<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1999
Commission File Number 1=13365
INTERCORP EXCELLE INC.
----------------------------------------------------
(Exact name of registrant 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
--------------
(Registrant'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 registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S=B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10=KSB or any
amendment to this Form 10=KSB. | |
The Company's sales for the year ended January 31, 1999 were $11,938,764.
<PAGE>
As of April 28, 1999 the aggregate market value of the voting stock held
by non=affiliates of the registrant (based on The Nasdaq Stock Market last sale
price of $1 7/8 on April 28, 1999) was $2,325,000.
As of April 29, 1999, there were 4,107,500 shares of the registrant's
common stock outstanding.
2
<PAGE>
PART I.
Item 1. DESCRIPTION OF BUSINESS
Products
The Company manufactures, markets and distributes over 200 products
including salad dressings, dips, sauces, marinades and mayonnaise. Renee's
Gourmet=TM= salad dressings and sauces are marketed throughout Canada and to
a lesser degree in the United States. The Company distributes a line of gourmet
salad dressings to supermarkets, gourmet stores and specialty shops, primarily
in Canada, under the name "Renee's Gourmet=TM=." Salad dressings, dips,
sauces, marinades and mayonnaise are also distributed under the brand name
Excelle and under private labels for both retail and food service
establishments, including supermarkets, restaurants, hotels, hospitals, schools
and other institutional cafeterias throughout Canada and the United States. The
private labels are sold under one of such names or the supermarkets' own name.
The Company's private labels include President's Choice for Loblaw's Company
Ltd., Master's Choice for A&P, Sobeys, as well as Shaw's and Wegman's in the
United States.
All of the products in the Renee's Gourmet=TM= line are made
primarily from natural ingredients and are preservative and MSG free, as well as
being low in sodium. Certain of the Company's products are also designed to
serve certain specific health conscious markets. For example, the Company
markets products which are made without milk, sugars or vegetable oils for
consumers who are lactose intolerant, diabetic, or allergy=prone. The Renee's
Gourmet=TM= line includes Ranch, Caesar, Mighty Caesar, Chunky Blue Cheese,
as well as more exotic flavors such as Cucumber and Dill, Poppy Seed, and Greek
Feta. Renee's Gourmet=TM= Dressings have maintained the largest market share
of any refrigerated salad dressing in Canada, according to AC Nielsen reports.
The Company also distributes a line of low fat dressing "Renee's
Gourmet Naturally Light=TM=" intended for the growing diet and health
conscious market. The low=fat line includes Mandarin Orange, Country Ranch,
Ravin' Raspberry Vinaigrette, Mediterranean Vinaigrette, Roasted Red Pepper and
Spring Herb Garlic Vinaigrette. During 1998, management successfully introduced
a line of low= fat Renee's Gourmet=TM= sauces and meat marinades which
include Creole Mustard, Tangy Thai, Ambrosia Pineapple, Herb Medley and Sesame
Ginger.
Excelle products are made from premium ingredients. The Company
produces many salad dressings, dips, sauces, marinades and mayonnaise, including
products such as Peanut Satay, Spicy Thai, Honey Garlic, Roasted Red Pepper,
Hickory Sauce and Wing Sauces. The Company markets these products to
supermarkets under the Excelle label as well as the supermarkets' own brand
under private label arrangements.
The Company also makes exclusive specialty dressings, sauces, marinades
and mayonnaise for restaurants under their own names. Such products are made for
Boston Pizza, The KEG, Mr. SUB, Kentucky Fried Chicken, East Side Mario's,
Mike's, and other restaurants across Canada.
The Company's products are sold to supermarkets in a variety of bottle
sizes, one gallon containers and individual portion cups and pouches for food
service establishments. The salad dressings are sold in the produce section of
supermarkets and require refrigeration. Management believes that it is an
advantage to sell its products in the produce section because fewer competing
products are generally sold in the produce section and because such products
naturally complement lettuce and other vegetables sold in the produce section.
The dressings have a four to six month refrigerated shelf life.
The Company adheres to strict quality standards and uses fresh, natural
ingredients. The Company attracts customers by providing salad dressings, sauces
and other products that have unusual combinations of flavors and taste ranges,
which are not offered by competitors, and because of its focus on healthy
products.
Manufacturing
The Company manufactures its salad dressings and other products at its
Toronto, Ontario facility. The Company utilizes an integrated assembly process
and packaging line for its products which mixes the ingredients, bottles the
dressings, adds the appropriate labels and seals the bottles for consumer
protection. Because no preservatives are added to the salad dressings, they are
refrigerated on=site immediately and remain refrigerated through their shipping
and storage, until they are distributed to various supermarkets, gourmet stores
or food service providers.
The Company currently produces 400,000 to 500,000 pounds of its
products per week while utilizing approximately 33% of its manufacturing
capacity. There are two complete production lines that run all of the bottled
products. In addition, the Company has a one
3
<PAGE>
gallon line for food service and the capability to produce one and two quart
pouches, one to three ounce portion packs, and drums and large totes.
The Company purchases the ingredients for its products from a variety
of sources, focusing on the freshest possible sources. These ingredients include
vegetables, milk, eggs and a variety of seasonings. The availability of
vegetables and other raw materials necessary for the manufacture of the
Company's products and the price of many of such materials are factors over
which the Company has little or no control, except that the Company purchases
certain ingredients such as canola oil and sugar on a fixed price basis over a
set time period to avoid extreme price fluctuations.
Advertising, Marketing and Distribution
Management believes, based on the number of grocery stores chains and
gourmet stores that carry its products, that the Renee's Gourmet=TM= line
and the Excelle line are available in over 1,500 retail outlets.
