<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 October 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
TORONTO, ONTARIO, CANADA M9L 2V4
(Address of principal executive offices) (Zip Code)
(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: December 14, 1999 - 4,107,500
common shares, no par value.
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Interim Consolidated Balance Sheets as at October 31, 1999 and January 31, 1999 1
Interim Consolidated Statements of Income for the three and nine months ended
October 31, 1999 and 1998 2
Interim Consolidated Statements of Cash Flows for the nine months ended
October 31, 1999 and 1998 3
Interim Consolidated Statements of Stockholders' Equity for the nine months
ended October 31, 1999 4
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 6. Exhibits and reports on Form 8-K 15
Signatures 16
</TABLE>
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
INTERCORP EXCELLE INC.
INTERIM CONSOLIDATED BALANCE SHEETS
AS AT OCTOBER 31, 1999 AND JANUARY 31, 1999
(Amounts expressed in US Dollars)
(Unaudited)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
` 1999 1999
$ $
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short term investments Note 1(c) 1,541,948 3,170,147
Accounts Receivable Note 1(d) 1,114,663 784,979
Investment Tax Credit Recoverable 86,631 51,406
Inventory Note 1(f) 1,316,201 1,041,310
Income Tax Recoverable -- 16,258
Prepaid Expenses And Sundry Assets 107,304 141,468
--------------------------------
Total Current Assets 4,166,747 5,205,568
PROPERTY, PLANT AND EQUIPMENT Note 1(g) 3,475,502 2,951,207
INTANGIBLE ASSET Note 1(i) 821,172 --
--------------------------------
Total Assets 8,463,421 8,156,775
================================
LIABILITIES
CURRENT LIABILITIES
Accounts Payable And Accrued Liabilities Note 1(d) 1,497,629 1,216,681
Income Tax Payable 22,739 ---
Current Portion Of Long Term Debt 304,002 309,817
Current Portion Of Mortgage Payable 47,512 46,351
--------------------------------
Total Current Liabilities 1,871,882 1,572,849
LONG TERM DEBT 377,675 480,256
MORTGAGE PAYABLE 807,711 822,739
DUE TO DIRECTORS 123,683 120,662
DEFERRED INCOME TAXES Note 1(h) 172,779 168,557
--------------------------------
Total Liabilities 3,353,730 3,165,063
--------------------------------
STOCKHOLDERS' EQUITY
COMMON STOCK Note 2(a) 4,018,192 4,018,192
RETAINED EARNINGS 1,604,986 1,461,041
TREASURY STOCKS Note 4 (175,665) --
CUMULATIVE TRANSLATION ADJUSTMENTS Note 1(j) (337,822) (487,521)
--------------------------------
Total Stockholders' Equity 5,109,691 4,991,712
--------------------------------
Total Liabilities and Stockholders' Equity 8,463,421 8,156,775
================================
</TABLE>
Page 1
<PAGE>
INTERCORP EXCELLE INC.
INTERIM CONSOLIDATED STATEMENTS OF
INCOME FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998
(Amounts expressed in US Dollars)
(Unaudited)
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED 3 MONTHS ENDED 9 MONTHS ENDED
OCTOBER 31, 1999 OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1998
$ $ $ $
<S> <C> <C> <C> <C>
GROSS SALES (Note 1 (k)) 3,617,325 10,842,731 2,486,594 8,920,166
Trade Expenditures 256,022 806,677 175,732 721,961
-----------------------------------------------------------------------------
NET SALES 3,361,303 10,036,054 2,310,862 8,198,205
Cost of sales 2,389,287 6,869,413 1,550,990 5,476,652
-----------------------------------------------------------------------------
GROSS PROFIT 972,016 3,166,641 759,872 2,721,553
-----------------------------------------------------------------------------
EXPENSES
Selling 378,194 1,396,254 344,397 1,284,069
General & Administrative 265,726 903,930 271,105 774,800
Research & Development Costs 86,360 214,695 64,070 198,047
Financial (net of interest income) 22,404 39,001 6,317 (5,251)
Amortization 155,263 364,101 72,212 264,757
-----------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 907,947 2,917,981 758,101 2,516,422
-----------------------------------------------------------------------------
OPERATING INCOME 64,069 248,660 1,771 205,131
Gain/(loss) on exchange 5,950 (49,849) 70,144 116,615
-----------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 70,019 198,811 71,915 321,746
Income Taxes 13,508 54,866 26,111 102,325
-----------------------------------------------------------------------------
NET INCOME 56,511 143,945 45,804 219,421
=============================================================================
NET INCOME PER WEIGHTED AVERAGE COMMON
SHARE (Note 3) 0.01 0.04 0.01 0.05
=============================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 4,002,446 4,025,402 4,107,500 4,087,976
=============================================================================
</TABLE>
Page 2
<PAGE>
INTERCORP EXCELLE INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998
(Amounts expressed in US Dollars)
(Unaudited)
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31,
1999 1998
$ $
<S> <C> <C>
Cash flows from operating activities:
Net Income 143,945 219,421
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization 364,101 264,757
Increase in accounts receivable (310,024) (106,386)
