%, 69.8%, and 69.3% in
1999, 1998, and 1997 respectively, with corresponding gross profit margins of
30.4%, 30.2%, and 30.7% for the same periods. During fiscal 1999 margins
improved slightly. Improvements from the significantly increased volume were
enough to offset the impact of a change in product mix. During fiscal 1998
margins decreased slightly, compared to 1997, due to a change in product mix.
Selling and Marketing Expenses
Selling and marketing expenses, as a percentage of revenues, for the years ended
October 31, 1999, 1998, and 1997 were 11.5%, 12.9%, and 14.8%, respectively.
Such expenses are generally related to the level of revenues, and marketing
activities. However, the decrease in expenses, as a percentage of sales over the
last two years, is primarily due to the stability of expenses for the Company's
in-house sales and marketing staff.
In October 1997, the Company assumed responsibility for certain food service
selling and marketing functions. This included responsibility for all credit,
collections, sales service, transportation coordination, and selling and
marketing activities. The development of its own regional sales
managers/product specialists has given the Company an increased level of direct
contact with brokers and distributors, and enabled the Company to effectively
assume the role of exclusive sales agent previously performed by an outside
organization.
General and Administrative Expenses
General and administrative expenses for the years ended October 31, 1999, 1998,
and 1997, as a percentage of revenues, were 8.9%, 11.3%, and 11.4%,
respectively. Overall general and administrative expenses decreased over the
three-year period, as a percentage of sales, primarily due to the growth in
sales. The dollar increase in 1999 over 1998 primarily relates to personnel
costs and the increase in rent and depreciation associated with the office
addition completed at the end of 1998. The dollar increase in 1998 over 1997
was primarily due to increases in professional fees, rent, and payroll related
expenses, including payroll taxes associated with stock options exercised. A
portion of the increase relates to the costs associated with the Company
assuming the additional administrative functions described under sales and
marketing.
Income from Operations
Income from operations for the years ended October 31, 1999, 1998, and 1997 was
$1,468,445, $616,079, and $386,318 respectively. As a percentage of revenues,
income from operations was 10.0%, 6.0%, and 4.5% respectively. The results for
1999 reflected a 138.4% increase over 1998, and was due to the increase in sales
activity described above, and the net savings in selling, marketing and
administrative expenses, as a percentage of sales.
Income before Income Taxes
Income before taxes for the years ended October 31, 1999, 1998 and 1997 was
$1,424,066, $502,703, and $274,546. The results for 1999 reflect a 183.3%
improvement over the prior year. Due to the change in income taxes, from
recording a tax benefit in 1997 and 1998 to recording a tax provision in 1999,
management regards the substantial increase in income before taxes, as a more
significant measure of the comparative improvement in operating performance,
than the change in net income.
Provision for Income Taxes
Prior to 1995, the Company experienced losses in several years for income tax
purposes that resulted in net operating loss carryforwards (NOLs) which are
available to offset future taxable income. In accordance with generally
accepted accounting principles, the Company recorded the benefit of such NOLs
as a deferred tax asset. In prior years, an offsetting valuation allowance was
provided to the extent that management believed that it was more likely than not
that the deferred tax asset would not be realized.
In 1998 and 1997, as a result of evaluations at that time of the future benefit
of the Company's NOLs, the Company reduced the valuation allowance and
recognized a tax benefit of $200,000 and $159,000, respectively. As of October
31, 1998, the Company had recognized all of the expected benefit of these NOLs
in the financial statements, except for $106,000.
In 1999, as a result of the substantial increase in operating results, the
Company has recognized the remaining benefit of the NOL's and, for the first
time, recorded a tax provision of $406,000, net of the above benefit. The tax
provision primarily represents a reduction in the deferred tax asset for the
NOL's that have been utilized to offset taxes that would otherwise be payable.
At October 31, 1999, the Company had federal and state net operating loss
carryforwards aggregating approximately $1,116,000 and $321,000, respectively.
It is expected that these NOL's will be fully utilized during the next fiscal
year, at which time; the Company will begin paying income taxes.
The effective tax rate in 1999 was 28.5% which was less than the expected rate
of 38.4% primarily due to the recognition of the remaining NOL benefit described
above. In the future, the Company expects that its provision for income taxes
will be at or near the applicable federal and state statutory rates.
Net Income
Net income for the years ended October 31, 1999, 1998, and 1997 was $1,018,066,
$702,703, and $433,546, respectively. The results for 1999 reflect a 44.9%
improvement over 1998, even after recording a tax provision in 1999, compared to
a tax benefit in 1998. The improved results are primarily due to the gross
profit contribution from the substantial increase in sales, without a
corresponding increase in selling, general and administrative expenses. Net
income, as a percentage of sales, was 7.0%, 6.9%, and 5.0% in each of the three
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.