The Company utilizes its own marketing department as well as
independent marketing agencies and brokers. The independent brokers generally
are individuals and/or companies with well established connections to grocery
and gourmet food stores, as well as other food service establishments including
restaurants, hotels, hospitals, etc. Both retail and food service brokers
receive a commission on sales of private label products and sales of products
from the Renee's Gourmet=TM= Line and the Excelle line. The brokers each
receive a territory and are responsible to ensure that each product is properly
code=dated and shelved.
The Company's customer base is divided among retail and private label
customers, and food service establishments.
The Company markets and advertises all of its products through a
combination of in=store demonstrations and promotional ads on racks, signs, and
inside displays, national magazine ads, radio commercials, coupon circulars and
food shows. The Company uses outside agencies in addition to its in=house
marketing department. The Company's employees and its outside agencies conduct
sales demonstrations and distribute point of sale materials, develop custom
labels and designs for new Renee's Gourmet=TM= product launches and handle
customer relations and special events.
The Company has been very successful marketing its products including
those sold under private label agreements, and hopes to continue to meet the
reputation that it believes it has gained in the industry for its quality
private label products and services. The Company intends to aggressively pursue
the U.S. market, as well as other markets.
Competition
The salad dressing market is highly competitive. The Company competes
with refrigerated dressings as well as shelf=stable products. Outside the
refrigerated sector of the industry, Kraft, Select, Hidden Valley and Weight
Watcher's remain large competitors in the retail section. While the Company does
produce shelf=stable products under the Excelle label and for private labels, it
is not a significant competitor in this area.
The Company's Renee's Gourmet=TM= brand products and Excelle
products compete with other larger and better capitalized food companies that
manufacture refrigerated dressings. The larger competitors who also place their
products in the refrigerated produce or dairy sections in the United States
include Marie's brand salad dressings, T. Marzetti's, and Naturally Fresh, which
three comprise the majority of the United States market. The Company believes
that its competitive standing in the refrigerated section in Canada is
maintained by its ability to respond quicker and more individually to customers'
needs than its larger competitors.
The primary food service section competitors that the Company faces in
Canada are Kraft, Select, Hellmann's and Richardson's. These companies also
produce specialty dressings for restaurants.
The Company believes that it holds a competitive advantage because its
products are made utilizing primarily natural ingredients and are beneficial to
those who have health concerns, including those who are lactose intolerant,
diabetic, weight conscious or allergy=prone. The Company also believes that its
products are attractive to those who desire a flavorful variety of tastes and
enjoy different and unusual blends of ingredients. The Company believes that
these qualities will enable it to penetrate the United States market. Management
emphasizes the versatility of each product as a dressing, dip, sauce, spread or
marinade.
4
<PAGE>
Awards and Merits
The Company is constantly being recognized for developing innovative
new products and for it's continued successes in the marketplace. The Company
has been awarded medals for success in Small Business and Entrepreneurship as
well as for best new product invarious food categories. In 1996, the Company was
a finalist in the Financial Post's "Top 50 Best Managed Companies" in Canada,
and in 1997 it received an Award of Merit for business excellence from the
Chamber of Commerce.
New Product Development
The Company is constantly evaluating potential new products in order to
expand its line of products. The Company is reformulating recipes to develop new
flavors. Over the past two years, the Company developed the Renee's Gourmet
Naturally Light=TM= line which is low in fat and calories to appeal to the
growing weight and health conscious market and introduced Renee's
Gourmet=TM= brand marinades and meat sauces in 1998. In addition, the
Company intends to make acquisitions of complementary companies or purchase the
rights to distribute or manufacture a particular product.
Employees
As of January 31, 1999, the Company employs 56 persons, which includes
3 senior executives, 12 managers, 15 support staff and 26 full=time hourly
laborers. The Company has no unionized employees and believes that its
relationship with its employees is satisfactory.
Properties and Facilities
The Company owns a 75,000 square foot facility located in Toronto,
Ontario. This plant houses the Company's complete production facilities,
warehouse and gymnasium=sized coolers for storage, a research and development
department which includes a full lab, a shipping and receiving department, order
desk, customer service department and executive offices. Management believes
that this space is adequate for its production needs in the foreseeable future
as this facility operates at approximately 33% of its capacity.
Patents and Trademarks
The Company holds trademarks in Canada on both "Renee's
Gourmet=TM=" and "Renee's Gourmet Naturally Light=TM=." The Company believes
that its trademarks have significant value and are an important factor in the
marketing of its products. The Company does not hold any patents on its recipes
or manufacturing processes. Management believes that it provides better
protection of its recipes and its market position from competitors by not
patenting them, thereby keeping them secret. Management also believes that its
unique modifications and improvements to its manufacturing processes are more
appropriately protected by remaining a trade secret rather than applying for a
patent. The Company requires all of its employees to execute confidentiality
agreements.
Legal Proceedings
The Company has one claim against it from a former employee that was
filed in March 1997 alleging wrongful termination. The suit which has been
brought in the Ontario Court (General Division) seeks total damages of
approximately US$ 70,000. The Company is not aware of any other material legal
proceedings now pending or threatened against the Company.
