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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1995.
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number: 0-16787
INTERNATIONAL YOGURT COMPANY
(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
Portland, Oregon 97220
(Address of Principal (Zip Code)
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. [ ]
The aggregate market value of voting stock held by non-affiliates
of the registrant was approximately $2,050,366 at January 19,
1996, based upon the average bid and asked prices of the common
stock on that date.
At January 19, 1996 there were 2,190,043 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
1996 Annual Meeting of Shareholders Part III
TABLE OF CONTENTS
PART I Page
Item 1. BUSINESS......................................4
Item 2. PROPERTIES...................................13
Item 3. LEGAL PROCEEDINGS............................13
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS......................................13
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDERS MATTERS.................14
Item 6. SELECTED FINANCIAL DATA......................15
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...................................16
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.........................................18
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.......18
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT...................................18
Item 11. EXECUTIVE COMPENSATION.......................18
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT........................18
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.................................18
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K......................19
SIGNATURES...................................................21
PART I
Item 1: BUSINESS.
General.
International Yogurt Company (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 its present name. The Company makes, markets
and sells frozen yogurt products in a variety of low-fat and
nonfat
flavors. The Company markets and sells these products to and
through a variety of businesses and outlets, including super-
markets, grocery stores, convenience stores, restaurants,
hospitals, school district food services, military installations,
yogurt shops, fast food chains, discount club warehouses, and
other
types of outlets. The Company's primary product is YO CREAM
frozen yogurt, which is distributed and sold nationwide. The
Company also produces SORBET by YO CREAM , and lowfat or nonfat
ice
creams. The Company's general marketing strategy is to offer a
broad selection of its products at a price suitable for the
relevant markets.
The Industry.
The frozen yogurt products produced by the Company
constitute
only a portion of the relevant frozen dessert industry. The
industry produces a diverse range of products, many of which
compete directly with the Company's products. Many types of
retail
outlets make available to the public the Company's frozen yogurt
product as well as other manufacturers' frozen yogurt products
and
frozen dessert items, with many outlets offering competing
products
of several manufacturers. The retail consumer may obtain the
Company's products or competing products from narrowly oriented
outlets such as small yogurt shops or stands, many of which
provide
only a single product, to supermarkets and discount club
warehouse
types of facilities, along with many medium-sized businesses.
Food
service outlets or institutions, such as restaurants, hospitals,
and school districts, typically offer frozen yogurt or frozen
desserts of one manufacturer. Larger institutional business 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
yogurt and certain other frozen desserts are often viewed as
premium products, and are somewhat resistant to finely-tuned
price
competition. However, larger institutional customers for frozen
dessert products often enter into contracts on the basis of
price.
Smaller businesses such as restaurants and yogurt shops will
enter
into contracts on the basis of brand identification, reputation
or
other preferences.
Customers are motivated to purchase frozen desert 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 product over another for health related
reasons such as ingredients, calories and additives.
Manufacturers
of frozen dessert 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 products also compete with many other varieties of
food and dessert items.
Frozen yogurt products have gained wider acceptance and
identification by a greater variety of demographic groups than
when
first introduced into the frozen dessert marketplace. The
Company
believes that frozen dessert 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 products.
Marketing Strategy.
The Company's marketing strategy is to build customer brand
awareness and loyalty, as well as developing and expanding
consumer
brand identification, by offering a broad selection of premium
frozen yogurt 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 of its frozen
yogurt
products. The Company also considers the broad distribution of
its
product critical to sales growth, with its products now available
in 49 states. The Company will continue to strive for greater
distribution penetration within each of those states.
On September 8, 1987 the Company entered into a 10-year
exclusive marketing agreement with Norpac Foods, Inc. ("Norpac")
based in Stayton, Oregon. Under this agreement, as amended,
Norpac
is the Company's exclusive sales agent, subject to certain
exceptions, for the sale of the Company's frozen yogurt products
to
the restaurant and institutional industry. Norpac is a large
food
processing and agricultural marketing organization with 40 owned
and contractually related plants, a distribution system using 22
warehouses, a private truck fleet and a network of 75 independent
food brokers across the United States.
By August, 1989, the Company ceased the direct sale of its
products through Company-owned restaurants. The management of
the
Company decided that the capital and other resources of the
Company
should be devoted exclusively to the manufacturing and wholesale
business.
The Company's management also believes that its ability to
respond innovatively to and take advantage of changes in the
retail
and packaging industry will permit greater availability and
acceptance of its products. For example, single serving
containers
are popular with some consumers.
In 1993, the Company began a concerted effort to obtain
copacking and private label business. As a result, in July, 1993
the Company announced that it had been approved as a copacker of
frozen dairy products for Weight Watchers Food Company, an
affiliate of H. J. Heinz Company. Production of the products
began
in December 1993. The Company was also successful in obtaining a
contract to copack the organically grown, All Fruit Sorbet
produced
for Cascadian Farms, a majority owned subsidiary of Welch Foods.
In November 1994, Cascadian Farms added to its contract with the
Company its organically grown yogurt and ice cream lines as well.
The Company continues to enjoy the above alliances and is
currently
pursuing additional opportunities.
In February, 1994, the Company contracted with Western
Family
Foods, Inc. to distribute and market International Yogurt
products
in the retail-grocery trade, with products being sold under a
Western Family/Yo Cream cobrand. Management believes the entry
into the retail grocery trade to be a strategic event for the
Company.
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 is the principal home arena for the National Basketball
Association franchise for the Portland Trail Blazers professional
basketball team. Certain advertising rights are granted under
the
agreement as well as exclusivity regarding the sale of frozen
yogurt, sorbet, and soft serve ice creams within the Arena. The
Company has developed a special product called "Blazers Swirl", a
nonfat combination of sorbet and frozen yogurt that is being
featured in the Arena, and will be marketed elsewhere in
conjunction with the Company's branded sales through independent
retailers.
The Company, through its research and development efforts
and
its marketing strategies, will continue to make known its ability
to produce unique high quality products.
Merchandise.
