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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, 2000.
[ ] 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 $4,941,000 at January 26, 2001, based upon the
average bid and asked prices of the common stock on that date.
At January 26, 2001 there were 2,262,583 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
2001 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. These products are sold to a
variety of businesses and outlets, including, convenience stores, restaurants,
hospitals, school districts, food distributors, military installations, yogurt
shops, fast food chains, discount club warehouses, business and industry
locations, and other types of outlets. The Companys 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
Companys 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 Companys YOCREAM frozen yogurt and smoothie
products.
Many types of foodservice outlets make available to the public the Companys
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 Companys products or competing products from narrowly oriented
outlets such as small yogurt shops or stands, many of which provide only a
single product, to discount club warehouse types of facilities, as well as from
many medium-sized businesses. Foodservice 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, distribution capabilities, or
product quality. 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 by a greater
variety of demographic groups than when first introduced to the frozen yogurt
market place. 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 segments of the frozen dessert industry. 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 of 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 Companys 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 nationwide and in 11
countries. The Company will continue to strive for greater distribution within
these markets.
Management also believes that its ability to respond innovatively to changes in
retail, foodservice, and packaging industries will permit greater availability
and acceptance of its products.
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, currently
a majority owned subsidiary of General Mills. In November 1994, Cascadian Farm
extended its contract with the Company to include organic frozen yogurt and
ice cream lines.
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. Certain
advertising rights are granted under the agreement as well as exclusivity
regarding the sale of frozen yogurt, sorbet, and soft serve ice creams and
smoothies within the Arena.
In October 2000, the Company entered into a signage/sponsorship agreement with
the Jazz Basketball Investors, Inc (dba Utah Jazz), owner of the Delta Center
in Salt Lake City, Utah. The Delta Center is the principal home arena for the
National Basketball Association franchise for the Utah Jazz. Certain
advertising rights are granted under the agreement as well as exclusivity
regarding the sale of frozen yogurt within the Center.
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 Companys 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 22 independent foodservice broker organizations on a nationwide
basis. The Companys traffic department 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 buying group
with 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 BLENDER SMOOTHIES, 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 BLENDER SMOOTHIES customers.
In October, 1997, the Company successfully test marketed YOCREAM DISPENSER
SMOOTHIES, 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 DISPENSER SMOOTHIES can be dispensed in a few seconds, while it may
take minutes to make a smoothie with a blender. DISPENSER SMOOTHIES are now
available nationwide and in 11 countries.
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 specialty retail grocery market. In fiscal 2000 sales of this
product were suspended until such time as the Company completes its new
bottling line. (See the description of the plant renovation project.)
In fiscal 2000, the Company developed, what it believes is a superb-tasting
coffee smoothie. The product has been tested by a major customer and is
expected to be rolled out by the mid-2001.
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 Mexico, Italy, Australia, and to a limited degree, several other
South American Countries.
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, nonfat
and sugar-free flavors; smoothies in a variety of flavors; non-dairy sorbet in
a variety of flavors; bottled smoothies; organic yogurt; organic ice cream; ice
cream; frozen custard, and other frozen desserts and snacks. These frozen
products are available in liquid mix form, and some are available in hard pack
form.
As of January 19, 2001, the Company had available for sale the following
products and flavors under its own YOCREAM brand name:
YOCREAM FROZEN YOGURT 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 Margarita Mix
YOCREAM FROZEN YOGURT YOCREAM YOCREAM FREE
Nonfat Soft Serve Yogurt Blender No Sugar Added
Smoothies Frozen Yogurt
Chai Blueberry
Alpine Vanilla Chocolate Cafe au Lait
Apple Spice Coffee Chocolate
Blueberry Burst French Vanilla Latte Rasberry
Butter Brickle Mocha Strawberry
Cable Car Chocolate Vanilla Vanilla
Cappuccino YOCREAM YOGURT STAND
Cherry Almond Fruit Dispenser Nonfat Soft Serve
Chocolate Classic Smoothies Frozen Yogurt
Country Vanilla
Egg Nog Berry Banana Chocolate
English Toffee Cranberry Blueberry Strawberry
Fancy French Vanilla Island Lime Vanilla
Georgia Peach Mango Sunrise
"Holiday" Chocolate Mint Orange Squeeze
Irish Mint Rasberry Guava
Island Banana Tropical
Kahlua
Luscious Lemon YOCREAM YOCREAM
New York Cheesecake Yogurt Dispenser Ice Cream
Outrageous Orange Smoothies 4 Ounce
Peanut Butter
Pecan Praline Chai Chocolate
Peppermint Stick Chocolate Strawberry
Pistacho Coffee Vanilla
Pumpkin French Vanilla Latte
Root Beer Float Mocha
Very Strawberry
Very Boysenberry YOCREAM YOCREAM
Very Raspberry SOFT SERVE Ice Cream
White Chocolate FROZEN CUSTARD Soft Serve
Macadamia
Chocolate Cream 6 Percent BF
Vanilla Cream Vanilla
The Company sells the soft serve yogurt 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 2000, 1999, and 1998 the soft serve liquid
mix accounted for approximately 49%, 51% and 61% of the Companys case sales.