Year 2000 Business System Implementation
As many computer systems and other equipment with embedded chips or
process (collectively,"Business Systems") use only two digits to
represent the year, they may be unable to process accurately certain data
before, during or after the year 2000. As a result, business and governmental
entities are at risk for possible miscalculations or systems failures causing
disruptions in their business operations. The company has
5
<PAGE>
committed to and is in the process of implementing a Y2K readiness program, with
the objective of having all of their significant Business Systems, including
those that affect facilities and manufacturing activities, functioning properly
well in advance of January 1, 2000.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The high and low bid price of the Company's common stock and warrants for
each quarter of fiscal year ended January 31, 1999 are as follows:
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
High Low High Low
<S> <C> <C> <C> <C>
Fiscal year ended January 31, 1999:
First quarter (2/1/98 thru 4/30/98) $ 5 3/4 $ 4 7/8 $2 1/4 $ 1/2
Second quarter (5/1/98 thru 7/31/98) $ 7 2/5 $ 5 1/2 $2 1/2 $1 1/4
Third quarter ( 8/1/98 thru 10/31/98) $ 7 1/2 $ 1 5/8 $2 3/16 $ 7/8
Fourth quarter ( 11/1/98 thru 1/31/99) $ 4 13/16 $ 1 5/8 $1 9/32 $ 1/2
</TABLE>
On April 28, 1999, the Common Stock and warrants had a closing bid
price of $1 7/8 and $1/16, respectively. The Company has not paid dividends on
its Common Stock and does not anticipate paying cash dividends in the
foreseeable future. The Company intends to retain any earnings to finance the
growth of the Company.
(b) 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 Commission on
October 9, 1997, 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-KSB:
EXPENSE AMOUNT
- ------- ----------
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
==========
(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-KSB:
ITEM AMOUNT
Purchase of Building $ 357,711
Temporary Investments (2) 2,786,351
Repayment of Indebtedness 655,000
----------
Total Application of Net Proceeds $3,799,062
===========
(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.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
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.
The salad dressing market is highly competitive, in both the
refrigerated and non=refrigerated dressing markets, and consists of North
American manufacturers most of whom are larger with greater resources. Product
availability, diverse distribution channels, and the ability to offer consistent
product quality at competitive prices are key factors.
The Company's future success as a manufacturer and merchandiser of
high=quality salad dressings, sauces, dips and marinades will be influenced by
several factors. These include the ability of the Company to efficiently meet
production, quality and taste requirements of its customers, management's
ability to evaluate the public's quality and taste requirements and to achieve
market acceptance of its dressings. Further factors impacting the Company's
operations include increases in expenses associated with continued sales growth,
the ability of the Company to control fluctuating commodity costs, to develop
products with satisfactory profit margins and the ability to develop and manage
the introduction of new products given strong competitive pressures. Quality
control as well as use of natural ingredients are also essential to the
Company's success.
The Company's customer base is divided among retail branded, retail
private label customers, and food service establishments. No one account
represents more than 10% of the Company's sales. However, the Company does face
increasing challenges in various
6
<PAGE>
product categories and markets, including a trend toward increasing
consolidation in the retail trade. These include a 1998 merger of National
Grocer's with Provigo (to form Loblaw's Company Ltd.), and Sobeys with Oshawa
Foods (Sobeys Canada Inc.). The Company has contracts with a number of private
label accounts, including Scotts/Kentucky Fried Chicken, and Sobeys in Canada,
and Shaws, Giant Eagle and Wegmans in the United States.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JANUARY 31, 1999 COMPARED TO THE FISCAL YEAR ENDED
JANUARY 31, 1998.
Gross sales for the twelve months ended January 31, 1999 were
CDN$17.7million (USD$11.9million), which represented an 11.6% increase over the
prior year sales of CDN$15.9million (USD$11.4million). This increase was related
to growth from all three major business segments. A successful launch of a new
line of Renee's Gourmet=TM= sauces and meat marinades in June 1998
contributed an additional CDN$.6million (USD$.4million). The Company also
obtained new listings of Renee's Gourmet=TM= salad dressings in Western
Canada markets and had increased sales of Renee's Gourmet Naturally
Light=TM= dressings as well. Food service generated incremental branded and
private label business in all markets while retail private label business also
grew in the United States (Shaws, Giant Eagle) and across Canada.
<TABLE>
<CAPTION>
OPERATING RESULTS
(in $000's) Operating Gross Sales by Major Business Segment
-----------------------------------------------
For the years ended January 31 1999 1998 1997
BUSINESS SEGMENT $ $ $
- --------------------------------------- ------------------------- ------------------------- ---------------------
<S> <C> <C> <C>
RETAIL RENEE'S Gourmet=TM= (Cdn$) 7,645 6,793 6,211
- --------------------------------------- ------------------------- ------------------------- ---------------------
RETAIL PRIVATE LABEL (Cdn$) 3,870 3,565 3,019
- --------------------------------------- ------------------------- ------------------------- ---------------------
FOOD SERVICE (Cdn$) 6,211 5,532 5,040
- --------------------------------------- ------------------------- ------------------------- ---------------------
TOTAL BUSINESS (Cdn $) 17,726 15,890 14,270
- --------------------------------------- ------------------------- ------------------------- ---------------------
TOTAL BUSINESS (US $) 11,939 11,441 10,460
- --------------------------------------- ------------------------- ------------------------- ---------------------
</TABLE>
Gross profits for the twelve months ended January 31, 1999 of
USD$3.7million improved by USD$.24million (primarily due to sales volume
increases) and, at 33.3% percent of net sales, compared favorably to the prior
year margin of 32.7%. This can also be attributed to improvements in operational
overhead costs which mitigated the impact of higher contracted prices for oil,
packaging and other primary ingredients, as well as higher distribution costs to
new markets, unplanned inventory write-offs, and direct labor expenses. Gross
profits were only marginally affected by a 4.0% price increase announced in the
third quarter for Renee's Gourmet-TM- refrigerated dressings only.
