SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, DC  20549

                                 Form 10-KSB

[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
              Act of 1934 for the fiscal year ended October 31, 2004

[ ]  Transition report pursuant to Section 13 or 15(d) of the Securities
                            Exchange Act of 1934.

                       Commission File Number:  0-16787


                         YOCREAM INTERNATIONAL, INC.
                        (Exact name of small business
                            issuer 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 Executive Office)

       (Issuer's telephone number, including area code): (503)256-3754

      Securities registered pursuant to Section 12(b) of the Act:  None

         Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, no par value
                               (Title of Class)


Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [   ]

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB, or any amendment to this Form 10-KSB.  [X ]

The issuers sales for the fiscal year ended October 31, 2004 was $19,272,376

The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $5,665,000 based upon the average bid and asked
prices at which the common stock was sold as of January 14, 2005.

At January 14, 2005 there were 2,150,600 shares of the issuer's common stock
outstanding.

                Documents incorporated by reference:

The issuer has incorporated into Part III of Form 10-KSB by reference
portions of its Proxy Statement for its 2005 Annual Meeting of Shareholders.


TABLE OF CONTENTS

<TABLE>
<S>         <C>                                                         <C>
PART I                                                                  Page

Item 1.     BUSINESS.....................................................4
Item 2.     PROPERTIES..................................................16
Item 3.     LEGAL PROCEEDINGS...........................................17
Item 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY
            HOLDERS.. ..................................................17


PART II

Item 5.     MARKET FOR COMMON EQUITY AND
            RELATED STOCKHOLDER MATTERS.................................17
Item 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF
            OPERATIONS..................................................19
Item 7.     FINANCIAL STATEMENTS........................................26
Item 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
            ON ACCOUNTING AND FINANCIAL DISCLOSURE......................26
Item 8A     CONTROLS AND PROCEDURES.....................................27
Item 8B     OTHER INFORMATION...........................................27

PART III

Item 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
            CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
            OF THE EXCHANGE ACT.........................................27
Item 10.    EXECUTIVE COMPENSATION......................................27
Item 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
            AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS..............28
Item 12.    CERTAIN RELATIONSHIPS AND RELATED
            TRANSACTIONS................................................28
Item 13.    EXHIBITS....................................................28
Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES......................29

SIGNATURES..............................................................30
</TABLE>



PART I

Forward Looking Statements

This report on Form 10KSB includes forward-looking statements within the
meaning of the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995.  Such forward-looking statements are based on the beliefs
of the Companys management and on assumptions made by and information
currently available to management.  All statements other than statements of
historical fact, regarding the Companys financial position, business
strategy and plans and objectives of management for future operations of the
Company are forward-looking statements.  When used herein, the words
anticipate, believe, estimate, expect, and intend and words or
phrases of similar meaning, as they relate to the Company or management, are
intended to identify forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to
have been correct. Forward-looking statements are subject to certain risks
and uncertainties, which could cause actual results to differ materially from
those indicated by the forward-looking statements.  These risks and uncer-
tainties include the Companys ability to maintain or expand its distribution
abilities, including the risk of disruptions in the transportation system and
relationships with brokers and distributors. Further, actual results may be
affected by the Companys ability to compete on price and other factors with
other manufacturers and distributors of frozen dessert products; customer
acceptance of new products; general trends in the food business as they relate
to customer preferences for the Companys products; and the Companys ability
to obtain raw materials and produce finished products in a timely manner, as
well as its ability to develop and maintain its copacking relationships and
strategic alliances. In addition, there are risks inherent in dependence on key
customers, the loss of which could materially adversely affect the Companys
operations. The reader is advised that this list of risks is not exhaustive and
should not be construed as any prediction by the Company as to which risks
would cause actual results to differ materially from those indicated by the
forward-looking statements.


Item 1:  BUSINESS

Overview and Corporate History

YOCREAM INTERNATIONAL, INC. (the Company) with corporate headquarters and
manufacturing facility in Portland, Oregon is a pioneer and leading producer
of frozen yogurt since 1977.  The Company makes, markets and sells frozen
yogurt, sorbet, frozen custard, smoothie, soy and ice cream products in a
variety of premium, low-fat, and nonfat flavors in either non-organic or
organic formulations.  These products are sold to a variety of businesses and
outlets, including convenience stores, restaurants, hospitals, school
districts, food distributors, military installations, yogurt shops, fast food
chains, discount club warehouses, business and industry locations, and other
types of outlets.  The Companys primary brand is YoCream(Registered Trademark).
Branded products include frozen yogurt, ice cream, frozen custard, sorbet and
smoothies (see Products Section for full listing). The Company also provides
custom manufacturing for other companies under certain private labels. The
Companys general marketing strategy is to offer a broad selection of products,
designed to fulfill foodservice operators needs, to the foodservice industry
at a price suitable for the relevant markets.

The Industry

The products produced by the Company constitute only a portion of the
relevant frozen dessert and beverage foodservice industry.  The industry
produces a diverse range of products, many of which compete directly with the
Companys frozen dessert and frozen beverage products.

Many types of foodservice outlets make available to the public the Companys
products, as well as competing manufacturer's products.  Retail consumers may
obtain the Companys products or competing products from narrowly oriented
outlets such as small yogurt shops or stands, many of which provide only a
single product, to discount club warehouse types of facilities, as well as
from many medium-sized businesses. Foodservice outlets or institutions, such
as restaurants, hospitals and school districts, typically offer frozen
desserts and beverages of one manufacturer. Larger institutional businesses
with their own distribution systems may obtain their products directly from
the Company, whereas most businesses will obtain their products from national
or regional food distributors.  Frozen desserts are often viewed as premium
products, and are somewhat resistant to price competition.  However, larger
institutional customers for frozen dessert products often enter into contracts
on the basis of price, distribution capabilities, or product quality. Smaller
businesses such as restaurants and yogurt shops will often enter into agree-
ments on the basis of brand identification, reputation or other preferences.

Consumers are motivated to purchase frozen dessert and beverage products on
the basis of taste, reputation, quality, health benefits, and price.  Premium
products tend to be less sensitive to price.  Some consumers will choose one
product over another for health related reasons such as ingredients, calories
and additives.  Frozen dessert and snack products also compete with other
varieties of food and dessert items.

Frozen yogurt and smoothie products have gained wider acceptance by a greater
variety of demographic groups than when first introduced to the marketplace.
The Company believes that frozen dessert and beverage products appeal to and
are purchased by persons of all age groups and both sexes.  The claims of
certain manufacturers related to the healthfulness of their products may also
increase the acceptance of those frozen dessert and products.

The Company

YoCream International, Inc. operates within the health oriented dessert,
beverage, and novelty segments of the frozen dessert industry.  Focus is
placed on manufacturing superior quality products for regional, national,
and worldwide foodservice and retail markets. YoCream International, Inc.'s
expertise in nationwide distribution, foodservice sales and marketing,
research and development, new product development, and manufacturing is
enhanced through leveraging strategic alliances and/or joint ventures (as
will appear more fully in the Market Strategy section below).  These
relationships are developed to increase volume growth and profitability of
the Company.  YoCream International, Inc.'s foodservice YOCREAM branded
presence receives emphasis in selected geographic areas of the U.S. where
sales and marketing resources are focused on branded product expansion.
Companies for which YOCREAM manufactures private label products are provided
outstanding price/value products that meet their stringent quality standards.

Marketing Strategy

The Companys marketing strategy is designed to build its YOCREAM and
DANNON/YOCREAM brands, as well as its private brand and co-pack manufacturing
business.  The Company targets active, on-the-go health oriented consumers
seeking high quality products away from home. The Companys marketing
strategy is to focus sales efforts on developing brand awareness and consumer
loyalty. The Company offers a broad range of frozen yogurt, frozen custard,
ice cream and smoothie products positioned as premium quality providing a
value to the consumer for healthy desserts and beverages.  These product
features and other benefits, including high counts of live active cultures in
its yogurt products, are promoted to customers and consumers through
financially conservative advertising and promotional methods. The Company
also considers the broad distribution of its products critical to sales
growth, with its products available nationwide and in several foreign
countries. The Company views its internal research and development department
as well as its own manufacturing facility to be an integral part of its
product innovation and marketing strategy.

   Advertising and Sponsorships: The Company seeks to increase sales and
   improve brand recognition through financially conservative advertising and
   promotional methods.  The Companys promotional strategy for their direct
   customers, distributors and food service accounts, includes distributor
   programs, trade shows, and select media placement in trade publications.
   Operator/retailer, promotional strategy also includes trade publication
   advertising as well as support of distributor promotions and Company case
   stuffers.  Military/government food service promotional strategy includes
   targeted trade publication advertising, participation in buying groups,
   trade shows, and support of prime vendor programs. Consumer/end-user
   promotional strategy includes in-store merchandising. High profile
   sponsorships also continue to improve brand recognition with prominent and
   highly visible affiliations, such as the NBA Portland Trailblazers and the
   Utah Jazz. Certain advertising rights are granted under the agreements as
   well as exclusivity regarding the sale of products such as frozen yogurt,
   sorbet, soft serve ice creams or smoothies within the Centers.
   Dannon / YoCream Alliance: In April 2001, the Company entered into an
   alliance with The Dannon Company, Inc., a leading national producer of
   yogurt products in the United States, to supply soft frozen yogurt to
   Dannons foodservice customers.  The alliance enabled the Company to enter
   new markets and access national accounts, including military accounts, which
   the Company had not been able to penetrate in the past.  In October 2001,
   the Company announced that the alliance with Dannon was expanded, beyond
   selling frozen yogurt to Dannon foodservice customers, to include a
   co-branded line of soft serve frozen yogurt.  The DANNON/YOCREAM co-branded
   line, which utilizes the YOCREAM formulas, was available nationally by the
   third quarter of 2002 through traditional food service distributors.  In
   November 2002, the Company initiated a plan whereby the sales teams for both
   the Company and Dannon began representing the combined product lines to the
   away-from-home market. In unifying the broker sales network to represent
   both companies, broker changes were made which resulted in a loss of some
   customers.  YoCream regional sales personnel aggressively pursued the
   program and attention was diverted from the sale of the Companys core
   products. By the third quarter of 2003 the program was revised in cooper-
   ation with Dannon, and the Companys sales staff refocused its attention on
   the sales of the Companys core products. Under this plan, sales teams are
   defined involving personnel from both companies to jointly coordinate sales
   efforts and focus on representing selected products to specific distribution
   market segments. Management believes that the two companies are similar in
   philosophy, and that the yogurt products of both companies are known for
   their high live culture count, with an emphasis on product quality and
   appeal to consumers with concerns for health and nutrition. The strength of
   the Dannon name along with YoCreams concentration on the foodservice or
   away-from-home marketplace is expected to offer opportunities for increased
   sales and market share in the future.

   Custom Manufacturing: In addition to marketing its own products, the
   Company also markets its flexible manufacturing facility, product
   development expertise, and logistics services to potential private brand
   and copacking customers through strategic industry relationships.  (See
   Manufacturing Process section for further details.)

   New Product Development and Manufacturing Expansion: A significant part of
   the Companys marketing strategy is to utilize its product development and
   manufacturing capabilities to gain new customers and strengthen existing
   business relationships by customizing products to meet the individual needs
   of larger volume customers and also address emerging trends in the
   industry. A recent example includes the development of the aseptic shelf
   stable smoothie line, which addresses the industry trend toward non-
   refrigerated products in response to the operational needs of foodservice
   establishments.

The Companys sales and marketing organization consists of a Director of
Sales, who directs Business Development and Foodservice Sales Managers, who
in turn work with 29 independent foodservice broker organizations and a
network of distributors on a nationwide basis.  The Companys Director of
National Accounts and Branding works with a Channel Marketing Manager and two
specialty brokers.  Together they facilitate expanding the Companys national
accounts, including military and government foodservice sales.  The Company
also has a Manager of Club Store and International Sales who works with a
specialty broker.  International sales are selectively pursued based on ease
of distribution and profitability.  Marketing and sales abroad are currently
occurring in Mexico, Puerto Rico, Taiwan, Korea, Italy, Germany, and to a
limited degree, several other countries.  In October 2004, the Company added
a Director of Marketing, who oversees marketing activities and inside sales.

The Company, through its research and development efforts and its marketing
strategies, will continue to make known its ability to produce and distribute
unique high quality and good-for-you products.

Products

The Company makes, markets and sells frozen yogurt in premium, low-fat, non-
fat, low-carb and sugar-free flavors; smoothies; non-dairy sorbet; organic
frozen yogurt; organic ice cream; gourmet ice cream; frozen custard, frozen
cultured soy, and other frozen desserts and snacks.  These frozen products
are available in liquid mix form, and some are available in hard pack form.
All of the YOCREAM and YOGURT STAND products are certified Kosher. The
Company also has the ability to produce bottled smoothie or juice products.