The Company sells dispenser and blender smoothie liquid mixes to foodservice
customers who dispense the product through either frozen dessert machines or
blenders. In fiscal years 2000, 1999, and 1998 the smoothie mixes accounted
for approximately 39%, 32%, and 13% of the Companys 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 2000, 1999 and 1998 hard pack products of
all type containers accounted for approximately 12%, 17%, and 26% of the
Companys 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.
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 Companys
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 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 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 Companys products for both
domestic and international sales occurs at its plant in Portland, Oregon.
Product for international markets is containerized for export. In prior years
the Company utilized a Canadian dairy as a copacker for production of its
products for the Canadian market. The Company no longer has this business.
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, prior to the expansion
described below.
During fiscal 2000, as part of the Companys commitment to its customers and to
the market place, YOCREAM began the process of expanding its plant. The
project is expected to more than double the Companys throughput capabilities,
automate a number of production processes, and upgrade bottling and bag-in-box
packaging capabilities. When completed in the first quarter of 2001, this will
allow YOCREAM to serve the increasing requirements of its existing customers,
develop products for new markets, and expand the Companys copacking
capabilities to match the development of "virtual" companies that do not have
their own production facilities. The project includes expanded R&D facilities,
a "tank farm" on the outside of the plant to store product and to allow for
more efficient use of internal space for larger capacity processing equipment,
and separate production lines which enable the Company to more efficiently
package wet mix, hard pack, bottled, and bag-in-box products. The project also
includes a new state-of-the-art CIP sanitation system, and a new ceiling, floor
and walls. At the same time, the Company is in the process of upgrading its
management information system. This includes installation of an MRP system
that will assist in the continuing process of reducing costs and inventories
while increasing the Companys efficiencies and assuring that product quality
is consistently maintained.
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. Inventory of finished goods is maintained at
levels to accommodate wide distribution of the Companys 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 Companys products, and customers expect delivery within
a short period of time. The Company is presently intensifying management of its
supply chain and expects that this effort will lower inventories and increase
efficiencies in production and distribution.
Distribution and Significant Customers
The Companys products are distributed nationwide and in 11 countries.
Distribution is facilitated by buyer pick up or by transportation arranged by
the Company. The Companys products are generally shipped on refrigerated
trucks to all domestic locations.
While the Company has experienced growth in all customer classifications,
revenues derived from it's largest customer, Costco Wholesale, represented 63%,
61%, and 50% of total sales in the years ended October 31, 2000, 1999, and
1998, respectively. 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 Companys 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 Companys 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 Companys development activities occur at the Portland, Oregon
facility. Total research and development expenditures for the year
ended October 31, 2000, was approximately $443,000, compared with $341,000 and
$313,000 for the years ended October 31, 1999 and 1998.
Advertising and Promotion
During the year ended October 31, 2000 such expenses totaled approximately
$294,000 representing 2.0% of net sales. These compare to $310,000, or 2.2% of
net sales in 1999; and $349,000, or 3.4% of net sales in 1998.
Seasonality
The Companys 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 raw milk utilitized by the Company 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, the Company prefers local suppliers. After the raw milk is received,
it is pasteurized at the Companys plant before the milk becomes the primary
ingredient in the Companys products. The Companys largest supplier of raw milk
supplied approximately 58% of the Companys needs in fiscal year 2000 and the
second largest supplier provided approximately 42%. 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 Companys 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 Companys 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 Companys principal competitors for soft serve frozen yogurt
products include Colombo (General Mills), Dannon and Yogen Fruz. Chief
smoothie product competitors include Colombo, Frutazza, Island Oasis, and
Parrot Ice. In addition to the large primary competitors identified, the
Company competes with numerous small local and regional companies.
