<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the three months ended July 31, 1999
Commission File Number 1-13365
-----------
INTERCORP EXCELLE INC.
(Exact name of Small Business Issuer as specified in its charter)
ONTARIO, CANADA N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1880 ORMONT DRIVE M9L 2V4
TORONTO, ONTARIO, CANADA (Zip Code)
(Address of principal executive offices)
(416) 744-2124
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(Title of Class)
-----------
Indicate by check mark whether the issuer: (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act 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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practical date: September 14, 1999 - 4,107,500
common shares, no par value.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Interim Consolidated Balance Sheets as at July 31, 1999 and January 31, 1999 1
Interim Consolidated Statements of Income for the six months ended 2
July 31, 1999 and 1998
Interim Consolidated Statements of Cash Flows for the six months ended 3
July 31, 1999 and 1998
Interim Consolidated Statements of Stockholders' Equity for the six months 4
ended July 31, 1999
Notes to Interim Consolidated Financial Statements 5 - 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 13
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and reports on Form 8-K 16
Signatures 17
</TABLE>
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
INTERCORP EXCELLE INC.
INTERIM CONSOLIDATED BALANCE SHEETS
AS AT JULY 31, 1999 AND JANUARY 31, 1999
(Amounts expressed in US Dollars)
(Unaudited)
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1999 1999
$ $
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash and short term investments Note 1(c) 1,513,804 3,170,147
Accounts Receivable Note 1(d) 1,182,769 784,979
Investment Tax Credit Recoverable 81,550 51,406
Inventory Note 1(f) 1,716,161 1,041,310
Income Tax Recoverable 4,386 16,258
Prepaid Expenses And Sundry Assets 121,214 141,468
---------------------------------
Total Current Assets 4,619,884 5,205,568
---------------------------------
---------------------------------
PROPERTY, PLANT AND EQUIPMENT Note 1(g) 3,398,550 2,951,207
INTANGIBLE ASSET Note 1(i) 810,793 -
---------------------------------
Total Assets 8,829,227 8,156,775
---------------------------------
---------------------------------
LIABILITIES
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts Payable And Accrued Liabilities Note 1(d) 2,161,970 1,216,681
Current Portion Of Long Term Debt 310,950 309,817
Current Portion Of Mortgage Payable 46,521 46,351
---------------------------------
Total Current Liabilities 2,519,441 1,572,849
LONG TERM DEBT 266,246 480,256
MORTGAGE PAYABLE 802,486 822,739
DUE TO DIRECTORS 121,103 120,662
DEFERRED INCOME TAXES 169,173 168,557
---------------------------------
Total Liabilities 3,878,449 3,165,063
---------------------------------
STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
COMMON STOCK Note 2(a) 4,018,192 4,018,192
RETAINED EARNINGS 1,548,475 1,461,041
TREASURY STOCKS Note 4 (155,665) -
CUMULATIVE TRANSLATION ADJUSTMENTS Note 1(j) (460,224) (487,521)
---------------------------------
Total Stockholders' Equity 4,950,778 4,991,712
---------------------------------
Total Liabilities and Stockholders' Equity 8,829,227 8,156,775
---------------------------------
---------------------------------
</TABLE>
Page 1
<PAGE>
INTERCORP EXCELLE INC.