During the three years ended October 31, 1999, the Company entered into
operating leases relating to certain assets utilized in its production process.
(See Note M of the Notes to Financial Statements for a description of these
lease commitments.)
As a result of the significant increase in sales and operating results, the
Company has experienced a corresponding increase in cash flow. EBITD (earnings
before interest, taxes and depreciation) was $1,833,180 in 1999, compared with
$922,573 in 1998. As a result the Company has been able to payoff its bank line
of credit and increase cash and cash equivalents.
At October 31, 1999, the Company has an unutilitized bank line of credit of
$2,000,000. At October 31, 1998 borrowings under a similar line were $782,800.
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
sub-prime rates on blocks of funds up to 90 days. The bank also extended the
agreement for two years until July 1, 2001.
Accounts receivable at October 31, 1999 and 1998 were $1,061,618 and $907,749,
respectively. This increase of approximately 17% is primarily attributable to
the increase in sales compared to the fourth quarter of last year. The increase
in sales is due to the substantial increases related to smoothie products and
the penetration of the convenience store segment.
Inventories at October 31, 1999 and 1998 were $2,626,162 and $1,917,125,
respectively. This increase of approximately 37% is primarily in raw materials
related to the growth in YOCREAM fruit smoothie sales.
At October 31, 1999, the Company had working capital of $2,833,357, which
represents a 100% increase over October 1998. The improvement is primarily due
to increases in cash, receivables and inventory, and the reduction in bank
borrowings which more than offset the increase in trade payables. This has
resulted from an increase in cash provided from operating activities over the
prior year.
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 leases its offices and production facilities. The lease has a
remaining term of approximately 13 years with renewal provisions and provides
for a base rent of $172,000 annually for the next nine months and then increases
at approximately 3% per year thereafter. (See Note M of Notes to Financial
Statements for a description of the terms).
The Company's capital expenditures for 1999, 1998, and 1997 were approximately
$216,000, $502,000, and $250,000. The Company is in the process of evaluating
its capital expenditure plans for fiscal 2000, which are not expected to exceed
$500,000. The Company believes that adequate financing can be arranged,
including an equipment financing facility with its lender.
During 1998 and 1999, the Company assessed its Year 2000 issues. In late fiscal
1998 the Company completed a planned upgrade to its network operating system,
and replaced certain computers and supporting software. In early 1999, a
management committee was formed to monitor the project, evaluate risks, make
contact with certain business partners, and formulate contingency plans, as
deemed appropriate. Subsequent to January 1, 2000 the Company has not
experienced any problems related to the rollover.
Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this Item 8 is submitted as Appendix A to this report.
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The response to this item is incorporated herein by reference from the
sections entitled "ELECTION OF DIRECTORS" and "INFORMATION REGARDING MANAGEMENT
AND DIRECTORS" in the Company's Proxy Statement for its 2000 Annual Meeting of
Shareholders.
Item 11: EXECUTIVE COMPENSATION.
The response to this item is incorporated herein by reference from the
section entitled "EXECUTIVE COMPENSATION" in the Company's Proxy Statement for
its 2000 Annual Meeting of Shareholders.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The response to this item is incorporated herein by reference from the
section entitled "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" in the Company's Proxy Statement for its 2000 Annual Meeting of
Shareholders.
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The response to this item is incorporated herein by reference from the
section entitled "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in the
Company's Proxy Statement for its 2000 Annual Meeting of Shareholders.
PART IV
Item 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements. The response to this portion of Item 14 is
submitted as Appendix A to this report.
(a) (2) Financial Statement Schedules. The response to this portion of
Item 14 is submitted as Appendix A to this report.
(a) (3) Exhibits. The following exhibits are filed as part of this
annual Report on Form 10-K and this list constitutes the Exhibit Index.
Exhibit Filing
Number Exhibit Reference
3.1 Restated Articles of Incorporation i
of the Company.
3.2A Articles of Amendment, dated ii
October 29, 1991.
3.2B Articles of Amendment, dated viii
March 24, 1999, changing name
to Yocream International, Inc.
3.3 Amended Bylaws of Company. i
3.4 Amendment to Amended Bylaws, dated iii
March 14, 1990.
3.5 Amendment to Amended Bylaws, dated iii
April 10, 1991.
10.1 1990 Non-Discretionary Stock Option iv
Plan for Non-Employee Directors.