The Company sells soft serve yogurt liquid mix to food service customers who
dispense it through a soft serve frozen dessert machine.  In fiscal years
2004, 2003, and 2002 the soft serve liquid mix accounted for approximately
57%, 48%, and 47%, respectively of the Companys case sales.


   Dannon/YoCream Frozen Yogurt (co-branded as Dannon/Yocream in the third
   quarter of fiscal 2002) is the Companys flagship brand of frozen yogurt.
   DANNON/YOCREAM Frozen Yogurt is crafted with one of the highest counts of
   beneficial live active yogurt cultures (Lactobacillus Bulgaricus,
   Streptococcus Thermophilus, and Lactobacillus Acidophilus), using a
   special recipe that produces a smooth and creamy taste. It is available in
   more than 40 flavors in Nonfat, Premium and No Sugar Added (sweetened with
   aspartame) varieties.

   Yogurt Stand Frozen Yogurt is a lower cost line of products designed to
   compete in that part of the institutional market where price is the most
   significant competitive factor. That line of the Companys products
   includes four flavors and an unflavored natural form, which permits the
   customer to add desired flavors.

The Company sells soft serve custard wet mix, softened gourmet ice cream, and
soft serve cultured soy wet mix to foodservice customers who dispense the
product through frozen dessert machines. In fiscal year 2004, 2003, and 2002
these products accounted for approximately 3%, 3% and 2% of the Companys case
sales.

   YoCream Ice Cream is produced by the Company to fill the needs of the
   traditional soft serve ice cream loving consumer. This line includes
   gourmet-softened ice cream in a 10% butterfat vanilla, and a reduce fat
   line, which includes 5% butterfat flavors.

   YoCream Frozen Custard, made from rich cream and real eggs, is offered in
   Vanilla Custard Cream and Chocolate Custard Cream flavors, which are premium
   10% butterfat products. Traditionally, frozen custard requires the operator
   to use batch freezers and then hand dip the product from a freezer case.
   YoCream Frozen Custard has been specially formulated to dispense from
   standard soft serve equipment with a minor temperature adjustment, thereby
   saving labor and equipment expense for operators.

   YoCream Frozen Cultured Soy is a cultured frozen dessert (like frozen
   yogurt) made from non-GMO soy (soy that has been produced without
   biotechnology) that is non-dairy, dairy protein free, lactose free and
   vegetarian/vegan.

The Company also sells hard pack yogurt, sorbet and ice cream products to
foodservice customers.  In fiscal years 2004, 2003, and 2002 the hard pack
products accounted for approximately 1%, 7%, and 11%, respectively of the
Companys case sales.

   Soft Scoop By YoCream is a product introduced to the marketplace in 1992.
   This hard pack frozen yogurt is specially formulated to 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
   single serve four ounce cups.

   Hard pack Novelty Cups are produced in single serve 4 oz. plastic cups in
   frozen custard, ice cream, sorbet and soy varieties.

The Company sells dispenser and blender smoothie liquid mixes to foodservice
customers who dispense the product through either frozen dessert machines or
blenders.  In fiscal years 2004, 2003, and 2002, the smoothie mixes accounted
for approximately 39%, 42%, and 40%, respectively of the Companys case sales.

   YoCream Blender Smoothies and Sorbet were introduced in 1997. These all-
   natural products are available in both yogurt and fruit formulations. The
   base mixes may be poured into a blender directly from the carton in liquid
   state, or drawn from a soft serve machine into the blender. Depending on
   the recipe, ice, fruit and/or juice are then blended with the base mix.
   Blender smoothie mixes can also be dispensed from soft serve equipment as
   an outstanding sorbet product.

   YoCream Dispenser Smoothies were introduced to the marketplace in 1998.
   This concept utilizes all natural, nonfat fruit mixes designed to be
   dispensed from a smoothie machine or frozen beverage dispenser. The product
   is ready to shake and pour into the dispenser and does not require the
   addition of fruit, ice or juice. Research and development continued during
   2004 on the new FruitQuake(registered trademark) aseptic, shelf stable
   dispenser smoothies. The product was selectively tested in the fourth
   quarter of 2004 and will be available for introduction in the second quarter
   of fiscal 2005. The product is packed in one-gallon bags. This smoothie line
   extension meets the need for operators that have limited refrigeration or,
   as in military, geographic locations without refrigeration.

   YOCREAM COFFEE LATTE  was first introduced in fiscal 2001.  In September
   2002, this pre-mixed product was modified to be aseptically packaged in
   three-gallon bags with an extended shelf life. In 2003, the Company
   developed an aseptically packaged coffee concentrate product designed to
   be mixed with milk at the foodservice customers location.  This product,
   which is packaged in half-gallon bags with the Companys new aseptic
   processing system, lowers manufacturing costs and is responsive to the
   needs of a broader foodservice market, such as coffee shops and restaurants,
   for which the larger size was not compatible.

The following is a list of products and flavors under the DANNON/YOCREAM,
YOCREAM or YOGURT STAND brand names:
<TABLE>
<CAPTION>

SOFT SERVE FROZEN YOGURT
------------------------
    Dannon / YoCream
    Non-Fat
    ---------------------------------------------------------------------------
    <S>                         <C>                        <C>
    Alpine Vanilla              English Toffee             Pina Colada
    Apple Spice                 Fancy French Vanilla       Pistachio
    Blueberry Burst             Georgia Peach              Plain
    Butter Brickle              Irish Mint                 Pumpkin
    Cable Car Chocolate         Island Banana              Rootbeer Float
    Cappuccino                  Kahlua                     Strawberry
    Cherry Almond               Luscious Lemon             Very Boysenberry
    Chocolate Classic           New York Cheesecake        Very Raspberry
    Chocolate Mint              Outrageous Orange          White Chocolate
    Country Vanilla             Pecan Praline                 Macadamia
    Egg Nog                     Peppermint Stick

<CAPTION>
    Dannon / YoCream            Dannon/YoCream
    Premium Low-Carb            Premium
    -----------------------     ----------------------------------------------
    <S>                         <C>                        <C>
    Vanilla                     Cheesecake Supreme         Natural
    Chocolate                   Dutch Chocolate            Peanut Butter
    Butter Pecan                French Vanilla             Praline n Cream
    Coffee                      Milk Chocolate             White Vanilla

 <CAPTION>
    Dannon / YoCream
    No Sugar Added
    ---------------------------------------------------------------------------
    <S>                         <C>                        <C>
    Blueberry                   Chocolate                  Strawberry
    Cafe au Lait                Raspberry                  Vanilla

<CAPTION>
    Yogurt Stand Nonfat
    -------------------
    <S>
    Chocolate
    Strawberry
    Vanilla

<CAPTION>
HARD PACK FROZEN NOVELTIES
--------------------------
    YoCream Soft Scoop 4 oz
    ---------------------------------------------------------------------------
    <S>                         <C>                        <C>
    Chocolate Frozen Yogurt     Very Berry Sorbet          Chocolate Soy
    Strawberry Frozen Yogurt       Yogurt Swirl            Strawberry Soy
    Vanilla Frozen Yogurt       Very Berry Sorbet          Vanilla Soy
    Orange/Vanilla Swirl        Chocolate Custard
    Peanut Butter Fudge Swirl   Vanilla Custard

<CAPTION>
ICE CREAM, FROZEN CUSTARD AND SOY
---------------------------------
    YoCream Ice Cream           YoCream Frozen Custard     YoCream Soy
    -----------------           ----------------------     -----------------
    <S>                         <C>                        <C>
    Chocolate 5% B.F.           Chocolate Cream            Chocolate
    Vanilla 5% B.F.             Vanilla Cream              Strawberry
    Vanilla 10% B.F.                                       Vanilla
                                YoCream Shake Base
                                ----------------------
                                Vanilla 10%
<CAPTION>
SMOOTHIES
---------
    YoCream Fruit Dispenser     YoCream Fruit Blender      Dannon Frozen
    Smoothies                   Smoothies (and Sorbet Too) Frusion by Yocream*
    ------------------------    -------------------------  -------------------
    <S>                         <C>                        <C>
    Berry Banana                Kiwi Strawberry Splash     Cherry Berry Frusion
    Guava Raspberry             Lemony Lime                Peach Frusion
    Mango Sunrise               Mango Tango                Wild Berry Frusion
    Strawberry                  Orange Burst
    Tropical                    Very Berry

    *New product expected to be available for sale in the second quarter of
     2005.

<CAPTION>
    YoCream Yogurt Blender
    Smoothies
    ----------------------
    Vanilla


 ASEPTIC PRODUCTS
 ----------------
    Fruitquake Dispense                                   YoCream
    Smoothies Bag In Box                                   Concentrate
    -----------------------------------------               -------------------
    <S>                         <C>                        <C>
    Berry Banana                Strawberry                 Coffee Concentrate
    Lemonade                    Tropical
    Pina Coloda                 Wild Berry
    Strawberry Banana
</TABLE>

Manufacturing Process

All of the manufacturing and packaging of the Companys products for both
domestic and international sales occurs at its plant in Portland, Oregon (See
General Section).

While the manufacturing plant is capable of producing a full range of dairy
products and other fluid items, such as fruit based beverages, it primarily is
utilized to produce frozen yogurt, frozen custard, ice cream, sorbet and
smoothies.  The facility is a fully licensed dairy and pasteurizes its products
under USDA certification and inspection. One unique feature of the facility is
its ability to produce under Organic Certification, organic ice creams,
yogurts, and sorbets. Throughout the facility, both organic and non-organic
products can be processed and packaged simultaneously while maintaining
separation.

The manufacturing plant has three distinct packaging operations that can be
operated simultaneously based on demand.   One operation is for the filling
of half-gallon gable top containers for soft serve products.  A second line
packages hard packed yogurt, frozen custard, ice cream and sorbet products in
quarts, pints and 4 ounce cups.   Within these two operations are a multitude
of packaging sizes, styles, and finished casing capabilities along with a
full range of inclusions that can be added to the finished products. A third
packaging line handles aseptically processed, shelf-stable fruit smoothie and
coffee concentrate products in half-gallon and three-gallon bags.  Management
estimates that plant utilization is approximately 40%.

In January 2001, the Company completed a major upgrade of its plant
facilities, as part of the Companys commitment to its customers and to the
market place.  The project more than doubled the Companys throughput
capabilities, automated a number of production processes and upgraded bag-in-
box packaging capabilities.  This allowed YOCREAM to serve the increasing
requirements of its existing customers, and develop products for new markets.

In October 2003, the Company completed an aseptic processing system costing
over $2 million.  The system expands the Companys production capabilities,
and enables the Company to produce shelf stable products that do not require
refrigeration for shipping or storage.

The manufacture and sale of the Companys products are subject to the
jurisdiction of a variety of regulatory authorities, including, but not limited
to federal, state, county and city agencies administering laws and regulations
relating to health, labor, and the food industry.  The Company is also subject
to periodic inspections of its facilities by federal, state and local
governmental agencies.

Quality Assurance and Food Safety

Food safety is a primary focus for the Company. The Companys Quality
Assurance Department ensures that the most stringent levels of regulatory
compliance are maintained, meeting and exceeding all inspection standards
including but not limited to USDA, FDA, military, customer food safety audits,
aseptic processing standards, export requirements, kosher and organic certi-
fication.  The Quality Assurance Department is staffed with two full time
microbiologists, a degreed sanitarian and a degreed food scientist. The
department maintains its proficiency on important food safety issues such as
allergen and pathogen control through food safety training, GMP education,
supplier audits, and laboratory analyses.

The Company is in compliance with the Bioterrorism and Preparedness Act with
registration of the facility completed and a lot tracking system in place to
comply with the stringent requirements for immediate trace back and trace
forward of all ingredients, packaging, and finished products.  The Company
plans to further enhance this system in fiscal 2005. Further biosecurity
measures such as designated facility entrances with controlled plant access,
surveillance system, new employee background checks and seals on tankers have
also been implemented.

The Company believes that it is in compliance with applicable government
regulations, and that the strength of its quality assurance program has been
validated by the high ratings achieved on several third-party safety audits
performed during fiscal 2004.

Inventory and Backlog

The Company is primarily a make-to-stock operation with a relatively short
cycle time; hence we do not have a significant production backlog.  The Company
strives to maintain a low level of raw materials inventory.  Inventory of
finished goods is maintained at levels to accommodate wide distribution of the
Companys products throughout the United States.

Research and Development
The Companys research and development activities include the development of
new YoCream products, expanding and improving existing products and flavor
profiles.  The R&D department also develops proprietary formulas for our
customers and assists copacking customers with their formulations.

In addition to the development of new products and flavors, the R&D department
is constantly researching ingredient supply and possible cost improvement
opportunities.  The maintenance and consolidation of ingredient suppliers
requires continual monitoring and research for replacement ingredients without
compromising the quality and flavor of existing products. The R&D department is
also involved in ongoing activities such as shelf life testing.

