SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly period ended July 31, 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
Portland, Oregon 97220
(Address of Principal Executive Office) (Zip Code)
(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
September 11, 2000: 2,262,583 shares
YOCREAM INTERNATIONAL, INC.
CONTENTS
Page
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheets as of July 31, 2000 3
(unaudited), and October 31, 1999
Statements of Income for the 4
Three Months ended July 31, 2000 and 1999,
and the Nine Months ended July 31, 2000
and 1999(all unaudited)
Statements of Cash Flows for the 5
Nine Months ended July 31, 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 12
SIGNATURES 13
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
YOCREAM INTERNATIONAL, INC.
BALANCE SHEETS
July 31, October 31,
2000 1999
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $1,100,960 $ 737,408
Accounts receivable, net 1,144,821 1,061,618
Inventories 2,490,917 2,626,162
Other current assets 436,776 212,116
Total current assets 5,173,474 4,637,304
Fixed assets, net 2,216,301 1,983,669
Deferred tax asset 128,500 467,000
Intangible and other long-term assets, net 284,770 268,942
$7,803,045 $7,356,915
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank $ - $ -
Current portion of long-term debt 92,251 96,227
Current obligations under capital lease 3,774 16,383
Accounts payable 1,482,336 1,529,732
Other accrued liabilities 171,805 161,605
Total current liabilities 1,750,166 1,803,947
Long-term debt, less current portion 134,764 201,238
Total liabilities 1,884,930 2,005,185
Shareholders' equity
Common stock, no par value,
30,000,000 shares authorized;
2,274,393 and 2,309,293 shares
issued and outstanding 4,912,782 5,108,697
Retained earnings 1,005,333 243,033
Total shareholders' equity 5,918,115 5,351,730
$7,803,045 $7,356,915
The accompanying notes are an integral part of the financial statements.
YOCREAM INTERNATIONAL, INC.
STATEMENTS OF INCOME
(Unaudited)
Three months ended Nine months ended
July 31, July 31,
2000 1999 2000 1999
Sales $4,714,158 $4,625,638 $11,288,898 $10,424,730
Cost of sales 3,171,555 3,157,236 7,677,063 7,116,196
Gross profit 1,542,603 1,468,402 3,611,835 3,308,534
Selling and marketing
Expenses 450,256 507,672 1,179,777 1,176,981
General and administrative
expenses 379,120 399,505 1,204,925 1,027,746
Income from operations 713,227 561,225 1,227,133 1,103,807
Other income (expenses)
Interest income 10,175 2,605 17,946 8,009
Interest expense (6,045) (15,716) (19,791) (66,037)
Other income (expense) - - 209 -
Other, net 4,130 (13,111) (1,636) (58,028)
Income before taxes 717,357 548,114 1,225,497 1,045,779
Income tax provision 268,100 153,200 463,200 293,200
Net income $ 449,257 $ 394,914 $ 762,297 $ 752,579
Earnings per common share:
Basic $.20 $.17 $.33 $.32
Diluted $.20 $.17 $.33 $.32
The accompanying notes are an integral part of the financial statements.
YOCREAM INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For the nine months ended July 31, 2000 and 1999
(Unaudited)
2000 1999
Cash flows from operating activities:
Net income $ 762,297 $ 752,466
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 259,472 244,793
Deferred income taxes 338,500 293,200
Change in assets and liabilities
Accounts receivable (83,205) (634,229)
Inventories 135,245 (506,911)
Other current assets (224,660) (4,858)
Other assets (15,828) (11,831)
Accounts payable (47,392) 737,969
Other accrued liabilities 10,198 103,427
Net cash provided by
operating activities 1,134,627 974,026
Cash flows from investing activities:
Expenditures for fixed assets (492,104) (214,211)
Net cash used in investing
Activities (492,104) (214,211)
Cash flows from financing activities:
Net decrease in line of credit - (683,600)
Proceeds from issuance of common stock 107,700 15,501
Principal payments on long term debt
and capital leases (83,059) (80,673)
Repurchase of common stock (303,612) (121,067)
Net cash used in
financing activities (278,971) (869,839)
Net increase (decrease) in
cash and equivalents 363,552 (110,024)
Cash and equivalents, beginning of period 737,408 277,246
Cash and equivalents, end of period $1,100,960 $ 167,222
The accompanying notes are an integral part of the financial statements.
YOCREAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
Note A - Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, which consist of normal recurring
accruals, considered necessary for a fair presentation have been included.
Operating results for the nine months ended July 31, 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
July 31, October 31,
2000 1999
Inventories consist of
Finished goods $1,236,908 $1,454,866
Raw materials 1,046,216 988,219
Packaging materials and supplies 207,793 183,077
$2,490,917 $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 July 31, 2000, or October 31,
1999.
Note D - Reclassification of Certain Prior Year Product Costs
In the prior year, the Company was involved in the resale of a product for which
the Company received a fee for the logistics services that it performed. In
March, 2000 the FASB issued EITF Consensus No. 99-19 which outlined the criteria
to follow in determining whether revenue should be recorded gross or net in
certain circumstances. In accordance with the provisions of this pronouncement,
it has been determined that these sales in the prior year should be reported
based on the net amount retained. Accordingly, product costs related to these
sales amounting to $221,125 for the third quarter of fiscal 1999, and $250,414
for the nine months ended July 31, 1999 have been reclassified from cost of
sales and netted against sales. Fiscal year 1999 fourth quarter product costs
relating to these sales amounting to $119,195 will also be reclassified and
netted against sales.