INTERIM CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JULY 31, 1999 AND 1998
(Amounts expressed in US Dollars)
(Unaudited)
<TABLE>
<CAPTION>
3 MONTHS ENDED 6 MONTHS ENDED 3 MONTHS ENDED 6 MONTHS ENDED
JULY 31, 1999 JULY 31, 1999 JULY 31, 1998 JULY 31, 1998
$ $ $ $
<S> <C> <C> <C> <C>
GROSS SALES (Note 1 (k)) 3,967,451 7,225,406 3,418,056 6,433,572
Trade Expenditures 302,367 550,655 310,967 546,229
-----------------------------------------------------------------------------
NET SALES 3,665,084 6,674,751 3,107,089 5,887,343
Cost of sales 2,473,440 4,480,126 2,137,920 3,925,661
-----------------------------------------------------------------------------
GROSS PROFIT 1,191,644 2,194,625 969,169 1,961,682
-----------------------------------------------------------------------------
EXPENSES
Selling 576,285 1,018,060 537,177 939,672
General & Administrative 311,427 638,204 245,538 503,695
Research & Development Costs 66,884 128,335 74,908 133,977
Financial (net of interest income) 6,521 16,597 (12,250) (11,567)
Amortization 116,796 208,839 94,346 192,544
-----------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 1,077,913 2,010,034 939,719 1,758,321
-----------------------------------------------------------------------------
OPERATING INCOME 113,731 184,591 29,450 203,361
Gain/(loss) on exchange 18,870 (55,799) 87,306 46,470
----------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 132,601 128,792 116,756 249,831
Income Taxes 41,358 41,358 30,740 76,214
----------------------------------------------------------------------------
NET INCOME 91,243 87,434 86,016 173,617
----------------------------------------------------------------------------
----------------------------------------------------------------------------
NET INCOME PER WEIGHTED AVERAGE COMMON
SHARE (Note 3) 0.02 0.02 0.02 0.04
----------------------------------------------------------------------------
----------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
4,005,761 4,037,071 4,081,005 4,078,052
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
Page 2
<PAGE>
INTERCORP EXCELLE INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 31, 1999 AND 1998
(Amounts expressed in US Dollars)
(Unaudited)
<TABLE>
<CAPTION>
JULY 31, 1999 JULY 31, 1998
$ $
<S> <C> <C>
Cash flows from operating activities:
Net Income 87,434 173,617
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization 216,747 192,544
Increase in accounts receivable (399,963) (520,459)
Increase in investments tax credits (30,339) (38,165)
Increase in inventory (577,230) (31,382)
Decrease/(increase) in prepaid expenses 21,037 (100,663)
Increase in accounts payable and accrued liabilities 952,852 218,880
Decrease in income taxes recoverable 12,083 77,397
---------------------------------
Total adjustments 195,187 (201,848)
---------------------------------
Net cash provided by (used in) operating activities 282,621 (28,231)
---------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (318,976) (317,524)
Acquisition of A1 Sauce (1,246,652) -
---------------------------------
(1,565,628) (317,524)
---------------------------------
Cash flows from financing activities
Mortgage repayments (23,557) (24,205)
Proceeds from long term debt - 336,437
Repayment of long term debt (218,520) (108,695)
Repurchase of common shares (155,665) -
---------------------------------
Net cash provided by(used in) financing activities (397,742) 203,537
---------------------------------
Effect of foreign currency exchange rate changes 24,406 (111,506)
---------------------------------
Net decrease in cash and cash equivalents (1,656,343) (253,724)
---------------------------------
Cash and cash equivalents
Beginning of period 3,170,147 3,368,790
---------------------------------
End of period 1,513,804 3,115,066
---------------------------------
---------------------------------
Income tax paid 17,930 1,082
---------------------------------
---------------------------------
Interest paid (received), net 16,596 (12,250)
---------------------------------
---------------------------------
</TABLE>
Page 3
<PAGE>
INTERCORP EXCELLE INC.
INTERIM CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JULY 31, 1999
(Amounts expressed in US Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Additional Cumulative
Common Paid-in Treasury Translation Retained
Stock Capital Stock Adjustments Earnings Total
$ $ $ $ $ $
<S> <C> <C> <C> <C> <C>
Balance as of January 31, 1999 3,878,217 139,975 - (487,521) 1,461,041 4,991,712
Foreign currency translation - - - 162,990 - 162,990
Treasury Stock - - (98,536) - - (98,536)
Net loss for the quarter - - - - (3,809) (3,809)
-------------------------------------------------------------------------------------------------
Balance as of April 30, 1999 3,878,217 139,975 (98,536) (324,531) 1,457,232 5,052,357
Foreign currency translation - - - (135,693) - (135,693)
Treasury Stock - - (57,129) - - (57,129)
Net income for the quarter - - - - 91,243 91,243
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Balance as of July 31, 1999 3,878,217 139,975 (155,665) (460,224) 1,548,475 4,950,778
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
</TABLE>
Page 4
<PAGE>
INTERCORP EXCELLE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) Basis of Presentation
The consolidated financial statements include the accounts of Intercorp
Excelle Inc. ("the Company") and its wholly owned subsidiary, Intercorp Excelle
Foods Inc.