The Companys products are recognized in the marketplace for their high
quality. For example, on May 11, 2000, the Miami New Times rated YOCREAM as
the Best Frozen Yogurt and commented Fortunately science finally has come up
with YOCREAM. This stuff is super rich, extra creamy, and(Seinfeld fans take
note) fat free! In the past, 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 Companys national system of
brokers and distributors the Company believes it competes effectively. Price
and quality 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 Companys products compete against certain other frozen
dessert items, such as ice cream. Management believes that with the
consolidation of the competition, there is less focus on the soft serve frozen
yogurt segment, thus creating a favorable sales environment for the Company. It
should also be noted that YOCREAM is the only nationally branded frozen yogurt
with its own manufacturing facility.
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
Companys 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" "YO CAFFE'" and
"SMOOTH AND TASTY". 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 49 persons at October 31, 2000, all of whom were full-time
(35 hours per week or more.) None of the Companys employees are covered by
collective bargaining agreements, and management believes its employee
relations are good. The Companys 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 Companys freezer and production facilities.
The lease of the Companys 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 12 years and provides for a base rent of
$15,600 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 2000.
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 26, 2001, there were
2,262,583 shares of the common stock outstanding and there were 163
shareholders of record estimated to represent approximately 900 beneficial
holders based on the number of individual participants in security position
listings. On January 26, 2001 the closing bid and asked prices were $3.63
and $3.75, 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, 2000 and
October 31, 1999. 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, 2000 High Low
August 1, 2000 - October 31, 2000 $ 4.00 $3.00
May 1, 2000 - July 31, 2000 4.06 3.06
February 1, 2000 - April 30, 2000 4.75 3.50
November 1, 1999 - January 31, 2000 6.00 3.63
Twelve months Ended October 31, 1999 High Low
August 1, 1999 - October 31, 1999 $ 5.88 $4.00
May 1, 1999 - July 31, 1999 5.75 3.75
February 1, 1999 - April 30, 1999 5.25 4.38
November 1, 1998 - January 31, 1999 5.75 3.75
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
Companys capital resources.
Item 6: SELECTED FINANCIAL DATA.
The following selected financial data set forth below as of October 31, 2000,
1999 and for each of the three years in the period ended October 31, 2000 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, 1998, 1997, and 1996 and for each the two
years in the period ended October 31, 1997, are derived from financial
statements not included herein.
October 31
Balance Sheets 2000 1999 1998 1997 1996
Total Current Assets $4,372,804 $4,637,304 $3,356,445 $3,380,607 $3,067,744
Total Assets 7,426,575 7,356,915 6,555,657 5,810,593 5,353,622
Long-Term Debt 125,073 201,238 162,605 222,975 286,481
Shareholders' Equity 6,130,492 5,351,730 4,451,320 3,185,918 2,758,972
For the Years Ended October 31,
Statements of Income 2000 1999 1998 1997 1996
Sales $15,088,532 $14,259,358 $10,206,524 $8,677,547 $7,922,144
Income from
Operations(1) 1,542,737 1,468,445 616,079 386,318 104,729
Income before Taxes 1,572,918 1,424,066 502,703 274,546 6,733
Income Tax Provision
(Benefit) 548,000 406,000 (200,000) (159,000) -
Net Income 1,024,910 1,018,066 702,703 433,546 6,773
Earnings per Common
Share-Basic .45 .44 .31 .20 .00
Earnings per Common
Share-Diluted .45 .43 .30 .19 .00
(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
Companys management and on assumptions made by and information currently
available to management. All statements other than statements of historical
fact, regarding the Companys 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 Companys
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 Companys 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 Companys
products; and the Companys 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 Companys 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 Companys revenues were $15,088,532, $14,259,358, and $10,206,524, for the
years ended October 31, 2000, 1999, and 1998, respectively. Over the last
three years revenues increased 5.8% in 2000, 39.7% in 1999, and 17.6% in 1998.
This continuing trend of year-to-year revenue gains is primarily due to the
success of the Companys smoothie products introduced in 1998. Sales gains
were also achieved in fiscal 1999 due to the penetration into the convenience
store market with the Companys 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 Companys 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 direct sales activity.
The Company has a history of developing innovative products. In 1998, the
Company introduced its newly developed 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 has the
potential to make further significant contributions in the future. In March
1999, the Company announced its "Bountiful Harvest" all-natural bottled fruit
smoothie beverage developed for direct consumer purchase. This new beverage
introduction reflected the Companys strategy of building on its strengths.
The product was initially offered in approximately 200 Wal-Mart superstores in
1999. Subsequently, sales activity was suspended until completion of the
Companys new bottling line. Once the plant renovation project is completed,
the Company expects to renew its sales activities for this or other bottled
products in the foodservice, club, convenience store specialty super-market
segments. (See the discussion regarding the plant renovation project.)