10.2 1990 Non-Qualified Employee Stock iv
Option Plan
10.3 1994 Combined Incentive and Non-qualified vi
Stock Option Plan
10.4 Commercial lease and by and between v
John N. Hanna, David J. Hanna,
James S. Hanna, Harry M. Hanna
and Joseph J. Hanna Jr; landlord and
Yocream International, Inc., dated
July 5, 1994. Assignment of the lease
To Pente Investments L.L.C.,
dated July 5, 1994
10.5 Amendment No.1 to commercial lease vii
between Pente Investments L.L.C. and
Yocream International, Inc., dated
June 4, 1998.
23.1 Consent of Independent Accountants
filed herewith
27.1 Financial Data Schedule is filed herewith
i Incorporated herein by reference from the
Company's Registration Statement on Form
S-18, dated November 17, 1987.
ii Incorporated herein by reference from the Company's
Annual Report on Form 10-K for fiscal year ended
October 31, 1991.
iii Incorporated herein by reference from the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
iv Incorporated herein by reference from the Company's
Report on Form 8-K, dated as of December 6, 1990.
v Incorporated herein by reference from the Company's
Quarterly report form 10-Q for the quarter ended
July 31, 1994.
vi Incorporated by reference from the Company's Registration
statement on Form S-8, dated August 7, 1996
vii Incorporated herein by reference from the Company's
Annual Report form 10-K for the fiscal year ended
October 31, 1998.
viii Incorporated herein by reference from the Company's
Quarterly report form 10-Q for the quarter ended
April 30, 1999.
(b) Reports on Form 8-K:
None
(c) See (a)(3) above for all exhibits filed herewith and
the Exhibit Index above.
(d) No financial statements required by Regulation S-X
were excluded from materials delivered to shareholder.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
YOCREAM INTERNATIONAL, INC. Dated: January 28, 2000
By: /s/ John N. Hanna
John N. Hanna
Chief Executive Officer and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ John N. Hanna Dated: January 28, 2000
John N. Hanna
Chief Executive Officer and
Chairman of the Board of Directors
By: /s/ David J. Hanna Dated: January 28, 2000
David J. Hanna
President and Director
By: /s/ James S. Hanna Dated: January 28, 2000
James S. Hanna
Director
By: /s/Carl G. Behnke Dated: January 28, 2000
Carl G. Behnke
Director
By: /s/ William J. Rush Dated: January 28, 2000
William J. Rush
Director
By: /s/ W. Douglas Caudell Dated: January 28, 2000
W. Douglas Caudell
Chief Financial Officer
No annual report or proxy material has been sent to security holders as of
the date hereof. Such annual report and proxy material will be furnished to
security holders subsequent to the filing of this report on Form 10-K. Copies
of the definitive version of such materials shall be furnished to the
Commission when they are sent to security holders.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Registrant's articles of incorporation, or
otherwise, the Registrant has been advised that in opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) as asserted by such director, officer or controlling
person in connection with securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1993 and will be governed by the final adjudication of such
issue.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We have issued our reports dated January 10, 2000, accompanying the consolidated
financial statements included in the annual report of Yocream International,
Inc. on form 10-K for the year ended October 31, 1999. We hereby consent to
the incorporation by reference of said reports in the Registration statement of
International Yogurt Company on Form S-8 ( File No. 333-09695, effective August
26, 1996).
GRANT THORNTON LLP
Portland, Oregon
January, 10, 2000
Yocream International, Inc.
APPENDIX A
INDEX TO FINANCIAL STATEMENTS
The following financial statements of Yocream International, Inc. and
related reports of independent accountants are included as Item 8 and
Item 14 (a) (1):
Page
Report of Independent Accountants
- - Grant Thornton, LLP 1
Balance Sheets at October 31, 1999 and 1998 2
Statements of Earnings for the years ended
October 31, 1999, 1998, and 1997 3
Statements of Shareholders' Equity for the years
Ended October 31, 1999, 1998, and 1997 4
Statements of Cash Flows for the years ended
October 31, 1999, 1998, and 1997 5
Notes to the Financial Statements 6-16
No financial statement schedules are included in Item 14(a)(2) as no
required schedules are applicable to Yocream International, Inc. for
the years ended October 31, 1999, 1998, and 1997.
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
YoCream International, Inc.
We have audited the balance sheets of YoCream International, Inc. as of October
31, 1999 and 1998, and the related statements of income, shareholders' equity
and cash flows for each of the three years in the period ended October 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of YoCream International, Inc. as
of October 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended October 31, 1999, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Portland, Oregon
January 10, 2000
Yocream International, Inc.