The Companys development activities occur at the Portland, Oregon facility.
Total research and development expenditures for the year ended October 31,
2004, was approximately $464,000, compared with $555,000, and $446,000 for the
years ended October 31, 2003 and 2002.

Raw Materials and Suppliers

The primary ingredients in the Companys smoothie and yogurt products are a
variety of fruits, liquid milk, and dry milk components.  The Company presently
utilizes one primary supplier for the pasteurized fruit ingredients used in its
smoothie products.  Pasteurized fruit ingredients are also purchased from a
number of companies nationwide based upon the Companys strict quality
standards.  Suppliers of the milk utilized by the Company are mostly based in
the Pacific Northwest.  Because freshness and timeliness of delivery are
critical, the Company prefers local suppliers. After liquid milk is received,
it is pasteurized at the Companys plant and it becomes the primary ingredient
in the Companys yogurt products. The Companys largest supplier of liquid milk
supplied approximately 89% of the Companys needs in fiscal year 2004 and other
suppliers provided approximately 11%.

The Company continues to take actions to reduce over-all materials expense.
Through on going vendor negotiations, the Company has entered into contracts
for varying terms of up to one year, greatly minimizing sudden and unexpected
price fluctuations while also leveraging lower prices over larger committed
volumes. The Companys collective purchasing agreement with the All Star Dairy
Association continues to provide additional purchasing leverage on certain key
materials. In 2004, the Company also began purchasing one of its top three
ingredients through this association, which has resulted in cost savings.

The Company continues to develop back-up sources of supply for key ingredients.
All supplies used by the Company are available from a variety of suppliers.
The Company has never experienced any form of supply shortage.

Distribution and Significant Customers

The Companys products are distributed nationwide and in several foreign
countries. Distribution is facilitated by buyer pickup or by transportation
arranged by the Company. The Companys products are generally shipped on
refrigerated trucks to all domestic locations.

While the Company has experienced growth in all customer classifications,
revenues derived from its largest customer, Costco Wholesale, represented
72%, 70%, and 68% of total sales in the years ended October 31, 2004, 2003,
and 2002, respectively.  In fiscal year 1989, the Company began selling soft
serve frozen yogurt to Price Club.  After the merger between Costco and Price
Club, Costco chose the Companys soft serve frozen yogurt, over that of
competitors, for its food courts.  During 1998, Costco selected the Company
to develop a dispenser smoothie product to be offered in its food courts.
This product has been provided to all of the customers nine distribution
centers in the United States.  Recently the customer elected to use a compet-
itors product for one of its distribution centers.  Management is attempting
to regain this business.  During 2001, Costco again selected the Company to
develop a coffee latte freeze product to be offered in some of its food courts,
but the product was subsequently discontinued in 2004. (See Sales section.) Due
to the consistently high-level of quality and customer acceptance of these
products and the efficient operation of Costco's food courts, there has been a
significant increase in its sales.  Furthermore, the longevity of this
relationship is due to various factors, including the Companys distribution
system and responsiveness to Costco's operational and logistical requirements.
Another significant factor is the field support program that has been
implemented in cooperation with an independent broker.  The support program
includes an intensive sampling of yogurt and smoothie products at all new
warehouse openings.  Management is determined to maintain the quality of
service that supports the longevity of this relationship and expects that its
business with Costco will continue to grow.

Advertising and Promotion

During the year ended October 31, 2004 such expenses totaled approximately
$391,000 representing 2.0% of net sales.  These compare to $378,000, or 1.8%
of net sales in 2003; and $372,000, or 1.9% of net sales in 2002.

The Company seeks to increase sales and improve brand recognition through
conservative advertising and promotional methods. (See Marketing Strategy for
more detail.)

Competition

The Companys products constitute a portion of a greater market, which
includes all forms of yogurt-based frozen desserts, ice cream products and
non-dairy frozen desserts.  The market for the Companys products is very
competitive because of the number of alternative products available and
because of the number of businesses producing competitive products. Competition
in the frozen dessert and ice cream industry has increased over the last
several years as a result of substantial increases in the number and kind of
frozen dessert products.  Some of the companies that produce products that
compete with those of the Company are substantially larger and have signifi-
cantly greater resources.  Increased competition from the established manufac-
turers and distributors of frozen desserts, snacks and beverages can be
expected in the future.

The Company competes against different sets of manufacturers for each product
it markets.  The Companys principal competitors for soft serve frozen yogurt
products include Colombo (General Mills) and Eskimo Pie/CoolBrands.  Smoothie
product competitors include Island Oasis, Frutazza, Jet Tea, and Artic Ice.
In addition to the large primary competitors identified, the Company competes
with numerous small local and regional companies.

Through the Companys national system of brokers and distributors, management
believes it competes effectively.  Price and quality competition, however,
has become intense in certain geographical areas.  The Company has responded
to price competition from regional dairies with its lower-priced products
under the Yogurt Stand label and to competition on quality with its YOCREAM
brand products.  While the Company continues to experience competitive
success, no assurance can be given that the Company will continue to compete
successfully against other available products.
Other than direct competition for specific soft serve or hard pack frozen
yogurt products, the Companys products compete against certain other frozen
dessert items, such as ice cream.

Seasonality

The Companys sales and earnings are somewhat seasonal with a greater
percentage occurring in the second and third calendar quarters or spring and
summer months and, to some extent, holiday periods. Introduction and rollout
of new products may tend to level the seasonal fluctuations.

Trademarks and Trade Names

The Company registered as a trademark the name of its primary product,
YOCREAM, with the United States Patent and Trademark Office.  This trademark
is renewable and, therefore, is of an indefinite term.  That trademark is
also registered in Canada and may be renewed there upon expiration.  Some of
the Companys products use that basic trade name with other words or design-
nations, such as YOCREAM LITE.  In addition, the Company uses the trademarks
JUST SAY YO, PURE PLEASURE, YOGURT STAND, PURE PLEASURE, PURE FOOD, PURE
ENVIRONMENT, ITS A BELIEF, ITS A LIFESTYLE, SOFT SCOOP, YO CAFFE, SMOOTH AND
TASTY, and FRUITQUAKE.  The Company has registered or intends to register these
trademarks in the United States and may register the trademark YOCREAM in other
foreign countries.

Employees

The Company employed 60 persons at October 31, 2004, all of whom were full-
time (35 hours per week or more.)  None of the Companys employees are
covered by collective bargaining agreements, and management believes its
employee relations are good.  The Companys sales representatives manage a
network of national and regional foodservice brokers.  These are independent
brokers and are paid by commissions on sales.  The Company has never
experienced a labor strike or work stoppage.

Item 2:  PROPERTIES

The Company is located at 5858 NE 87th Avenue, Portland, Oregon 97220, in two
adjacent properties consisting of 53,200 combined square footage.  The Company
uses approximately 13,000 square feet for production, approximately 8,300
square feet for freezer and refrigeration purposes, and approximately 4,500 for
office space.  The Company has designated the remaining 27,400 square feet for
warehouse purposes and for potential use in expanding the Companys freezer and
production facilities.

In May 1994, when the lease of the Companys production and office facilities
expired, the Board of Directors decided that in order to preserve capital the
Company should allow certain of its officers and directors to purchase the
property, with the Company 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
Company.  In fiscal year 1998, Pente Investments agreed to fund a 4,200 square
foot facility addition to provide needed office space.  The current lease has a
remaining term of approximately 9 years and provides for a base rent of $17,000
per month to July 2006 and then increases at approximately 8% every three
years.

In November 2003 the Company leased from Pente Investments, property and a
building adjacent to its manufacturing plant. The purchase of the property was
funded by Pente Investments to conserve the Companys borrowing capacity.
The new warehouse space (included in the square footage above) increased
overall plant capacity by optimizing utilization of the existing manufacturing
facility.  The building is being utilized to store raw materials and shelf
stable products, reducing offsite storage and freight expenses, which has
offset the costs of the new space. Approximately 39,500 square footage of
improved land is available on site for future expansion of operating faci-
lities.  The lease, which was approved by an independent committee of the Board
of Directors, has a term of 15 years, a base rent of $12,848 per month for the
first through third year and increases approximately 9% every three years
thereafter.

Other materially important property of the Company includes certain equipment,
which it utilizes to manufacture and distribute its products, including
standard dairy equipment, holding tanks and refrigeration units. In addition,
the Company leases other equipment under operating leases.

Item 3: LEGAL PROCEEDINGS

As of the date of this Annual Report on Form 10-KSB, the Company had no
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 2004.

                                   PART II

Item 5: MARKET FOR 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 14, 2004,
there were 2,150,600 shares of the common stock outstanding and there were
142 shareholders of record estimated to represent approximately 1,000 bene-
ficial holders based on the number of individual participants in security
position listings.  On January 14, 2004 the closing bid and asked prices were
$4.43 and $4.45, respectively.

The following table sets forth the high and low closing prices for quarterly
periods in the two twelve month periods ended October 31, 2004 and 2003, as
reported by NASDAQ Stock Market:

<TABLE>
<CAPTION>
     Twelve months Ended October 31, 2004              High         Low
     ------------------------------------             -----        -----
          <S>                                         <C>          <C>
          August 1, 2004   -  October 31, 2004        $4.81        $4.00
          May 1, 2004      -  July 31, 2004            4.99         4.31
          February 1, 2004 -  April 30, 2004           5.50         4.80
          November 1, 2003 -  January 31, 2004         5.75         4.80
<CAPTION>
     Twelve months Ended October 31, 2003              High         Low
     ------------------------------------             -----        -----
          <S>                                         <C>          <C>
          August 1, 2003   -  October 31, 2003        $5.73        $4.55
          May 1, 2003      -  July 31, 2003            5.75         4.55
          February 1, 2003 -  April 30, 2003           6.89         5.01
          November 1, 2002 -  January 31, 2003         8.39
6.59</TABLE>

The Company has not paid dividends on its common stock since the stock began
public trading on November 17, 1987.  The Company does not expect to pay cash
dividends on its common stock in the foreseeable future.  The Company intends
to invest funds otherwise available for dividends, if any, on improving the
Companys capital assets.

The only repurchases of the Companys equity securities during the three months
ended October 31, 2004 were 4,500 shares purchased at an average price of $4.16
per share by the Trustee of the Companys 401(k) Employee Savings Plan and
Trust for and on behalf of the Plan.  In November 2004, the Companys Board of
Directors authorized the repurchase of up to $1,250,000 of the Companys common
stock.  (See Liquidity and Capital Resources for further details.)

The following selected financial data set forth below as of October 31, 2004
and 2003, and for each of the three years in the period ended October 31,
2004 are derived from the audited financial statements included elsewhere in
this report and are qualified by reference to such financial statements.  The
selected financial data as of October 31, 2002, 2001, and 2000 and for each
of the two years in the period ended October 31, 2001, are derived from
financial statements not included herein.

<TABLE>
<CAPTION>
                                             October 31,
                                             -----------

Balance Sheets           2004        2003        2002        2001       2000
                         ----        ----        ----        ----       ----
<S>                <C>         <C>         <C>          <C>         <C>
Total Current
Assets             $ 7,027,349 $ 6,125,215 $ 5,430,073  $4,992,797  $4,372,804

Total Assets        13,755,896  12,867,107  10,224,937   9,651,561  7,426,575

Long-Term Debt       2,305,939   2,279,667     858,167   1,037,024    125,073
Shareholders'
Equity               8,572,578   8,145,639   7,503,195   6,818,348  6,130,492

<CAPTION>
                                   For the Years Ended October 31,
                                   -------------------------------

Statements of Income   2004        2003        2002        2001       2000
                       ----        ----        ----        ----       ----
<S>               <C>         <C>         <C>         <C>         <C>
Sales             $19,272,376 $20,477,934 $19,438,892 $15,616,943 $14,943,886

Income from
   Operations         693,544     989,893   1,549,234   1,125,081   1,542,737

Income before Taxes   639,639     803,144   1,368,070   1,021,193   1,572,918

Income Tax
   Provision(2)       219,000     268,000     512,000     268,000     548,000

Net Income   (1)      420,639     535,144     856,070     753,193   1,024,918

Earnings per Common
   Share-Basic (1)        .18         .24         .38         .33         .45

Earnings per Common
   Share-Diluted  (1)     .18         .23         .38         .33         .45
<FN>
<F1>(1)  Fiscal year 2003 results were impacted by a one-time unusual expense
of
$182,000 in the third quarter.  This represented settlement of a freight
charge claim to a customer for shipments in 2001 and 2002.  Were it not for
the one-time charge related to prior years, earnings per share for 2003 would
have been $0.28.  The Company does not expect this to reoccur because both
parties have resolved the underlying circumstances.