Total selling expenses of USD$1.6million were 14.5% of net sales for
the fiscal year, the same ratio as the prior year. This was in line with the
Company's continued strategy to invest in the growth of branded business through
a combination of increased print advertising, in-store demonstrations, couponing
and other consumer related promotions. The company also added sales staff
resources to handle increased sales and future opportunities. These increased
expenditures were offset by a focused effort to reduce expenses of code dated
product returns by as much as 30%, primarily on branded products.
General and administrative expenses of USD$1.3million (11.4% of net
sales), increased by USD$368,726 over the prior year. This primarily reflected a
full year of management and administrative expenses as a public corporation as
well as increased research and development resources to support both incremental
sales generated and future business opportunities.
Income from operations (before gain on foreign exchange and income
taxes), increased 7.1% versus the prior year, to USD$344,093 for the twelve
months ended January 31, 1999. This improvement is a direct result of continued
sales growth, which more than offset increases in general and administrative
overheads.
The Company also generated a favourable USD$83,405 translation gain on
US funds converted to Canadian dollars as at the end of the current fiscal year.
This gain is substantially lower than the prior year, and traces to overall
lower reported income before taxes. The
7
<PAGE>
Company's functional currency is Canadian dollars, and is converted into US
currency for reporting purposes.
Income after taxes was USD$283,852 for the year ended January 31, 1999.
Despite the Canadian dollar's depreciation versus the US dollar throughout 1999
(versus previous year), the Company still generated earning per share of $.07
cents versus $.10 cents per share for the prior year.
FISCAL YEAR ENDED JANUARY 31, 1998 COMPARED TO THE FISCAL YEAR ENDED
JANUARY 31, 1997.
Gross sales for the twelve months ended January 31,1998 were CDN $15.9
million (USD $11.4 million), which represented an 11.1% increase over prior year
sales of CDN $14.3 million (USD $10.5 million). This increase traced to growth
of Renee's Gourmet-TM- and Renee's Gourmet Naturally Light-TM- dressings
as well as food service branded and private label business in all markets.
Retail private label business also grew in the United States (Shaws, Wegman's)
and across Canada with the launch of the Company's Agora dressing in April 1997.
Gross profits for the twelve months ended January 31, 1998 of USD
$3.5million was 32.7% percent of net sales, as compared to 29.8% for the prior
year. This positive change can be attributed to improvements in operational
efficiency, which moderated the impact of packaging and other primary ingredient
price changes, as well as lower contracted prices for oil and direct labour.
Gross profits were not affected by price increases during 1998 or the prior
year.
Total selling expenses of USD $1.5million for fiscal year 1998,
increased by USD $202,074 from the prior year. This reflected a focused strategy
to invest in the growth of branded business through a combination of increased
print advertising, in-store demonstrations, couponing and other consumer related
promotions. General and administrative expenses of USD $.9million increased by
USD $152,380 over the prior year. This reflected primarily increased management
and administrative expenses from the public entity and to support sales growth.
Income from operations (before gain on foreign exchange and income
taxes), was USD $321,204 for the twelve months ended January 31, 1998 as
compared to income from operations of USD $407,305 in the prior year. The
Company reported a one time interest expense of USD$105,000, which related to
bridge financing for shares and warrants included in the Company's registration
statement dated October 9, 1997.
The Company also generated a favourable USD$148,175 translation gain on
US funds converted from Canadian dollars as at the end of 1998. The company's
functional currency is Canadian dollars, and is converted into US currency for
reporting purposes.
Income after taxes was USD$333,178 for the year ended January 31, 1998.
The Company generated earnings per share of $.10 cents, which was consistent
with prior year.
LIQUIDITY AND CAPITAL RESOURCES
FISCAL YEAR ENDED JANUARY 31, 1999 COMPARED TO THE FISCAL YEAR ENDED
JANUARY 31, 1998.
The Company reported a net decrease in cash flow of USD$198,643 for the
fiscal year ended January 31, 1999. This reflected an increase in cash from
operating activities of USD$276,217, which traced to net income and an increase
in accounts payable and accrued expenses. This was offset by an increase in
accounts receivable, inventory and prepaid expenses. Excess cash balances were
used to reduce bank indebtedness during the fiscal year as well as repayments of
existing bank loans.
Cash flows used in investing activities during the twelve months ended
January 31, 1999 of USD$346,699 were used primarily to purchase processing
equipment. The Company's financing activities generated a positive cash flow of
USD$25,122. Repayments of long term debt during the year were more than offset
by additional bank financing on capital assets purchased and additional paid-in
capital generated from stock options exercised by key employees during the year.
The Company believes that the proceeds of its past public offering,
coupled with income from operations will fulfill the Company's working capital
needs for at least the next two years. It is still the Company's intention to
utilize a significant portion of the proceeds of its initial public offering to
aggressively secure synergistic acquisitions that would utilize currently
available capacity. The Company also intends to support its branded Renee's
Gourmet-TM- 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
8
<PAGE>
in combination, as the situation warrants.
FISCAL YEAR ENDED JANUARY 31, 1998 COMPARED TO THE FISCAL YEAR ENDED
JANUARY 31, 1997.
The Company reported a net increase in cash flow of USD$3.2million for
the fiscal year ended January 31, 1998. The principal source of cash reflected
net proceeds from the Company's initial public offering effective October 9,
1997. The Company's cash flow position at January 31, 1998 also reflected an
increase in cash from operating activities of USD$918,153, which traced to net
income and an increase in accounts payable and accrued expenses. This was offset
by an increase in accounts receivable and prepaid expenses. Excess cash balances
were used to reduce bank indebtedness during the fiscal year as well as
repayments of existing bank loans.
