Avasoft, Inc. (OTCBB:AVAF) purveyor of a patented, innovative soft-serve ice cream system to the estimated $6 billion combined U.S. and United Kingdom soft-serve marketplace, today issued the following Special Letter to Shareholders:
Dear Shareholder:
February 13 marked Avasoft's one-year anniversary as a public company, a timely occasion upon which to report that over the past year, Avasoft has made great strides and today is positioned for strong growth and profitability.
2007 in Review: Meeting Goals, Solid Progress
The April 11, 2007 Shareholder letter discussed Avasoft's enviable market position, competitive advantages and its establishment of an infrastructure with top quality ice cream and equipment production, sales and distribution resources. The Company had just begun commercial operations in January 2007, and in April was preparing its initial marketing launch. That Letter described our goals for the remainder of 2007, which today merit review and comment:
-- | | 'Build Financial Strength, Sales and Cash Flow.' Revenues for the nine months ended September 30, 2007 increased 183% over the equivalent nine months period ended September 30, 2006. To strengthen the Company's financial structure, in September 2007 Avasoft formed a strategic alliance with Schoep's Ice Cream Co. in which Schoep's provides the Company with product manufacturing, packaging, storage, distribution and certain marketing activities - and then pays Avasoft what is comparable to a net royalty based on every case of ice cream Schoep's sells. |
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| | Outsourcing these functions to Schoep's capitalizes on its tremendous economies of scale, and has dramatically reduced Avasoft's operational and cash requirements. This enables a streamlined Company the ability to focus on its core strengths in marketing and key account sales. Schoep's has an 80-year track record of ice cream industry excellence, and Avasoft benefits by tapping into their 132 U.S. distributor relationships, their sub distributors, and thousands of sales reps and account managers. |
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-- | | 'Execute Aggressive Marketing Strategy.' Avasoft in 2007 forged relationships with leading regional distributors such as Jack and Jill, and major food distributors and brokers including Sysco, US Foods, Ben E. Keith, HT Hackney and others that increased its market penetration. Total customer accounts grew to over 3,000 at year end 2007, reflected preliminarily by Avasoft revenue growth as those accounts' sales ramp up. In December, we reported early progress on our national account initiative with a number of various new fast foods, convenience store and other major account relationships in development or testing. |
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-- | | 'Reinforce Management Team.' Avasoft has added veteran ice cream industry executive and entrepreneur Andy Downes as chief operating officer. Andy Downes has over 15 years' experience serving at senior executive and director level positions within the United Kingdom ice cream industry. He was responsible for successfully bringing to market the first soft ice cream cartridge system in the United Kingdom. Mr. Downes has first-hand experience in product and equipment development and manufacturing, establishment of distribution networks, marketing and negotiations at all levels. |
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-- | | 'Raise Expansion Capital.' Avasoft in May 2007 announced the completion of an oversubscribed $7.4 million in new capital raised through an investment bank, more than half of which was raised in 2007. |
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-- | | 'Expand Avasoft Product Line.' Avasoft has added new ice cream offerings including Mint Chocolate Chip and Chocolate Fudge flavors as well as a new frozen yogurt line currently being readied for launch. We also developed freezer and dispenser equipment placement programs for high volume and national accounts. These initiatives have received very positive responses from the industry and our customers. |
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-- | | 'Form Strategic Alliances.' In October 2007, Avasoft acquired Ezee Whip Europe, Ltd. Based in England, Ezee Whip markets the same unique soft serve ice cream system throughout the United Kingdom as Avasoft does in North America. Ezee Whip provides operating synergies and a platform for expansion in the U.K. and Europe. Although the Schoep's alliance is covered under 'financial strength' above, it too is strategic in nature through its enhanced industry, geographic and competitive positioning. |
Outlook 2008: Profitability
Having fortified its infrastructure and refined its business model, Avasoft has set the following goals for 2008:
-- | | Achieve Profitability by Q3-08. We intend to accelerate the path to profitability, driven by growing sales and our royalty model, by the third quarter of 2008. Importantly, our top line revenue, as reported prior to the Schoep's alliance, represents ice cream sales before the cost of goods such as production, storage and distribution are expensed. From Q4-07 and going forward into 2008 Avasoft ice cream revenues will primarily be high-margin 'royalty' sales already net of those costs. By closely managing its fixed and other corporate expenses such as marketing, Avasoft is well positioned for profitability. |