Fiscal year 2002 results were impacted by a one-time unusual expense of
$147,000 in the fourth quarter.  This represented settlement of a freight
charge claim to a customer for shipments in 1999 and 2000.  Were it not for
the one-time charge related to prior years, earnings per share for 2002 would
have been $0.42.
<F2>
(2)  The effective tax rates for fiscal years 2004, 2003, 2002, 2001 and 2000
are 34.2%, 33.4%, 37.4%, 26.3% and 34.8%.  The fiscal year 2001 rate is lower
than the other years because of the deduction of research and development
credits relating to several years.
</FN>
</TABLE>

Item 6: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

Results of Operations

General

YoCream Internationals primary focus is on manufacturing, marketing and
sales of superior quality frozen yogurt, frozen custard, sorbet, smoothie,
coffee latte 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. Due to the nature of
these products, sales are subject to seasonal fluctuations, with the summer
months normally being the busiest season.  The introduction and roll out of
new products has tended to level the seasonal fluctuations.

The results for fiscal 2004 were impacted by an increase in freight rates, a
decrease in sales and by increased fixed costs due to the plant expansion
completed in the fourth quarter of fiscal 2003.  Sales of the Companys core
products increased 7.1% in 2004; however, overall sales decreased 5.9%
primarily related to events that took place in the prior year.  These included
the Companys lead customer switching from the Companys premixed coffee latte
freeze to a competitors coffee concentrate product in late 2003, a regional
chain of specialty restaurants suspending purchases of a proprietary gourmet
ice cream in June 2003, and a copacking customer acquiring its own production
facility early in 2003.

Sales in fiscal 2003 increased 5.3%, primarily from new products, which
included soft frozen custard, gourmet ice cream, and aseptic latte freeze.
The increase in sales was not as much as expected due to the factors described
above, as well as by the sluggish economy, high unemployment, and by a joint
sales program with the Companys strategic partner, which diverted attention
from the sale of the Companys core products through the second quarter of
fiscal 2003.  Operating costs in fiscal 2003 increased due to raw material
costs increases, and by additional outside costs incurred related to providing
its lead customer with the aseptic coffee latte product.  Competitive
conditions limit the Companys ability to pass on these costs.  Increases in
professional fees, and additional freight charge reimbursements also impacted
earnings for the year.

Management believes that the Companys commitment to the industry evidenced
by its significant investment for expansion and its responsible plan for growth
effectively positions the Company to increase shareholder value. Additional
details relative to results and managements plans are presented below.

Sales

The Companys sales were $19,272,000, $20,478,000, and $19,439,000, for the
years ended October 31, 2004, 2003, and 2002, respectively, and represented a
decrease of 5.9% in 2004 and an increase of 5.3% in 2003.

For the years 2004, 2003 and 2002, the breakdown of sales by product is as
follows:
<TABLE>
<CAPTION>                    %                     %                     %
Category         2004      Total       2003      Total       2002      Total
----------  -----------   ------  -----------   ------  -----------   ------
<S>         <C>            <C>    <C>            <C>    <C>            <C>
Yogurt      $11,164,000    57.9%  $10,399,000    50.8%  $10,108,000    52.0%

Smoothies     7,426,000    38.5%    6,955,000    34.0%    6,921,000    35.6%

Coffee
Latte
Freeze               -      0.0%    1,676,000     8.2%    1,418,000     7.3%

Custard
Ice Cream
and Soy         663,000     3.5%    1,256,000     6.1%      727,000     3.7%

Copacking        19,000     0.1%      192,000     0.9%      265,000     1.4%
            -----------   ------  -----------   ------  -----------   ------
            $19,272,000   100.0%  $20,478,000   100.0%  $19,439,000   100.0%
            ===========   ======  ===========   ======  ===========   ======
</TABLE>

Frozen Yogurt:    The increase in frozen yogurt sales of 7.4% was primarily
related to continued growth in three sectors: wholesale club, military /
government, and healthcare / institutions.

The Company continues to develop and experience success in its core business
of frozen yogurt.  In 2004 concentrated sales activities were directed to the
healthcare and military/government segments as well as national broadline
distribution of the Companys core products.  The Company has seen successive
growth in its military/government business since 2001. Subsequent to previously
engaged contracts, the company has expanded is sales efforts in the healthcare
and institution segment. This activity has resulted in successful sales
conversions of competitors products to the Companys products. This business
also facilitated expanded distribution of the Companys products with broadline
foodservice distributors.  Sales focus on distribution has allowed the Company
to secure 25 new national points of distribution in the last two years. The
Company continues to service wholesale club sales by maintaining a high level
of customer support.

Smoothie Sales:    Smoothie sales, consisting of both aseptic and non-aseptic
products, increased by 6.8% primarily as a result of the growth in the
wholesale club business.

Research and development continued during 2004 on the new FruitQuake
(trademark) aseptic, shelf stable dispenser smoothies for the Companys
foodservice product line. The shelf-stable dispenser smoothies were selectively
tested in the fourth quarter of 2004 and will be available for introduction in
the second quarter of 2005.  Packed in one-gallon to three-gallon bags, this
smoothie line extension meets the needs of operators that have limited
refrigeration or, as in military, geographic locations without refrigeration.
As with the Companys existing frozen smoothie line, the addition of water or
ingredients at the operators location is not required, promoting a consistent
product and reduced labor for the customer. The Company has developed a
concentrated fruit smoothie line for those customers desiring to mix the
product with water at their dispensing location, as well as an aseptically
packed coffee concentrate designed to be mixed with milk at the operators
location. This line extension is being selectively introduced to key accounts
for test market and is scheduled for release in the second quarter of 2005.

Frozen Custard, Gourmet Ice Cream and Soy:  Gourmet softened ice cream
decreased when compared to the same period in the prior year primarily due to
a major regional chain of specialty restaurants suspending purchases in June
2003 of this proprietary ice cream formulation due to pricing concerns.  The
Company formulated new products to meet the customers needs; however sales of
the new product have been insignificant.  In the second quarter of 2004, a
Nebraska based chain of 64 restaurants that had been purchasing the Companys
soft serve frozen custard changed to the Companys reduced fat ice cream product
with a lower price.  This customer has recently elected not to renew
the contract in favor of local supply effective December 31, 2004.

This category also includes sales of soft serve soy cultured dessert. The
company sees this as a niche product that helps set it apart from its
competitors. Marketing strategies for this product line are directed at
specialty operators and shops.

Copacking:    The Company promotes its copacking capabilities, and the
flexibility of its manufacturing facility through industry affiliations such
as Northwest Food Processors Association and the All Star Dairy Buying Group,
as well as through the direct sales activities of business development managers
and senior sales staff.

The decrease in copacking revenue in fiscal 2004 occurred as a result of a
large copacking customer acquiring its own production facility.  The Company
is in the process of developing new proprietary products at the request of
significant potential customers that could result in new, high volume accounts
in the future.

Cost of Sales

Cost of sales, as a percentage of revenues, were 73.8%, 72.6%, and 71.7%, in
2004, 2003, and 2002 respectively.  Costs increased in 2004 primarily as a
result of the conversion of sales from a fresh smoothie to an aseptic shelf-
stable smoothie, as well as by higher dairy and other ingredient costs,
expanded research and development activities, and current fuel surcharges for
both incoming and outgoing freight.  Depreciation and lease payments also
increased due to the aseptic processing system completed in October 2003 (see
General Section) and the lease of additional warehouse space in November 2003.
(See Properties Section.)  In some cases, competitive conditions have limited
the Companys ability to pass on the additional costs.

Costs increased in 2003 primarily due to the manufacture of the low margin
coffee latte freeze and a planned reduction of finished goods inventory
levels. Other significant factors effecting cost of sales in 2004 and 2003
included increased costs of raw materials (See General Section for details.)

Ingredients used in the Companys products are agricultural products subject
to price risk.  The Company minimizes this risk by entering into contracts to
cover its annual production requirements.  In 2004 and 2003 the Company
responded to significant increases in raw material costs by developing high-
quality reformulations of key products, which limited the effect of the cost
increases.

Gross Profit

Gross profit margins were 26.2%, 27.4%, and 28.3%, in 2004, 2003, and 2002, as
a result of the factors discussed above and the lower sales level in 2004.

Selling and Marketing Expenses

Selling and marketing expenses, as a percentage of revenues, for the years
ended October 31, 2004, 2003, and 2002 were 12.0%, 11.1%, and 10.4%,
respectively.  Such expenses are generally related to the level of revenues
and marketing activities. Sales and marketing expenses in total have increased
in 2004, 2003 and 2002 due to promotional expenses, Dannon royalty payments, an
increase in field staff, and travel expenses related to supporting the sales
expansion.  The sales department was reorganized late in 2004, which resulted
in the addition of senior level sales and marketing personnel to support
projected growth.  This is expected to increase expenditures in 2005; however,
Management believes that the opportunities merit the intensified sales and
marketing activities.

General and Administrative Expenses

General and administrative expenses for the years ended October 31, 2004,
2003, and 2002, as a percentage of revenues, were 10.7%, 11.5%, and 9.9%,
respectively.  The decrease of general and administrative expenses in 2004 is
primarily the result of a reduction of personnel related expenses, and
professional fees as expected.  Expenses in 2003 were higher than normal due
to increases in personnel costs and professional fees.

Income from Operations

Income from operations for the years ended October 31, 2004, 2003, and 2002
was $694,000, $990,000, and $1,549,000, respectively.  The factors affecting
the reduced income from operations in 2004 are explained in the General Section
above.

The results for 2004 and 2003 were impacted by the Companys commitment to
expand its sales organization and intensify its marketing programs. The
results were also affected by the increase in cost of sales described above.

Other Income (Expense)

Interest expense increased in 2004 as a result of the master finance lease
facility used to fund the aseptic processing system, which was completed in
October 2003.  Over the last three years construction interest capitalized
amounted to $0 in 2004, $9,200 in 2003 and $0 in 2002.

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 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 the settlement of these additional freight
costs.  The parties have resolved the underlying circumstances related to the
freight issue and Management does not expect a re-occurring charge in future
periods.  The Company incurred no unusual expenses in fiscal 2004.

Income before Income Taxes

Income before taxes for the years ended October 31, 2004, 2003, and 2002 was
$640,000, $803,000, and $1,368,000, respectively.  The change in income from
operations in 2004 is explained in the General Section.  The large income from
operations of 2002 was primarily the result of a 24.5% increase in sales.

Provision for Income Taxes

The effective tax rate was 34.2%, 33.4% and 37.4% in 2004, 2003 and 2002,
respectively.  The effective rates are less than the expected rate of 38.4%
primarily due to the realization of federal tax credits in 2004, 2003 and 2002.
In the future, the Company expects that its provision for income taxes will be
at or near the applicable federal and state statutory rates.

Net Income

Net income for the years ended October 31, 2004, 2003, and 2002 was $421,000,
$535,000, and $856,000, respectively.  Net income, as a percentage of sales,
was 2.2%, 2.6%, and 4.4% in each of the three years. See General Section for
managements analysis for declining year 2004 net income. The Company believes
that the marketing strategies described in this document as well as cost
control measures will enable it to improve financial results by the second and
third quarters of 2005.

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 preparation of financial statements in conformity with generally accepted
accounting principles requires the appropriate application of certain
accounting policies, many of which require management to make estimates and
assumptions about future events and their impact on amounts reported in the
Companys financial statements and related notes.  On an ongoing basis,
management evaluates these estimates, including those related to inventory
reserves and allowance for doubtful accounts. Management bases these estimates
on historical experience and on various other assumptions. Actual results may
differ from these estimates if conditions turn out differently from the
assumptions.

The Companys accounting policies are more fully described in Note A of Notes
to Financial Statements.  The critical accounting policies are as follows:

  Inventories are stated at the lower of cost or market.  The Company
  determines cost based on the first-in, first-out (FIFO) method for raw
  materials, packaging materials and supplies, and based on standard costs for
  finished goods.  The realizability of raw material and finished goods
  inventories is regularly evaluated based on a combination of factors
  including the following: historical usage rates, forecasted sales or usage,
  historical spoilage rates and other factors, and reserves established as
  necessary.

  Revenue from the sale of products is generally recognized at the time of
  shipment to the customer.  Pursuant to EITF 01-9, Accounting for
  Consideration Given by a Vendor to a Customer or a Reseller of the Vendors
  Products, certain promotional payments paid to wholesalers or retailers by a
  vendor for the sale of its products must be shown as a reduction of the
  revenues in the period they are provided.