Each of the companies included in these consolidated financial statements were
incorporated in Canada on the following dates:
Intercorp Excelle Inc. April 16, 1997
Intercorp Excelle Foods Inc.* (100% owned subsidiary) February 1, 1998
B) Principal Activities
The companies are principally engaged in the production of food products in
Canada and its distribution in Canada and the U.S.
C) Cash and Cash Equivalents
Cash and cash equivalents (bank indebtedness) include cash on hand, amount
due from banks, and any other highly liquid investments purchased with a
maturity of three months or less. The carrying amount approximates fair value
because of the short maturity of those instruments.
D) Other Financial Instruments
The carrying amount of the Company's accounts receivable and payable
approximates fair value because of the short maturity of these instruments.
Page 5
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaudited)
E) Long-term Financial Instruments
The fair value of each of the Company's long-term financial assets and debt
instruments is based on the amount of future cash flows associated with each
instrument discounted using an estimate of what the Company's current borrowing
rate for similar instruments of comparative maturity would be.
F) Inventory
Inventory is valued at lower of cost or net realizable value. Cost is
determined on the first-in, first-out basis.
G) Property, Plant and Equipment and Intangible Asset
Property, plant and equipment are recorded at cost and are amortized on the
basis over their estimated useful lives at the undernoted rates and methods:
Building 4% Declining balance
Equipment 20% Declining balance
Leasehold improvement 10% Straight line
Vehicle 30% Declining balance
Computer equipment 30% Declining balance
Office furniture 20% Declining balance
Computer software 100% Declining balance
Amortization for assets acquired during the period are recorded at one half of
the indicated rates, which approximates when they were put into use.
H) Income Taxes
The company accounts for income tax under the provisions of Statement of
Financial Accounting Standard No. 109, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recorded in the financial statements or tax returns. Deferred
income taxes are provided using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities.
I) INTANGIBLE ASSET
Intangible asset represents the cost of acquiring the Canadian trademark,
brandname and proprietary information of the A-1(TM) Sauce business. It is
amortized over a period of 30 years.
J) Foreign Currency Translation
The company maintains its books and records in Canadian dollars. Foreign
currency transactions are translated using the temporal method. Under this
method, all monetary items are translated into Canadian funds at the rate of
exchange prevailing at balance sheet date. Non-monetary items are translated at
historical rates. Income and expenses are translated at the rate in effect of
the transaction dates. Transaction gains and losses are included in the
determination of earnings for the year.
The translation of the financial statements from Canadian dollars ("CDN $")
into United States dollars is performed for the convenience of the reader.
Balance sheet accounts are translated using closing exchange rates in effect at
the balance sheet date and income and expenses accounts are translated using an
average exchange prevailing during each reporting year. No representation is
made that the Canadian dollar amounts could have been or could be, converted
into United States dollars at the rates on the respective dates and or at any
other certain rates. Adjustments resulting from the translation are included in
the cumulative translation adjustments in stockholder's equity.
Page 6
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaudited)
K) Sales
Sales represent the invoiced value of goods supplied to customers. Sales
are recognized upon delivery of goods and passage of title to customers.
L) Government Assistance and Investment Tax Credits
Government Assistance and Investment Tax Credits are recorded on the
accrual basis and are accounted for as a reduction of the related current
expenditures.
M) Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of sales and expenses during
the reporting period. Actual results could differ from those estimates.
N) Accounting Changes
On February 1, 1996, the company adopted the provisions of SFAS No. 121,
Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to
Be Disposed Of. SFAS No. 121 requires that long-lived assets to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicates that the carrying amount of an asset may not be
recoverable. This statement is effective for financial statements for fiscal
years beginning after December 15, 1995. Adoption of SFAS No. 121 did not have a
material impact on the company's results of operations.
In December 1995, SFAS No. 123, Accounting for Stock- Based Compensation,
was issued. It introduces the use of a fair value-based method of accounting for
stock-based compensation. It encourages, but does not require, companies to
recognize compensation expense for stock-based compensation to employees based
on the new fair value accounting rules. Companies that choose not to adopt the
new rules will continue to apply the existing accounting rules contained in
Accounting Principles Board Option No. 25, Accounting for Stock Issued to
Employees. However, SFAS No. 123 requires companies that choose not to adopt the
new fair value accounting rules to disclose pro forma net income and earnings
per share under the new method. SFAS No. 123 is effective for financial
statements for fiscal years beginning after December 15, 1995. The company has
adopted the disclosure provisions of SFAS No. 123.