BALANCE SHEETS
October 31,
1999 1998
ASSETS
Current assets
Cash and cash equivalents $ 737,408 $ 277,246
Trade accounts receivable, net of allowance
for doubtful accounts of $25,827 in 1999 and
$14,189 in 1998 1,061,618 907,749
Inventories 2,626,162 1,917,125
Other current assets 212,116 254,325
Total current assets 4,637,304 3,356,445
Fixed assets, net 1,983,669 2,130,607
Deferred income taxes 467,000 818,000
Intangible and other long-term assets, net 268,942 250,605
$7,356,915 $6,555,657
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank $ - $ 782,800
Current portion of long-term debt 96,227 49,869
Current obligations under capital leases 16,383 48,105
Accounts payable 1,529,732 933,826
Other accrued liabilities 161,605 127,132
Total current liabilities 1,803,947 1,941,732
Long-term debt, less current portion 201,238 147,284
Long-term obligations under capital leases,
less current portion - 15,321
Total liabilities 2,005,185 2,104,337
Shareholders' equity
Preferred stock, no par value, 5,000,000
shares authorized, none issued or outstanding - -
Common stock, no par value, 30,000,000
shares authorized 5,108,697 5,226,353
Retained Earnings (deficit) 243,033 (775,033)
Total shareholders' equity 5,351,730 4,451,320
$7,356,915 $6,555,657
The accompanying notes are an integral part of these statements.
Yocream International, Inc.
STATEMENTS OF INCOME
For the year ended October 31,
1999 1998 1997
Sales $ 14,628,967 $ 10,206,524 $ 8,677,547
Cost of goods sold 10,183,947 7,125,487 6,016,891
Gross profit 4,445,020 3,081,037 2,660,656
Selling and marketing expenses 1,677,435 1,315,708 1,284,587
General and administrative expenses 1,299,140 1,149,250 989,751
Income from operations 1,468,445 616,079 386,318
Other income (expense)
Interest income 9,795 13,048 16,499
Interest expense (70,375) (134,452) (147,955)
Other, net 16,201 8,028 19,684
Income before income taxes 1,424,066 502,703 274,546
Income tax provision (benefit) 406,000 (200,000) (159,000)
NET INCOME $1,018,066 $ 702,703 $ 433,546
Earnings per common share - basic $ 0.44 $ 0.31 $ 0.20
Earnings per common share - diluted $ 0.43 $ 0.30 $ 0.19
Shares used in basic
earnings per share 2,314,861 2,292,375 2,230,410
Shares used in diluted
earnings per share 2,371,351 2,358,668 2,260,963
The accompanying notes are an integral part of these statements.
Yocream International, Inc.
STATEMENT OF SHAREHOLDERS' EQUITY
Total
Common Stock Retained Earnings Shareholders'
Shares Amounts (Deficit) Equity
Balance,
October 31, 1996 $ 2,233,793 $ 4,670,254 $(1,911,282) $ 2,758,972
Net Income - - 433,546 433,546
Stock options
exercised 10,000 15,400 - 15,400
Repurchase of
common stock (8,000) (22,000) - (22,000)
Balance,
October 31, 1997 2,235,793 4,663,654 (1,477,736) 3,185,918
Net Income - - 702,703 702,703
Stock options
exercised 106,800 316,091 - 316,091
Repurchase of
common stock (21,000) (87,392) - (87,392)
Tax benefit of
options exercised - 334,000 - 334,000
Balance,
October 31, 1998 2,321,593 5,226,353 (775,033) 4,451,320
Net Income - - 1,018,066 1,018,066
Stock options
exercised 60,500 221,750 - 221,750
Repurchase of
common stock (72,800) (370,830) - (370,830)
Tax benefit of
options exercised - 31,424 - 31,424
Balance,
October 31, 1999 $ 2,309,293 $ 5,108,697 $ 243,033 $ 5,351,730
The accompanying notes are an integral part of these statements.
Yocream International, Inc.