The Company makes, markets and sells frozen yogurt and
related
products in a variety of low-fat and non-fat flavors. These
frozen
yogurt products are available in both soft serve liquid mix and
hard pack forms. As of January 19, 1996, the Company had
available
for sale the following products and flavors:
YO CREAM YO CREAM YO CREAM
Premium Soft Serve Mix Low-fat Soft Serve Hard Pack
Single Serve
5 ounce
cups
Cheesecake Supreme Chocolate
Dutch Chocolate Strawberry
French Vanilla Vanilla Boysenberry
Milk Chocolate Strawberry
Peanut Butter YO CREAM "Free" Sugar Free Praline
Praline 'n Cream French
Vanilla
Strawberry Chocolate Raspberry Milk
Chocolate
Vanilla Strawberry Blueberry Chocolate
Vanilla Cafe au Lait Peach
YO CREAM YOGURT STAND
Nonfat Soft Serve Nonfat Soft Serve WESTERN
FAMILY
Yogurt Bars
Apple Spice Chocolate
Blueberry Burst Strawberry Nonfat Orange
Butter Brickle Vanilla Lowfat
Chocolate
Cable Car Chocolate
Cappuccino SPECIALTY PRODUCTS
Cherry Almond SORBET
Chocolate Classic Ice Milk Soft Serve . . . BY YO
CREAM
Country Vanilla Vanilla Shake Base Strawberry
Egg Nog Very Berry
French Vanilla YO CREAM
Georgia Peach SOFT SCOOP - 3.5 Ounce
"Holiday" Chocolate Mint 3. Gal. SOFT
SCOOP
Irish Mint Chocolate Nonfat - Premium
Island Banana Strawberry Nonfat (with
condiment)
Kahlua VanillaNonfat Chunky Cherry
Almond
Luscious Lemon Orange Nonfat Choc. Chip
Chocolate
New York Cheesecake Chocolate
Java Swirl
Outrageous Orange WESTERN FAMILY/YO CREAM Peaches 'n
Cream
Peanut Butter Hard Pack Pints Rocky Road
Pecan Praline Pecan Praline
Peppermint Stick Java Chocolate Swirl
Pumpkin Vanilla Bean YO CREAM
Very Boysenberry Milk Chocolate 3. Gal SOFT
SCOOP Std.
Very Raspberry Pecan Praline (without
condiments)
Very Strawberry Cherry Almond
Wild Chocolate Rocky Road Mountain
Boysenberry
Macadamia Strawberries N' Cheesecake Raspberry
Royal
Strawberry
Sensation
YO CAFFE LATTE WESTERN FAMILY half gallons Swiss
Chocolate
Regular Chocolate Alpine
Vanilla
Decaffeinated Vanilla Alpine
Vanilla
Raspberry
Cherry Cheesecake
The Company sells the soft serve liquid mix form to food
service customers who dispense it through a soft serve frozen
dessert machine. This form is available also in an unflavored
natural form which permits the customer to add desired flavors.
In fiscal year 1995, the soft serve liquid mix product accounted
for approximately 91 percent of the Company's yogurt product
sales.
Hard pack products are available in smaller containers to
supermarkets, which price them competitively with premium ice
cream. The Company also markets and sells its hard pack frozen
yogurt products in packages containing four one-pint containers
and 12 five-ounce containers for sale in wholesale club stores.
Single serve containers and larger three-gallon containers are
sold primarily to food service customers. In fiscal year 1995,
hard pack products of all type containers accounted for
approximately 9 percent of the Company's yogurt product sales.
Two new lines of hard pack frozen yogurt products were
introduced in late 1994, a premium pint line and a half gallon
line. The pint line is a Western Family/YO CREAM cobrand
product
that includes the following flavors: Java Chocolate Swirl,
Vanilla Bean, Milk Chocolate Chip, Pecan Praline, Cherry Almond,
Rocky Road, Strawberries N' Cheesecake.
In January 1995 the Company began sampling its yogurt bars
to the retail market place. The bars are identified by the
Western Family private label and presently include two flavors, a
nonfat orange and a lowfat chocolate bar.
The Company is also selling frozen yogurt products with no
added sugar, 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 Company's products includes
ten 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 packaged
in three and a half ounce and three gallon containers.
In May of 1993, the Company introduced a yogurt-coffee
beverage called YO CREAM Caffe Latte . It is a ready to serve
product that is being sold nationally.
SORBET by YO CREAM is a new 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.
Other products manufactured by the Company include sorbets
that are packed under a customer's brand and a soft serve ice
milk mix.
Manufacturing Process.
Most of the manufacturing and packaging of the Company's
products occurs in its plant in Portland, Oregon. The Company
utilizes a Canadian dairy as a copacker for production of its
products for the Canadian market.
The Company's raw materials for yogurt products include raw
milk received at its plant by tanker truck load. That milk is
processed according to the requirements of the particular
products being produced by the Company. This process includes
the pasteurization, homogenization and additional procedures
effected by equipment on the Company's premises. Another vital
part of the process is the inoculation and incubation of the
yogurt cultures related to the product. Careful procedures are
followed by the Company to ensure that the end product contains
viable yogurt cultures. Ice cream products do not contain yogurt
cultures; however, the processing of ice cream is otherwise
similar to frozen yogurt. Sorbet is a non dairy product which is
also suitable to the Company's manufacturing process.
The packaging materials used by the Company include a
variety of container sizes in addition to printed labels and
printed containers. The time required to produce the final
product after receiving the required raw materials and packaging
depends somewhat on the particular product, but generally ranges
from one day to two days. This range also depends on the
capacity at which the plant operates and the fluctuations in the
demand for its product. The level of manufacturing capacity at
which the Company operates depends on the orders it receives and
seasonal fluctuations, but generally ranges from 25 percent to 30
percent of maximum. Management expects this percentage to
increase significantly as a result of the copacking and private
label business, expansion of its restaurant and institutional
sales through Norpac and its entry into the retail grocery trade
through Western Family.
Inventory and Backlog.
The Company's 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 and work-in-process inventory. Inventory of finished
goods is maintained at levels to accommodate wide distribution of
the Company's products throughout the United States. Although
the Company tries to estimate demand and production schedules for
its products, its customers generally place orders when they
require the Company's products, and customers expect delivery
within a short period of time.
Distribution and Significant Customers.
The Company's products are distributed in 49 states.
Distributors ship the Company's product by refrigerated truck to
all domestic locations.
On September 8, 1987, the Company entered into a 10-year
exclusive marketing agreement with Norpac Foods, Inc. ("Norpac")
based in Stayton, Oregon. Under this agreement, as amended,
Norpac is the Company's exclusive sales agent, subject to
certain exceptions, for the sale of the Company's frozen yogurt
products to the restaurant and institutional industry (see page
5 "Marketing Strategy"). Norpac sold and arranged distribution
of approximately 86 percent of the Company's products in fiscal
year 1995.
Norpac does not have the responsibility for foreign markets.
Presently, the Company makes its own arrangements for shipment by
truck to Canada and by ship to European and Pacific Rim
countries.
The portion of the Company's sales to U.S. Government
agencies or institutions, such as sales to the Army, would not be
material to the Company in the event of a cancellation of those
contracts.
During the year ended October 31, 1995 revenues derived from
the Company's two largest customers were 32.0% (Price/Costco
Inc.) and 10.0% (Kraft Food Service) of total revenues for the
year.
Research and Development.
The Company's research and development related activities
include the development of new flavors, the improvement of
existing flavors, refinement of manufacturing processes and the
development of new products. This process has also occurred on a
regular basis with respect to ingredients such as stabilizers and
emulsifiers. Furthermore, the Company has conducted activities
regarding non-fat and non-sugar frozen products and various
novelty items. The Company has also developed a line of yogurt
beverages including yogurt-juice and yogurt-coffee combinations.