After the significant 40% growth that occurred in 1999, fiscal 2000 was a
stable year, which allowed the Company to concentrate on expanding its plant
facilities. During fiscal 2000, as part of the Companys commitment to its
customers and to the market place, YOCREAM began the process of upgrading its
plant. The project is expected to more than double the Companys throughput
capabilities, automate a number of production processes, and upgrade bottling
and bag-in-box packaging capabilities. When completed in the first quarter of
fiscal 2001, this will allow YOCREAM to serve the expanding needs of its
existing customers, develop products for new markets, and expand the Companys
copacking capabilities to match the development of "virtual" companies without
their own production facilities. The project includes expanded R&D facilities,
a "tank farm" on the outside of the plant to store product and to allow for
more efficient use of internal space for larger capacity processing equipment,
and separate production lines which enable the Company to more efficiently
package wet mix, hard pack, bottled, and bag-in-box products. The project also
includes a new state-of-the-art CIP sanitation system, and a new ceiling, floor
and walls. At the same time, the Company is in the process of upgrading its
management information system. This includes installation of an MRP system
that will assist in the continuing process of reducing costs and inventories
while increasing the Companys efficiencies and assuring that product quality
is consistently maintained. See Liquidity section for further comments.
In fiscal 2000, the Company developed, what it believes is a superb-tasting
coffee smoothie, made with the finest coffee flavors that could be sourced.
The product has been tested by a major customer and is expected to be rolled
out by the middle of 2001. Early tests have indicated that this product has
the potential to approximate the sales results of the Companys berry smoothie
product.
Gross Profit
The cost of sales, as a percentage of revenues, were 67.6%, 68.8%, and 69.8% in
2000, 1999, and 1998 respectively, with corresponding gross profit margins of
32.4%, 31.2%, and 30.2% for the same periods. The margin increases have
resulted from improvements in supply chain management, production efficiencies,
and from increased volume.
Selling and Marketing Expenses
Selling and marketing expenses, as a percentage of revenues, for the years
ended October 31, 2000, 1999, and 1998 were 11.1%, 11.8%, and 12.9%,
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 Companys in-house sales and marketing staff. The Companys sales
staff has remained relatively stable during this period. The Company is
currently evaluating the possibility of expanding its regional sales staff in
order to have adequate resources to pursue existing and future sales
opportunities, as well as being able to fully support our existing distributor
base.
General and Administrative Expenses
General and administrative expenses for the years ended October 31, 2000, 1999,
and 1998, as a percentage of revenues, were 11.1%, 9.1%, and 11.3%,
respectively. Overall general and administrative expenses have remained
relatively level over the three-year period, as a percentage of sales,
primarily due to the growth in sales. The dollar increase in 2000 over 1999
primarily relates to personnel costs and professional fees. The 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.
Income from Operations
Income from operations for the years ended October 31, 2000, 1999, and 1998 was
$1,542,737, $1,468,445, and $616,079, respectively. As a percentage of
revenues, income from operations was 10.2%, 10.3%, and 6.0%, respectively. The
results for 2000 were level with 1999, even though sales and gross margins
increased, because of the increase in administrative expenses described above.
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, 2000, 1999 and 1998 was
$1,572,918, $1,424,066, and $502,703, respectively. In comparison to the prior
year, income before taxes is up 10.5% in 2000, and 183.3% in 1999.
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). 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, as a result of annual evaluations of the future benefit of the
Companys NOLs, the Company reduced the valuation allowance and recognized a
tax benefit of $200,000.
In 1999, as a result of the substantial increase in operating results, the
Company recognized the remaining benefit of the NOL's in the amount of $106,000
and recorded a tax provision of $406,000, net of the above benefit. The tax
provision primarily represented a reduction in the deferred tax asset for the
NOL's that have been utilized to offset taxes that would otherwise be payable.
In 2000, the Company utilized the remaining federal and state net operating
loss carryforwards aggregating approximately $1,116,000 and $321,000,
respectively to reduce taxes payable, and recorded a tax provision of $548,000.
The tax provision primarily represents a reduction in the deferred tax asset.
The effective tax rate was 34.8% and 28.5% in 2000 and 1999 respectively. The
effective rates are less than the expected rate of 38.4% primarily due to the
recognition of the remaining NOL benefit described above and federal tax
credits. 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, 2000, 1999, and 1998 was $1,024,918,
$1,018,066, and $702,703, respectively. The results for 2000 reflect a 0.7%
improvement over 1999. In addition to the factors described above, management
believes that operating results would have been even greater were it not for
the diversion of the major capital project. Net income, as a percentage of
sales, was 6.8%, 7.1%, and 6.9% 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, 2000, 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 over the
last two years, the Company has experienced a corresponding increase in cash
flow. EBITD (earnings before interest, taxes and depreciation) was
approximately $1,954,000, $1,833,000 and $923,000 in 2000, 1999, and 1998,
respectively. As a result the Company was able to payoff its bank line of
credit in mid-1999, finance the plant renovation project expenditures in 2000,
and increase cash and cash equivalents.
