SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly period ended April 30, 2000.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
Commission File Number: 0-16787
YOCREAM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Oregon 91-0989395
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
5858 N.E. 87th Avenue 97220
Portland, Oregon
(Address of Principal Executive (Zip Code)
Office)
(503) 256-3754
(Registrant's Telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO _____
The number of shares outstanding of the registrant's common stock, as of
the latest practicable date is:
Class: Common stock outstanding at
June 9, 2000: 2,283,393 shares
YOCREAM INTERNATIONAL, INC.
CONTENTS
Page
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheets as of April 30, 2000 3
(unaudited), and October 31, 1999
Statements of Income for the 4
Three Months ended April 30, 2000 and 1999,
and the Six Months ended April 30, 2000
and 1999(all unaudited)
Statements of Cash Flows for the 5
Six Months ended April 30, 2000 and 1999
(all unaudited)
Notes to Financial Statements 6-8
Item 2. Management's Discussion and Analysis of 9-12
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of 12
Security Holders
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
YOCREAM INTERNATIONAL, INC.
BALANCE SHEETS
April 30, October 31,
2000 1999
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 691,085 $ 737,408
Accounts receivable, net 1,077,569 1,061,618
Inventories 2,415,585 2,626,162
Other current assets 334,095 212,116
Total current assets 4,518,334 4,637,304
Fixed assets, net 2,005,018 1,983,669
Deferred tax asset 326,900 467,000
Intangible and other long-term assets, net 277,147 268,942
$7,127,399 $7,356,915
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank $ - $ -
Current portion of long-term debt 93,253 96,227
Current obligations under capital lease 5,484 16,383
Accounts payable 1,241,896 1,529,732
Other accrued liabilities 120,241 161,605
Total current liabilities 1,460,874 1,803,947
Long-term debt, less current portion 157,289 201,238
Total liabilities 1,618,163 2,005,185
Shareholders' equity
Common stock, no par value,
30,000,000 shares authorized;
2,285,393 and 2,309,293 shares
issued and outstanding 4,953,162 5,108,697
Retained earnings 556,074 243,033
Total shareholders' equity 5,509,236 5,351,730
$7,127,399 $7,356,915
The accompanying notes are an integral part of the financial statements.
YOCREAM INTERNATIONAL, INC.
STATEMENTS OF INCOME
(Unaudited)
Three months ended Six months ended
April 30, April 30,
2000 1999 2000 1999
Sales $3,736,716 $3,650,515 $6,574,740 $5,828,381
Cost of sales 2,539,756 2,460,895 4,505,509 3,988,248
Gross profit 1,196,960 1,189,620 2,069,231 1,840,133
Selling and marketing
Expenses 392,584 385,688 729,518 669,308
General and administrative
expenses 414,377 352,108 825,807 628,242
Income from operations 389,999 451,824 513,906 542,583
Other income (expenses)
Interest income 2,120 2,651 7,771 5,404
Interest expense (6,404) (25,324) (13,746) (50,321)
Other income (expense) (1,000) - 209 -
Other, net (5,284) (22,673) (5,766) (44,917)
Income before taxes 384,715 429,151 508,140 497,666
Income tax provision 147,700 121,000 195,100 140,000
Net income $ 237,015 $ 308,151 $ 313,040 $ 357,666
Earnings per common share:
Basic $.10 $.13 $.14 $.15
Diluted $.10 $.13 $.13 $.15
The accompanying notes are an integral part of the financial statements.
YOCREAM INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For the six months ended April 30, 2000 and 1999
(Unaudited)
2000 1999
Cash flows from operating activities:
Net income $ 313,040 $ 357,666
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 172,776 160,275
Deferred income taxes 140,100 140,000
Change in assets and liabilities
Accounts receivable (15,951) (450,617)
Inventories 210,577 (392,520)
Other assets (130,184) (30,947)
Accounts payable (287,836) 355,421
Other accrued liabilities (41,364) 13,098
Net cash provided by 361,158 152,376
operating activities
Cash flows from investing activities:
Expenditures for fixed assets (194,124) (18,896)
Net cash used in investing
activities (194,124) (18,896)
Cash flows from financing activities:
Net decrease in line of credit - (23,100)
Proceeds from issuance of common stock 107,700 15,500
Principal payments on long term debt
and capital leases (57,822) (43,207)
Repurchase of common stock (263,235) (77,298)
Net cash used in
financing activities (213,357) (128,105)
Net increase (decrease) in
cash and equivalents (46,323) 5,375
Cash and equivalents, beginning of period 737,408 277,246
Cash and equivalents, end of period $ 691,085 $ 282,621
The accompanying notes are an integral part of the financial statements.
YOCREAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
Note A - Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, which consist of normal recurring
accruals, considered necessary for a fair presentation have been included.
Operating results for the six months ended April 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending October 31,
2000. 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, 1999.
Note B - Inventories
April 30, October 31,
2000 1999
Inventories consist of
Finished goods $1,403,974 $1,454,866
Raw materials 787,467 988,219
Packaging materials and supplies 224,144 183,077
$2,415,585 $2,626,162
Note C - Note Payable to Bank
The Company has an 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. There were no borrowings outstanding at April 30, 2000, or October 31,
1999.
NOTES TO FINANCIAL STATEMENTS - Continued
Note D - Earnings per share
Earnings per share is calculated as follows for the three months ended
April 30, 2000 and 1999:
Three Months Ended April 30, 2000
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $237,015 2,288,860 $ .10
Effect of dilutive securities - 18,537 -
Diluted earnings per share $237,015 2,307,397 $ .10
Three Months Ended April 30, 1999
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $308,151 2,318,349 $ .13
Effect of dilutive securities - 54,412 -
Diluted earnings per share $308,151 2,372,761 $ .13
Earnings per share is calculated as follows for the six months ended
April 30, 2000 and 1999:
Six Months Ended April 30, 2000
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $313,040 2,293,625 $ .14
Effect of dilutive securities - 28,283 ( .01)
Diluted earnings per share $313,040 2,321,908 $ .13
NOTES TO FINANCIAL STATEMENTS - Continued
Six Months Ended April 30, 1999
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $357,666 2,318,629 $ .15
Effect of dilutive securities - 59,980 -
Diluted earnings per share $357,666 2,378,609 $ .15
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 2.4% to $3,736,716 for the second quarter, and
increased 12.8% to $6,574,740 for the six months ended April 30, 2000, compared
to the corresponding periods in 1999.
This was the eighth consecutive quarter of increased sales due primarily to the
higher demand for the Company's smoothie and yogurt products. The sales growth
of 65% in the second quarter last year exceeded the growth in the current period
because in 1999 two major customers were involved at that time in a significant
product ramp-up in their operations. In the current year, weather and delayed
promotions on the part of certain customers, also were factors that contributed
to the level of sales increase. Management expects that sales in the
third quarter will show stronger improvement over last year as major customers
continue to expand locations, and as the Company begins to rollout another
new product. Smoothie sales have accounted for most of the sales growth since
their introduction in mid 1998.
Gross Profit
The Company's gross profit margin remained at approximately 32% for the second
quarter and 31.6% for the six-month periods in both years.
Selling and Marketing Expenses
Selling and marketing expenses remained level, as a percentage of sales, at
approximately 10.5% for the second quarter and 11.1% for the six months.
General and Administrative Expenses
General and administrative expenses increased, as a percentage of sales, from
9.6% to 11.1% of sales for the quarter, and increased from 10.8% to 12.6% for
the six months. Approximately 70% of the increase relates to increases in
personnel related costs. The remainder of the increase is due to general
increases in various expenses. The increases in personnel related costs, which
were partially initiated late in fiscal 1999, were necessitated by both the
recent and expected growth in the business. The Company remains committed to
its practice of controlling such expenses.
Income from Operations
Income from operations of $389,999 for the second quarter was 10.4% of sales
compared to 12.4% for the corresponding quarter last year. The results for the
six months were $513,906, or 7.8% of sales while last year it represented 9.3%
of sales. These fluctuations were primarily due to the increase in general and
administrative expenses described above.
Other Income (Expense)
Other expenses, which primarily represents interest expense, is less than in
the prior year due to the benefits of a strong cash flow over the last twelve
months. This has resulted in an elimination of bank interest expense and an
increase in investment income.
Provision for Income Taxes
The effective tax rate in the current year represents a normal rate of 38%. In
fiscal year 1999, the effective tax rate of 28%, was less than normal due to
recognizing the remaining net operating loss carryforward benefit from prior
years.
The provision for income taxes primarily represents a reduction in the deferred
tax asset. Such asset relates to the remaining tax benefit of net operating
losses generated prior to 1995. Currently net operating loss carryforwards are
available to offset taxes which would otherwise be payable. However, the
Company expects that by the end of fiscal 2000 such carryforwards will be
fully utilized.