Cash flows used in investing activities during the twelve months ended
January 31, 1998 of USD$2.1million were used primarily for capital additions and
purchase of the Company's existing facility from its landlord.
Item 7. FINANCIAL STATEMENTS
The Financial Statements are included with this report commencing on
page F-1.
Item 8. CHANGES IN ACCOUNTANTS AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III.
Item 9. MANAGEMENT
Incorporated by reference from the Registrant's definitive proxy
statement, to be filed in accordance with Rule 14a-101 with the Commission not
later than 120 days after the end of the fiscal year covered by this form.
Item 10. EXECUTIVE COMPENSATION
Incorporated by reference from the Registrant's definitive proxy
statement, to be filed in accordance with Rule 14a-101 with the Commission not
later than 120 days after the end of the fiscal year covered by this form.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference from the Registrant's definitive proxy
statement, to be filed in accordance with Rule 14a-101 with the Commission not
later than 120 days after the end of the fiscal year covered by this form.
Item 12. CERTAIN TRANSACTIONS
Incorporated by reference from the Registrant's definitive proxy
statement, to be filed in accordance with Rule 14a-101 with the Commission not
later than 120 days after the end of the fiscal year covered by this form.
9
<PAGE>
Item 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
- ------------
3.1 Articles of Incorporation of the Registrant(3)
3.2 By-laws of Registrant(2)
4.1 Form of Underwriters' Warrant(1)
4.2 Form of Warrant Agreement(1)
4.3 Specimen Common Stock Certificate(3)
4.4 Specimen Redeemable Common Stock Purchase
Warrant Certificate(3)
10.2 1997 Stock Option Plan(2)
10.4 Form of Employment Agreement with Arnold
Unger(3)
10.5 Form of Employment Agreement with Renee
Unger(3)
10.6 Business Development Bank of Canada Note(3)
10.7 National Bank of Canada Revolving Demand
Credit Facility(3)
10.8 National Bank of Canada Loan Agreement(3)
21 List of Subsidiaries of Registrant*
27 Financial Data Schedule*
99.1 Share Exchange Agreement(2)
- ----------
* Filed herewith
(1) Incorporated by reference from registrant's Registration Statement on Form
SB-2, Amendment No. 1, filed on August 22, 1997.
(2) Incorporated by reference from registrant's Registration Statement on Form
SB-2, Amendment No. 2, filed on September 9, 1997.
(3) Incorporated by reference from registrant's Registration Statement on Form
SB-2, Amendment No. 3, filed on September 26, 1997.
(b) Report on Form 8-K.
None
10
<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.
April 28, 1998
By: ARNOLD UNGER
/s/ Arnold Unger
- ----------------------
Arnold Unger
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the date indicated.
Name Position Date
- ---- -------- ----
ARNOLD UNGER Co-Chairman, Chief Executive Officer April 28, 1999
/s/ Arnold Unger
- ------------------------
Arnold Unger
RENEE UNGER Co-Chairman, President April 28, 1999
/s/ Renee Unger
- ------------------------
Renee Unger
FRED BURKE Director, Chief Operating Officer, April 28, 1999
Chief Financial Officer/Principal
/s/ Fred Burke Accounting Officer, Secretary
- ------------------------
Fred Burke
LORI GUTMANN Director April 28, 1999
/s/ Lori Gutmann
- ------------------------
Lori Gutmann
ALYSSE UNGER Director April 28, 1999
/s/ Alysse Unger
- ------------------------
Alysse Unger
JOHN ROTHSCHILD Director
- ------------------------
John Rothschild
TAKETO MURATO Director
- ------------------------
Taketo Murato
11
<PAGE>
INTERCORP EXCELLE INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1999 AND 1998
TOGETHER WITH AUDITORS' REPORT
TABLE OF CONTENTS
Report of Independent Auditors F-1
Consolidated Balance Sheets F-2-3
Consolidated Statements of Income F-4
Consolidated Statements of Cash flows F-5
Consolidated Statements of Changes in Stockholders' Equity F-6
Notes to Consolidated Financial Statements F-7-20
12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Intercorp Excelle Inc.
We have audited the accompanying consolidated balance sheets of Intercorp
Excelle Inc. (incorporated in Canada) as at January 31, 1999 and 1998 and the
related consolidated statements of income, cash flows and changes in
stockholders' equity for each of the three years in the period ended January 31,
1999. These consolidated financial statements are the responsibility of the
management of the company. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
in accordance with generally accepted auditing standards in the United States of
America. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the company
as at January 31, 1999 and 1998 and the results of its operations and its cash
flows for each of the three years in the period ended January 31, 1999, in
conformity with generally accepted accounting principles in the United States of
America.
Toronto, Ontario
March 15, 1999
Chartered Accountants
/s/ Shwartz Levitsky & Feltman
- ------------------------------
1167 Caledonia Road
Toronto, Ontario M6A 2X1
Tel: 416 785 5353
Fax: 416 785 5663
F-1
<PAGE>
INTERCORP EXCELLE INC.
Consolidated Balance Sheets
As of January 31
(Amounts expressed in US dollars)
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash (note 2) 3,170,147 3,368,790
Accounts receivable (note 3) 784,979 702,814
Inventory (note 4) 1,041,310 794,956
Investment tax credit recoverable 51,406 35,134
Income taxes recoverable 16,258 26,640
Prepaid expenses and sundry assets 141,468 41,877
------------- -------------
Total current assets 5,205,568 4,970,211
PROPERTY,PLANT AND EQUIPMENT (note 5) 2,951,207 2,917,989
------------- -------------
Total assets 8,156,775 7,888,200
============= =============
</TABLE>
F-2
<PAGE>
INTERCORP EXCELLE INC.