The Company's development activities occur at the Portland,
Oregon facility. Although a precise separation of accounts is
not available, the Company estimates total research and
development expenditures for the twelve months ended October 31,
1995, to have been $82,000, compared with $302,000 and $292,000
for the twelve months ended October 31, 1994 and 1993.
Advertising and Promotion.
During the 12 months ended October 31, 1995 such expenses
totalled $230,650 representing 3.1 percent of net sales. This
compares to $306,866, or 4.4 percent of net sales for 12 months
ended in October 1994 and $290,641, or 4.5 percent of net sales
in 12 months ended October 31, 1993.
Seasonality.
The Company's sales and earnings are somewhat seasonal with
a greater percentage occurring in the second and third calendar
quarters or spring and summer months and, to some extent, holiday
periods. Management expects that the seasonality of sales will
become less significant as a result of the copacking and private
brand business the Company has obtained.
Suppliers.
Suppliers of the primary ingredient of the Company's
products, raw milk, are mostly based in the Pacific Northwest
and obtain that raw milk from dairy farms in northern Oregon and
southern Washington state. Because freshness and timeliness of
delivery are critical to the Company's products, the Company
prefers local suppliers. The Company's largest supplier of raw
milk supplied approximately 78 percent of the Company's needs in
fiscal year 1995 and the second largest supplier provided
approximately 22 percent.
All supplies used by the Company are readily available from
a variety of suppliers. The Company has never experienced any
form of supply shortage.
Competition.
The Company's products constitute a portion of a greater
market which includes all forms of yogurt-based frozen desserts,
ice cream products and nondairy frozen desserts. The market for
the Company's products are very competitive both 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. In addition, increased competition from the
established manufacturers and distributors of frozen desserts and
ice cream products can be expected in the future as a result of
their increased involvement in the frozen yogurt business.
The Company competes against different manufacturers with
its soft serve products and with its hard pack products. The
Company's principal competitors for soft serve products are
Columbo, recently acquired by General Mills Inc., The Dannon
Company, Inc., and Honey Hill Farms, recently acquired by Greater
Pacific Food Holdings. The Company's competitors for hard pack
frozen yogurt products include Dryers, Haagen Dazs, and Ben and
Jerry's Homemade, Inc. In addition to the large primary
competitors identified, the Company competes against numerous
small local and regional competitors.
The Company's products are recognized in the marketplace for
their high quality and have competed well in this regard. For
example, on July 27, 1989, the Chicago Tribune listed YO CREAM as
the best tasting of 13 national brands of frozen yogurt on the
basis of a test by seven independent judges. Through the
Company's national system of brokers and distributors the Company
believes it can compete effectively from the standpoint of
service. Price competition, however, has become intense in
certain geographical areas as regional dairies endeavor to
introduce a limited line of frozen yogurt. The Company has
responded to price competition from regional dairies with its
lower-priced products under the YOGURT STAND label and to
competition on quality with its YO CREAM brand products. While
the company has experienced competitive success in the past, no
assurance can be given that the Company will continue to compete
successfully against other available products.
Other than direct competition for specific soft serve or
hard pack frozen yogurt products, the Company's products compete
against certain other frozen dessert items, such as ice cream.
Specific competition comes from premium ice cream makers such as
Haagen-Dazs, Ben and Jerry's Homemade, Inc., Steve's Ice Cream
and other national and regional ice cream brands.
Trademarks and Trade Names.
The Company registered as a trademark the name of its
primary product, YO CREAM, with the United States Patent and
Trademark Office. This trademark is renewable and, therefore, is
of an indefinite term. That trademark is also registered in
Canada and may be renewed there upon expiration. Some of the
Company's products use that basic trade name with other words or
designations, such as YO CREAM LITE. In addition, the Company
uses the trademarks "JUST SAY YO ," "PURE PLEASURE ," "YOGURT
STAND ", "THE GOURMET YOGURT FOR ICE CREAM LOVERS ," "SOFT SCOOP
"
and "YO CAFFE' ". The Company has registered or intends to
register those trademarks in the United States and may register
the trademark YO CREAM in other foreign countries.
Employees.
The Company employed 35 persons at October 31, 1995, all of
whom were full-time (35 hours per week or more.) None of the
Company's employees are covered by collective bargaining
agreements,
and management believes its employee relations are good.
The Company has never experienced a labor strike or work
stoppage.
Item 2: PROPERTIES.
The Company is located in a 30,000 square foot facility at
5858 NE 87th Avenue, Portland, Oregon 97220. Of this total
space, the Company uses approximately 6,800 square feet for
production, approximately 9,000 square feet for freezer and
refrigeration purposes, and approximately 2,300 for office space.
The Company has designated the remaining 11,900 square feet for
warehouse purposes and expansion of the Company's freezer and
production facilities.
The lease of the Company's production and office facilities
expired on May 14, 1994 and the Company exercised its option to
purchase the property. In order to preserve capital, the Board
of Directors decided that the Corporation should allow certain of
its officers and directors to purchase the property, with the
Corporation then leasing it from them. Thereafter, John N.
Hanna, David J. Hanna and James S. Hanna, together with others,
formed Pente Investments for the purpose of purchasing the
property and leasing it to the Corporation. The new lease is for
a 15 year term and provides for a base rent of $8,600 per month
for the first three years and then increasing approximately 3%
per year thereafter.
Other materially important property of the Company includes
certain equipment which it utilizes to manufacture its frozen
yogurt products, including standard dairy equipment, holding
tanks and refrigeration units. In addition, the company leases
trucks and other equipment under capital 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 1995.
PART II
Item 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS.
The common stock of the Company is traded in the over-the-
counter market and is quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") under
the
symbol YOCM. As of January 19, 1996, there were 2,190,043 shares
of the common stock outstanding and there were 200 shareholders
of
record estimated to represent approximately 750 beneficial
holders
based on the number of individual participants in security
position
listings. On January 19, 1996 the closing bid and asked prices
were
$1-1/2 and $1-5/8, 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, 1995 and October 31, 1994. Such
over-the-counter
market quotations reflect inter-dealer prices, without retail
mark-
up, mark-down or commission and may not necessarily represent
actual
transactions.
Twelve months Ended October 31, 1995 High Low
August 1, 1995 - October 31, 1995 $ 2 1/4 $1
1/2
May 1, 1995 - July 31, 1995 2 3/8 2
1/4
February 1, 1995 - April 30,1995 2 13/16 2
3/4
November 1, 1994 - January 31, 1995 3 1/4 3
1/8
Twelve months Ended October 31, 1994 High Low
August 1, 1994 - October 31, 1994 $ 4 1/2 $ 3
May 1, 1994 - July 31, 1994 5 3/4 4
February 1, 1994 - April 30, 1994 8 5/8 5
1/4
November 1, 1993 - January 31, 1994 8 5/8 7
The Company has not paid dividends on its common stock since
the stock began public trading on November 17, 1987. The Company
does not expect to pay cash dividends on its common stock in the
foreseeable future. The Company intends to invest funds
otherwise
available for dividends, if any, on improving the Company's
capital
resources.