STATEMENTS OF CASH FLOWS
For the year ended October 31,
1999 1998 1997
Cash flows from operating activities
Net income $ 1,018,066 $ 702,703 $ 433,546
Adjustments to reconcile net
income to net cash provided
by (used in) operating activities
Depreciation and amortization 338,739 285,418 307,703
Gain on disposal of equipment (16,201) (8,028) (19,684)
Deferred income taxes 351,000 (200,000) (159,000)
Change in assets and liabilities
Accounts receivable (153,869) (78,889) (80,177)
Inventories (709,037) (108,924) (238,928)
Other assets 11,727 40,782 (143,571)
Accounts payable 595,906 4,884 (166,457)
Other accrued liabilities 65,897 66,565 (70,661)
Net cash provided by (used in)
operating activities 1,502,228 704,511 (137,229)
Cash flows from investing activities
Proceeds from disposal of equipment 52,116 23,885 29,000
Expenditures for fixed assets (215,571) (502,256) (249,907)
Net cash used in investing
activities (163,455) (478,371) (220,907)
Cash flows from financing activities
Net increase (decrease) in note payable
to bank (782,800) (554,200) 398,000
Proceeds from issuance of long-term debt 150,000 42,241 15,175
Principal payments on long-term debt
and capital lease obligations (96,731) (79,828) (146,032)
Repurchase of common stock (370,830) (87,392) (22,000)
Proceeds from issuance of common stock 221,750 316,091 15,400
Net cash provided by (used in)
financing activities (878,611) (363,088) 260,543
Net increase (decrease) in
cash and cash equivalents 460,162 (136,948) (97,593)
Cash and cash equivalents, beginning of year 277,246 414,194 511,787
Cash and cash equivalents, end of year $ 737,408 $ 277,246 $ 414,194
The accompanying notes are an integral part of these statements.
Yocream International, Inc.
NOTES TO FINANCIAL STATEMENTS
NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Yocream International, Inc. (the Company) was incorporated on January 14,
1977 in the state of Oregon. The Company manufactures and wholesales frozen
yogurt deserts, snacks and beverages primarily under the name "YO CREAM". Sales
are made primarily throughout the United States to and through a variety of
outlets, including distributors, discount club warehouses, supermarkets,
grocery stores, convenience stores, restaurants, hospitals, schools, military
installations, yogurt shops and fast food chains.
1. Cash and cash equivalents
Cash and cash equivalents include money market and other short-term investments
with a remaining maturity of three months or less when purchased.
2. Inventories
Inventories are stated at the lower of cost or market. The Company
determines cost based on the first-in, first-out (FIFO) method for raw
materials, packaging materials and supplies, and based on standard costs for
finished goods.
3. Fixed Assets
Fixed assets are stated at cost. Expenditures for replacements and
improvements are capitalized, and expenditures for repairs and maintenance and
routine replacements are charged to operating expense as incurred. When assets
are sold or otherwise disposed of, the cost and related accumulated depreciation
are eliminated from the accounts and any resulting gain or loss is included in
operations. Depreciation is provided for on a straight-line basis in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives. Leasehold improvements are amortized over the life of
the lease or the service life of the improvement, whichever is shorter. The
estimated lives used in calculating depreciation and amortization are:
Plant equipment 10-25 years
Office equipment and furnishings 3-10 years
Leasehold improvements 5-14 years
4. Supplemental Cash Flow Information
The Company made cash interest payments of $76,761, $138,288 and $154,418
for the years ended October 31, 1999, 1998, and 1997, respectively. No income
taxes have been paid during these periods.
Yocream International, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
5. Significant Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the reporting period. Actual results could
differ from those estimates.
6. Financial Instruments
The carrying values of the Company's financial instruments consisting of cash
and cash equivalents, accounts receivable and payable approximates fair value
because of the relatively short maturity of these instruments. The carrying
value of notes payable and long-term debt approximate fair values base upon the
interest rates available to the Company for similar instruments.
7. Net Income Per Share
Basic EPS is computed using the weighted average number of shares of common
stock outstanding for the period. Diluted EPS is computed using the weighted
average number of shares of common stock and dilutive common stock equivalents
outstanding during the period. Common equivalent shares from stock options are
excluded from the computation when their effect is antidilutive.
NOTE B - INVENTORIES
Inventories consist of the following at October 31,:
1999 1998
Finished goods $1,454,865 $1,462,681
Raw materials 988,219 336,821
Packaging material and supplies 183,078 117,623
$2,626,162 $1,917,125
Yocream International, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE C - FIXED ASSETS
Fixed assets consist of the following at October 31,:
1999 1998
Machinery and equipment $ 3,145,479 $ 3,045,141
Office equipment and furnishings 226,242 207,805
Leasehold improvements 838,392 804,045
Construction in process 49,970 28,847
4,260,083 4,085,838
Less accumulated depreciation
and amortization (2,276,414) (1,955,231)
$ 1,983,669 $ 2,130,607
Fixed assets at October 31, 1999 and 1998 include assets under leases
capitalized at amounts aggregating approximately $168,000, with related
accumulated amortization of approximately $83,000 and $67,000, respectively.
