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, 2003.
[ ] 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 (Zip Code)
Office)
(503) 256-3754
(Registrants 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 15, 2003: 2,277,956 shares
YOCREAM INTERNATIONAL, INC.
CONTENTS
Page
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheets as of July 31, 2003 3
(unaudited), and October 31, 2002
Statements of Income for the 4
Three Months ended July 31, 2003 and 2002,
and the Nine Months ended July 31, 2003
and 2002(all unaudited)
Statements of Cash Flows for the 5
Nine Months ended July 31, 2003 and 2002
(all unaudited)
Notes to Financial Statements 6-9
Item 2. Management's Discussion and Analysis of 9-14
Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosures 14
About Market Risk
Item 4. Controls and Procedures 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of 15
Security Holders
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
YOCREAM INTERNATIONAL, INC.
BALANCE SHEETS
July 31, October 31,
2003 2002
(Unaudited)
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 2,215,543 $ 1,528,818
Accounts receivable, net 1,384,138 900,996
Inventories 2,082,834 2,654,432
Other current assets 399,542 311,227
Income taxes receivable 107,056 -
Deferred tax asset 51,000 34,600
----------- -----------
Total current assets 6,240,113 5,430,073
----------- -----------
Fixed assets, net 4,798,531 4,385,900
Intangible and other long-term assets, net 489,573 408,964
----------- -----------
$11,528,217 $10,224,937
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 352,653 $ 360,358
Accounts payable 1,664,641 1,083,954
Income taxes payable - 31,709
Other accrued liabilities 144,631 143,754
----------- -----------
Total current liabilities 2,161,925 1,619,775
Long-term debt, less current portion 787,500 858,167
Deferred tax liability 550,119 243,800
----------- -----------
Total liabilities 3,499,544 2,721,742
----------- -----------
Shareholders' equity
Preferred stock, no par value,
5,000,000 authorized; none issued - -
Common stock, no par value,
30,000,000 shares authorized;
2,262,178 and 2,250,178 shares
issued and outstanding 4,666,081 4,625,981
Retained earnings 3,362,592 2,877,214
----------- -----------
Total shareholders' equity 8,028,673 7,503,195
----------- -----------
$11,528,217 $10,224,937
=========== ===========
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,
--------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ----------- -----------
Sales $6,635,915 $6,289,553 $15,500,197 $14,244,837
Cost of sales 4,649,178 4,477,676 11,155,046 10,088,736
---------- ---------- ----------- -----------
Gross profit 1,986,737 1,811,877 4,345,151 4,156,101
Selling and marketing
expenses 630,665 533,411 1,659,598 1,402,090
General and administrative
expenses 653,410 517,887 1,728,696 1,441,156
---------- ---------- ----------- -----------
Income from operations 702,662 760,579 956,857 1,312,855
Other income (expenses)
Interest income 1,386 3,653 4,976 9,814
Interest expense (10,087) (11,556) (29,292) (37,950)
Unusual expense (157,163) - (157,163) -
---------- ---------- ----------- -----------
Other, net (165,864) (7,903) (181,479) (28,136)
Income before taxes 536,798 752,676 775,378 1,284,719
Income tax provision 200,800 282,700 290,000 487,000
---------- ---------- ----------- -----------
Net income $ 335,998 $ 469,976 $ 485,378 $ 797,719
========== ========== =========== ===========
Earnings per common share:
Basic $.15 $.21 $.22 $.35
==== ==== ==== ====
Diluted $.15 $.21 $.21 $.35
==== ==== ==== ====
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, 2003 and 2002
(Unaudited)
2003 2002
---------- ----------
Cash flows from operating activities:
Net income $ 485,378 $ 797,719
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 381,624 456,615
Deferred income taxes 289,919 112,900
Change in assets and liabilities
Accounts receivable (483,142) (586,366)
Inventories 571,598 100,908
Other assets (173,275) (98,615)
Accounts payable 580,687 439,424
Income taxes receivable/payable (138,765) (14,266)
Other accrued liabilities 877 57,536
---------- ----------
Net cash provided by
operating activities 1,514,901 1,265,855
---------- ----------
Cash flows from investing activities:
Expenditures for fixed assets (789,904) (473,280)
---------- ----------
Net cash used in investing
activities (789,904) (473,280)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 168,500 156,500
Proceeds from exercise of stock options 40,100 290,280
Principal payments on long-term debt (246,872) (272,102)
Repurchase of common stock - (461,402)
---------- ----------
Net cash used in financing
activities (38,272) (286,724)
---------- ----------
Net increase in cash and
cash equivalents 686,725 505,851
Cash and cash equivalents, beginning of period 1,528,818 1,161,661
---------- ----------
Cash and cash equivalents, end of period $2,215,543 $1,667,512
========== ==========
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 third quarter and nine months ended
July 31, 2003 are not necessarily indicative of the results that may be
expected for the year ending October 31, 2003. 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, 2002.