  The Company has adopted the disclosure only provisions of Financial
  Accounting Standard No. 123, Accounting for Stock-Based Compensation (SFAS
  123).  It applies APB Opinion No. 25, Accounting for Stock Issued to
  Employees, in accounting for its stock-based compensation plans.  In December
  2004, the FASB issued SFAS No. 123(R) (revised 2004), Share-Based Payment,
  which amends FASB Statement Nos. 123 and will be effective for public
  companies for interim or annual periods beginning after June 15, 2005.
  The new standard will require the Company to expense employee stock options
  and other share-based payments.  The new standard may be adopted in one of
  three ways - the modified prospective transition method, a variation of the
  modified prospective transition method or the modified retrospective
  transition method. The Company is currently evaluating the effect that the
  adoption of SFAS 123(R) will have on its financial position and results of
  operations.

Liquidity and Capital Resources

In recent years, the Company has financed its operations and expansion from
internally generated funds, bank loans, operating leases, capital leases and
stock sales.  The cash flow for the three years ended October 31, 2004 is
summarized as follows:
<TABLE>
<CAPTION>
                           2004   % Change       2003   % Change      2002
                      ----------- --------  ----------- --------  ------------
<S>                   <C>          <C>      <C>          <C>      <C>
Net cash provided by
operating activities  $ 2,051,000   20.5%   $ 1,702,000   20.0%   $ 1,418,000

Capital expenditures     (934,000) (54.9%)   (2,069,000) 222.3%      (642,000)

Net cash provided by
(used in) financing
activities                 45,000  (97.0%)    1,483,000  463.5%      (408,000)

Net increase in cash
and cash equivalents    1,163,000    4.2%     1,116,000  204.1%       367,000

Cash and cash
equivalents at end
of year                 3,807,000   44.0%     2,644,000   72.9%     1,529,000

Working capital         5,267,000   16.9%     4,505,000   18.1%     3,815,000
</TABLE>

During fiscal 2003, management identified certain logistics elements and
inventory turns as key performance indicators.  As a result of managements
focus on this area, inventory levels were reduced and inventory turns increased
to approximately 7.7 and 6.6 times per year in 2004 and 2003, respectively,
compared with 5.4 times in 2002.  Through improvements in logistics planning,
the related storage costs were also reduced in fiscal 2004 and 2003.
Management plans to continue the current inventory management and logistics
programs in fiscal 2005.

The Companys capital expenditures for the years ended October 31, 2004, 2003,
and 2002 were approximately $934,000, $2,069,000, and $642,000, respectively.
During 2003 the Company completed the installation of an aseptic processing
system.  The construction costs to the point of bringing the system on line in
October 2003 was approximately $2,153,000, including $141,000 in capitalized
internal labor costs associated with the project.  In 2004 the Company added
$363,000 in ancillary outlays related to the aseptic processing system.

During fiscal 2003 the Company arranged a master finance lease facility to fund
the new aseptic processing system.  The project was funded by this facility in
December 2003.  At that time the amounts previously drawn on the line of credit
and the existing term loans were refinanced under the master lease facility.
The Company also received approximately $395,000, resulting in a long-term
obligation totaling approximately $2,953,000.  This financing arrangement
provides for payments over seven years with interest at 30-day LIBOR plus 175
basis points (3.74% at October 31, 2004), with the option to convert to a fixed
rate by using an interest rate swap at the Companys discretion.

In November 2004, the Company entered into an interest rate swap agreement with
the objective to take advantage of the current low interest rate environment.
This swap agreement has been designated as a fair-value hedge of the Companys
floating rate debt, effectively converting this debt to a fixed rate of 5.88%.
It is the Companys policy to enter in to interest rate swap agreements when
management deems them useful in reducing risks to the Company.  The Company
will account for this interest rate swap as a fair value hedge, which it has
determined to be highly effective.  The fair value of the interest rate swap
will be recorded on the balance sheet and changes in fair value of this
instrument will be shown, net of tax, in accumulated other comprehensive
income.

The Company has an unutilized bank line of credit of $2,000,000, which matures
in July 2007, and provides for an interest rate at prime, with the option to
lock in sub-prime rates on blocks of funds up to 90 days.  The bank has also
offered an additional $500,000 term loan line for equipment purchases.

During the three years ended October 31, 2004, 2003, and 2002 the Company
repurchased zero, 26,822, and 71,713 shares, respectively of its common stock.
It has been the Companys practice to purchase shares of its stock from time to
time, pursuant to board approved plans.  The Company also purchases stock for
its required contributions to the Companys 401(k) Employee Savings Plan and
Trust.

On November 8, 2004, the Companys Board of Directors authorized the repurchase
of up to $1,250,000 of the Companys common stock.  Under the terms of Plan,
the Company may make purchases over time through open market transactions,
block purchases, or through privately negotiated transactions.  Based on the
recent market price, the Company could acquire in excess of 10% of the
outstanding common stock of the Company.  To assist the Company in executing
the stock repurchases, the Company has entered into a 10b5-1 trading plan that
will be administered and executed by designated broker that may purchase shares
on behalf of the Company beginning November 8, 2004 and ending on April 30,
2005, unless terminated earlier by the Company.  See Note P of Notes to the
Financial Statements for additional information.)

At October 31, 2004 and 2003, working capital includes income tax receivables
of approximately $51,000 and $378,000, respectively. This primarily resulted
from the benefit of accelerated tax depreciation of the aseptic processing
system, which was completed and placed in service in October 2003.

The Company believes its existing assets, bank lines, and cash flow from
operations will be sufficient to fund the Companys operations for at least the
next twelve months.

Off Balance Sheet Arrangements

Prior to fiscal year 2001, the Company entered into operating leases relating
to certain assets utilized in its production process. (See Note L of the Notes
to Financial Statements for a description of these off-balance sheet lease
commitments.)  The Company also leases its offices, production facility and
warehouse with terms of 9 to 15 years.  (See Notes L and M of Notes to
Financial Statements for a description of the terms).


Item 7:  FINANCIAL STATEMENTS

      (a)  The response to this Item is submitted as Appendix A to this report.

      (b)  No financial statements required by Regulation S-B were excluded
           from materials delivered to shareholders.

Item 8:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 8A: CONTROLS AND PROCEDURES

     (a)  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.

     (b)  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.

Item 8B:  OTHER INFORMATION

All items required to be reported on Form 8-K were timely filed.


                                   PART III


Item 9:  DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The Executive Officers and Directors of the Company are subject to a Code of
Ethics that complies with standards mandated by the Sarbanes-Oxley Act of 2002.
The complete Code of Ethics is available on the Company website and may be
accessed by shareholders at www.yocream.com.  The Company intends to disclose
on its website any amendments to its Code of Ethics and any waivers of the Code
of Ethics that apply to the Chief Executive Officer, Chief Financial Officer
and principal accounting officer or controller, as required by federal
securities regulation.

The information required in Item 405 of Regulations S-B are incorporated by
reference from the sections entitled ELECTION OF OFFICER and INFORMATION
REGARDING MANAGEMENT AND DIRECTORS in the definitive Proxy Statement for the
Companys 2005 Annual Meeting of Shareholders.


Item 10:  EXECUTIVE COMPENSATION.

The response to this item is incorporated herein by reference from the section
entitled EXECUTIVE COMPENSATION in the Companys Proxy Statement for its 2005
Annual Meeting of Shareholders.


Item 11:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The response to this item is incorporated herein by reference from the section
entitled SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT in
the Companys Proxy Statement for its 2005 Annual Meeting of Shareholders.


Item 12:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The response to this item is incorporated herein by reference from the section
entitled CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS in the Companys
Proxy Statement for its 2004 Annual Meeting of Shareholders.


Item 13: EXHIBITS

Exhibit
Number            Exhibit
-------           -------
  3.1      i      Restated Articles of Incorporation of the Company

  3.1.1    ii     Articles of Amendment, dated October 29, 1991

  3.1.2    iii    Articles of Amendment, dated March 24, 1999

  3.1.3    ix     Articles of Amendment, dated April 16, 2003

  3.2      ix     Restated and Amended Bylaws of Company

  10.1     iv     Commercial lease and by and between John N. Hanna, David J.
                  Hanna, James S. Hanna, Harry M. Hanna and Joseph J. Hanna
                  Jr.; landlord and YoCream International, Inc., dated July 5,
                  1994.  Assignment of the lease to Pente Investments L.L.C.,
                  dated July 5, 1994

  10.1.2   v      Amendment No.1 to commercial lease between Pente
                  Investments L.L.C. and YoCream International, Inc.,
                  dated June 4, 1998.

  10.2     ix     Commercial lease between Pente Investments L.L.C and YoCream
                  International, Inc., dated October 1, 2003

  10.3     vi     2000 Stock Option Plan

  10.4     vii    Cobrand License agreement between The Dannon Company, Inc.
                  and YoCream International, Inc., dated September 6, 2001

  10.5     viii   Consulting agreement between David J. Hanna. and YoCream
                  International, Inc. dated August 7, 2003

  10.6     ix     Master Equipment Lease Agreement between Key Equipment
                  Finance, a Division of Key Corporate Inc. and YoCream
                  International, Inc dated December 18, 2003

  10.7     x      Change of Control Agreement between John N. Hanna, CEO
                  and YoCream International, Inc. dated September 15, 2003

  23.1            Consent of Independent Accountants filed herewith.

  31.1            Certification of John N. Hanna pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002 filed herewith

  31.2            Certification of W. Douglas Caudell pursuant to Section 302
                  of the Sarbanes-Oxley Act of 2002 filed herewith

  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 filed herewith

  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 filed herewith

  i        Incorporated herein by reference from the Companys Registration
           Statement on Form S-1, dated November 17, 1987

  ii       Incorporated by reference from the Companys Annual Report on Form
           10-K for the fiscal year ended October 31, 1991

  iii      Incorporated by reference from the Companys Quarterly Report on Form
           10-Q for the quarter ended April 30, 1999

  iv       Incorporated herein by reference from the Companys Quarterly Report
           on Form 10-Q for the quarter ended July 31, 1994

  v        Incorporated herein by reference from the Companys Annual Report on
           Form 10-K for the fiscal year ended October 31, 1998

  vi       Incorporated by reference from the Companys Quarterly Report on Form
           10-Q for the quarter ended April 30, 2000

  vii      Incorporated by reference from the Companys Annual Report on Form
           10-K for the fiscal year ended October 31, 2002

  viii     Incorporated by reference from the Companys Form 8-K dated
           August 18, 2003

  ix       Incorporated by reference from the Companys Annual Report on Form
           10-K for the fiscal year ended October 31, 2003

  x        Incorporated by reference from the Companys Quarterly Report on Form
           10-QSB for the quarter ended January 31, 2004


Item 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

Any information that may be required by Item 9(e) of Schedule 14A is
incorporated by reference from the sections entitled INDEPENDENT PUBLIC
ACCOUNTANTS in the definitive Proxy Statement for the Companys 2005 Annual
Meeting of Shareholders.

                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

YOCREAM INTERNATIONAL, INC.                           Dated:  January 31, 2005

By:  /s/ John N. Hanna
     John N. Hanna
     Chief Executive Officer and
     Chairman of the Board of Directors

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the
registrant and in the capacities and on the dates indicated.

By:  /s/ John N. Hanna                                 Dated:  January 31, 2005
     John N. Hanna
     Chief Executive Officer and
     Chairman of the Board of Directors

By:  /s/ James S. Hanna                                Dated:  January 31, 2005
     James S. Hanna
     Director

By:  /s/ Carl G. Behnke                                Dated:  January 31, 2005
     Carl G. Behnke
     Director

By:  /s/ Joseph J. Hanna                               Dated:  January 31, 2005
     Joseph J. Hanna
     Director

By:  /s/ William J. Rush                               Dated:  January 31, 2005
     William J. Rush
     Director

By:  /s/ W. Douglas Caudell                            Dated:  January 31, 2005
     W. Douglas Caudell
     Chief Financial Officer





                                                               EXHIBIT 23.1



                      CONSENT OF INDEPENDENT ACCOUNTANTS



We have issued our report dated December 23, 2004, accompanying the
financial statements included in the annual report of YoCream International,
Inc. on Form 10-KSB for the year ended October 31, 2004.  We hereby consent to
the incorporation by reference of said report in the Registration Statements of
YoCream International, Inc. on Forms S-8 (File No. 333-09695, effective August
26, 1996, File No. 333-59960, effective April 22, 2002, and File No. 333-
109883, effective October 22, 2003).


                                             \s\ GRANT THORNTON LLP

Portland, Oregon
January 28, 2005





FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

YOCREAM INTERNATIONAL, INC.

OCTOBER 31, 2004 AND 2003





                               C O N T E N T S


                                                                    Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM               1

FINANCIAL STATEMENTS

    BALANCE SHEETS                                                    2

    STATEMENTS OF INCOME                                              3

    STATEMENT OF SHAREHOLDERS EQUITY                                  4

    STATEMENTS OF CASH FLOWS                                          5

    NOTES TO FINANCIAL STATEMENTS                                     6









REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors
YoCream International, Inc.
Portland, Oregon

We have audited the balance sheets of YoCream International, Inc. as of October
31, 2004 and 2003, and the related statements of income, shareholders equity
and cash flows for each of the three years in the period ended October 31,
2004.  These financial statements are the responsibility of the Companys
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of YoCream International, Inc. as
of October 31, 2004 and 2003, and the results of its operations and its cash
flows for each of the three years in the period ended October 31, 2004, in
conformity with accounting principles generally accepted in the United States
of America.