Consolidated Balance Sheets
As of January 31
(Amounts expressed in US dollars)
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued expenses (note 6) 1,216,681 1,165,751
Current portion of long-term debt 309,817 198,348
Current portion of mortgage payable 46,351 48,223
------------- -------------
Total current liabilities 1,572,849 1,412,322
LONG-TERM DEBT(note 7) 480,256 489,547
MORTGAGE PAYABLE (note 8) 822,739 904,174
DUE TO DIRECTORS (note 9) 120,662 143,823
DEFERRED INCOME TAXES 168,557 135,637
------------- -------------
TOTAL LIABILITIES 3,165,063 3,085,503
------------- -------------
STOCKHOLDERS' EQUITY
COMMON STOCK (note 10) 3,878,217 3,764,467
ADDITIONAL PAID-IN CAPITAL (note 10) 139,975 139,975
CUMULATIVE TRANSLATION ADJUSTMENTS (487,521) (278,934)
RETAINED EARNINGS 1,461,041 1,177,189
------------- -------------
Total stockholders' equity 4,991,712 4,802,697
------------- -------------
Total liabilities and stockholders' equity 8,156,775 7,888,200
============= =============
</TABLE>
F-3
<PAGE>
INTERCORP EXCELLE INC.
Consolidated Statements of Income
For the years ended January 31
(Amounts expressed in US dollars)
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Gross Sales 11,938,764 11,440,643 10,459,655
Trade expenditures 830,473 881,087 876,139
---------- ---------- ----------
NET SALES 11,108,291 10,559,556 9,583,516
Cost of sales 7,410,898 7,106,749 6,723,795
---------- ---------- ----------
GROSS PROFIT 3,697,393 3,452,807 2,859,721
---------- ---------- ----------
OPERATING EXPENSES
Selling 1,615,817 1,529,834 1,327,760
General and administrative 1,270,472 901,746 749,366
Research and development costs (note 11) 161,728 179,115 12,823
Interest expense 10,588 208,330 77,124
Amortization (note 17) 294,695 312,578 285,320
---------- ---------- ----------
Total operating expenses 3,353,300 3,131,603 2,452,393
---------- ---------- ----------
Operating income 344,093 321,204 407,328
Gain on foreign exchange 83,405 148,175 -
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 427,498 469,379 407,328
INCOME TAXES (note 12) 143,646 136,201 113,367
---------- ---------- ----------
NET INCOME 283,852 333,178 293,961
========== ========== ==========
Net income per share (note 13) 0.07 0.10 0.10
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING (note 13) 4,092,897 3,237,534 2,900,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
INTERCORP EXCELLE INC.
Consolidated Statements of Cash Flows
For the years ended January 31
(Amounts expressed in US dollars)
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Cash flows from operating activities:
Net income 283,852 333,178 293,961
---------- ---------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization 294,695 312,578 285,320
Gain on disposal of property, plant and equipment (5,247) (6,823) (9,350)
Decrease / (increase) in accounts receivable (137,964) (173,363) 151,567
Decrease /(increase) in investment tax credits (19,533) 142,124 (45,112)
Increase in inventory (278,949) (122,959) (95,178)
Decrease /(increase) in prepaid expenses (105,413) 32,963 (38,473)
Decrease /(increase) in accounts payable and accrued
expenses 193,211 408,320 (190,191)
Change in income taxes payable/recoverable 13,923 (33,450) 33,177
Increase in deferred income taxes 37,642 25,585 30,322
---------- ---------- --------
Total adjustments (7,635) 584,975 122,082
---------- ---------- --------
Net cash provided by operating activities 276,217 918,153 416,043
---------- ---------- --------
Proceeds from disposal of property, plant and equipment 14,015 14,366 14,229
Purchases of property, plant and equipment (360,714) (2,087,482) (284,710)
---------- ---------- --------
Net cash used in investing activities (346,699) (2,073,116) (270,481)
---------- ---------- --------
Cash flows from financing activities:
Repayment of bank indebtedness -- (277,439) (879,717)
Mortgage borrowings -- 1,005,602 --
Mortgage repayments (45,695) (12,569) --
Long term debt borrowing 317,410 165,843 181,455
Long term debt repayment (360,343) (266,087) (183,659)
Proceeds from additional paid-in capital -- 139,975 --
Issuance of common stock 113,750 3,764,087 --
---------- ---------- --------
Net cash provided by/(used in) financing activities 25,122 4,519,412 (881,921)
---------- ---------- --------
Effect of foreign currency exchange rate changes (153,283) (171,996) (3,150)
---------- ---------- --------
Net increase (decrease) in cash and cash equivalents (198,643) 3,192,453 (739,509)
Cash and cash equivalents
Beginning of year 3,368,790 176,337 915,846
---------- ---------- --------
End of year 3,170,147 3,368,790 176,337
========== ========== ========
Income tax paid (refunds received), net 70,997 (128,269) (87,312)
========== ========== ========
Interest paid, net (note 17) 10,588 208,330 77,124
========== ========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
INTERCORP EXCELLE INC.