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| | For example, under the old model Avasoft received revenues per case of ice cream sold from which production; distribution and other cost of goods were deducted to determine the gross margin. Under the new model, however, Schoep's is responsible for all cost of goods associated with the production and distribution of our product. Avasoft simply receives a fixed royalty-like payment per case of ice cream sold -- representing a 100 percent gross profit margin. This shift in the business model significantly reduces infrastructure and administrative costs and lowers operational risk. |
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-- | | Double the Customer Account Base. Working closely with our distributors, we will launch new marketing campaigns that capitalize on our large food broker/distributor network. Avasoft's goal is to more than double total customer accounts from 3,000 to 6,500. |
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| | Our best advertisement is the Avasoft System itself. As we gain placement nationwide we receive an increasing number of inquiries from retail, restaurant and food company managers - often stemming from someone having been served their first Avasoft ice cream cone at a sports, recreation or restaurant setting. |
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-- | | Raise Capital to Accelerate Growth. We plan to invest in new marketing and publicity campaigns, product development, and the roll out of our new freezer and dispenser equipment placement programs for large national chain accounts which we will ultimately outsource with lease programs through established food service equipment leasing firms. |
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-- | | Expand and Innovate. We will continue to introduce new products that meet the growing demand of a dynamic marketplace. Our new frozen yogurt line is being readied for full launch this spring. A new low-sugar ice cream, which meets the most stringent nutritional guidelines for schools, is in advanced testing. |
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-- | | Build Management Team. Avasoft plans to name one or more new members to its board of directors to add expertise in corporate finance, industry sales, distribution or other strategic roles. |
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-- | | Open Major National Accounts. With the Avasoft System's low cost of entry, low maintenance and high product quality, we have aggressively developed interest from a growing number of prospective national and regional major accounts. These range from fast food chains, convenience stores, theaters, theme parks, hotel chains, sports venues, warehouse retail stores and more. While they have longer sales cycles that often include pilot market tests, several of these national accounts offer Avasoft incremental sales potential equal to or greater than our entire 2007 ice cream sales. |
Profitability, growth, innovation - 2008 holds great promise as Avasoft intends to capitalize on its strong foundation to increase sales and earnings power. On behalf of everyone at Avasoft, we appreciate your confidence and support.
Sincerely yours,
| Jim Wheeler |
| Chairman and Chief Executive Officer |
About Avasoft, Inc.
Headquartered in Rocklin, California, and through its wholly owned Ezee Whip Europe, Ltd. subsidiary, Avasoft sells an innovative soft-serve ice cream system into an estimated $6 billion combined U.S. and U.K. soft-serve ice cream marketplace. This patented system, for which it owns marketing rights in Europe and North America, has earned widespread success in several European markets for the last five years. Please visit Avasoft online at www.avasoft.com.
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Forward Looking Statement
This news release includes forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. While these statements are made to convey to the public the company's progress, business opportunities and growth prospects, readers are cautioned that such forward-looking statements represent management's opinion. Whereas management believes such representations to be true and accurate based on information and data available to the company at this time, actual results may differ materially from those described. The company's operations and business prospects are always subject to risk and uncertainties. Important factors that may cause actual results to differ include without limitation: the Company's limited operational experience; ability to raise financing; market acceptance of the Company's ice cream products; dependence on suppliers including Schoep's, and in turn, their suppliers, distributors and providers of raw materials; dependence on license partners; market prices of raw materials such as milk, sugar, and other ingredients; continued enforceability of patent rights; and competition. Many of these risk factors are set forth in the company's periodic findings with the U.S. Securities and Exchange Commission.