O) Comprehensive Income
In 1998, the Company adopted the provisions of SFAS No. 130 "Reporting
Comprehensive Income". This standard requires companies to disclose
comprehensive income in their financial statements. In addition to items
included in net income, comprehensive income includes items currently charged or
credited directly to stockholders' equity, such as the change in unrealized
appreciation (depreciation) of securities and foreign currency translation
adjustments.
Page 7
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaudited)
2. COMMON STOCK
a) Authorized
An unlimited number of common and preference shares.
The preference shares are issuable in series upon approval by the directors
with the appropriate designation, rights, and conditions attaching to each share
of such series.
<TABLE>
<CAPTION>
Issued: July 31, 1999 January 31, 1999
-------------------- --------------------
<S> <C> <C>
$ $
4,005,761 Common shares 3,878,217 3,878,217
1,399,750 Warrants 139,975 139,975
-------------------- --------------------
-------------------- --------------------
4,018,192 4,018,192
-------------------- --------------------
-------------------- --------------------
</TABLE>
b) Purchase Warrants
During the fiscal year 1998, Purchase Warrants ("Warrants") were issued
pursuant to a Warrant Agreement between the company and Continental Stock
Transfer & Trust Company. Each Warrant entitles its holder to purchase, during
the four year period commencing on October 9, 1997, one share of common stock at
an exercise price of $6.00 per share, subject to adjustment in accordance with
the anti-dilution and other provision referred to below.
The Warrants may be redeemed by the company at any time commencing one year
from October 9, 1997 (or earlier with the consent of the representative) and
prior to their expiration, at a redemption price of $0.10 per Warrant, on not
less than 30 days' prior written notice to the holders of such Warrants,
provided that the closing bid price of the common stock if traded on the Nasdaq
SmallCap Market, or the last sale price per share of the common stock, if listed
on the Nasdaq National Market or on a national exchange, is at least 150% ($9.00
per share, subject to adjustment) of the exercise price of the Warrants for a
period of 20 consecutive business days ending on the third day prior to the date
the notice of redemption is given. Holders of Warrants shall have exercise
rights until the close of the business day preceding the date fixed for
redemption.
The exercise price and the number of shares of common stock purchasable
upon the exercise of the Warrants are subject to adjustment upon the occurrence
of certain events, including stock dividends, stock splits, combinations
orclassification of the common stock. The Warrants do not confer upon holders
any voting or any other rights of shareholders of the company.
No Warrant will be exercisable unless at the time of exercise the company
has filed with the Commission a current prospectus covering the issuance of
common stock issuable upon the exercise of the Warrant and the issuance of
shares has been registered or qualified or is deemed to be exempt from
registration or qualification under the securities laws of the state of
residence of the holder of the Warrant. The company has undertaken to use its
best efforts to maintain a current prospectus relating to the issuance of shares
of common stock upon the exercise of the Warrants until the expiration of the
Warrants, subject to the terms of the Warrant Agreement. While it is the
company's intention to maintain a current prospectus, there is no assurance that
it will be able to do so.
Page 8
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaudited)
c) Bridge Warrants
In May, 1997, the company issued an aggregate of 175,000 Warrants (the
"Bridge Warrants"). The Bridge Warrants entitle the holder to purchase one share
of common stock for $3.75 per share for a period of four years. Bridge Warrants
are exchangeable at the option of the holder for a like number of warrants with
identical terms as the Warrants.
d) Stock Option Plan
In May, 1997, the board of directors and shareholders adopted the Intercorp
Excelle Inc. Stock Option Plan (the "1997 Plan"), pursuant to which 500,000
shares of common stock are reserved for issuance. The 1997 Plan is administered
by the compensation committee or the board of directors, who determine, those
individuals who shall receive options, the time period during which the options
may be partially or fully exercised,the number of shares of common stock
issuable upon the exercise of the options and the option exercise price.