At October 31, 2000, the Company has an unused bank line of credit of
$2,000,000. 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 Companys 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.
The plant renovation project is expected to be financed with a combination of
internal cash flow, operating leases, and a bank loan. The remaining costs to
complete the project as of October 31, 2000 are approximately $1.3 million.
Subsequent to year-end, the Company arranged a $1,400,000 term loan facility
with its bank. The facility provides for payments over five years with
interest at the prime rate, with the option to fix the rate during the term.
The facility is subject to the same debt covenants as the bank line of credit,
and is collateralized by the plant project assets. Should the Company borrow
over $500,000 under this facility, the loan would be collateralized by a lien
on all of the Companys existing equipment and fixtures.
Accounts receivable at October 31, 2000 and 1999 were $997,076 and $1,061,618,
respectively. This decrease is primarily attributable to the decrease in sales
compared to the fourth quarter of last year.
Inventories at October 31, 2000 and 1999 were $2,497,413 and $2,626,162,
respectively. This decrease of approximately 5% is primarily in raw material,
which is the result of the Companys plan to manage inventory levels as low as
possible.
At October 31, 2000, the Company had working capital of $3,201,794, which
represents a 13% increase over October 1999. The improvement is primarily due
to a reduction in accounts payable resulting from a utilization of the cash
flow from operations.
The Company believes its existing assets, bank lines, and cash flow from
operations will be sufficient to fund the Companys operations for at least the
next twelve months.
The Company leases its offices and production facilities. The lease has a
remaining term of approximately 12 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 Companys capital expenditures for the years ended October 31, 2000, 1999,
and 1998 were approximately $1,090,000, $216,000, and $502,000, respectively.
The Company is in the process of evaluating its capital expenditure plans for
fiscal 2001, which are not expected to exceed $700,000, beyond the cost of
completing the plant expansion project. 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 Companys Proxy Statement for its 2001 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 Companys Proxy Statement for
its 2001 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 Companys Proxy Statement for its 2001 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
Companys Proxy Statement for its 2001 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.
10.6 2000 Stock Option Plan ix
23.1 Consent of Independent Accountants
filed herewith
i Incorporated herein by reference from the
Companys Registration Statement on Form
S-18, dated November 17, 1987.
ii Incorporated herein by reference from the Companys
Annual Report on Form 10-K for fiscal year ended
October 31, 1991.
iii Incorporated herein by reference from the Companys
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
iv Incorporated herein by reference from the Companys
Report on Form 8-K, dated as of December 6, 1990.
v Incorporated herein by reference from the Companys
Quarterly report form 10-Q for the quarter ended
July 31, 1994.
vi Incorporated by reference from the Companys Registration
statement on Form S-8, dated August 7, 1996
vii Incorporated herein by reference from the Companys
Annual Report form 10-K for the fiscal year ended
October 31, 1998.
viii Incorporated herein by reference from the Companys
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.
ix Incorporated by reference from the Companys
Quarterly report from 10-Q for the quarter ended
April 30, 2000.
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 29, 2001
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 29, 2001
John N. Hanna
Chief Executive Officer and
Chairman of the Board of Directors
By: /s/ David J. Hanna Dated: January 29, 2001
David J. Hanna
President and Director
By: /s/ James S. Hanna Dated: January 29, 2001
James S. Hanna
Director
By: /s/Carl G. Behnke Dated: January 29, 2001
Carl G. Behnke
Director
By: /s/ William J. Rush Dated: January 29, 2001
William J. Rush
Director
By: /s/ W. Douglas Caudell Dated: January 29, 2001
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 report dated January 12, 2001, accompanying the
consolidated financial statements included in the annual report of Yocream
International, Inc. on form 10-K for the year ended October 31, 2000. We
hereby consent to the incorporation by reference of said report in the
Registration statement of Yocream International, Inc. on Form S-8 ( File No.
333-09695, effective August 26, 1996).