/S/ GRANT THORNTON LLP


Portland, Oregon
December 23, 2004





















                         YOCREAM International, Inc.

                                BALANCE SHEETS
                                  October 31,
<TABLE>
<CAPTION>
                                                  2004            2003
                                              -----------     -----------
               ASSETS
<S>                                           <C>             <C>
Current assets
  Cash and cash equivalents                   $ 3,806,993     $ 2,644,436
  Trade accounts receivable,
    net of allowance for doubtful accounts
    of $41,500 in 2004 and $37,500 in 2003        910,010         934,259
Inventories                                     1,866,051       1,846,989
Other current assets                              198,622         247,012
Income tax receivable                              51,154         378,269
Deferred tax assets                               194,519          74,250
                                              -----------     -----------
      Total current assets                      7,027,349       6,125,215

Fixed assets, net                               6,328,875       6,241,922
Intangible and other long-term assets, net        399,672         499,970
                                              -----------     -----------
                                              $13,755,896     $12,867,107
                                              ===========     ===========
<CAPTION>
    LIABILITIES AND SHAREHOLDERS EQUITY
<S>                                           <C>             <C>
Current liabilities
Current portion of long-term debt             $   403,319     $   336,333
Accounts payable                                1,208,074       1,144,045
Other accrued liabilities                         149,206         140,146
                                              -----------     -----------
      Total current liabilities                 1,760,599       1,620,524

Long-term debt, less current portion            2,305,939       2,279,667
Deferred tax liabilities                        1,070,720         795,451
Other liabilities                                  46,060          25,826
                                              -----------     -----------
      Total liabilities                         5,183,318       4,721,468
                                              -----------     -----------
Shareholders equity
   Preferred stock, no par value,
     5,000,000 shares authorized,
     none issued or outstanding                        -               -
   Common stock, no par value,
     30,000,000 shares authorized               4,739,581       4,733,281
   Retained earnings                            3,832,997       3,412,358
                                              -----------     -----------
      Total shareholders equity                 8,572,578       8,145,639
                                              -----------     -----------
                                              $13,755,896     $12,867,107
                                              ===========     ===========
</TABLE>

The accompanying notes are an integral part of these statements.





                         YOCREAM International, Inc.

                            STATEMENTS OF INCOME

                       For the years ended October 31,
<TABLE>
<CAPTION>
                                          2004           2003           2002
                                    -------------  -------------  -------------
<S>                                 <C>            <C>            <C>
Sales                               $ 19,272,376   $ 20,477,934   $ 19,438,892

Cost of goods sold                    14,214,810     14,868,324     13,947,245
                                    -------------  -------------  -------------
     Gross profit                      5,057,566      5,609,610      5,491,647

Selling and marketing expenses         2,308,045      2,267,137      2,023,469
General and administrative expenses    2,055,977      2,352,580      1,918,944
                                    -------------  -------------  -------------
Income from operations                   693,544        989,893      1,549,234

Other income (expense)
     Interest income                       7,563          6,144         14,743
     Interest expense                    (89,910)       (28,335)       (48,420)
     Unusual expenses                         -        (157,163)      (147,487)
     Other, net                           28,442         (7,395)            -
                                    -------------  -------------  -------------
          Income before income taxes     639,639        803,144      1,368,070

Income tax provision                     219,000        268,000        512,000
                                    -------------  -------------  -------------
          NET INCOME                $    420,639   $    535,144   $    856,070
                                    =============  =============  =============

Earnings per common share - basic   $       0.18   $       0.24   $       0.38
                                    =============  =============  =============
Earnings per common share - diluted $       0.18   $       0.23   $       0.38
                                    =============  =============  =============

Shares used in basic earnings
  per share                            2,278,284      2,257,998      2,253,248
                                    =============  =============  =============

Shares used in diluted earnings
  per share                            2,294,474      2,280,233      2,272,986
                                    =============  =============  =============
</TABLE>

The accompanying notes are an integral part of these statements.












                                        YOCREAM International, Inc.

                                     STATEMENT OF SHAREHOLDERS EQUITY

<TABLE>
<CAPTION>
                                          Common Stock                             Total
                                     -----------------------       Retained     Shareholders
                                       Shares      Amounts         Earnings        Equity
                                     ----------  -----------     ------------    ------------
<S>                                  <C>         <C>             <C>             <C>
Balance, October 31, 2001            2,259,991   $4,797,204      $ 2,021,144     $ 6,818,348

   Net income                               -            -           856,070         856,070
   Stock options exercised              61,900      216,380               -          216,380
   Repurchase of common stock          (71,713)    (461,403)              -         (461,403)
   Tax benefit of options exercised         -        73,800               -           73,800
                                     ----------  -----------     ------------    ------------
Balance, October 31, 2002            2,250,178   $4,625,981      $  2,877,214    $ 7,503,195

   Net income                               -            -            535,144        535,144
   Stock options exercised              54,600      210,500                -         210,500
   Repurchase of common stock          (26,822)    (125,400)               -        (125,400)
   Tax benefit of options exercised         -        22,200                -          22,200
                                     ----------  -----------     ------------    ------------
Balance, October 31, 2003            2,277,956   $4,733,281      $  3,412,358    $ 8,145,639

   Net income                               -            -            420,639        420,639
   Stock held exchanged for stock
     option exercise cost                4,544           -                 -              -
   Tax benefit of options exercised         -         6,300                -           6,300
                                     ----------  -----------     ------------    ------------
Balance, October 31, 2004            2,282,500   $4,739,581      $ 3,832,997     $ 8,572,578
                                     ==========  ===========     ============    ============
</TABLE>

The accompanying notes are an integral part of these statements.







                         YOCREAM International, Inc.

                          STATEMENTS OF CASH FLOWS
                        For the year ended October 31,
<TABLE>
<CAPTION>
                                               2004         2003         2002
                                          -----------  -----------  -----------
<S>                                       <C>          <C>          <C>
Cash flows from operating activities
   Net income                             $  420,639   $  535,144   $  856,070
   Adjustments to reconcile net income
     to net cash provided by operating
     activities
       Depreciation and amortization         612,700      516,028      612,376
       (Gain) loss on disposal of equipment  (28,442)       7,395           -
       Deferred income taxes                 155,000      512,001      214,200
       Tax benefit related to exercise
         of stock options                      6,300       22,200       73,800
       Change in assets and liabilities
         Accounts receivable                  24,249      (33,263)     138,007
         Inventories                         (19,062)     807,443     (180,894)
         Other assets                        148,688      (26,791)    (150,759)
         Accounts payable                    374,649     (250,529)     (58,444)
         Income taxes receivable
           and payable                       327,115     (409,978)     (90,466)
         Other accrued liabilities            29,294       22,218        3,614
                                          -----------  -----------  -----------
           Net cash provided by
              operating activities         2,051,130    1,701,868    1,417,504
                                          -----------  -----------  -----------
Cash flows from investing activities
   Expenditures for fixed assets            (933,868)  (2,068,825)    (642,149)
                                          -----------  -----------  -----------
           Net cash used in
              investing activities          (933,868)  (2,068,825)    (642,149)
                                          -----------  -----------  -----------

Cash flows from financing activities
   Proceeds from issuance of long-term debt  394,886    1,767,500      181,500
   Principal payments on long-term debt     (349,591)    (370,025)    (344,675)
   Repurchase of common stock                     -      (125,400)    (461,403)
   Proceeds from exercise of stock options        -       210,500      216,380
                                          -----------  -----------  -----------
           Net cash provided by (used in)
              financing activities            45,295    1,482,575     (408,198)
                                          -----------  -----------  -----------
           Net increase in cash and
              cash equivalents             1,162,557    1,115,618      367,157
                                          -----------  -----------  -----------
Cash and cash equivalents,
  beginning of year                        2,644,436    1,528,818    1,161,661
                                          -----------  -----------  -----------
Cash and cash equivalents,
  end of year                             $3,806,993   $2,644,436   $1,528,818
                                          ===========  ===========  ===========
</TABLE>

The accompanying notes are an integral part of these statements.


                         YOCREAM International, Inc.

                        NOTES TO FINANCIAL STATEMENTS

NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

YoCream International, Inc. (the Company) was incorporated on January 14, 1977
in the state of Oregon. The Company manufactures and wholesales frozen yogurt,
custard, ice cream and novelties, in addition to fruit and coffee smoothie
beverages, under its brand names YOCREAM or DANNON YOCREAM, and also under
private labels.  Sales are made primarily throughout the United States to and
through a variety of outlets, including distributors, discount club warehouses,
supermarkets, grocery stores, convenience stores, restaurants, hospitals,
schools, military installations, yogurt shops and fast food chains.

1.    Significant Estimates

In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, 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.

2.    Cash and cash equivalents

Cash and cash equivalents include money market and other short-term investments
with a remaining maturity of three months or less when purchased.

3.    Accounts receivable

The majority of the Companys accounts receivable are due from companies in the
retail and wholesale food service industries.  Credit is extended based on
evaluation of a customers financial condition and, the Company periodically
performs credit evaluations of its customers.  Credit insurance is obtained on
selected accounts.  Accounts receivable are generally due within 15 days and
are stated at amounts due from customers net of an allowance for doubtful
accounts.   Accounts outstanding longer than the contractual payment terms are
considered past due.  The Company determines its allowance by considering
a number of factors, including the length of time trade accounts receivable are
past due, the Companys previous loss history, the customers current ability
to pay its obligation to the Company, and the condition of the general economy
and the industry as a whole.  The Company writes-off accounts receivable when
they become uncollectible, and payments subsequently received on such receiv-
ables are credited to the allowance for doubtful accounts.  Historically the
Companys credit losses have been insignificant.

4.    Inventories

Inventories are stated at the lower of cost or market.  The Company determines
cost based on the first-in, first-out (FIFO) method for raw materials,
packaging materials and supplies, and based on standard costs for finished
goods, which approximates cost based on the first-in, first-out method.

5.    Fixed Assets

Fixed assets are stated at cost.  Expenditures for replacements and
improvements are capitalized, and expenditures for repairs and maintenance and
routine replacements are charged to operating expense as incurred.  When assets
are sold or otherwise disposed of, the cost and related accumulated depreci-
ation are eliminated from the accounts and any resulting gain or loss is
included in operations.  Depreciation is provided for on a straight-line basis
in amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives.  Leasehold improvements are amortized over
the life of the lease or the service life of the improvement, whichever is
shorter.  Property, plant and equipment are reviewed for impairment whenever
events or circumstances indicate that the carrying amount of assets may not be
recoverable in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets.
The recoverability of property, plant and equipment to be held and used is
evaluated by comparing the carrying amount of an asset to the estimated future
net undiscounted cash flows to be generated by the asset.  If such assets are
considered to be impaired, the impairment to be recognized is measured as the
amount by which the carrying amount of the assets exceeds the fair value of the
assets.  The estimated lives used in calculating depreciation and amortization
are as follows:

          <TABLE>
          <S>                                   <C>
          Plant equipment                       10-25 years
          Office equipment and furnishings       3-10 years
          Leasehold improvements                 5-14 years
          </TABLE>

6.    Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable and
payable, approximate fair value because of the relatively short maturity of
these instruments.  The carrying value of notes payable and long-term debt
approximate fair values based upon the interest rates available to the Company
for similar instruments.

7.    Revenue Recognition and Sales Incentives

Revenue from the sale of products is generally recognized at the time of
shipment to the customer.  Pursuant to EITF 01-9, Accounting for Consideration
Given by a Vendor to a Customer or a Reseller of the Vendors Products certain
promotional payments paid to wholesalers or retailers by a vendor for the sale
of its products must be shown as a reduction of the revenues in the period they
are provided.  For the three years ended October 31, 2004, 2003 and 2002 the
total of rebates and promotional costs charged against sales were approximately
$696,000, $610,000, and $599,000, respectively.

8.    Shipping and Handling Costs

Pursuant to EITF 00-10, Accounting for Shipping and Handling Fees and Costs
such costs are classified as part of cost of sales.  Payments received from
customers for shipping and handling costs are classified as part of net sales
upon recognition of the related sale.

9.    Research and Development Costs

Research and development costs are expensed as incurred.  For the years ended
October 31, 2004, 2003 and 2002 such costs aggregated approximately $464,000,
$555,000 and $446,000, respectively, and are classified in the financial
statements as part of cost of sales, selling, general and administrative
expenses, as appropriate.