The 1997 Plan is for a period for ten years, expiring in May, 2007. Options
may be granted to officers, directors, consultants, key employees, advisors and
similar parties who provide their skills and expertise to the company. Options
granted under the 1997 Plan may be exercisable for up to ten years, may require
vesting, and shall be at an exercise price as determined by the board. Options
are non-transferable except by the laws of descent and distribution or a change
in control of the company, as defined in the 1997 Plan, and are exercisable only
by the participant during his or her lifetime. Change in control includes (I)
the sale of substantially all of the assets of the company and merger or
consolidated with another, or (ii) a majority of the board changes other than by
the shareholders pursuant to board solicitation or by vacancies filled by the
board caused by death or resignation of such person. If a participant ceases
affiliation with the company by reason of death, permanent disability or
retirement at or after age 70, the option remains exercisable for one year from
such occurrence but not beyond the option's expiration date. Other termination
gives the participant three months to exercise, except for termination for cause
which results in immediate termination of the option.
Options granted under the 1997 Plan, at the discretion of the compensation
committee or the board, may be exercised either with cash, common stock having a
fair market equal to the cash excisable price, the participant's personal
recourse note, or with an assignment to the company of sufficient proceeds from
the sale of the common stock acquired upon exercise of the options with an
authorization to the broker or selling agent to pay that amount to the company,
or any combination of the above.
Any unexercised options that expire or terminate upon an employee's ceasing
to be employed by the company become available again for issuance under the 1997
Plan. The 1997 Plan may be terminated or amended at any time by the board of
directors, except that the number of shares of common stock reserved for
issuance upon the exercise of options granted under the 1997 Plan may not be
increased without the consent of the shareholders of the company.
Page 9
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaided)
d) Stock Option Plan (continue)
In March 1999, the Board granted 10,000 options under the 1997 Plan to two of
the Company's independent Directors. The options are exercisable at $3.50 per
share. 40% of the options are immediately exercisable, an additional 30% become
exercisable after March 2, 2000 and all the options are exercisable after March
2, 2001. In April 1999, the Board granted 26,500 options to employees and 20,000
options to five directors under the 1997 Plan. All options are exercisable
immediately.
Summarized below are options granted and outstanding as at July 31, 1999:
<TABLE>
<CAPTION>
Weighted
Options granted to: Expiry Average
Options Date Exercise Price
$
<S> <C> <C> <C>
Directors 167,500 May 1, 2007 3.50
Key Employees And Independent Directors 40,000 April 30, 2003 5.00
----------------- -----------------
Options outstanding as at January 31, 1999 207,500 3.79
----------------- -----------------
Options granted during 1st quarter ending April 30, 1999:
Independent Directors 10,000 May 1, 2007 3.50
Employees 26,500 May 1, 2007 1.88
Directors 20,000 May 1, 2007 1.88
----------------- -----------------
Total options granted during 1st quarter
ending April 30, 1999 56,500 2.16
----------------- -----------------
----------------- -----------------
Total options outstanding as at July 31, 1999 264,000 3.44
----------------- -----------------
----------------- -----------------
No options were granted or exercised in the quarter ended July 31, 1999.
</TABLE>
Page 10
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaided)
e) Application of SFAS 123: Accounting for Stock-Based Compensation
As all options granted are exercisable at between the price range of $1.88
to $5.00 per share, which is greater than the grant-date fair value of the
options granted, no stock-based compensation has been recognized in connection
with these options.
3. Earnings Per Share
Net Income per common share is computed by dividing net income for the
period by the weighted number of common shares outstanding during the period.
Fully diluted net income per share was the same as the basic net income per
common share for the periods ended July 31, 1999 and 1998.
4. Treasury Stock
On March 1, 1999, the Board of Directors approved a company stock repurchase
program to buy back up to 250,000 common shares of the Company at a market price
per share not exceeding $2.00. As at July 31, 1999, the company has repurchased
101,739 common shares at an average price of $1.53 for a total cost of $155,165.
5. COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income and its components in the financial statements.
However, it does not affect net income or stockholders' equity. The components
of comprehensive income are as follows:
<TABLE>
<CAPTION>
July 1999 July 1998
$ $
<S> <C> <C>
Net income 91,243 87,601
Other comprehensive income (135,692) 59,295
-------------------- --------------------
-------------------- --------------------
Comprehensive income (loss) (44,449) 146,895
-------------------- --------------------
-------------------- --------------------
The components of accumulated other comprehensive income /(loss) are as follows:
Accumulated other comprehensive loss, January 31, 1996 (45,445)
Foreign currency translation adjustments for the year ended
January 31, 1997 13,516
-------------------
Accumulated other comprehensive loss, January 31, 1997 (31,929)
-------------------
Foreign currency translation adjustments for the year ended
January 31, 1998 (247,005)
-------------------
Accumulated other comprehensive loss, January 31, 1998 (278,934)
-------------------
Foreign currency translation adjustments for the year ended
January 31, 1999 (208,587)
-------------------
Accumulated other comprehensive losses, April 30, 1999 (487,521)
-------------------
Foreign currency translation adjustments for the quarter
ended April 30, 1999 162,990
-------------------
Accumulated other comprehensive losses, April 30, 1999
(324,531)
-------------------
Foreign currency translation adjustments for the quarter (135,692)
ended July 31, 1999
-------------------
Accumulated other comprehensive losses, July 31, 1999 (460,223)
-------------------
-------------------
</TABLE>
Page 11
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The statements contained in this Filing that are not historical are forward
looking statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act, including statements regarding the Company's
expectations, intentions, beliefs or strategies regarding the future. All
forward looking statements include the Company's statements regarding liquidity,
anticipated cash needs and availability and anticipated expense levels. All
forward looking statements included in this report are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward looking statement. It is important to note
that the Company's actual results could differ materially from those in such
forward looking statements.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JULY 31, 1999 COMPARED TO THE SIX MONTHS ENDED JULY 31,
1998.
Sales for the six months ended July 31, 1999 were $7.2 million , a 12.3%
increase over prior year first half sales of $6.4 million USD. This increase
reflected the launch of new Renee's Gourmet(TM) sauces and marinades in the meat
section of grocery stores across Ontario, Quebec and the Maritimes, in addition
to a successful relaunch of Renee's Naturally Light(TM) nationally and growth in
Renee's Gourmet(TM) regular branded dressings through new listings in Western
Canada. Retail Private Label and Food Service incremental new accounts
nationally also contributed significantly to first half volume increases. Actual
sales growth in Canadian dollars, net of foreign exchange differentials, was
significantly higher at 20.6%.
Gross profit for the same six month period of $2.2 million was 32.9% of net
sales, which was only slightly lower than the same period one year ago (33.3% of
net sales). This was attributed to higher cost of goods, primary ingredients and
packaging, in addition to an unfavorable mix towards lower margin Food Service
business. Also, plant startup expenses associated with the launch of incremental
Food Service pouch and four litre tub products had a negative impact on
operational efficiency during the first half of this fiscal year. Production
volume increases over last year of 45- 50% were significantly higher than sales
growth during the same time period, tracing to increased food service industrial
and bulk pack business, as well as increased inventory stock positions to
support sales activity.
Selling and marketing expenses of $1.0 million were higher in total
dollars, but lower on a percentage of net sales than the first six months of
1998, reflecting additional support costs behind Renee's Gourmet(TM), offset by
a business sales mix towards Food Service. General and Administrative expenses
of $638,204 were $134,509 higher than same period of prior year , primarily due
to higher legal, audit expenditures, investment relations support costs and
administrative headcount and wage increases year to date, primarily to support
sales growth.
On July 28, 1999 the Company completed an acquisition, purchasing the
Canadian trademark and brand name A1(TM) sauce's from Campbell Soup Company Ltd.
The total purchase price of $1.9 million Canadian dollars, ($1.2million USD),
was funded from current cash resources raised through the Company's initial
public offering in October 1997. Under the terms of the agreement, the Company
acquired all of the assets, including inventory, capital manufacturing
equipment, formulae and the Canadian trademark for A1(TM), and will manufacture,
distribute and market products through the operating Company to all major
retailers and restaurant outlets across Canada. Included in the purchase price
was a $50,000 Canadian, holdback amount for one year, covering trademark legal
defense expenses incurred to expand this trademark. Other operating financial
costs have been more than offset by interest income on funds invested in
residual USD interest bearing term accounts.
Income before income taxes of $128,792 for the first six month's was
generated during the second quarter where reported net income was 12.8% higher
than prior year. Operating income of $184,591 for the six months ended July 31,
1999 is only marginally below prior year results, due to a strong second
quarter. The first quarter operating income result reflected lower than
anticipated gross margins on higher sales, combined with higher than expected
administrative overhead expenses during that quarter.