Consolidated Statements of Changes in Stockholders' Equity
For the years ended January 31
(Amounts expressed in US dollars)
<TABLE>
<CAPTION>
Additional
Paid-in Cumulative
Common Stock Capital Translation Retained
(note 10) (note 10) Adjustments Earnings Total
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
Balance as of January 31, 1996 (note 1(a)) 380 -- (45,445) 550,050 504,985
Foreign currency translation -- -- 13,516 -- 13,516
Net income for the year -- -- -- 293,961 293,961
--------- ------- -------- --------- ----------
Balance as of January 31, 1997 380 -- (31,929) 844,011 812,462
Issuance of common stock 3,764,087 -- -- -- 3,764,087
Issuance of warrants -- 139,975 -- -- 139,975
Foreign currency translation -- -- (247,005) -- (247,005)
Net income for the year -- -- -- 333,178 333,178
--------- ------- -------- --------- ----------
Balance as of January 31, 1998 3,764,467 139,975 (278,934) 1,177,189 4,802,697
Issuance of common stock pursuant to
exercise of stock options 113,750 -- -- -- 113,750
Net income for the year -- -- -- 283,852 283,852
Foreign currency translation -- -- (208,587) -- (208,587)
--------- ------- -------- --------- ----------
Balance as of January 31, 1999 3,878,217 139,975 (487,521) 1,461,041 4,991,712
========= ======= ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements
(Amounts expressed in US dollars)
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. The Company was incorporated on April 18, 1997
by its shareholders for the purpose of consolidating their 100% interests for
the purpose of an initial public offering which was completed on October 9,
1997. On May 22, 1997, the Company acquired all issued and outstanding common
shares of Intercorp Foods Limited "IFL", Excelle Brands Food Corporation
"EBFC" and Kalmath Investments Limited "KIL" (parent company of Excelle
Brands Food Corporation) in exchange for 2,899,700 common shares of the
company. On February 1, 1998, IFL and KIL, together with its wholly-owned
subsidiary, EBFC, were amalgamated to form Intercorp Excelle Foods Inc. All
significant transactions and balances among the consolidated entities have
been eliminated in the preparation of these consolidated financial statements.
b) Principal Activities
Each of the companies included in these consolidated financial
statements was incorporated in Canada on the following dates:
Intercorp Excelle Inc. April 16, 1997
Intercorp Excelle Foods Inc.* (100% owned subsidiary) February 1, 1998
*(Amalgamated Intercorp Foods Limited which was incorporated on December 20,
1982, Kalmath Investments Ltd. which was incorporated on September 20, 1987 and
Excelle Brands Food Corporation which was incorporated on February 7, 1987)
The subsidiary company is 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.
F-7
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
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:
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) 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.
F-8
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
j) Sales
Sales represent the invoiced value of goods supplied to customers. Sales
are recognized upon delivery of goods and passage of title to customers.
k) 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.
l) 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.
m) 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.
n) 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
unrealised appreciation (depreciation) of securities and foreign currency
translation adjustments.
F-9
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
2. CASH AND BANK INDEBTEDNESS
Bank indebtedness bears interest at the bank's prime rate plus 1% per
annum and represents an operating loan which revolves in multiples of $10,000.
The bank indebtedness is secured by an assignment of book debts, a general
security agreement, a fixed charge on equipment, a pledge of inventory,
assignment of fire insurance, and a postponement of amounts due to directors.
The company has a centralized banking transfer of funds agreement wherein
the company maintains a number of operating current accounts and overdraft
facilities with a single bank in order to facilitate its banking transactions.
In determining the balance upon which interest is charged and lending limits and
covenants are measured, the bank notionally consolidates all cash and overdraft
balances on a net basis.
3. ACCOUNTS RECEIVABLE
1999 1998
$ $
Accounts receivable 791,601 732,336
Less: Allowance for doubtful accounts (6,622) (29,522)
-------- --------
Accounts receivable, net 784,979 702,814
======== ========
4. INVENTORY
Inventory comprised the following:
1999 1998
$ $
Raw materials 333,934 161,863
Finished goods 707,376 633,093
--------- -------
1,041,310 794,956
========= =======
F-10
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
5. PROPERTY, PLANT AND EQUIPMENT
1999 1998
$ $
Land 486,690 506,338
Building 828,341 861,780
Equipment 2,999,177 2,726,678
Leasehold improvements 319,949 321,150
Vehicle 52,329 54,442
Computer equipment 130,162 98,814
Office furniture 87,700 83,877
Computer software 69,804 26,433
--------- ---------
Cost 4,974,152 4,653,079
========= =========
Less: Accumulated amortization
Building 41,086 8,618
Equipment 1,659,789 1,427,809
Leasehold improvements 147,677 134,377
Vehicle 45,623 44,471
Computer equipment 72,127 43,922
Office furniture 54,238 59,234
Computer software 2,405 16,659
--------- ---------
2,022,945 1,735,090
--------- ---------
Net 2,951,207 2,917,989
========= =========
No amortization was taken on computer system software acquired in the year as
the asset was not available for use until after January 31, 1999.
F-11
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses comprise the following:
1999 1998
$ $
Trade payables 895,430 550,129
Accrued expenses 321,251 615,622
--------- ---------
1,216,681 1,165,751
========= =========
7.)LONG-TERM DEBT
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
a) Ontario Development Corporation Loans
Ontario Development Corporation loan under the Food Industry Financial
Assistance Program. Effective on October 23, 1997 the loan is repayable in
blended monthly payments of $2,749 principal and interest at 8% per annum, due
October, 1999; at maturity, the loan Balance of $85,480 will be repaid
in Full. (see note 7(g) 106,896 135,742
Ontario Development Corporation loan under the Food Industry Financial Assistance
Program. Repaid during the year.