Item 6: SELECTED FINANCIAL DATA.
The following selected financial data set forth below as of,
and
for the fiscal years ended October 31, 1995, 1994 and 1993 are
derived
from the audited financial statements included elsewhere in this
report and are qualified by reference to such financial
statements.
The balance sheet data as of October 31, 1993, 1992, and 1991 as
well
as the Statement of Operations data for the fiscal years ended
October 31, 1992 and 1991, are derived from financial statements
not
included herein.
October 31, October 31, October 31, October 31,
October 31
Balance Sheets 1995 1994 1993 1992
1991
Total Current Assets
2,876,583 $2,924,075 $2,333,968 $2,294,887
$2,287,942
Total Assets
5,036,716 4,953,187 4,076,507 4,022,658
4,034,065
Long-term debt
278,498 294,822 273,466 730,966
750,364
Shareholder's Equity
2,679,443 2,315,075 1,882,739 1,238,986
1,153,485
For the
ten
months
ended
Statements of For the Years Ended October 31, October
31, 1991
Operations
1995 1994 1993 1992
1991
Revenues 7,447,096 $6,911,252 $6,387,989 $6,526,893
$5,688,071
Profit
from continuing
operations 312,820 187,952 292,718 234,396
385,199
Net profit 304,884 61,888 175,101 105,017
206,621
Net earnings per
common share .14 .03 .07 .06
.12
Because of the change in the Company's fiscal year end, the
information
presented above relative to October 31, 1991, is not comparable
to the
other years presented.
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations.
The Company's revenues from yogurt sales were $7,447,096,
$6,911,252 and $6,387,989 for the 12 months ending October 31,
1995,
1994 and 1993, respectively. The increase in revenues in 1995
was
primarily due to increased sales from copacking and private
label
business. Management is projecting a continued favorable sales
trend.
Net income for the year ended October 31, 1995 was $304,884,
an increase of 393% over net income of $61,888 for 1994. Net
income
for the comparable period of 1993 was $175,101. The decrease in
net income in 1994 was primarily the result of increased costs in
the fourth quarter in preparation for the Western Family/Yo Cream
retail hard pack products and the exercise of employee stock
options
resulting in a non-recurring expense for payroll taxes.
Increased
net income in 1995 resulted from economies of scale from
increased
sales. Production is below plant capacity so that increased
sales
have a significant effect upon net income. Furthermore, while
net
income before income taxes for 1995 was three times greater than
1994, net income after taxes was even greater due to recognition
of
deferred tax benefits.
The cost of yogurt sales for the 12 months ended October 31,
1995 was $5,095,080 (resulting in a gross margin of 31.6)
compared
to $4,785,253 (resulting in a gross margin of 30.8%) in the same
period for 1994. For the 12 months ended October 31, 1993, cost
of
yogurt sales were $4,295,643 (resulting in a gross margin of
32.8%).
The increase in the gross margin for 1995 as compared to 1994 was
primarily the result of increased production efficiencies. The
slightly higher gross margin for 1993 was due to the costs of raw
materials, transportation, and storage being less than in
subsequent
years.
General and administrative expenses for the years ended
October 31, 1995, 1994 and 1993 were $1,026,758, $997,768 and
$902,917 respectively. As a percentage of sales these expenses
were
13.8%, 14.4, and 14.1% respectively. Management has exercised
careful control over these costs. Furthermore, management
believes
that the relatively fixed nature of these costs are such that net
income will be favorably effected as expected higher sales levels
are achieved.
Selling and marketing expenses for the year ended October
31,
1995 were $1,012,438, compared to $940,279 and $896,711 for the
corresponding periods in 1994 and 1993, respectively. While such
expenses are a direct function of sales and will vary in dollar
amount in relation to the level of sales, management has
exercised
care in controlling these costs. As a percentage of sales, such
expenses were reduced from 14.0% in 1993 to 13.6% in 1994 and
1995
despite efforts of competitors to penetrate the Company's
markets.
With an established national distribution system, the
Company
and its management believe that future increases in sales will
occur
from the competitive success of the Company's products rather
than
enlargement of the national system of distributors. Furthermore,
management expects the trend of increased sales to continue as it
executes its aggressive growth plan, which includes expanded
alliances with other national companies, intensified direct sales
activity, and the introduction of new products.
Capital Resources and Liquidity.
During the past three years, the Company has financed its
operations and expansion with bank loans, capital leases, and
internally generated funds.
As of October 31, 1995, the Company's total borrowings under
its bank line of credit were $1,089,920, while the total amount
available under the line was $1,226,600. Interest is at 1
percent
over that bank's basic commercial lending rate. Total borrowing
under this line were payable upon demand and limited to 65
percent
of eligible accounts receivable and 30 percent of eligible
inventory
up to an aggregate maximum of $1,500,000. On October 31, 1994
total
borrowings outstanding were $1,146,537, while the total amount
available under the old line was $1,226,600. The line of credit
is
subject to renewal on June 1, 1996. Although management expects
the
bank to renew its line of credit, there can be no guarantee of
that
renewal.
Accounts receivable at October 31, 1995 and 1994 were
$873,191
and $908,303, respectively, which management considers to be in
the
normal course of business.
On October 31, 1995, the Company had working capital of
$797,808. The Company believes its existing assets, bank lines
of
credit, along with revenues from operations, will be sufficient
to
fund the Company's operations through the end of fiscal year
1996.
The Company believes that the impact of inflation on net income
has
been minimal for fiscal years 1995, 1994, and 1993.
The Company leases its offices and production facilities.
The
lease has a remaining term of 14 years with renewal provisions
and
provides for a base rent of $8,600 per month for the first three
years and then increasing at approximately 3% per year
thereafter.
The Company does not expect to make any material capital
expenditures in fiscal year 1996. Capital expenditures are
expected to be limited to those incurred in the ordinary course
of
business.
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.
The response to this item is incorporated herein by
reference
from Form 10-Q filed on September 13, 1995, as amended by Form
8-K, filed on October 24, 1995.
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The response to this item is incorporated herein by
reference
from the sections entitled "ELECTION OF DIRECTORS" and
"INFORMATION
REGARDING MANAGEMENT AND DIRECTORS" in the Company's Proxy
Statement for its Annual Meeting of Shareholders.
Item 11: EXECUTIVE COMPENSATION.
The response to this item is incorporated herein by
reference
from the section entitled "EXECUTIVE COMPENSATION" in the
Company's
Proxy Statement for its Annual Meeting of Shareholders.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The response to this item is incorporated herein by
reference
from the section entitled "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND MANAGEMENT" in the Company's Proxy Statement for its
Annual Meeting of Shareholders.