The Company also reported a net translation loss of $55,799 on US funds
converted from Canadian dollars for the first six months of the current fiscal
year. This reflects continued strengthening of the Canadian dollar since the
beginning of current fiscal year. (Although the company's functional currency is
Canadian dollars, the majority of available cash funds are held in US dollars).
This compares to a $46,470 USD translation gain for the first six months of the
prior year.
Income after taxes was $87,434 as compared to $173,617 for the prior year
ended July 31, 1998. This lower than expected result is primarily due to
translation losses reported during the first quarter.
Page 12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUE)
LIQUIDITY AND CAPITAL RESOURCES
The Company had a net increase in cash from operations of $ 195,187 for the
six months ending July 31, 1999. The principal source of cash traced to an
increase in accounts payable and accrued liabilities. This was partially offset
by cash required to carry higher inventories, prepaids and an increase in
accounts receivable at the end of the period.
Capital spending during the first three months of 1999 reflected planned
capital additions of $318,976. Capital asset additions in the current fiscal
year to date are in line with prior year, primarily based on second quarter
activities.
Cash flows from investing activities also included the completion of an
acquisition on July 28, 1999. The Company acquired the Canadian trademark and
brand name A1(TM) sauce's from Campbell Soup Company Ltd. for a total purchase
price of $1.2million USD. The Company has reported the full impact of this
purchase in second quarter results.
The Company's secured a revised credit arrangement with National Bank of
Canada effective July 9, 1999. This facility includes a credit line of Cdn$1.0
million that is due on demand and bears interest at prime plus one half of a
percent - only a portion of which is used due to the company's positive cash
position in US dollars. In addition, the Company's new facility includes an
additional Cdn$1.0million non-revolving demand loan for current year capital
asset expenditures. All borrowings are collateralized by the assets of the
Company.
Other cash flows from investing activities during the first six month's of
this year included accelerated repayment of certain long term debt of $218,519
as well as a repurchase of 101,739 common shares under a stock repurchase
program approved by the Company's Board of Directors March 1, 1999. At this
time, the Company announced a program to buy back up to 250,000 common shares at
a market price per share not to exceed $2.00 USD.
The Company received net proceeds from its initial public offering
effective October 9, 1997 in a net amount of $3,799,062. The Company believes
that the proceeds of the Offering, coupled with income from operations will
fulfill the Company's working capital needs for at least the next two years. It
is the Company's intention to utilize a significant portion of the proceeds to
aggressively seek synergistic acquisitions. The Company also intends to support
its branded Renee's business through increased marketing, advertising and
distribution throughout North America. As the Company continues to grow, bank
borrowings, other debt placements and equity offerings may be considered, in
part, or in combination, as the situation warrants.
Page 13
<PAGE>
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company made an initial public offering of its common stock, no par
value ("Common Stock") and common stock purchase warrants ("Warrants") (the
Common Stock and Warrants are collectively referred to as the "Securities")
pursuant to a registration statement declared effective by the Securities and
Exchange Commission on October 9, 1998, File No. 333-7202 ("Registration
Statement"). Each Warrant permits the holder, upon exercise, to receive one
share of the Company's common stock, no par value.
The following are the Company's expenses incurred in connection with the
issuance and distribution of the Securities in the offering from the effective
date of the Registration Statement to the ending date of the reporting period of
this 10-QSB:
<TABLE>
<CAPTION>
EXPENSE AMOUNT
----------- ----------
<S> <C>
Underwriter's Discounts and Commissions $512,247
Expenses paid to or for the Underwriters 241,674
Other expenses (1) 569,492
----------------
Total Expenses $1,323,413
----------------
----------------
</TABLE>
(1) Estimate
None of the foregoing expenses were paid, directly or indirectly, to any
director or officer of the Company or their associates, to any person who owns
10 percent or more of any class of equity securities of the Company, or to any
affiliate of the Company.
The net offering proceeds to the Company after deducting for the foregoing
expenses are $3,799,062.