Depreciation and amortization expense related to the Company's fixed assets
aggregated $326,594, $274,748, and $292,193, for the years ended October 31,
1999, 1998, and 1997.
NOTE D - INTANGIBLE AND OTHER LONG-TERM ASSETS
Intangible assets consist of the following at October 31,:
Period of
Amortization 1999 1998
Trademarks (principally "YO CREAM") 25 years $ 257,774 $ 257,774
Less accumulated amortization (131,002) (118,857)
$ 126,772 $ 138,917
As of October 31, 1999 and 1998, the Company had made deposits totaling
$60,057 and $56,521 related to the leases of various equipment
and its production and office facility and had investments in insurance
policies of $82,113 and $55,167, respectively. These items are included in
intangible and other long-term assets in the accompanying balance sheet.
NOTE E - NOTE PAYABLE TO BANK
The Company has a uncollateralized bank line of credit which permits borrowing
of up to $2,000,000. The line bears interest at the bank's commercial lending
rate, 8.25% at October 31, 1999. The line is subject to renewal by July 1,
2001.
The line of credit contains certain financial covenants including covenants
related to the ratio of senior liability (as defined) to adjusted tangible
capital, current ratio and operating cash flow to fixed charge as well as limits
the amount of common stock which can be repurchased by the Company. At October
31, 1999, the Company was in compliance with all of these ratios and covenants.
Yocream International, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following at October 31,:
1999 1998
Industrial development loan, payable in monthly
installments of $1,202 through April 2002,
including interest at 8%, collateralized by
certain equipment $ 34,291 $ 45,477
Notes payable to banks in monthly installments
totaling $4,229 through September 2003,
including interest at 8.5% to 12.9%,
collateralized by certain equipment 113,174 151,676
Note payable to a bank in monthly installments
of $4,709 through October 2000, including
interest at prime less .25%
(8.0% at October 31, 1999) without collateral 150,000 -
297,465 197,153
Less portion due within one year (96,277) (49,869)
$ 201,238 $ 147,284
The principal portion of long-term debt is payable as follows:
Year ending
October 31,
2000 $ 96,227
2001 99,081
2002 87,149
2003 15,008
$ 297,465
NOTE G - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Employee Savings Plan and Trust which, effective
January 1, 1999, requires the Company to make contributions to the Plan in the
amount of 3% of eligible employee compensation. The Plan allows that the
required contribution may be invested in common stock of the Company. The
Company's required contributions to the Plan were approximately $36,000 for the
year ended October 31, 1999. During the year, the Company made additional
discretionary contributions in the amount of $22,000. The Company made
contributions to the Plan of approximately $41,600 and $24,800 during the years
ended October 31, 1998 and 1997, respectively. Additionally, the Company has a
profit-sharing plan for eligible employees. Under the provisions of the Plan,
the Company may, at its discretion, make contributions of a sum not in excess of
the amount permitted under the Internal Revenue Code as a deductible expense.
The Company has not made any contributions to this Plan.
Yocream International, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE H - STOCK OPTION PLANS
In September 1987, the Company established a nonqualified Stock Option Plan
(the Plan) for key employees. The Plan provided for the granting of options to
purchase shares of common stock at a price not less then 85% or more than 100%
of the fair market value per share as of the date of the grant. Options were
exercisable in such amounts and at such times as authorized by a Stock Option
Agreement applicable to each option. All options have been granted with an
exercise price equal to the fair market value of the Company's common stock on
the grant date. This plan terminated prior to October 31, 1998. Options granted
under the plan continue to be exercisable up to their expiration date.
A summary of option transactions relating to the Stock Option Plan for key
employees is as follows:
Shares Weighted
Under Average
Option Exercise Price
Balance, October 31, 1996 172,800 $ 3.60
Exercised - -
Expired (12,000) 3.37
Balance, October 31, 1997 160,800 3.61
Exercised (84,800) 3.22
Expired (38,500) 4.11
Balance, October 31, 1998 (exercisable) 37,500 4.00
Exercised (37,000) 4.00
Balance, October 31, 1999 -
In October 1990, the Company's Board of Directors adopted a nonqualified
Stock Option Plan for nonemployee directors. Based on the terms of the
Plan, options are to be granted to each director at the fair market value of
common stock on the grant date in October of each year. Options are exercisable
in such amounts and at such times as authorized by a Stock Option Agreement
applicable to each option. At October 31, 1999 these options had exercise
prices ranging from $1.88 to $2.31 and a weighted average remaining contractual
life of approximately 1 year. This plan terminated prior to October 31, 1998.
Options granted under the plan continue to be exercisable up to their
established expiration date.