Increase in investments tax credits (33,937) (56,003)
Increase in inventory (145,566) (325,975)
Decrease/(increase) in prepaid expenses 37,707 (129,061)
Increase in accounts payable and accrued liabilities 250,474 261,162
Decrease in income tax recoverable 39,404 43,586
----------------------------
Total adjustments 202,159 (47,920)
----------------------------
Net cash provided by operating activities 346,104 171,501
----------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (482,218) (257,303)
Acquisition of A1 Sauce (1,246,652) --
----------------------------
(1,728,870) (257,303)
----------------------------
Cash flows from financing activities
Mortgage repayments (35,634) (11,351)
Proceeds from long term debt 145,641 --
Repayment of long term debt (273,825) (68,521)
Net proceeds from issuance of common stock -- 113,625
Repurchase of common shares (175,665) --
----------------------------
Net cash provided by(used in) financing activities (339,483) 33,753
----------------------------
Effect of foreign currency exchange rate changes 94,050 (55,164)
----------------------------
Net decrease in cash and cash equivalents (1,628,199) (107,213)
Cash and cash equivalents
Beginning of period 3,170,147 3,368,790
----------------------------
End of period 1,541,948 3,261,577
============================
Income tax paid 26,732 1,082
============================
Interest paid (received), net 39,001 (5,251)
============================
</TABLE>
Page 3
<PAGE>
INTERCORP EXCELLE INC.
INTERIM CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 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> <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
Foreign currency translation -- -- -- 122,402 -- 122,402
Treasury Stock -- -- (20,000) -- -- (20,000)
Net income for the quarter -- -- -- -- 56,511 56,511
--------------------------------------------------------------------------------------
Balance as of October 31, 1999 3,878,217 139,975 (175,665) (337,822) 1,604,986 5,109,691
======================================================================================
</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 interim 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
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:
<TABLE>
<S> <C> <C>
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
</TABLE>
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 A-1(TM) Sauce business. It is being
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 Interim 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 Interim 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: October 31, 1999 January 31, 1999
-------------------- --------------------
<S> <C> <C>
$ $
4,107,500 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 Interim 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 interim 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. 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.
On September 8, 1999, the Board of Directors has approved to change the exercise
price of existing outstanding stock options to $1.00.
Summarized below are options granted and outstanding as at October 31, 1999:
<TABLE>
<CAPTION>
Expiry
Options granted to: Options Date
------- ----
<S> <C> <C>
Directors 167,500 May 11, 2009
Key Employees And Independent Directors 33,000 April 11, 2008
---------------
Options outstanding as at January 31, 1999 200,500
---------------
Options granted during nine months ending October 31, 1999:
Independent Directors 10,000 April 14, 2008
Employees 24,500 April 15, 2009
Directors 20,000 April 15, 2009
---------------
Total options granted during nine months
ending October 31, 1999 54,500
---------------
Total options outstanding as at October 31, 1999 255,000
===============
</TABLE>
No options were granted or exercised in the quarter ended October 31, 1999.
Page 10
<PAGE>
INTERCORP EXCELLE INC.
Notes to interim 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 the new price at $1.00 which
fairly represents the prevailing market value at the Time of change, 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 October 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 October 31, 1999, the company has
repurchased 106,739 common shares at an average price of $1.65 for a total cost
of $175,665.
5. Comprehensive Income(loss)
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>
October 31, October 31,
1999 1998
$ $
<S> <C> <C>
Net income 143,945 45,804
Other comprehensive income/(loss) 122,402 (132,558)
------------------
Comprehensive income (loss) 266,347 (86,754)
==================
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, January 31,1999 (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
ended July 31, 1999 (135,692)
--------
Accumulated other comprehensive losses, July 31, 1999 (460,223)
Foreign currency translation adjustments for the quarter
ended October 31, 1999 122,402
========
Accumulated other comprehensive losses, October 31, 1999 (337,821)
========
</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
NINE MONTHS ENDED OCTOBER 31, 1999 COMPARED TO THE NINE MONTHS ENDED
OCT 31, 1998.