Note B - Change in Accounting Policy
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 142 changes the accounting for goodwill
and other identifiable intangibles with indefinite lives from an amortization
method to an impairment-only approach. The Company adopted SFAS No. 142 and, as
a result, amortization of intangibles ceased in the first quarter of fiscal
2003. Had SFAS No. 142 been adopted at the beginning of fiscal 2002,
depreciation and amortization of approximately $2,500 and $7,400 would not have
been recorded, and net income would have been approximately $471,600 and
$802,300 for the three and nine-month periods ended July 31, 2002,
respectively, with no effect on earnings per share.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets. SFAS No. 144 becomes effective for fiscal years beginning after
December 15, 2001. The adoption of SFAS No. 144 in the first quarter of
fiscal 2003 did not have any effect on the Companys financial position,
cash flows or results of operations.
In May 2003, FASB issued Statement 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. Statement
150 requires that certain financial instruments, which under previous
guidance were accounted for as equity, must now be accounted for as
liabilities. Statement 150 is effective for all financial instruments
entered into or modified after May 31, 2003. The Company adopted Statement
150 on June 1, 2003. The adoption of Statement 150 did not have any effect
on the Company's financial position, results of operations, or cash flows.
Note C - Inventories
July 31, October 31,
2003 2002
---------- ----------
Inventories consist of
Finished goods $1,458,008 $1,996,415
Raw materials 405,678 412,345
Packaging materials and supplies 219,148 245,672
---------- ----------
$2,082,834 $2,654,432
========== ==========
Note D - Note Payable to Bank
The Company has an uncollateralized bank line of credit, which permits
borrowings of up to $2,000,000. The line bears interest at the banks
commercial lending rate. The line was renewed during the third quarter for an
additional two years through July 2005. There were no borrowings outstanding
at July 31, 2003, or October 31, 2002.
During the three months ended January 31, 2003, the Company borrowed the
remaining $168,500 under a $350,000 term loan facility with its bank. The
agreement provides for level principal payments over five years, with interest
payable at a rate equal to the 30-day LIBOR rate plus 175 basis points (3.12%
at July 31, 2003), and is secured by the related equipment. The agreement also
provides the option to swap for a fixed rate. The interest rate has been
reduced in conjunction with the financing arrangement described below.
During the third quarter 2003, the Company arranged a $2,500,000 finance lease
facility with its bank to fund an aseptic processing system project.
The agreement provides for level principal payments over seven years, with
interest payable at a rate equal to the 30-day LIBOR rate plus 175 basis points
(3.12% at July 31, 2003), and is secured by the related equipment. The
agreement also provides the option to swap for a fixed rate. Once the last
draw is made under this facility, the balance outstanding under the existing
term loans will be rolled into this lease and the banks security interest in
other fixed assets not funded with these bank loans will be released. There
were no borrowings outstanding under this facility at July 31, 2003.
Note E - Unusual Expenses
As disclosed in the Companys third quarter 2002 Form 10Q and fiscal year 2002
Form 10K, in August 2002 the Company received notification from a third party
freight auditor representing a customer of the Company. The notification
implied that the customer might be entitled to up to $140,000 for additional
freight charge reimbursements for shipments that occurred in 1999 and 2000. As
a result of a subsequent investigation of this matter, the Company agreed to a
settlement of approximately $147,000, which was provided for in the fourth
quarter 2002. At that time the Company believed that the issues that gave rise
to this claim were settled.
During the third quarter 2003, the Company received notification from the
same customer regarding a claim for additional freight charge reimbursements
for shipments that occurred primarily in 2001 and 2002, with a portion in
2003. The financial results for the third quarter 2003 include a provision
of approximately $182,000 for these additional freight costs. Management is
now certain that this matter has been fully resolved, with the underlying
circumstances remedied, and that there will not be any additional charge to
the income statement related to this matter.