NOTES TO FINANCIAL STATEMENTS - Continued
Note E - Earnings per share
Earnings per share is calculated as follows for the three months ended
July 31, 2000 and 1999:
Three Months Ended July 31, 2000
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $449,257 2,279,654 $ .20
Effect of dilutive securities - 16,643 -
Diluted earnings per share $449,257 2,296,297 $ .20
Three Months Ended July 31, 1999
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $394,914 2,312,585 $ .17
Effect of dilutive securities - 54,412 -
Diluted earnings per share $394,914 2,367,678 $ .17
Earnings per share is calculated as follows for the nine months ended
July 31, 2000 and 1999:
Nine Months Ended July 31, 2000
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $762,297 2,288,968 $ .33
Effect of dilutive securities - 24,403 -
Diluted earnings per share $762,297 2,313,371 $ .33
NOTES TO FINANCIAL STATEMENTS - Continued
Nine Months Ended July 31, 1999
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
Basic earnings per share:
Net earnings $752,579 2,316,614 $ .32
Effect of dilutive securities - 58,351 -
Diluted earnings per share $752,579 2,374,965 $ .32
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 1.9% to $4,714,158 for the third quarter, and
increased 8.3% to $11,288,898 for the nine months ended July 31, 2000, compared
to the corresponding periods in 1999. See Note D of Notes to Financial
Statements regarding certain product costs which have been reclassified from
cost of sales and netted against sales in fiscal 1999.
The increased sales are primarily due to higher demand for the Company's
smoothie and yogurt products. The sales growth of 42.5% in the third quarter
last year, after the reclassification described in Note D, exceeded the growth
in the current period because in 1999 two major customers were involved in a
significant product ramp-up in their operations. One of the Company's major
customers has recently completed testing and began rollout of a new smoothie
product developed by YOCREAM. It is expected that this new product will make a
significant contribution to near future sales and operating results. Smoothie
sales have accounted for most of the sales growth since their introduction in
mid-1998.
Gross Profit
The Company's gross profit margin increased to 32.7% for the third quarter, and
32.0% for the nine months in fiscal 2000. The gross profit margin for the third
quarter and nine-month period in fiscal 1999 was 31.7%. The margin improved
over the same periods in the prior year due to increased efficiencies,
implementation of supply chain management practices, and due to lower operating
expenses.
Selling and Marketing Expenses
Selling and marketing expenses for the third quarter decreased as a percentage
of sales to 9.6% from 11.0%. Year-to-date expenses, as a percentage of sales
also decreased slightly to 10.5% from 11.3%. The Company has recently added to
its regional sales staff. It is expected that this move will contribute to the
development of foodservice sales.
General and Administrative Expenses
General and administrative expenses decreased slightly for the quarter, and
represented approximately 8.0% of sales. Year-to-date expenses, as a percentage
of sales were 10.7% in the 2000 period, compared with 9.9% in the 1999 period.
Approximately 60% 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 $713,227 for the third quarter was 15.1% of sales
compared to 12.1% for the corresponding quarter last year. The results for the
nine months were $1,227,133, or 10.9% of sales while last year it represented
10.6% of sales. These improvements were primarily due to the increase in gross
margin and reduction in selling and marketing expenses described above.
Other Income (Expense)
Other expense, which primarily represents interest expense, is less than in the
prior year due to the benefits of 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 37.8%.
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 most of the federal and state 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 $449,257, or 9.5% of sales, compared to $394,914,
or 8.5% for last year. The net income for the nine months was $762,297, or 6.8%
of sales, compared to $752,579, or 7.2% for last year. Net income in fiscal
2000 is more than in the corresponding periods last year primarily due to the
higher sales, improved margins and lower selling and marketing expenses, less
the impact of the increase in general and administrative expenses and the
increase in the effective tax rate.
Liquidity and Capital Resources.
In recent years, the Company has financed its operations and expansion from bank
loans, operating leases, capital leases, stock sales, and internally generated
funds.
As of July 31, 2000, there were no borrowings under the Company's bank line of
credit. 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 July 31, 2000 and October 31, 1999 were at approximately
the same levels of $1,144,821 and $1,061,618, respectively.
Inventories at July 31, 2000 and October 31, 1999 were $2,490,917 and $2,626,162
respectively. This decrease of 5% is primarily due to planned reductions in
finished goods inventories.
At July 31, 2000, the Company had working capital of approximately $3,423,000
compared with $2,833,000 at October 31, 1999. The improvement of approximately
21% 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 nine months ended July 31, 2000, the Company purchased 34,900 shares
of its common stock on the open market, and 37,000 shares related to stock
options exercised by certain employees. The Board of Directors recently
authorized the Company to purchase up to 100,000 shares of its common stock
depending on market conditions and the availability of funds. The Board's
decision was based on what it considered to be an undervalued market price, 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. Commitments relating to the project
currently amount to approximately $600,000.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any material pending legal proceedings,
other than non-material legal proceedings occurring in the ordinary
course of business.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 27 - Financial Data Schedule is filed herewith
B. Reports on Form 8-K - not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Registrant:
YOCREAM INTERNATIONAL, INC.
Date: September 14, 2000 By: /s/ John N. Hanna
John N. Hanna, Chairman of the
Board, and Chief Executive
Officer
Date: September 14, 2000 By: /s/ W. Douglas Caudell
W. Douglas Caudell,
Chief Financial Officer