10.   Earnings Per Share (EPS)

Basic EPS is computed using the weighted average number of shares of common
stock outstanding for the period.  Diluted EPS is computed using the weighted
average number of shares of common stock and dilutive common stock equivalents
outstanding during the period.  Common equivalent shares from stock options are
excluded from the computation when their effect is antidilutive.

11.   Stock Based Compensation Plans

The Company has stock-based employee compensation plans which are more fully
described in Note I.  The Company has adopted the disclosure only provisions of
Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation
(SFAS 123).  It applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, in accounting for its Plans.

Had the Company used the fair value methodology of SFAS 123 for determining
compensation expense, the Companys net income and net income per share would
approximate the pro forma amounts below:

<TABLE>
<CAPTION>
                                          2004          2003          2002
                                       ---------     ---------     ---------
<S>                                    <C>           <C>           <C>
Net income, as reported                $421,000      $535,000      $856,000
Deduct: stock based compensation
   expense determined under the
   fair value method, net of tax        (20,000)     (234,000)            -
                                       ---------     ---------     ---------
Net income pro forma                   $401,000      $301,000      $856,000
                                       =========     =========     =========

Net income per share, as reported
   Basic                                   $.18         $.24           $.38
   Diluted                                 $.18         $.23           $.38

Net income per share, pro forma
   Basic                                   $.18         $.13           $.38
   Diluted                                 $.17         $.13           $.38

Weighted average assumptions:
   Risk-free interest rate                3.24%        3.15%              -
   Expected dividend yield                   -            -               -
   Expected lives (years)                    5            5               -
   Expected volatility                    42.4%        37.0%              -
</TABLE>


12.   Supplemental Cash Flow Information

Supplemental cash flow information for the years ended October 31, are as
follows:
<TABLE>
<CAPTION>
                                            2004          2003          2002
                                       ----------    ----------    ----------
<S>                                    <C>           <C>           <C>
Cash paid
  during the period
  for income taxes                     $   32,000    $  144,000    $  315,000
Cash paid during the period
  for interest                         $   82,000    $   37,000    $   48,000
Acquisition of capital assets
  with debt                            $   48,000            -             -
Payment (acquisition) of vendor
  payables used to acquire
  capital assets                       $  310,000    $ (310,000)	         -
</TABLE>

The statements of cash flows also excludes non-cash transactions for the year
ended October 31, 2004 whereby certain options were exercised by exchange of
previously issued shares, as defined in the stock option plan, which resulted
in a net increase in shares outstanding of 4,544.

13.   Concentrations of Credit Risk and Major Customer

One customer accounted for 60% and 60% of accounts receivable at October 31,
2004 and 2003.  This same customer accounted for 72%, 70% and 68% of total
revenues in the years ended October 31, 2004, 2003 and 2002.

14.   Reclassifications

Certain amounts from prior years financial statements have been reclassified
to conform to the current year presentation.

NOTE B - ADOPTION OF ACCOUNTING PRONOUNCEMENTS

SFAS Interpretation No. 46 (Revised)

In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, Consolidation of Variable Interest Entities.  FIN 46
clarifies certain issues related to Accounting Research Bulletin No. 51,
Consolidated Financial Statements and addresses consolidation by business
enterprises of the assets, liabilities, and results of the activities of a
variable interest entity.  This interpretation is not applicable since the
Company determined that there are no variable interest entities.

SFAS No. 123 (Revised)

In December 2004, the FASB issued SFAS No. 123(R) (revised 2004), Share-Based
Payment, which amends FASB Statement Nos. 123 and will be effective for public
companies for interim or annual periods beginning after June 15, 2005. The new
standard will require the Company to expense employee stock options and other
share-based payments.  The new standard may be adopted in one of three ways -
the modified prospective transition method, a variation of the modified pro-
spective transition method or the modified retrospective transition method.
The Company is currently evaluating the effect that the adoption of SFAS 123(R)
will have on its financial position and results of operations.

SFAS No. 151

In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 151, Inventory Costs.  SFAS No. 151 requires abnormal amounts of inventory
costs related to idle facility, freight handling and wasted material expenses
to be recognized as current period charges.  Additionally, SFAS No. 151
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities.  The
standard is effective for fiscal years beginning after June 15, 2005.  The
Company believes the adoption of SFAS No. 151 will not have a material impact
on its consolidated financial statements.

SFAS No. 153

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 153, Exchanges of Nonmonetary Assets - an amendment
of APB Opinion No. 29 in December 2004.  The guidance in APB Opinion No. 29,
Accounting for Nonmonetary Transactions, is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. This Statement amends Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces
it with a general exception for exchanges of nonmonetary assets that do not
have commercial substance. A nonmonetary exchange has commercial substance if
the future cash flows of the entity are expected to change significantly as a
result of the exchange.  The Company does not expect this pronouncement to have
a material impact on the financial statements.

On October 22, 2004, the President signed into law the American Jobs Creation
Act of 2004.  The Company is currently in the process of evaluating the Bill.

NOTE C - INVENTORIES

Inventories consist of the following at October 31,:
<TABLE>
<CAPTION>
                                               2004            2003
                                          -----------     -----------
       <S>                                <C>             <C>
       Finished goods                     $ 1,467,790     $ 1,246,700
       Raw materials                          249,068         368,441
       Packaging material and supplies        149,193         231,848
                                          -----------     -----------
                                          $ 1,866,051     $ 1,846,989
                                          ===========     ===========
</TABLE>

NOTE D - FIXED ASSETS

Fixed assets consist of the following at October 31,:
<TABLE>
<CAPTION>
                                                     2004            2003
                                                ------------    ------------
    <S>                                         <C>             <C>
    Machinery and equipment                     $ 7,598,297     $ 8,466,836
    Office equipment and furnishings                336,801         253,896
    Leasehold improvements                        1,374,401       1,186,646
    Construction in process                         649,233         159,475
                                                ------------    ------------
                                                  9,958,732      10,066,853
    Less accumulated depreciation
      and amortization                           (3,629,857)     (3,824,931)
                                                ------------    ------------
                                                $ 6,328,875     $ 6,241,922
                                                ============    ============
</TABLE>

During the years ended October 31, 2004 and 2003, the Company expended
$310,000 and $1,874,000, respectively related to the installation of an
aseptic processing system, which was placed in service in October 2003.

NOTE E - INTANGIBLE AND OTHER LONG-TERM ASSETS

Intangible assets consist of trademarks, principally YoCream with a cost
basis of $257,000.  Accumulated amortization associated with intangible assets
totaled $161,000 at October 31, 2004 and 2003.  In accordance with the provi-
sions of SFAS No. 142, the amortization of trademarks ceased beginning in the
first quarter 2003.

As of October 31, 2004 and 2003, the Company had made deposits totaling $82,000
and $209,000 related to the leases of various equipment and its production and
office facility, and had insurance policy premium advances of $217,000 and
$190,000, respectively (see Note M).  As of October 31, 2004 and 2003, the
Company also had other long-term assets of $5,000.  These items are included in
intangible and other long-term assets in the accompanying balance sheet.

NOTE F - CURRENT AND LONG-TERM DEBT

The Company has an uncollaterialized bank line of credit, which permits
borrowing of up to $2,000,000.  The line bears interest at the banks commercial
lending rate, 4.75% at October 31, 2004.  The line is subject to renewal by
July 2007.  There were no amounts drawn on this line at October 31, 2004.  At
October 31, 2003, the Company borrowed $1,566,000 under the line of credit in
anticipation of completing the long-term financing arrangement described below.
In December 2003, the amount borrowed under the line was transferred into the
long-term facility described below leaving no amount drawn on the line.

In December 2003, the Company finalized the terms of the master finance lease
facility, which refinances the existing bank term loans of $991,667 and
provides additional monies of up to $2,500,000 (including the amount borrowed
in October) to fund food manufacturing equipment expenditures.  The facility,
which reduced the interest rate by 25 basis points beginning in July 2003 and
extended the maturity date on the existing term loans, provides for payments
over seven years with interest at 30-day LIBOR plus 175 basis points, with the
option to convert to a fixed rate by using an interest rate swap at the
Companys discretion. The facility is subject to the same financial covenants
as the revolving line of credit, and is collateralized by the aseptic system
project assets, and by the other equipment and fixtures related to the
refinanced term loans.  In December 2003 the Company borrowed an additional
$394,886 under the terms of the master lease agreement.  In conjunction with
the payoff of the existing term loans, the lender agreed to release its
blanket security interest in the other equipment and fixtures owned by the
Company.

The master finance lease facility contains certain financial covenants
including covenants related to the ratio of senior liabilities (as defined) to
adjusted tangible capital, current ratio and operating cash flow to fixed
charge as well as limits the amount of common stock which can be repurchased by
the Company.  At October 31, 2004, the Company believes that it was in
compliance with all of these ratios and covenants.

Long-term debt consists of the following at October 31,:
<TABLE>
<CAPTION
                                                          2004          2003
                                                     ------------  ------------
   <S>                                               <C>           <C>
   Note payable to a bank in monthly installments
     of $5,833 through January 2004, plus interest
     at 30-day LIBOR plus 1.75%, collateralized by
     certain equipment.                              $       -     $   303,333

   Note payable to a bank in monthly installments
     of $23,333 through January 2004, plus interest
     at 30-day LIBOR plus 1.75%, collateralized by
     certain equipment.,                                     -         746,667

   Capitalized lease obligation to a bank in
     monthly installments of $38,880 through
     January 2011, plus interest at 30-day LIBOR
     plus 1.75% (3.74% October 31, 2004),
     collateralized by certain equipment.              2,664,074     1,566,000

   Note payable in monthly installments of $913
     through June 2009, including interest at
     5.25%, collateralized by certain equipment.          45,184            -
                                                     ------------  ------------
                                                       2,709,258     2,616,000

     Less portion due within one year                   (403,319)     (336,333)
                                                     ------------  ------------
                                                     $ 2,305,939   $ 2,279,667
                                                     ============  ============
</TABLE>

<TABLE>
<CAPTION>
        Year ending
        October 31,
        -----------
        <S>                                 <C>
           2005                             $  403,319
           2006                                415,391
           2007                                427,808
           2008                                440,619
           2009                                450,042
        Thereafter                             572,079
                                            ----------
                                            $2,709,258
                                            ==========
</TABLE>

In November 2004, the Company entered in to an interest rate swap agreement
which will convert the variable interest rate paid on its debt to a fixed rate
of 5.88%.  It is the Companys policy to enter in to interest rate swap agree-
ments when management deems them useful in reducing risks to the Company.  The
Company will account for this interest rate swap as a fair value hedge, which
it has determined to be highly effective.  The fair value of the interest rate
swap will be recorded on the balance sheet and changes in fair value of this
instrument will be shown, net of tax, in accumulated other comprehensive
income.

NOTE G - ADVERTISING COSTS

Advertising costs are charged to operations in the year incurred.  For the
years ended October 31, 2004, 2003 and 2002 advertising costs aggregated
approximately $391,000, $378,000 and $372,000, respectively.

NOTE H - EMPLOYEE BENEFIT PLANS

The Company has a 401(k) Employee Savings Plan and Trust (the Plan) which
requires the Company to make contributions to the Plan in the amount of 3% of
eligible employee compensation.  The Plan allows that the required contri-
butions may be invested in common stock of the Company.  The Company made
contributions to the Plan of approximately $60,000, $85,000 and $56,000 during
the years ended October 31, 2004, 2003 and 2002, respectively.  All such
contributions have been made in the form of common stock of the Company, which
has been purchased on the open market.

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

In January 1994, the Companys Board of Directors adopted a Combined
Incentive and Nonqualified Stock Option Plan and reserved 200,000 shares of
common stock for issuance pursuant to this plan. Options are exercisable in
such amounts and at such times as authorized by a Stock Option Agreement
applicable to each option.  At October 31, 2004, all of these options under
this plan have been exercised or have expired.

A summary of option transactions relating to the Combined Incentive and
Nonqualified Stock Option Plan is as follows:
<TABLE>
<CAPTION>
                                                  Shares          Weighted
                                                  Under            Average
                                                  Option       Exercise Price
                                                  --------     --------------
     <S>                                          <C>               <C>
     Balance, October 31, 2001                    107,000           $3.93
        Granted                                        -               -
        Exercised                                 (31,900)           3.76
        Expired                                        -               -
                                                  --------

     Balance, October 31, 2002                     75,100            4.00
        Granted                                        -               -
        Exercised                                 (44,600)           4.00
        Expired                                        -               -
                                                  --------

     Balance, October 31, 2003                     30,500            4.00
        Granted                                        -               -
        Exercised                                 (30,500)           4.00
        Expired                                        -               -
                                                  --------
     Balance, October 31, 2004                         -               -
                                                  ========
</TABLE>

During the year ended October 31, 2004, certain participants in the plan, who
are also shareholders, exercised options held under the 1994 stock option plan.
Under the terms of the plan, shareholders are allowed to exchange stock held at
the current fair market value in lieu of cash to satisfy the exercise price
commitments.  This exchange results in shares being issued for the difference
between the fair value of the stock on the date of the transaction and the
exercise price of the options.