GRANT THORNTON LLP
Portland, Oregon
January, 29, 2001
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, 2000 and 1999 2
Statements of Earnings for the years ended
October 31, 2000, 1999, and 1998 3
Statements of Shareholders' Equity for the years
Ended October 31, 2000, 1999, and 1998 4
Statements of Cash Flows for the years ended
October 31, 2000, 1999, and 1998 5
Notes to the Financial Statements 6-15
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, 2000, 1999, and 1998.
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, 2000 and 1999, and the related statements of income, shareholders' equity
and cash flows for each of the three years in the period ended October 31,
2000. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended October 31, 2000, in
conformity with accounting principles generally accepted in the United States.
GRANT THORNTON LLP
Portland, Oregon
January 12, 2001
Yocream International, Inc.
BALANCE SHEETS
October 31,
ASSETS
2000 1999
Current assets
Cash and cash equivalents $ 719,139 $ 737,408
Trade accounts receivable, net of allowance for doubtful
accounts of $20,586 in 2000 and $25,827 in 1999 997,076 1,061,618
Inventories 2,497,413 2,626,162
Other current assets 159,176 212,116
Total current assets 4,372,804 4,637,304
Fixed assets, net 2,706,420 1,983,669
Deferred income taxes 54,000 467,000
Intangible and other long-term assets, net 293,351 268,942
$7,426,575 $7,356,915
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 106,675 $ 96,227
Current obligations under capital leases - 16,383
Accounts payable 880,882 1,529,732
Other accrued liabilities 183,453 161,605
Total current liabilities 1,171,010 1,803,947
Long-term debt, less current portion 125,073 201,238
Total liabilities 1,296,083 2,005,185
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 4,862,541 5,108,697
Retained earnings 1,267,951 243,033
Total shareholders' equity 6,130,492 5,351,730
$7,426,575 $7,356,915
The accompanying notes are an integral part of these statements.
Yocream International, Inc.
STATEMENTS OF INCOME
For the year ended October 31,
2000 1999 1998
Sales $15,088,532 $14,259,358 $10,206,524
Cost of goods sold 10,196,307 9,814,338 7,125,487
Gross profit 4,892,225 4,445,020 3,081,037
Selling and marketing expenses 1,680,963 1,677,435 1,315,708
General and administrative expenses 1,668,525 1,299,140 1,149,250
Income from operations 1,542,737 1,468,445 616,079
Other income (expense)
Interest income 34,477 9,795 13,048
Interest expense (4,296) (70,375) (134,452)
Other, net - 16,201 8,028
Income before income taxes 1,572,918 1,424,066 502,703
Income tax provision (benefit) 548,000 406,000 (200,000)
Net income $1,024,918 $1,018,066 $ 702,703
Earnings per common share - basic $ 0.45 $ 0.44 $ 0.31
Earnings per common share - diluted $ 0.45 $ 0.43 $ 0.30
Shares used in basic earnings per share 2,282,180 2,314,861 2,292,375
Shares used in diluted earnings per share 2,303,639 2,371,351 2,358,668
The accompanying notes are an integral part of these statements.
Yocream International, Inc.
STATEMENT OF SHAREHOLDERS' EQUITY
Common Stock Retained Total
Earnings Shareholders'
Shares Amounts (Deficit) Equity
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
Net Income - - 1,024,918 1,024,918
Stock options exercised 52,000 112,350 - 112,350
Repurchase of common stock (98,710) (396,606) - (396,606)
Tax benefit of options
exercised - 38,100 - 38,100
Balance, October 31, 2000 2,262,583 $4,862,541 $1,267,951 $6,130,492
The accompanying notes are an integral part of these statements.
Yocream International, Inc.
STATEMENTS OF CASH FLOWS
For the year ended October 31,
2000 1999 1998
Cash flows from operating activities
Net income $1,024,918 $1,018,066 $ 702,703
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 377,298 338,739 285,418
Gain on disposal of equipment - (16,201) (8,028)
Deferred income taxes 413,000 351,000 (200,000)
Change in assets and liabilities
Accounts receivable 64,542 (153,869) (78,889)
Inventories 128,749 (709,037) (108,924)
Other assets 17,995 11,727 40,782
Accounts payable (648,850) 595,906 4,884
Other accrued liabilities 21,848 65,897 66,565
Net cash provided by
operating activities 1,399,500 1,502,228 704,511
Cash flows from investing activities
Proceeds from disposal of equipment - 52,116 23,885
Expenditures for fixed assets (1,089,513) (215,571) (502,256)
Net cash used in investing
activities (1,089,513) (163,455) (478,371)
Cash flows from financing activities
Net decrease in note payable to bank - (782,800) (554,200)
Proceeds from issuance of long-term debt - 150,000 42,241
Principal payments on long-term debt
and capital lease obligations (82,100) (96,731) (79,828)
Repurchase of common stock (396,606) (370,830) (87,392)
Proceeds from exercise of stock
options 150,450 221,750 316,091
Net cash used in financing
activities (328,256) (878,611) (363,088)
Net increase (decrease) in
cash and cash equivalents (18,269) 460,162 (136,948)
Cash and cash equivalents, beginning of year 737,408 277,246 414,194
Cash and cash equivalents, end of year $ 719,139 $ 737,408 277,246
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 $24,897, $76,761, and $138,288 for
the years ended October 31, 2000, 1999, and 1998, respectively. Income taxes
paid for the year ended October 31, 2000 totalled $24,860. There were no
income taxes paid during the years ended October 31, 1999 and 1998.