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The response to this item is incorporated herein by
reference
from the section entitled "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" in the Company's Proxy Statement for its 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
Number Exhibit Page
3.1 Restated Articles of Incorporation i
of the Company.
3.2 Articles of Amendment, dated ii
October 29, 1991.
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 Agreement, dated as of September 8, 1987, i
between the Company, Norpac Foods,
Inc., and Robert Arneson, Sales
Agent, Inc., dba Norpac Food Sales
and related Stock purchase Agreements.
10.20 1990 Non-Discretionary Stock Option iv
Plan for Non-Employee Directors.
10.21 Agreement, dated as of April 1, 1991, iii
by and between Norpac Foods, Inc. and
International Yogurt Company, Inc.
10.22 Amendment to Marketing Agreement, iii
dated as of April 1, 1991, by and
among the company, Norpac foods, Inc.
and Robert Arneson, Sales Agent Inc.,
dba Norpac Foods Sales.
Exhibit
Number Exhibit Page
10.23 Commercial lease and assignment lease v
by and between John N. Hanna, David J.
Hanna, James S. Hanna, Harry M. Hanna
and Joseph J. Hanna Jr; landlord and
International Yogurt.
____________________________________________
i Incorporated herein by reference from the
Company's Registration Statement on Form
S-18, dated November 17, 1987.
ii Incorporated herein by reference from the
Company's Annual Report on Form 10-K for fiscal
year ended October 31, 1991.
iii Incorporated herein by reference from the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990.
iv Incorporated herein by reference from the
Company's Current Report on Form 8-K, dated as
of December 6, 1990.
v Incorporated herein by reference from the
Company's Quarterly report form 10-Q for the
quarter ended July 31, 1994.
(b) Reports on Form 8-K:
None
(c) See (a) (3) above for all exhibits filed
herewith and the Exhibit Index above.
(d) No financial statements required by Regulation
S-X were excluded from materials delivered to
shareholder.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INTERNATIONAL YOGURT COMPANY Dated: January __, 1996
By:
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: ____________________ Dated: January __, 1996
John N. Hanna
Chief Executive Officer and
Chairman of the Board of Directors
By: ____________________ Dated: January __, 1966
David J. Hanna
Director
By: ____________________ Dated: January __, 1996
James S. Hanna
Director
By: ____________________ Dated: January __, 1996
Carl G. Behnke
Director
By: ____________________ Dated: January __, 1996
William J. Rush
Director
By: ____________________ Dated: January __, 1996
Roger Olson
Controller
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.
FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
INTERNATIONAL YOGURT COMPANY
OCTOBER 31, 1995 AND 1994
International Yogurt Company
Appendix A
Index to Financial Statements
The following financial statements of International Yogurt Company and
related reports of independent accountants are included at Item 8 and Item
14(a)(1):
Page
Report of Independent Accountants - Grant Thornton LLP A-1
Report of Independent Accountants - Price Waterhouse LLP A-2
Balance Sheets at October 31, 1995 and 1994 A-3
Statements of Operations for the years ended October 31, 1995,
1994 and 1993 A-4
Statement of Shareholders' Equity for the years ended
October 31, 1995, 1994, and 1993 A-5
Statements of Cash Flows for the years ended October 31, 1995,
1994 and 1993 A-6
Notes to the Financial Statements A-7 - A-16
No financial statement schedules are included in Item 14(a)(2) as no
required schedules are applicable to International Yogurt Company for the
year ended October 31, 1995.
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
International Yogurt Company
We have audited the balance sheet of International Yogurt Company as of
October 31, 1995, and the related statements of operations,
shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements referred to above present
fairly, in all material respects, the financial position of
International Yogurt Company as of October 31, 1995, and the results of
its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
GRANT THORNTON, LLP
Portland, Oregon
January 10, 1996
January 29, 1996
Report of Independent Accountants
To the Board of Directors and Shareholders of International Yogurt Company
In our opinion, the balance sheet and the related statements of operations,
of shareholders' equity and of cash flows as of and for each of the two
years in the period ended October 31, 1994 present fairly, in all material
respects, the financial position, results of operations and cash flows of
International Yogurt Company as of and for each of the two years in the
period ended October 31, 1994, in conformity with generally accepted
accounting principles. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits
of these statements in accordance with generally accepted auditing
standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above. We have not audited the financial
statements of International Yogurt Company for any period subsequent to
October 31, 1994.
Sincerely,
PRICE WATERHOUSE LLP
Portland, Oregon
January 13, 1995
International Yogurt Company
BALANCE SHEETS
October 31,
1995 1994
ASSETS
Current assets
Cash and cash equivalents $ 318,535 $ 336,894
Trade accounts receivable, net of allowance
for doubtful accounts of $14,237 in 1995
and $13,091 in 1994 873,191 908,303
Inventories 1,554,625 1,434,334
Equipment held for resale 28,220 45,840
Other current assets 102,012 198,704
Total current assets 2,876,583 2,924,075
Fixed assets, net 1,839,860 1,810,475
Deferred tax asset 125,000 -
Intangible and other long-term assets, net 195,273 218,637
$5,036,716 $4,953,187
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank $1,089,920 $1,146,537
Current portion of long-term debt 68,879 84,149
Current obligations under capital leases 30,715 58,835
Accounts payable 813,309 934,039
Other accrued liabilities 75,952 119,730
Total current liabilities 2,078,775 2,343,290
Long-term debt payable to related parties
and others, less current portion 144,385 187,900
Long-term obligations under capital leases 134,113 106,922
Total liabilities 2,357,273 2,638,112
Commitments - -
Shareholders' equity
Preferred stock, no par value, 5,000,000
shares authorized, none issued and outstanding - -
Common stock, no par value, 30,000,000 shares
authorized, 2,192,043 and 2,167,043 issued
and outstanding 4,597,498 4,538,014
Accumulated deficit (1,918,055) (2,222,939)
Net shareholders' equity 2,679,443 2,315,075
$5,036,716 $4,953,187
The accompanying notes are an integral part of these statements.
International Yogurt Company
STATEMENTS OF OPERATIONS
For the year ended October 31,
1995 1994 1993
Yogurt sales $7,447,096 $6,911,252 $6,387,989
Cost of yogurt sales
Manufacturing 3,821,721 3,592,708 3,289,598
Transportation and cold storage 1,273,359 1,192,545 1,006,045
5,095,080 4,785,253 4,295,643
Gross profit 2,352,016 2,125,999 2,092,346
Selling and marketing expenses 1,012,438 940,279 896,711
General and administrative expenses 1,026,758 997,768 902,917
Income from operations 312,820 187,952 292,718
Other income (expense)
Interest income 8,769 7,918 6,158
Interest expense (134,724) (119,901) (154,853)
Other, net (3,747) (14,081) 31,078
Income before income taxes
and extraordinary item 183,118 61,888 175,101
Provision for income taxes
Current expense (3,234) - (59,000)
Deferred benefit 125,000 - -
121,766 - (59,000)
Income before extraordinary item 304,884 61,888 116,101
Extraordinary item - utilization of net
operating loss carryforwards - - 59,000
Net income $ 304,884 $ 61,888 $ 175,101
Income per share
Before extraordinary item $ .14 $ .03 $ .04
From extraordinary item - - .03
Net income per share $ .14 $ .03 $ .07
Weighted average number of shares
outstanding 2,177,349 2,290,667 2,004,660
The accompanying notes are an integral part of these statements.