Net Income
Net income for the quarter was $237,015, or 6.3% of sales, compared to $308,151,
or 8.4% for last year. The net income for the six months was $313,040, or 4.8%
of sales, compared to $357,666, or 6.1% for last year. Net income in fiscal
2000 is less than in the corresponding periods last year primarily due to the
increase in payroll-related expenses and the increase in the effective tax rate.
Net income, as a percentage of sales, is below the annual rate of approximately
7% for the last two fiscal years because the first two quarters include the
winter months when frozen dessert and snack sales are seasonally lower.
Liquidity and Capital Resources.
In recent years, the Company has financed its operations and expansion from bank
loans, operating leases, capital leases, stock sales, and internally generated
funds.
As of April 30, 2000, there were no borrowings under the Company's bank line of
credit. The amount borrowed at April 30, 1999 was $759,700. As a result of the
growth in business and strong cash flows, the line was repaid during the third
quarter of last fiscal year. The uncollateralized bank line remains in place
and permits borrowings of up to $2,000,000 subject to the Company being in
compliance with certain ratios and negative covenants. Interest would be
charged at the bank's basic commercial lending rate. The line is subject to
renewal in July 2001.
Accounts receivable at April 30, 2000 and October 31, 1999 were at approximately
the same levels of $1,077,569 and $1,061,618, respectively.
Inventories at April 30, 2000 and October 31, 1999 were $2,415,585 and
$2,626,162 respectively. This decrease of 8% is primarily due to planned
reductions in raw materials and finished goods inventories.
At April 30, 2000, the Company had working capital of approximately $3,057,000
compared with $2,833,000 at October 31, 1999. The improvement of approximately
8% over October is primarily due to the increase in cash provided from operating
activities over the last year.
The Company believes its existing assets, bank lines, and cash generated from
operations will be sufficient to fund the Company's operations for at least the
next twelve months.
During the six months ended April 30, 2000, the Company repurchased 23,900
shares of its common stock on the open market, and 37,000 shares related to
stock options exercised by certain employees. The Company expects to continue
its practice of repurchasing shares of its common stock depending on market
conditions and the availability of funds.
The Company is currently in the process of reconfiguring and upgrading its
production facilities, which is expected to more than double production
capacity. These steps are being taken because management anticipates a continued
positive growth curve. The estimated cost related to current plans is
approximately $1,350,000, of which $534,000 has been expended. The plant
expansion has been planned in stages so that capital expenditures can be
conservatively made in relation to sales growth and capital resources. Lease
financing has been arranged for $500,000 of production equipment. In addition,
the Company is in the process of arranging additional financing for the
remainder of the capital expenditures.
During 1998 and 1999, the Company assessed its Year 2000 issues, and appropriate
steps were taken to avoid any adverse consequences. Subsequent to January 1,
2000, the Company has not experienced any problems related to the rollover.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any material pending legal proceedings,
other than non-material legal proceedings occurring in the ordinary
course of business.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to Vote of Security Holders
At the Annual Meeting of Shareholders, which was held on March 29, 2000,
the shareholders reelected John Hanna, Dave Hanna, Jim Hanna, Bill Rush
and Carl Behnke as directors. Each of the five nominees received not
less than 2,189,441 votes, or 99.7% of the shares in person or by proxy
and voting. The terms for each director is one year, or until their successor
shall have been elected and qualified.
At the Annual Meeting of Shareholders, the shareholders also approved the
2000 Stock Option Plan. The plan provides for the grant of options to
directors, key employees including employees who are directors and other
persons who provide services to the Company. The Plan authorizes the
issuance of 100,000 shares of unissued common stock upon exercise of
options granted under the Plan. Options granted under the plan are
exercisable at a per share price not less than 100% of the fair market
value of the underlying common stock on the date of the grant. Incentive
stock options granted to any person with beneficial ownership of 10% or
more of the outstanding shares of common stock must be exercisable at a
per share price not less than 110% of the fair market value of the stock
on the date of the grant. The plan will terminate January 25, 2010.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 10.6 - 2000 Stock Option Plan effective March 29, 2000
is filed herewith.
Exhibit 27 - Financial Data Schedule is filed herewith
B. Reports on Form 8-K - not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Registrant:
YOCREAM INTERNATIONAL, INC.
Date: June 14, 2000 By: /s/ John N. Hanna
John N. Hanna, Chairman of the
Board, and Chief Executive
Officer
Date: June 14, 2000 By: /s/ W. Douglas Caudell
W. Douglas Caudell, Chief
Financial Officer