The following are the application of the net proceeds by the Company from
the sale of the Securities in the offering from the effective date of the
Registration Statement to the ending date of the reporting period of this 10-
QSB:
<TABLE>
<CAPTION>
ITEM AMOUNT
<S> <C>
Purchase of Building $400,793
Temporary Investments (2) 1,496,617
Purchase of A1 Sauce business 1,246,652
Repayment of Indebtedness 655,000
----------------
Total Application of Net Proceeds $3,799,062
----------------
----------------
</TABLE>
(2) Money market investments
None of the foregoing application of the net proceeds were paid, directly
or indirectly, to any director or officer of the Company or their associates, to
any person who owns 10 percent or more of any class of equity securities of the
Company, or to any affiliate of the Company.
The application of the net proceeds to date is not a material change in the
use of proceeds described in the prospectus in the Registration Statement.
Page 14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On July 15, 1999, the Company held its annual meeting of stockholders. At
the meeting the following persons were elected to serve as directors of the
Company for the ensuing year: Arnold Unger, Renee Unger, Fred Burke, Lori
Gutmann, John Rothschild and Taketo Murata. Each of the Directors were elected
by the following vote: 3,826,269 vote for, 0 votes against and 700 votes
withheld. Additionally, at the meeting Schwartz Levitsky Feldman, Chartered
Accountants was elected as the Company's independent auditors for the ensuing
year by the following vote: 3,825,269 for, 700 against and 1,000 withheld.
PAGE 15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit description
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K on August 12, 1999 regarding its acquisition
of the A1 Sauce business. The transaction was executed and completed on July 28,
1999.
Page 16
<PAGE>
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.
INTERCORP EXCELLE, INC.
September 14, 1999 By: /S/ ARNOLD UNGER
------------------
ARNOLD UNGER
CHIEF EXECUTIVE OFFICER AND
CO-CHAIRPERSON
September 14, 1999 By: /S/ RENEE UNGER
------------------
RENEE UNGER
PRESIDENT AND CO-CHAIRPERSON
September 14, 1999 By: /S/ FRED BURKE
-----------------
FRED BURKE
CHIEF FINANCIAL OFFICER, CHIEF
OPERATING OFFICER AND SECRETARY
Page 17
<PAGE>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF NET INCOME INCLUDED IN
THE REGISTRANT'S FORM 10-QSB FOR THE QUARTER ENDED July 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
EXHIBIT 27
- -------------------------------------------------------------------------------
Period Type 3 Months
Fiscal Year End January 31, 2000
Period Start May 1, 1999
Period end July 31, 1999
Cash 1,513,804
Securities 0
Receivables 1,182,769
Allowance 0
Inventory 1,716,161
Current Assets 4,638,744
PP&E 6,449,392
Depreciation 2,240,049
Total Assets 8,829,227
Current Liabilities 2,519,441
Bonds 1,359,008
Preferred Mandatory 0
Common 4,018,192
Other - SE 932,587
Total Liability and Equity 8,848,087
Sales 3,967,451
Total Revenue 3,967,451
CGS 2,473,440
Total Costs 1,071,392
Other Expenses (18,771)
Loss provision 0
Interest expenses 16,597
Income - Pre-tax 132,601
Income Tax 41,358
Discontinued 0
Extraordinary 0
Changes 0
Net-Income 91,243
EPS - Primary 0.02
EPS - Diluted 0.02
- -------------------------------------------------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF NET INCOME INCLUDED IN
THE REGISTRANT'S FORM 10-QSB FOR THE QUARTER ENDED JULY 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 1,513,804
<SECURITIES> 0
<RECEIVABLES> 1,182,769
<ALLOWANCES> 0
<INVENTORY> 1,716,161
<CURRENT-ASSETS> 4,619,884
<PP&E> 6,449,392
<DEPRECIATION> 2,240,049
<TOTAL-ASSETS> 8,829,227
<CURRENT-LIABILITIES> 2,519,441
<BONDS> 1,359,008
0
0
<COMMON> 4,018,192
<OTHER-SE> 932,587
<TOTAL-LIABILITY-AND-EQUITY> 8,829,227
<SALES> 3,967,451
<TOTAL-REVENUES> 3,967,451
<CGS> 2,473,440
<TOTAL-COSTS> 1,071,392
<OTHER-EXPENSES> (18,870)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,521
<INCOME-PRETAX> 132,601
<INCOME-TAX> 41,358
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91,243
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