International Yogurt Company
STATEMENT OF SHAREHOLDERS' EQUITY
Net
Preferred Stock Common Stock Accumulated
Shareholders'
Shares Amount Shares Amount Deficit Equity
Balance at November 1, 1992
69,333 $260,000 1,802,467 $3,412,912 $(2,433,926)$1,238,986
Net income
- - - - 175,101 175,101
Repurchase of outstanding shares
- - (3,180) (5,565) -
(5,565)
Stock options exercised
- - 105,000 239,951 - 239,951
Debentures converted to common stock
- - 52,727 260,268 - 260,268
Preferred stock converted to common stock
(60,333) (226,250) 60,333 226,250 - -
Preferred stock dividends
- - - - (26,002)
(26,002)
Balance, October 31, 1993
9,000 33,750 2,017,347 4,133,816 (2,284,827) 1,882,739
Net income
- - - - 61,888 61,888
Stock options exercised
- - 128,700 309,714 - 309,714
Debentures converted to common stock
- - 11,996 60,734 - 60,734
Preferred stock converted to common stock
(9,000) (33,750) 9,000 33,750 - -
Balance, October 31, 1994
- - 2,167,043 4,538,014 (2,222,939) 2,315,075
Net income
- - - - 304,884 304,884
Stock options exercised
- - 25,000 59,484 - 59,484
Balance, October 31, 1995
- $ - 2,192,043 $4,597,498 $(1,918,055)$2,679,443
The accompanying notes are an integral part of this statement.
International Yogurt Company
STATEMENTS OF CASH FLOWS
For the year ended October 31,
1995 1994 1993
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net income $304,884 $ 61,888 $175,101
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 246,382 208,799 206,969
Loss on sale of equipment 3,747 - -
Deferred taxes (125,000) - -
Change in assets and liabilities
Accounts receivable 35,112 (291,288) (55,957)
Other receivables - - 105,045
Inventories (120,291) (248,388) (18,659)
Other current assets 96,692 (23,615) (9,361)
Other long-term assets - (32,600) -
Accounts payable (120,730) 288,279 (226,624)
Other accrued liabilities (43,778) 24,052 37,643
Net cash provided by (used in)
operating activities 277,018 (12,873) 214,157
Cash flows from investing activities
Proceeds from sale of equipment 1,530 16,000 1,000
Expenditures for plant and equipment (175,310) (332,871) (216,717)
Net cash used in investing
activities (173,780) (316,871) (215,717)
Cash flows from financing activities
Net increase (decrease) in note
payable to bank (56,617) 218,537 47,492
Proceeds from issuance of long-term debt - 85,000 76,862
Principal payments on long-term debt
and capital lease obligations (121,230) (238,071) (235,277)
Dividends paid on preferred stock - - (26,002)
Conversion costs related to the
conversion of debt - - (29,732)
Stock options exercised 56,250 309,714 234,386
Net cash provided by (used in)
financing activities (121,597) 375,180 67,729
Net increase (decrease) in cash
and cash equivalents (18,359) 45,436 66,169
Cash and cash equivalents, beginning of year 336,894 291,458 225,289
Cash and cash equivalents, end of year $318,535 $336,894 $291,458
The accompanying notes are an integral part of these statements.
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
International Yogurt Company (the Company) was incorporated on January 14,
1977 in the state of Oregon. The Company produces frozen yogurt products
and markets them primarily under the name "YO CREAM". The Company's
products are also marketed by Norpac Foods, Inc. and Norpac Foods Sales
under the terms of a marketing agreement. Sales are made 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 short-term investments with an original
maturity of less than ninety days.
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 average
production costs for finished goods.
3. Fixed Assets
Fixed asset 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 in amounts to relate the cost of depreciable assets to
operations over their estimated service lives, principally on a
straight-line basis. 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 25 years
Office equipment and furnishings 10 years
Leasehold improvements 5-10 years
4. Income Taxes
Effective November 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The
adoption of the new standard changed the Company's method of accounting
for income taxes from the deferred
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Continued
method under Accounting Principles Board Opinion No. 11 (APB 11), to an
asset and liability approach. Previously, the Company deferred the tax
effects of timing differences between financial reporting and taxable
income. Under the new asset and liability approach, the Company
recognizes deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the book basis and tax basis
of the Company's assets and liabilities. The Company elected not to
retroactively apply the new standard to prior years but, instead, to show
the entire effect of the accounting change, which was insignificant, in
fiscal year 1994.
5. Statement of Cash Flows
The Company made cash interest payments of $124,802, $138,269, and
$138,289 for the years ended October 31, 1995, 1994 and 1993,
respectively. No income taxes have been paid during these periods.
During 1994 and 1993, respectively, debentures aggregating $60,734 and
$260,268, net of related deferred bond costs, and preferred stock
aggregating $33,750 and $226,250 were converted into common stock. In
1995 and 1994, the Company acquired $61,516, and $131,547, respectively,
of plant and improvements by entering into additional capital lease
obligations. All of these noncash transactions have been excluded from
the accompanying statement of cash flows.
6. 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.
At October 31, 1995, the deferred tax asset valuation account of $997,000
is based on management's expectation that profitability will continue;
however, it is uncertain that the level of profitability will be
sufficient to consider it more likely than not that all of the net
operating loss carryforwards will be utilized.
7. Income Per Share
Income per share is computed based on the weighted average number of
shares of common stock outstanding, including common stock equivalents,
during the period of computation. Dividends on preferred stock are
deducted from income in computing income per share.
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
8. Reclassifications
Certain balances in the 1994 financial statements have been reclassified
to conform with the current year presentation. These reclassifications do
not affect the previously reported results of operations or shareholders'
equity.
NOTE B - INVENTORIES
Inventories consist of the following at October 31,:
1995 1994
Finished goods $1,169,073 $1,037,977
Raw materials 149,824 150,339
Packaging materials and supplies 235,728 246,018
$1,554,625 $1,434,334
NOTE C - FIXED ASSETS
Fixed assets consist of the following at October 31,:
1995 1994
Plant equipment $2,248,502 $1,889,718
Office equipment and furnishings 132,280 241,648
Leasehold improvements 597,556 580,634
Construction in process 30,312 115,511
3,008,650 2,827,511
Less accumulated depreciation
and amortization 1,168,790 1,017,036
$1,839,860 $1,810,475
Fixed assets at October 31, 1995 and 1994 include assets held under
capital leases aggregating approximately $193,000 and $388,000, with
related accumulated amortization of approximately $17,000 and $163,000,
respectively. Depreciation and amortization of the Company's fixed assets
aggregated $200,991, $198,058, and $189,348 for the years ended
October 31, 1995, 1994, and 1993.