Yocream International, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE H - STOCK OPTION PLANS - Continued
A summary of option transactions relating to the Stock Option Plan for
nonemployee directors is as follows:
Shares Weighted
Under Average
Option Exercise Price
Balance, October 31, 1996 65,000 $ 3.30
Exercised (10,000) 1.54
Balance, October 31, 1997 55,000 3.62
Expired (10,000) 8.00
Balance, October 31, 1998 45,000 2.65
Exercised (15,000) 3.75
Balance, October 31, 1999 (exercisable) 30,000 2.09
In January 1994, the Company's Board of Directors adopted a Combined
Incentive and Nonqualified Stock Option Plan and reserved 200,000 shares of
common stock for issuance pursuant to this Plan. At October 31, 1999, there
were 53,000 shares available under the plan for future grants. Options are
exercisable in such amounts and at such times as authorized by a Stock Option
Agreement applicable to each option. At October 31, 1999 these options had
exercise prices ranging from $1.75 to $4.00 and a weighted average remaining
contractual life of approximately 2.1 years.
A summary of option transactions relating to the Combined Incentive and
Nonqualified Stock Option Plan is as follows:
Shares Weighted
Under Average
Option Exercise Price
Balance, October 31, 1996 133,000 $ 3.36
Granted 4,000 2.13
Expired (21,000) 6.41
Balance, October 31, 1997 116,000 2.76
Granted 50,000 4.00
Exercised (22,000) 1.97
Expired (19,000) 6.78
Balance, October 31, 1998 125,000 2.79
Exercised (8,000) 1.94
Balance, October 31, 1999
(87,000 exercisable) 117,000 2.84
At October 31, 1999, there were 200,000 shares of common stock reserved for
issuance under the Company's stock option plans.
Yocream International, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE H - STOCK OPTION PLANS - Continued
The Company has adopted the disclosure only provisions of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (FAS
123). It applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for its Plans.
Had the Company used the fair value methodology of FAS 123 for determining
compensation expense, the Company's net income and net income per share would
approximate the pro forma amounts below:
1999 1998 1997
Net income, as reported $1,018,066 $ 702,703 $ 433,546
Net income, pro forma $ 967,466 $ 697,263 $ 416,446
Diluted net income per common
share as reported $ 0.43 $ 0.30 $ 0.19
Diluted net income
per common share, pro forma $ 0.41 $ 0.30 $ 0.18
The weighted-average fair value of options granted during the years ended
October 31, 1998 and 1997 were $2.53 and $1.36, respectively. There were no
options issued during 1999. The fair value of each option grant is estimated on
the date of grant using the Black-Scholes options-pricing model with the
following weighted-average assumptions: no dividends; expected volatility of
73%; risk-free interest rate of 5.03% in 1998 and 5.6% in 1997 and an expected
life of 5 years.
Yocream International, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE I - EARNINGS PER SHARE
The following table is a reconciliation of the numerators and denominators
of the basic and diluted per share computations for each of the three years
ended October 31:
Weighted
Average Per-
Income Shares Share
1997 (Numerator) (Denominator) Amount
Basic earnings per share
Income available to
common stockholders $433,546 2,230,410 $ 0.20
Effect of dilutive securities
Stock options - 30,553
Diluted earnings per share
Income available to
common stockholders $433,546 2,260,963 $ 0.19
1998
Basic earnings per share
Income available to
common stockholders $702,703 2,292,375 $ 0.31
Effect of dilutive securities
Stock options - 66,293
Diluted earnings per share
Income available to
common stockholders $702,703 2,358,668 $ 0.30
1999
Basic earnings per share
Income available to
common stockholders $1,018,066 2,314,861 $ 0.44
Effect of dilutive securities
Stock options - 56,490
Diluted earnings per share
Income available to
common stockholders $1,018,066 2,371,351 $ 0.43
During 1998 and 1997 options to purchase 57,325 and 209,550 shares of common
stock at various prices were outstanding but were not included in the
calculation of diluted EPS because their effect would have been antidilutive.
Yocream International, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE J - MAJOR CUSTOMERS
Revenues derived from the Company's largest customer represents 61%, 50% and 41%
of total revenues in the years ended October 31, 1999, 1998 and 1997.
NOTE K - ADVERTISING COSTS
Advertising costs are charged to operations in the year incurred. For the years
ended October 31, 1999, 1998 and 1997 advertising costs aggregated approximately
$310,000, $349,000 and $269,000, respectively.