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 Companys 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.
8. 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 $369,609 for the year ended October 31,
1999 have been reclassified from cost of sales and netted against sales.
NOTE B - INVENTORIES
Inventories consist of the following at October 31,:
2000 1999
Finished goods $1,462,374 $1,454,865
Raw materials 814,735 988,219
Packaging material and supplies 220,304 183,078
$2,497,413 $2,626,162
Yocream International, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE C - FIXED ASSETS
Fixed assets consist of the following at October 31,:
2000 1999
Machinery and equipment $ 3,068,437 $ 3,145,479
Office equipment and furnishings 126,687 226,242
Leasehold improvements 832,268 838,392
Construction in process 1,101,766 49,970
5,129,158 4,260,083
Less accumulated depreciation
and amortization (2,422,738) (2,276,414)
$ 2,706,420 $ 1,983,669
Fixed assets at October 31, 2000 and 1999 include assets under leases
capitalized at amounts aggregating approximately $168,000, with related
accumulated amortization of approximately $95,000 and $83,000, respectively.
Depreciation and amortization expense related to the Companys fixed assets
aggregated $366,763, $326,594, and $274,748, for the years ended October 31,
2000, 1999, and 1998.
During the year ended October 31, 2000, the Company began a major renovation of
its production facilities. Through October 31, 2000 the project has been
financed with cash flow from operations and operating leases. At October 31,
2000, the Company had outstanding purchase commitments to finish the project
totaling approximately $1,300,000.
Subsequent to year end, the Company arranged a $1,400,000 term loan facility
with its bank. The facility provides for payments over five years with
interest at the prime rate, with the option to fix the rate during the term.
The facility is subject to the same debt covenants as the revolving line of
credit (see Note E), and is collateralized by the plant project assets. Should
the Company borrow over $500,000 under this facility the loan would be
collateralized by a lien on all of the Companys existing equipment and
fixtures.
NOTE D - INTANGIBLE AND OTHER LONG-TERM ASSETS
Intangible assets consist of the following at October 31,:
Period of
Amortization 2000 1999
Trademarks (principally "YO CREAM") 25 years $ 258,318 $ 257,774
Less accumulated amortization (139,582) (131,002)
$ 118,736 $ 126,772
As of October 31, 2000 and 1999, the Company had made deposits totaling
$62,021 and $56,521 related to the leases of various equipment and its
production and office facility and had investments in insurance policies
of $109,058 and $82,113, respectively. These items are included in
intangible and other long-term assets in the accompanying balance sheet.
Yocream International, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE E - 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, 9.50% at October 31, 2000. The line is subject to renewal by July 1,
2001. There were no amounts drawn on this line at October 31, 2000 or October
31, 1999.
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, 2000, the Company was in compliance with all of these ratios and
covenants.
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following at October 31,:
2000 1999
Industrial development loan, payable in monthly
installments of $1,202 through April 2002,
including interest at 8%, collateralized by
certain equipment $ 22,179 $ 34,291
Notes payable to banks in monthly installments
totaling $5,177 through September 2003,
including interest at 8.5% to 12.9%,
collateralized by certain equipment 104,547 113,174
Note payable to a bank in monthly installments
of $4,709 through October 2000, including
interest at prime less .25%
(9.25% at October 31, 2000) without collateral 105,022 150,000
231,748 297,465
Less portion due within one year (106,675) (96,227)
$ 125,073 $ 201,238
The principal portion of long-term debt is payable as follows:
Year ending
October 31,
2001 $ 106,675
2002 99,256
2003 25,817
$ 231,748
Yocream International, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE G - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Employee Savings Plan and Trust (the Plan) 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 made contributions to the Plan of approximately $50,200 during the
year ended October 31, 2000. The Companys required contributions to the Plan
were approximately $36,000 for the year ended October 31, 1999. During 1999,
the Company made additional discretionary contributions in the amount of
$22,000. 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.