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE D - INTANGIBLE AND OTHER LONG-TERM ASSETS
Intangible assets consists of the following at October 31,:
Period of
Amortization 1995 1994
Trademarks (principally "YO CREAM") 25 years $250,026 $248,823
Less accumulated amortization (87,353) (62,786)
$162,673 $186,037
As of October 31, 1995 and 1994, the Company had made a $32,600 deposit
related to the lease of its production and office facility which is
included in intangibles and other long-term assets in the accompanying
balance sheet.
NOTE E - NOTE PAYABLE TO BANK
The Company has a demand bank line of credit which permits borrowing of up
to $1,500,000, limited to qualified receivables and inventories. At
October 31, 1995, qualified receivables and inventories limited the
available line of credit to $1,226,645. Borrowings are collateralized by
accounts receivable and inventories and bear interest at the basic
commercial lending rate plus 1% and .75% for 1995 and 1994, respectively
(9.75% at October 31, 1995 and 8.8% at October 31, 1994). Borrowings
under the line aggregated $1,089,920 and $1,146,537 at October 31, 1995
and 1994, respectively.
Under the terms of the line of credit, the Company is required to maintain
certain financial parameters including minimum working capital, minimum
tangible net worth and minimum debt-to-worth ratio. In addition, the
Company is required to retain 40% of future net earnings after tax, which
approximates $150,000 at October 31, 1995.
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following at October 31,:
1995 1994
Note payable to Norpac, beginning with August
1995 payable in monthly installments of
$5,000, plus interest at 8%, collateralized
by accounts receivable and inventory,
subordinated to bank note, balance
due June 1997 $140,000 $180,000
Industrial development loan, payable in
monthly installments of $1,202 through
April 2002, including interest at 8%,
collateralized by certain equipment 73,264 81,118
Notes payable - 10,931
213,264 272,049
Less portion due within one year 68,879 84,149
$144,385 $187,900
The principal portion of long-term debt is payable as follows:
Year ending
October 31,
1996 $ 68,879
1997 89,616
1998 11,320
1999 11,354
2000 12,297
Thereafter 19,798
$213,264
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE G - CAPITAL LEASE OBLIGATIONS
The Company leases various equipment under capital lease agreements.
Future minimum lease payments as of October 31, 1995 are:
Year ending
October 31,
1996 $ 45,367
1997 45,367
1998 44,980
1999 52,203
2000 15,987
Total minimum lease payments 203,904
Less amount representing interest 39,076
Present value of minimum lease payments 164,828
Less current portion 30,715
Long-term portion $134,113
NOTE H - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Employee Savings Plan and Trust which allows the
Company to make contributions to the Plan on behalf of eligible employees.
The Company's contributions to the Plan were approximately $7,500, $8,900
and $8,700 during the years ended October 31, 1995, 1994 and 1993,
respectively. Additionally, the Company has a profit-sharing plan for
eligible employees. Under the provisions of the Plan, the Company may, at
its discretion, make contributions of a sum not in excess of the amount
permitted under the Internal Revenue Code as a deductible expense. The
Company has not made any contributions to this Plan.
NOTE I - STOCK OPTION PLANS
The Company has reserved 400,000 shares of its common stock pursuant to a
nonqualified Stock Option Plan (the Plan) for key employees. The Plan
provides 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 are exercisable in such
amounts and at such times as authorized by a Stock Option Agreement
applicable to each option. Options expire no later than five years from
the date of grant unless employment is terminated prior to that time. In
the case of
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE I - STOCK OPTION PLANS - Continued
termination of employment for any reason other than death or disability,
the option must be exercised within 90 days of termination or be
forfeited.
All options have been granted with an exercise price equal to the fair
market value of the Company's common stock on the effective grant date. A
summary of option transactions relating to the Stock Option Plan for key
employees follows:
Exercise price
per share
Shares of
under option Common Stock
Balance, November 1, 1992 194,250 $2.25-5.00
Granted 181,500 2.50-4.44
Exercised (80,000) 2.25-2.50
Expired (17,250) 2.25-5.00
Balance, October 31, 1993 278,500 2.25-5.00
Granted 41,500 4.00
Exercised (103,700) 2.25-3.37
Expired (4,000) 3.37
Balance, October 31, 1994 212,300 2.25-4.44
Exercised (5,000) 2.25
Expired (34,500) 2.25
Balance, October 31, 1995 172,800 2.50-4.44
Exercisable at October 31, 1995 172,800
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
In October 1990, the Company's Board of Directors adopted a nonqualified
Stock Option Plan for directors who are nonemployees and has reserved
150,000 shares of common stock for issuance pursuant to this Plan. 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.
A summary of option transactions relating to the Stock Option Plan for
directors who are nonemployees follows:
Exercise price
per share
Shares of
under option Common Stock
Balance, November 1, 1992 90,000 $1.54-2.25
Granted 20,000 8.00
Exercised (25,000) 1.54-2.25
Expired (10,000) 1.54-2.00
Balance, October 31, 1993 75,000 1.54-8.00
Granted 30,000 3.75
Exercised (25,000) 1.54-2.25
Balance, October 31, 1994 80,000 1.54-8.00
Granted 15,000 2.31
Exercised (20,000) 2.25
Balance, October 31, 1995 75,000 1.54-8.00
Exercisable at October 31, 1995 75,000
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
In January 1994, the Company's Board of Directors adopted a Combined
Incentive and Nonqualified Stock Option Plan and has reserved 200,000
shares of common stock for issuance pursuant to this Plan. Options are
exercisable in such amounts and at such times as authorized by a Stock
Option Agreement applicable to each option.
A summary of option transactions relating to the Combined Incentive and
Nonqualified Stock Option Plan is as follows:
Exercise price
per share
Shares of
under option Common Stock
Balance, October 31, 1993
Granted 30,000 $8.12
Balance, October 31, 1994 30,000 8.12
Granted 61,000 2.12
Balance, October 31, 1995 91,000 $2.12-8.12
Exercisable at October 31, 1995 30,000
NOTE J - SHAREHOLDERS' EQUITY
In June 1991, the Company authorized 5,000,000 shares of preferred stock,
of which 164,000 were authorized as Series A preferred stock. Effective
October 31, 1991, certain holders of the Company's convertible
subordinated debentures elected to convert the debentures into 69,333
shares of Series A convertible preferred stock. During fiscal years 1993
and 1994, holders of the Series A convertible preferred stock converted
60,333 and 9,000 shares, respectively, into shares of the Company's common
stock at a conversion price of $3.75 per share. As of October 31, 1994,
all of the Series A Preferred Stock ceased to be designated as such. The
convertible preferred shares were entitled to annual dividends of 10%
which were required to be declared and paid quarterly. Dividends of
$19,516 were declared and paid during 1992. Dividends of $26,002,
representing dividends for the fourth quarter of fiscal 1992 and all of
fiscal 1993, were declared and paid during 1993. No dividends were
declared or paid in fiscal 1994 or 1995.