Sales for the nine months ended October 31, 1999 were $10.8 million
USD, a 21.6% increase over prior year revenues of $8.9 million USD. This
increase reflected new listings of Renee's Gourmet(TM) regular branded products
in Western Canada as well as sauces and marinades in the meat section of grocery
stores in addition to a successful relaunch of Renee's Naturally Light(TM)
nationally. As well, incremental unplanned sales of A1(TM) steak sauces starting
August 1999 contributed to a significant boost in third quarter sales volumes by
46.5% over prior year. Retail Private Label and Food Service incremental new
accounts nationally also contributed to the record third quarter result. Actual
sales growth in Canadian dollars, net of foreign exchange differentials,
reflected a higher growth rate of 26.4% of prior year for the nine months ended
October 31, 1999.
Gross profit for the same nine month period of $3.2 million slipped to
31.5% of net revenues, which was lower than the same period one year ago (33.2%
of net revenues). This was attributed to higher cost of goods, primary
ingredients and packaging, as well as finished good inventory reserves, 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. 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 $1.4million year to date, were higher
in total dollar spend, but lower on a percentage of net sales than the first
nine months of 1998, reflecting timing related support costs behind Renee's
Gourmet(TM), and a sales mix towards Food Service private label and industrial
business.
General and Administrative expenses of $903,930 were $129,000 higher
than prior year, due to higher legal, audit expenditures, investment relations
support costs and administrative headcount and wage increases, primarily to
support sales growth for the nine months ended October 31, 1999.
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 $1.8 million in Canadian dollars, ($1.2 million
USD), was funded from current cash resources.
Income before income taxes of $198,811, increased by $70,019 during the
third quarter which was in line with the same period one year ago. Operating
income also improved to $248,660, 21% higher than prior year results, tracing to
strong third quarter results. This more than offset lower than anticipated gross
margins and higher than expected administrative overhead expenses.
The Company also reported a net translation loss of $49,849 on US funds
converted from Canadian dollars for the first nine months of the current fiscal
year. This reflects a stronger USD dollar in the third quarter, which reversed
most of the translation loss reported during the first half of the 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 $116,615 USD
translation gain for the first nine months of the prior year.
Net income is $143,945 as compared to $219,421 for the prior year ended
October 31, 1998. This lower than expected result is primarily due to
translation losses reported during the first half of the year.
Page 12
<PAGE>
ITEM 2.
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 $ 346,104 for
the nine months ending October 31, 1999. The principal source of cash traced to
net income generated, as well as an increase in accounts payable and accrued
liabilities. This was partially offset by cash required to carry higher
inventories and an increase in accounts receivable at the end of the period.
Capital spending during the first nine months of 1999 reflected planned
capital additions of $482,218. Capital additions in the current fiscal year to
date were higher as compared to prior year, primarily as a result of planned
capital additons 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 nine
month's of this year included accelerated repayment of certain long term debt of
$273,825 as well as a repurchase of 106,739 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 of an 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit description
27. Financial Data Schedule
Page 15
<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.
/s/ ARNOLD UNGER
----------------
ARNOLD UNGER
CHIEF EXECUTIVE OFFICER AND
December 14, 1999 By: CO-CHAIRPERSON
/s/ RENEE UNGER
---------------
RENEE UNGER
December 14, 1999 By: PRESIDENT AND CO-CHAIRPERSON
/s/ FRED BURKE
--------------
FRED BURKE
CHIEF FINANCIAL OFFICER, CHIEF
December 14, 1999 By: OPERATING OFFICER AND SECRETARY
Page 16
<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 OCTOBER 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> AUG-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 1,541,948
<SECURITIES> 0
<RECEIVABLES> 1,114,663
<ALLOWANCES> 0
<INVENTORY> 1,316,201
<CURRENT-ASSETS> 4,166,747
<PP&E> 6,734,967
<DEPRECIATION> 2,438,293
<TOTAL-ASSETS> 8,463,421
<CURRENT-LIABILITIES> 1,871,882
<BONDS> 1,309,069
0
0
<COMMON> 4,018,192
<OTHER-SE> 1,091,499
<TOTAL-LIABILITY-AND-EQUITY> 8,463,421
<SALES> 3,617,325
<TOTAL-REVENUES> 3,617,325
<CGS> 2,389,287
<TOTAL-COSTS> 885,543
<OTHER-EXPENSES> (5,950)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,404
<INCOME-PRETAX> 70,019
<INCOME-TAX> 13,508
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,511
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