Note F - Earnings Per Share
Earnings per share is calculated as follows for the three months ended
July 31, 2003 and 2002:
Three Months Ended July 31, 2003
----------------------------------------
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
Basic earnings per share:
Net earnings $335,998 2,257,511 $ .15
Effect of dilutive securities - 11,967 -
-------- --------- -------
Diluted earnings per share $335,998 2,269,478 $ .15
======== ========= =======
Three Months Ended July 31, 2002
----------------------------------------
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
Basic earnings per share:
Net earnings $469,976 2,248,883 $ .21
Effect of dilutive securities - 29,133 -
-------- --------- -------
Diluted earnings per share $469,976 2,278,016 $ .21
======== ========= =======
Earnings per share is calculated as follows for the nine months ended
July 31, 2003 and 2002:
Nine Months Ended July 31, 2003
-----------------------------------------
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
Basic earnings per share:
Net earnings $485,378 2,253,334 $ .22
Effect of dilutive securities - 25,016 (.01)
-------- ---------- -------
Diluted earnings per share $485,378 2,278,350 $ .21
======== ========== =======
Nine Months Ended July 31, 2002
-----------------------------------------
Net Earnings Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
Basic earnings per share:
Net earnings $797,719 2,254,338 $ .35
Effect of dilutive securities - 16,215 -
-------- --------- -------
Diluted earnings per share $797,719 2,270,553 $ .35
======== ========= =======
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 primary business of the Company is the manufacture, marketing and sales of
superior quality frozen yogurt, frozen custard, sorbet, smoothie, soy and ice
cream products in a variety of premium, low-fat, and nonfat flavors in either
non-organic or organic formulations. The Company also copacks similar products
for other companies. Because of the nature of these products, sales are
subject to seasonal fluctuations, with the summer months normally
generating higher sales volumes. The introduction and roll out of new
products, however, has helped offset these inherent seasonal fluctuations.
The Company's sales increased 5.5% to $6,636,000 for the third quarter, and
increased 8.8% to $15,500,000 for the nine months ended July 31, 2003, compared
to the corresponding periods in 2002. The increases resulted primarily from
sales of new products, which include a soft frozen custard, a gourmet ice
cream, and an aseptic coffee latte` freeze.
The sluggish economy and high unemployment have had an impact on the
foodservice segment of our business. As a result, the Company has focused on
maximizing the combined advantages of its classic products, R&D capabilities,
customer service, and its relationships with customers, brokers, and business
partners, as well as the diversity in market segments, to increase sales and
margins.
The breakdown of sales by product for the nine months ended July 31, 2003 and
2002 are as follows:
Dollar %
% of % of Increase Increase
Category 2003 Total 2002 Total (Decrease) (Decrease)
- -------- ----------- ----- ----------- ----- ---------- ----------
Yogurt $ 7,792,000 50.3% $ 7,529,000 52.9% $ 263,000 3.5%
Smoothies 6,609,000 42.6% 6,154,000 43.2% 455,000 7.4%
Custard, Ice
Cream & Soy 942,000 6.1% 342,000 2.4% 600,000 175.4%
Copacking 157,000 1.0% 220,000 1.5% (63,000) (28.6)%
---------- ----- ----------- ----- ---------- -------
Total $15,500,000 100% $14,245,000 100% $1,255,000 8.8%
=========== ===== =========== ===== ========== =======
Frozen Yogurt: The increase in yogurt sales primarily related to continued
growth in the Companys wholesale club business and sales to the military and
government sector. Although domestic sales to the military are down as a
result of troop movements outside of the continental United States,
international sales have increased.
The Company is continuing to develop its business with the military and
government sector. The sale of soft frozen yogurt to this segment began on a
small scale following the Companys alliance with The Dannon Company in 2001,
and has since been systematically growing. The Company recently initiated a
worldwide comprehensive program with the US Air Force. This program provides
an introduction to the countrys largest air force training base, Lackland Air
Force Base in Texas, which will begin serving Dannon YoCream products this
fall. This quarter the Company obtained approval to sell five flavors of
YoCream Soft Scoop frozen yogurt novelty cups, and two dispenser smoothie
flavors, as well as three additional flavors of Dannon Yocream soft frozen
yogurt to military accounts. As a result of the favorable response to the
Companys dispenser smoothies sold to military bases outside of the Country,
the Company responded to troop requests and developed a new strawberry flavor,
which has been approved for introduction in October. The Companys sales team
will be exhibiting the lineup of Dannon YoCream products at two worldwide
product shows for the military in Heidelberg, Germany in late September.