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE K - OTHER INCOME
During 1993, one of the Company's freezer units was damaged during a power
outage. This freezer unit had no carrying value and was replaced by a new
freezer unit with a value of approximately $65,000. This replacement was
covered entirely by insurance proceeds. The new freezer was recorded in
net fixed assets in the accompanying balance sheet with a value of
approximately $65,000, and the approximate $65,000 basis difference
between the new and the replaced freezer was recognized by the Company as
a gain. This gain is included in other income, net, in the accompanying
statement of operations for fiscal 1993.
NOTE L - INCOME TAXES
Under the provisions of FAS 109, the utilization of the Company's net
operating loss carryforwards substantially eliminated the provision for
income taxes for the years ended October 31, 1995 and 1994. During the
year ended October 31, 1993, the Company utilized net operating loss
carryforwards to offset taxable income. Under the provisions of APB 11,
the provision for income taxes for the year ended October 31, 1993
consisted of a charge in lieu of income taxes. Utilization of net
operating loss carryforwards for the year resulted in an extraordinary
credit equal to the charge in lieu of income taxes.
The Company provided for income taxes at an effective rate of 1.8%, 0%,
and 33.7% for the years ended October 31, 1995, 1994 and 1993. The
effective tax rate differed from the statutory federal tax rate due to the
following:
Year ended October 31,
1995 1994 1993
Statutory federal tax rate (graduated) 29.9% 16.9% 29.7%
State taxes, net of federal benefit 4.6 6.0 4.0
Utilization of net operating
loss carryforwards (32.7) (22.9) -
1.8% - % 33.7%
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE L - INCOME TAXES - Continued
Deferred tax assets (liabilities) consist of the following at October 31,:
1995 1994
Allowance for doubtful accounts $ 5,000 $ 5,000
Inventory 24,000 13,000
Net operating loss carryforwards 1,200,000 1,470,000
Gross deferred tax assets 1,229,000 1,488,000
Deferred tax asset valuation allowance (997,000) (1,339,000)
Net deferred tax asset 232,000 149,000
Other current assets - (7,000)
Property, plant and equipment (107,000) (142,000)
Gross deferred tax liabilities (107,000) (149,000)
Net noncurrent deferred tax asset $ 125,000 $ -
At October 31, 1995, the Company had net operating loss carryforwards
aggregating approximately $3,477,000, which may be used to offset taxable
income, if any, in future years. The net operating loss carryforwards
expire from 2001 through 2010. The annual utilization of these
carryforwards may be limited if the Company undergoes an ownership change
as defined by the Internal Revenue Code.
The net operating loss carryforwards include deductions aggregating
approximately $960,000 resulting from the exercise of certain employee
stock options. For financial reporting purposes, any future reduction in
income tax obligations realized from utilizing these deductions will be
credited to common stock.
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE M - OPERATING LEASE COMMITMENTS INCLUDING THOSE WITH RELATED
PARTIES
During fiscal 1994, the Company entered into a 15 year operating lease
agreement for its production and office facilities with a company owned by
the Company's chief operating officer and its president (both of whom are
also shareholders of the Company) and other shareholders of the Company.
Minimum lease payments required under the related party and several
equipment operating leases are as follows:
Year ending
October 31,
1996 $ 115,787
1997 113,140
1998 121,140
1999 119,655
2000 119,200
Thereafter 1,210,400
$1,799,322
Operating lease expense under the related party lease for the years ended
October 31, 1995, 1994 and 1993 approximated $103,000, $34,400 and $0,
respectively. Lease expense, exclusive of related parties, was
approximately $21,000, $58,600 and $90,000 for the years ended October 31,
1995, 1994, and 1993. Operating lease expenses are allocated between
manufacturing costs and general and administrative expenses in the
accompanying statement of operations.
NOTE N - COMMITMENTS AND RELATED PARTY TRANSACTIONS
In September 1987, the Company entered into a marketing agreement with
Norpac Foods, Inc. and Norpac Foods Sales (collectively referred to as
Norpac). Under the terms of the agreement, Norpac serves as the Company's
broker and exclusive sales agent for selling "YO CREAM" to institutional
food service customers, subject to certain exceptions, in the United
States. The Company has access to Norpac's customer list and uses
Norpac's brokers, warehouses and truck fleet to distribute its products.
Norpac fulfills the functions of order taking, invoicing, credit
qualifying and collecting for the Company's sales of "YO CREAM" to
institutional food service customers, subject to certain exceptions.
Norpac's brokerage fees and commissions are based on a percentage of
sales as stated in the agreement. Such brokerage fees and commissions
total approximately $426,000, $482,000 and $538,000 for the years ended
October 31, 1995, 1994 and 1993, respectively. Additionally, prior to
1995, Norpac was responsible for essentially all of the Company's
marketing and advertising.
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE N - COMMITMENTS AND RELATED PARTY TRANSACTIONS - Continued
For the years ended October 31, 1995, 1994 and 1993, advertising expense
through Norpac aggregated approximately $183,000, $381,000 and $293,000,
respectively. All brokerage fees, commissions and advertising expenses
are included in selling and marketing expenses in the accompanying
statement of operations. The marketing agreement may be terminated by the
Company if Norpac fails to meet certain agreed upon sales goals
established annually by mutual consent. At October 31, 1995 and 1994,
Norpac held approximately 5% of the Company's outstanding shares of common
stock and has a note receivable of $140,000 and $180,000, respectively,
due from the Company. At October 31, 1995, accounts receivable include
approximately $189,000 receivable from Norpac, and accounts payable
include approximately $192,000 payable to Norpac; at October 31, 1994,
such amounts were $169,000 and $167,000, respectively.
NOTE O - MAJOR CUSTOMERS
Revenues derived from the Company's two largest customers are presented as
percentages for total annual revenues as follows:
Year ended October 31,
1995 1994 1993
Customer A 32% 29% 25%
Customer B 10 12 9
42% 41% 34%
NOTE P - FOURTH QUARTER ADJUSTMENT
During the fourth quarter of fiscal 1994, the Company conducted a study
and analysis of its production costs. As a result of such study, the
Company recorded a $120,000 decrease in the carrying value of its finished
goods inventories as of October 31, 1994, with a corresponding increase in
previously estimated cost of yogurt sales for the year ended October 31,
1994.
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE Q - RECENT ACCOUNTING STANDARD
During 1995, the Financial Accounting Standards Board issue Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. Upon
future adoption of this statement, the Company anticipates electing to
continue to apply the accounting provision for APB Opinion 25 with
disclosure of the required proforma amounts. Accordingly, the only impact
expected by management on the company's future financial statements will
be additional disclosures required by the new standard.