NOTE L - INCOME TAXES
The provision (benefit) for income taxes for the years ended October 31,
consists of the following:
1999 1998 1997
Current $ 55,000 $ - $ -
Deferred 351,000 (200,000) (159,000)
$ 406,000 $ (200,000) $ (159,000)
The effective tax rate differed from the statutory federal tax rate due to the
following:
Year ended October 31,
1999 1998 1997
Statutory federal tax rate (graduated) 34.0% 34.0% 32.9%
State taxes, net of federal benefit 3.8 4.4 4.4
Change in valuation allowance (9.3) (78.2) (95.2)
28.5% (39.8)% (57.9%)
Yocream International, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE L - INCOME TAXES - Continued
Deferred tax assets (liabilities) consist of the following at October 31,:
1999 1998
Net operating loss carryforwards $ 393,700 $ 942,000
Accrued expenses 54,400 -
Allowance for doubtful accounts 9,900 5,500
Inventory 18,700 15,500
Federal tax credits 24,400 -
Gross deferred tax assets 501,100 963,000
Deferred tax asset valuation allowance - (106,000)
Net deferred tax asset 501,100 857,000
Deferred tax liabilities (34,100) (39,000)
Net noncurrent deferred tax asset $ 467,000 $ 818,000
At October 31, 1999, the Company had federal and state net operating loss
carryforwards aggregating approximately $1,116,000 and $321,000, respectively,
which may be used to offset taxable income, if any, in future years. The net
operating loss carryforwards expire through 2008.
The Company has established a valuation allowance against a portion of
deferred tax assets due to the uncertainty surrounding the realization of such
assets. Management evaluates on a quarterly basis the recoverability of the
deferred tax assets and the level of the valuation allowance. As of October 31,
1999, the Company has not recorded an allowance against deferred tax assets.
The net change in the valuation allowance for the years ended October 31, 1999
and 1998 was a decrease of $106,000 and $659,000, respectively. The decrease in
the valuation allowance resulted primarily from the utilization of net operating
loss carryforwards and management's evaluation of the future recoverability of
net deferred tax assets due to the likelihood of future taxable income.
Approximately $150,000 of the decrease in the valuation allowance for the year
ended October 31, 1998 resulted from the operating loss carryforwards utilized
in such year.
NOTE M - OPERATING LEASE COMMITMENTS INCLUDING THOSE WITH RELATED PARTIES
During fiscal year 1998, the Company restructured its operating lease
agreement for its production and office facilities. The lease restructuring
was caused by the construction of new office facilities attached to the
existing building. In addition to an increase in the monthly lease payments
and an extension of the lease term, the Company incurred approximately $150,000
of additional tenant improvement costs which have been capitalized as leasehold
improvements. The building is owned by a company whose owners are the
Company's chief executive officer and its president (both of whom are also
shareholders of the Company) and certain other shareholders of the Company.
Yocream International, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE M - OPERATING LEASE COMMITMENTS INCLUDING THOSE WITH RELATED PARTIES -
Continued
In addition, the Company leases equipment under noncancelable operating
leases with unrelated third parties.
Minimum lease payments required under these operating leases are as follows:
Year ending
October 31,
2000 $ 355,248
2001 351,987
2002 337,023
2003 322,205
2004 321,203
Thereafter 1,830,769
$ 3,518,435
Operating lease expense under the related party lease for the years ended
October 31, 1999, 1998, and 1997 approximated $172,000, $140,000, $109,000,
respectively. Lease expense, exclusive of related parties, was approximately
$83,000, $68,500 and $13,600 for the years ended October 31, 1999, 1998, and
1997. Operating lease expenses are allocated between manufacturing costs and
general and administrative expenses in the accompanying statement of operations.
During 1998, the Company entered into a lease arrangement providing up to
$500,000 of available lease funding for equipment. This funding is available
to be utilized through December 31, 1999. Equipment leased under this
arrangement was approximately $279,000 in 1999 and $107,000 in 1998.
13
- 24 -
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> OCT-31-1999
<CASH> 737,408
<SECURITIES> 0
<RECEIVABLES> 1,061,618
<ALLOWANCES> 0
<INVENTORY> 2,626,162
<CURRENT-ASSETS> 4,637,304
<PP&E> 1,983,669
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,356,915
<CURRENT-LIABILITIES> 1,803,947
<BONDS> 0
0
0
<COMMON> 5,108,697
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,356,915
<SALES> 14,628,967
<TOTAL-REVENUES> 14,628,967
<CGS> 10,183,947
<TOTAL-COSTS> 13,160,522
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,375
<INCOME-PRETAX> 1,424,066
<INCOME-TAX> 406,000
<INCOME-CONTINUING> 1,018,066
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,018,066
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.43
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