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 than 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 Companys common stock on
the grant date. This plan terminated prior to October 31, 1998.
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, 1997 160,800 3.61
Exercised (84,800) 3.22
Expired (38,500) 4.11
Balance, October 31, 1998 37,500 4.00
Exercised (37,000) 4.00
Balance, October 31, 1999 -
In October 1990, the Companys 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, 2000 these options had an
exercise price of $1.88 and a weighted average remaining contractual life of
less than 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, 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 30,000 2.09
Exercised (15,000) 2.31
Balance, October 31, 2000 (exercisable) 15,000 1.88
In January 1994, the Companys 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, 2000, there
were no 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, 2000 these options had
exercise prices ranging from $1.75 to $4.00 and a weighted average remaining
contractual life of approximately 3 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, 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 117,000 2.84
Granted 53,000 4.00
Exercised (37,000) 2.10
Expired (7,000) 2.12
Balance, October 31, 2000 126,000 3.59
Yocream International, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE H - STOCK OPTION PLANS - Continued
In March 2000, the shareholders 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 option 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.
At October 31, 2000, there were 241,000 shares of common stock reserved for
issuance under the Companys stock option plans.
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 Companys net income and net income per share would
approximate the pro forma amounts below:
2000 1999 1998
Net income, as reported $1,024,918 $1,018,066 $ 702,703
Net income, pro forma $ 917,962 $ 967,466 $ 697,263
Diluted net income per common
share as reported $ 0.45 $ 0.43 $ 0.30
Diluted net income
per common share, pro forma $ 0.40 $ 0.41 $ 0.30
The weighted-average fair value of options granted during the years ended
October 31, 2000 and 1998 were $2.56 and $2.53, 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 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
1998 (Numerator) (Denominator) Amount
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
2000
Basic earnings per share
Income available to
common stockholders $1,024,918 2,282,180 $ 0.45
Effect of dilutive securities
Stock options - 21,459
Diluted earnings per share
Income available to
common stockholders $1,024,918 2,303,639 $ 0.45
During 1998, options to purchase 57,325 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 Companys largest customer represents 63%, 61% and
50% of total revenues in the years ended October 31, 2000, 1999 and 1998.
NOTE K - ADVERTISING COSTS
Advertising costs are charged to operations in the year incurred. For the
years ended October 31, 2000, 1999 and 1998 advertising costs aggregated
approximately $294,000, $310,000, and $349,000, respectively.
NOTE L - INCOME TAXES
The provision (benefit) for income taxes for the years ended October 31,
consists of the following:
2000 1999 1998
Current $ 135,000 $ 55,000 $ -
Deferred 413,000 351,000 (200,000)
$ 548,000 $ 406,000 $ (200,000)
The effective tax rate differed from the statutory federal tax rate due to the
following:
Year ended October 31,
2000 1999 1998
Statutory federal tax rate (graduated) 34.0% 34.0% 34.0%
State taxes, net of federal benefit 3.7 3.8 4.4
Change in valuation allowance - (9.3) (78.2)
Other (2.9) - -
34.8% 28.5% (39.8%)
Deferred tax assets (liabilities) consist of the following at October 31,:
2000 1999
Net operating loss carry forwards $ - $ 393,700
Accrued expenses 10,200 54,400
Allowance for doubtful accounts 8,000 9,900
Inventory 15,000 18,700
Federal tax credits 17,000 24,400
Other 3,800 -
Net deferred tax asset 54,000 501,100
Deferred tax liabilities - (34,100)
Net noncurrent deferred tax asset $ 54,000 $ 467,000
The Company previously 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
YoCream International, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE L - INCOME TAXES - Continued
deferred tax assets and the level of the valuation allowance. As of October
31, 2000, 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 carry forwards 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
carry forwards 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
Companys chief executive officer and its president (both of whom are also
shareholders of the Company) and certain other shareholders of the Company.
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,
2001 $ 438,019
2002 428,361
2003 423,571
2004 422,588
2005 356,639
Thereafter 1,721,976
$ 3,791,154
Operating lease expense under the related party lease for the years ended
October 31, 2000, 1999, and 1998 approximated $177,000, $172,000, and $140,000
respectively. Lease expense, exclusive of related parties, was approximately
$232,000, $83,000, and $68,500 for the years ended October 31, 2000, 1999, and
1998. 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. Equipment leased under this
arrangement was approximately $279,000 in 1999 and $107,000 in 1998.
During 2000, the Company entered into a lease arrangement that provided
$536,127 for funding of equipment.