Premier Inc., a leading healthcare alliance, recently awarded the Company a
36-month Committed Agreement to supply Dannon YoCream Frozen Yogurt to
Premier healthcare members. Introduction to members begins at shows in
October and sales are projected to ramp up during the first quarter of
fiscal 2004. Management believes that this national expansion into the
healthcare sector is a significant step in broadening the Companys market
base and increasing market share. It also provides the opportunity to open
new distribution channels on a national basis. The Dannon YoCream alliance
was instrumental in introducing the Company to this account.
Smoothies: Smoothie sales, consisting of both fruit and coffee products,
increased by nearly 8% primarily as a result of the growth in coffee latte
sales.
Coffee latte` freeze is an aseptic product that was developed for Costco
Wholesale and introduced as a liquid mix requiring refrigeration. Because of
the significant demand for this product, the Company responded to the needs of
its lead customer and reformulated the product for aseptic packaging that
required use of a copacker. The aseptic packaging of this product is directly
responsible for the dramatic increase in sales. In addition to the expensive
ingredients in this high quality product, the aseptic packaging and copacking
fees increase production costs, and reduces the margin on sales of this
product. To improve operating results, the Company is currently analyzing ways
to reduce aseptic production costs and is also identifying other potential
customers for this outstanding product at prices consistent with historical
margins.
Additionally, the Company is in the process of installing a $2.5 million
aseptic processing system, with completion expected in October 2003. This new
processing system, which will enable the Company to package smoothies and
concentrates for the benefit of its leading customer, will also enable the
Company to compete for other smoothie business that requires an aseptic
package.
Frozen Custard, Gourmet Ice Cream and Soy: These products are the latest in a
line of classic products that have contributed to the historical growth in
YoCream sales. Soft frozen custard and gourmet-softened ice cream represent
the indulgent line of products that the Company introduced last year. Since
its introduction in June 2002, this line of products has experienced
exceptional growth, increasing almost 175% over the past year. In response to
the demand for frozen novelty products, the Company has also developed a line
of custard cups available in a 4-ounce hard pack single serving size.
The outstanding quality of the YoCream Frozen Custard, along with the teamwork
of our sales personnel, broker and other business partners has resulted in this
product currently being placed in test markets with two large multi-unit chain
accounts.
Following the Company's historical trend of developing innovative, high quality
products, the Company began distribution in June of its newest product line of
soy based frozen desserts. These unique products are dairy free, all natural,
vegan and cultured. The positive response to sampling has been outstanding.
Gross Profit
The Company's gross profit margin increased from 28.8% to approximately 29.9%
for the third quarter and decreased from 29.2% to 28.0% for the nine-month
periods in both years.
The increase in gross profit margin for the third quarter of 2003 was due to
the implementation of cost savings.
The decreased margins in the nine months ended July 31, 2003, compared to the
same period in 2002, was primarily due to a change in sales mix and the
increased costs related to the coffee latte` product. This is one of
managements targets in its continuing efforts to reduce costs and improve
margins.
Selling and Marketing Expenses
Selling and marketing expenses increased, as a percentage of sales, from 8.5%
to 9.5% for the third quarter, and increased from 9.8% to 10.7% for the nine
months. Sales and marketing expenses in total have increased due to
promotional expenses, payroll, and travel expenses. Management believes that
sales and marketing activities and the related costs in the past have been
beneficial in expanding market segments and products into existing markets.
Accordingly, the Company expects to continue this marketing strategy as a
primary means to grow sales.
General and Administrative Expenses
General and administrative expenses increased, as a percentage of sales, from
8.2% to 9.8% of sales for the quarter, and increased from 10.1% to 11.2% for
the nine months. General and administrative expenses have increased in total
primarily due to personnel related expenses.
Income from Operations
Income from operations of $703,000 for the third quarter was 10.6% of sales
compared to 12.1% for the corresponding quarter last year. The results for the
nine months were $957,000, or 6.2% of sales, while last year it represented
9.2% of sales. The improved results in the third quarter were due to the
Companys cost saving measures. For the nine months, the decrease in income
from operations was primarily due to the effect on margins from the sales of
the coffee latte` product and increased expenses for sales, marketing and
administration described above.
Unusual Expense
Unusual expense in 2003 consists of a one-time charge of $157,200 representing
the settlement of a freight charge claim from the Companys lead customer for
shipments in 2001 and 2002. See Note E to the Financial Statements for a
further description of this unusual expense, which is not expected to reoccur
because both parties have resolved the underlying circumstances.
Provision for Income Taxes
The effective tax rate was 37.4% and 37.9% for the first nine months of 2003
and 2002, respectively. The effective rate in 2003 is the same as the rate for
the full year 2002, and reflects a similar level of research and development
activity.