In March 2000, the shareholders approved the 2000 Stock Option Plan.  The plan
provides for the grant of options to directors, key employees including
employees who are directors and other persons who provide services to the
Company.  Initially the plan authorized the issuance of 100,000 shares of
common stock upon exercise of options granted under the plan.  In April 2002
and 2003, the shareholders approved amendments to the plan to increase the
number of shares authorized for grants under the plan to 400,000.  Options
granted under the plan are exercisable at a per share price not less than 100%
of the fair market value of the underlying common stock on the date of the
grant.  Incentive stock options granted to any person with beneficial ownership
of 10% or more of the outstanding shares of common stock must be exercisable at
a per share price not less than 110% of the fair market value of the stock on
the date of the grant.  The plan will terminate January 25, 2010.

A summary of option transactions relating to the 2000 Stock Option Plan is as
follows:
<TABLE>
<CAPTION>
                                                  Shares          Weighted
                                                  Under            Average
                                                  Option       Exercise Price
                                                 ---------     --------------
     <S>                                          <C>               <C>
     Balance, October 31, 2001                     65,000           $3.21
        Granted                                    65,000            5.26
        Exercised                                 (30,000)           3.21
                                                 ---------

     Balance, October 31, 2002                    100,000            4.54
        Granted                                   180,000            4.70
        Exercised                                 (10,000)           3.21
        Expired                                   (15,000)           4.58
                                                 ---------

     Balance, October 31, 2003                    255,000            4.70
        Granted                                    15,000            4.59
        Exercised                                      -               -
                                                 ---------
     Balance, October 31, 2004
      (average remaining life 3.5 years)          270,000            4.70
                                                 =========
</TABLE>


<TABLE><CAPTION>
Options exerciseable                      Number           Weighted
                                           of              Average
                                          Shares         Exercise Price
                                       ------------     ----------------
     <S>                                 <C>                <C>
     October 31, 2003                    257,166            $4.60
     October 31, 2004                    243,332             4.68
</TABLE>

The following table summarizes information about stock options outstanding for
both plans at October 31, 2004:
<TABLE>
<CAPTION>
                                        Weighted
                                         Average
                                        Remaining
    Exercise           Options         Contractual           Options
     Prices          Outstanding       Life (Years)        Exerciseable
    --------         -----------       ------------        ------------
     <S>              <C>                  <C>               <C>
     $3.21             20,000              1.73               20,000
      5.26             55,000              2.57               43,332
      7.17              5,000              3.04                5,000
      4.63            175,000              3.87              175,000
      4.59             15,000              4.80                   -
                     --------                              ---------
                      270,000                                243,332
                     ========                              =========
</TABLE>

At October 31, 2004, there were 355,000 shares of common stock reserved
for issuance under the Companys stock option plans.


NOTE J - INCOME TAXES

The provision for income taxes for the years ended October 31, consists of the
following:
<TABLE>
<CAPTION>                             2004         2003          2002
                                   ---------   -----------   ----------
          <S>                      <C>         <C>           <C>
          Current                  $  64,000   $ (244,000)   $  297,800
          Deferred                   155,000      512,000       214,200
                                   ---------   -----------   ----------
                                   $ 219,000   $  268,000    $  512,000
                                   =========   ===========   ==========
</TABLE>

The effective tax rate differed from the statutory federal tax rate due
to the following:
<TABLE>
<CAPTION>
                                                   Year ended October 31,
                                                ----------------------------

                                                2004        2003       2002
                                               ------      ------     ------
   <S>                                          <C>         <C>        <C>
   Statutory federal tax rate (graduated)       34.0%       34.0%      34.0%
   State taxes, net of federal benefit           3.9         3.7        4.1
   Tax credits                                  (4.1)       (4.5)      (2.1)
   Other                                         0.4         0.2        1.4
                                               ------      ------     ------
                                                34.2%       33.4%      37.4%
                                               ======      ======     ======
</TABLE>

Deferred tax assets (liabilities) consist of the following at October 31,:
<TABLE>
<CAPTION>
                                                     2004          2003
                                                ------------   -----------
     <S>                                        <C>            <C>
     Deferred tax assets
       Accrued expenses                         $     5,000    $    5,800
       Allowance for doubtful accounts               15,900        14,400
       State NOL carryforward                        25,600        24,300
       Federal credits carryforward                 118,500            -
       Other                                         29,519        29,750
                                                ------------   -----------
       Deferred tax assets                      $   194,519    $   74,250
                                                ============   ===========
       Deferred tax liabilities
         Fixed assets                           $(1,070,720)   $ (795,451)
                                                ============   ===========
</TABLE>

Management evaluates on a quarterly basis the recoverability of the deferred
tax assets and the level of the valuation allowance.  As of October 31, 2004
and 2003, the Company has not recorded an allowance against deferred tax assets
as management believes it is more likely than not that such assets are fully
realizable.

NOTE K - OPERATING LEASE COMMITMENTS

The Company leases its production, warehouse and office facilities under
operating lease agreements with related parties, as described below.  In
addition, the Company leases equipment under non-cancelable operating leases
with unrelated third parties.

Minimum lease payments required under these operating leases are as follows:
<TABLE>
<CAPTION>
          Year ending
          October 31,
          -----------
          <S>                                      <C>
             2005                                  $   543,000
             2006                                      497,000
             2007                                      445,000
             2008                                      406,000
             2009                                      404,000
          Thereafter                                 2,458,000
                                                   ------------
                                                   $ 4,753,000
                                                   ============
</TABLE>

Operating lease expense for the years ended October 31, 2004, 2003 and 2002
approximated $681,000, $547,000, and $505,000. Operating lease expenses are
allocated between manufacturing costs and general and administrative expenses
in the accompanying statements of income.

NOTE L - EARNINGS PER SHARE

The following table is a reconciliation of the numerators and denominators of
the basic and diluted per share computations for each of the three years ended
October 31,:
<TABLE>
<CAPTION>
                                                       Weighted
                                                        Average
                                          Income        Shares       Per-Share
                                        (Numerator)  (Denominator)    Amount
                                       ------------  -------------   ---------
2002
   <S>                                  <C>            <C>            <C>
   Basic earnings per share
     income available to
       common shareholders              $ 856,070      2,253,248      $ 0.38

   Effect of dilutive securities
      stock options                            -          19,738
                                       ----------    -----------
   Diluted earnings per share
      income available to
        common shareholders            $ 856,070       2,272,986      $ 0.38
                                       ==========     ===========   =========
<CAPTION>
2003
   <S>                                 <C>             <C>            <C>
   Basic earnings per share
      income available to
        common shareholders            $ 535,144       2,257,998      $ 0.24

   Effect of dilutive securities
      stock options                           -           22,235
                                       ----------    -----------
   Diluted earnings per share
      income available to
         common shareholders           $ 535,144       2,280,233      $ 0.23
                                       ==========    ===========    =========
<CAPTION>
2004
   <S>                                 <C>             <C>            <C>
   Basic earnings per share
      income available to
         common shareholders           $ 420,639       2,278,284      $ 0.18

   Effect of dilutive securities
      stock options                           -           16,190
                                       ----------    -----------
   Diluted earnings per share
      income available to
         common shareholders           $ 420,639       2,294,474      $ 0.18
                                       ==========    ===========    =========
</TABLE>

NOTE M - RELATED PARTY TRANSACTIONS

The Company leases its production and office facilities from a company that is
owned by the Companys chief executive officer, its former president, a
director and secretary, and certain other shareholders of the Company. The
lease has a remaining term of approximately 8 years with renewal provisions and
currently provides for a base rent of $17,000 per month for the period from
July 2003 to July 2006.  Thereafter the lease increases approximately 8% every
three years.

In October 2003, the Company entered into an agreement to lease an adjoining
warehouse facility from the same company described above.  The lease has a term
of 15 years and provides for a base rent of approximately $12,800 per month for
the period from November 2003 to 2006.  Thereafter the lease payment increases
approximately 9% every three years.

Payments under the leases for the years ended October 31, 2004, 2003 and 2002
were approximately $358,000, $199,000 and $187,000, respectively.

The Company has retained the services of a law firm in which a director of the
Company is a shareholder.  The law firm has served as the Companys general
counsel and for the years ended October 31, 2004, 2003 and 2002 billed the
Company fees of approximately $28,000, $339,000, and $217,000, respectively.

In August 2003, the Company entered into a three-year consulting agreement with
its former president, upon his retirement after 27 years of service, and
resignation from his positions as president and a director of the Company.
Under the terms of the consulting agreement, he will be paid an annual fee of
approximately $136,700.  Payments under the consulting agreement for the years
ended October 31, 2004 and 2003, amounted to approximately $136,700 and
$34,200, respectively.  Additionally, the Company will continue to provide
health insurance benefits during the term of the agreement, and fund a $500,000
split dollar life insurance policy until the policy is paid up, or the event of
death.  The policy has been assigned to the Company as collateral for the
repayment of the premiums.  In the event of the death of the former employee,
the Company would be paid the amount of its premium advances.  The Companys
premium advances since the inception of this policy are approximately $98,000
and $85,000 at October 31, 2004 and 2003, respectively, and are classified as
part of Other Long-Term Assets (See Note E).

The Company also maintains a $500,000 split dollar life insurance policy on its
chief executive officer under which the Company pays the premiums.  The policy
is assigned to the Company as collateral for the repayment of the premiums.  In
the event of the death of the employee, the Company would be paid the amount of
its premium advances.  Since the inception of this policy such advances are
approximately $119,000 and $105,000 at October 31, 2004 and 2003, respectively,
and are classified as part of Other Long-Term Assets (See Note E).

NOTE N - QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly financial data for the two years ending October 31, 2004
is as follows:
<TABLE>
<CAPTION>
                                             Net        Basic        Diluted
                               Gross       Income     Earnings       Earnings
2004              Sales       Profit       (Loss)     Per Share      Per Share
------------  -----------   ----------   -----------  ---------      ---------
<S>           <C>           <C>          <C>           <C>            <C>
1st quarter   $ 3,449,984   $  959,172   $   (8,467)   $  0.00        $  0.00
2nd quarter     4,855,752    1,361,987      168,186       0.07           0.07
3rd quarter     5,906,991    1,467,814      189,351       0.08           0.08
4th quarter     5,059,649    1,268,593       71,569       0.03           0.03
              -----------   ----------   -----------  ---------      ---------
              $19,272,376   $5,057,566   $  420,639    $  0.18        $  0.18
              ===========   ==========   ===========  =========      =========

<CAPTION>
                                             Net        Basic        Diluted
                               Gross       Income     Earnings       Earnings
2003              Sales       Profit       (Loss)     Per Share      Per Share
------------  -----------   ----------   -----------  ---------      ---------
<S>           <C>           <C>          <C>           <C>            <C>
1st quarter   $ 3,869,008   $  971,909   $   10,647    $  0.00        $  0.00
2nd quarter     4,995,274    1,386,505      138,733       0.06           0.06
3rd quarter     6,635,915    1,986,737      335,998       0.15           0.15
4th quarter     4,977,737    1,264,459       49,766       0.02           0.02
              -----------   ----------   -----------  ---------      ---------
        (1)   $20,477,934   $5,609,610   $  535,144    $  0.24        $  0.23
              ===========   ==========   ===========  =========      =========
<FN>
<F1>
(1)    See NOTE O regarding the impact of unusual expenses. </FN>
</TABLE>

NOTE O - UNUSUAL EXPENSES

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 the settlement of these additional freight costs.
Management now believes 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 P - STOCK REPURCHASE PLAN

On November 8, 2004, the Companys Board of Directors authorized the repurchase
of up to $1,250,000 of the Companys common stock.  Under the terms of Plan,
the Company may make purchases over time through open market transactions,
block purchases, or through privately negotiated transactions.  Based on
the recent market price, the Company could acquire in excess of 10% of the
outstanding common stock of the Company.  To assist the Company in executing
the stock repurchases, the Company has entered into a 10b5-1 trading plan that
will be administered and executed by designated a broker that may purchase
shares on behalf of the Company beginning November 8, 2004 and ending on April
30, 2005, unless terminated earlier by the Company.  Through December 22, 2004,
the Company has paid approximately $536,000 to repurchase 124,700 shares for an
average per share price of $4.30.  In December, the Bank modified the covenants
of the Business Loan Agreement to permit the Company to purchase or retire up
to $1,250,000 of its common stock during the fiscal year ended October 31,
2005, and the Company may purchase or retire up to $500,000 of its common stock
in each fiscal year thereafter.