Net Income
Net income for the quarter was approximately $336,000, or 5.1% of sales,
compared to $470,000, or 7.5% for same period last year. The net income for
the nine months ended July 31, 2003 was $485,400 or 3.1% of sales, compared to
$797,700, or 5.6% for the same period last year.
Were it not for the unusual expenses of approximately $181,000 (includes
$24,000 charged to cost of sales) described above and in Note E to the
Financial Statements, net income for the third quarter and nine months ended
July 31, 2003 would have been approximately $450,000 and $599,000,
respectively.
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, 2003, there were no borrowings under the Company's $2 million
bank line of credit. The line of credit remains in place and permits
borrowings subject to the Company being in compliance with certain ratios and
negative covenants. Interest on the line of credit is at the bank's basic
commercial lending rate.
During the first quarter of 2003 the Company completed borrowings of $168,500
under the terms of a secured term loan agreement to finance certain production
equipment.
Net cash provided by operating activities was approximately $1,515,000 in the
nine months ended July 31, 2003, compared with $1,266,000 in the same period of
2002. Although earnings are lower in 2003, a contributing factor in the cash
flow increase was the $572,000 reduction in inventories. This resulted from
managements focus on cost savings activities and its plan to improve cash
flow.
Expenditures for plant and equipment were approximately $790,000 in the nine
months ended July 31, 2003 compared to $473,000 spent in the same period last
year. Approximately 83% of the current year expenditures relate to the aseptic
packaging system.
The Company is in the process of installing a $2.5 million high acid aseptic
packaging system for the smoothie product that the Company is currently
producing. Project completion is expected in October 2003, with expenditures
funded with cash and a finance lease facility with its bank. See Note D to the
Financial Statements for a description of this financing arrangement.
The Company follows the practice of repurchasing its common stock from time to
time. There were no repurchases in the nine months ended July 31, 2003, while
repurchases during the same period in 2002 amounted to approximately $461,000.
During the nine months ended July 31, 2002, the Company purchased 71,913 shares
of its common stock.
The Company believes its existing assets, bank lines, and revenues from
operations will be sufficient to fund the Company's operations for at least the
next twelve months.
New Accounting Pronouncements
See Note B of Notes to Financial Statements for a discussion of the adoption of
new accounting pronouncements.
Critical Accounting Policies and Estimates
The critical accounting policies and the use of estimates as reported in the
Companys Form 10-K for the year ended October 31, 2002 are reaffirmed.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Ingredients used in the Companys products are agricultural products subject to
price risk. The Company attempts to minimize this risk by entering into
contracts to cover its annual production requirements. Historically, there
have been situations that when the contracts matured, and cost increases were
experienced, competitive conditions limited the Companys ability to pass on
the additional costs.
At July 31, 2003, borrowings outstanding under secured term loan facilities
with its bank amounted to approximately $1,140,000. The facilities bear
interest at a rate equal to the 30-day LIBOR rate plus 175 basis points (3.12%
at July 31, 2003), with the option to fix the rate during the term. A
hypothetical increase of 200 basis points in the interest rate would increase
interest expense by approximately $23,000 in the next year, if the rate were
not fixed by entering into an interest rate swap.
The Company does not currently use derivative securities.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of its Chief Executive
Officer and Chief Financial Officer, management has evaluated the
effectiveness of the Companys disclosure controls and procedures as of the
end of the period covered by this report pursuant to Rule 13a-15(b) under
the Securities Exchange Act of 1934 (the Exchange Act). Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of the period covered by this report, the
Companys disclosure controls and procedures are effective in ensuring that
information required to be disclosed in the Companys Exchange Act reports
is (1) recorded, processed, summarized and reported in a timely manner, and
(2) accumulated and communicated to the Companys management, including its
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There has been no change in the Companys internal control over financial
reporting that occurred during the last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any material pending legal proceedings.
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
31.1 Certification of John N. Hanna pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of W. Douglas Caudell pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of John N. Hanna pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 Certification of W. Douglas Caudell pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
B. Reports on Form 8-K
The Company filed a Form 8-K on August 18, 2003 reporting the resignation of
David Hanna as president and director.
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 15, 2003 By: /s/ John N. Hanna
John N. Hanna, Chairman of the
Board, and Chief Executive
Officer
Date: September 15, 2003 By: /s/ W. Douglas Caudell
W. Douglas Caudell, Chief
Financial Officer