- 29,318
b) Bank Term Loan
Commercial investment loan, repaid during the year - 28,692
c) Capital Loans
Capital loan, repayable monthly, $2,428 principal plus interest at the bank's
prime rate plus
1 1/2% per annum, due June, 2001. (see note 7(h)) 70,409 103,564
Capital loan, repayable monthly, $2,483 principal plus interest at the bank's prime rate plus
1 1/2% per annum, due November, 2002. (see note 7(h)) 83,410 120,362
Capital loan, repayable monthly, $7,350 principal plus interest at the bank's prime plus 1%
per annum, due August, 2002. (see note 7(h)) 334,062 259,782
Capital loan, repayable monthly. $3,543 principal plus interest at the bank's prime plus
1% per annum, due July, 2002. (see note 7(h)) 182,053 -
d) Accounts payable under settlement agreements,
non-interest bearing 13,243 10,435
------------ -----------
790,073 687,895
Less: Current portion (309,817) (198,348)
------------ -----------
480,256 489,547
============ ===========
</TABLE>
F-12
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements
(Amounts expressed in US dollars)
7. LONG-TERM DEBT - cont'd
f) Bank term loans are secured by the security as described in note 2.
g) Ontario Development Corporation loans are secured by a first and fixed
mortgage charge on specific equipment and a floating charge on all other assets.
h) Capital loans are secured by a registered general assignment of book
debts providing a first charge over accounts and other receivables, general
security assignment, Section 427 security, assignment of fire insurance on the
business assets, subordination and postponement of claim to the bank of all
loans, advances and accrued interest payable to shareholders, directors and
related parties and priorities agreement between the bank and Ontario
Development Corporation.
l) Future principal payment obligations are as follows:
2000 $ 309,817
2001 189,675
2002 221,217
2003 69,364
--------------
$ 790,073
==============
8. MORTGAGE PAYABLE
The mortgage payable is due on demand and is secured by a fixed charge
over the land and building, assignment of fire insurance and a general security
agreement providing a first floating charge over the Company's assets. The loan
is repayable in monthly payments of $3,863 principal plus interest at the bank's
prime rate plus 3/4% per annum, due October, 2002.
2000 $ 46,351
2001 46,351
2002 46,351
2003 730,037
--------------
$ 869,090
==============
9. DUE TO DIRECTORS
The amounts due to directors are unsecured, bear interest at the
directors' effective borrowing rate, are without any specific repayment terms,
and are not expected to be repaid prior to February 1, 2002.
The directors' effective borrowing rate is the same as the Canadian
bank prime rate, which at January 31, 1999 was 7%.
F-13
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
10 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.
Issued
1999 1998
$ $
4,107,500 (1998 - 4,075,000 Common Shares) 3,878,217 3,764,467
1,399,750 Warrants 139,975 139,975
--------- ---------
4,018,192 3,904,442
========= =========
b) Purchase Warrants
During the year, 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 or
classification 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.
F-14
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
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.
F-15
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
d) Stock Option Plan (continue)
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.
In May 1997, the Board has granted 200,000 options under the 1997 Plan
to five individuals, including Officers, Directors and key employees. The
options are exercisable at $3.50 per share for ten years Expiring May 1, 2007.
40% of the options are immediately exercisable, an additional 30% become
exercisable in May 1998 and all the options are exercisable in November 1998. In
July 1999, 32,500 options were exercised by the five Directors.
In April 1998, the Board granted 30,000 options to key employees and
10,000 options to the Company's independent Directors. The options are
exercisable at $5.00 per share for five years Expiring April 30, 2003. 40% of
the options are immediately exercisable, an additional 30% become exercisable in
April 1999 and all the options are exercisable in April 2000.
Activity in the stock option plan for the year is summarized below:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
$
<S> <C> <C>
Options outstanding at February 1, 1998:
(Options granted to five directors in May 1997 ) 200,000 3.50
Options exercised (32,500) 3.50
Options granted to key employees and independent
Directors 40,000 5.00
----------- ----------
Options outstanding at January 31, 1999 207,500 3.79
=========== ==========
</TABLE>
F-16
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements
(Amounts expressed in US dollars)
10. SHARE CAPITAL (cont'd)
c) Application of SFAS 123: Accounting for Stock-Based Compensation
As all options granted are exercisable at either $3.50 or $5.00 per
share, which either approximates the grant-date fair value of the options or is
greater than the grant-date fair value of the options granted, no stock-based
compensation has been recognized in connection with these options.
11. RESEARCH AND DEVELOPMENT COSTS
Research and development cost are comprised of:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Expense incurred 251,847 298,582 191,762
Less: Investment tax credits (90,119) (119,467) (178,939)
--------------- --------------- ----------------
Net expense 161,728 179,115 12,823
=============== =============== ================
</TABLE>
12. INCOME TAXES
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
a) Current 123,671 110,616 83,045
Deferred 19,975 25,585 30,322
--------------- --------------- ----------------
Net expense 143,646 136,201 113,367
=============== =============== ================
</TABLE>
Current income taxes consists of:
<TABLE>
<S> <C> <C> <C>
Amount calculated at basic Federal and
Provincial rates 100,677 134,406 96,621
Increase (decrease) resulting from:
Prior year taxes 25,001 - -
Permanent and other differences 17,968 1,795 16,746
Timing differences (19,975) (25,585) (30,322)
--------------- --------------- ----------------
123,671 110,616 83,045
=============== =============== ================
</TABLE>
b) Deferred income taxes represent the tax benefits derived from timing
differences between amortization of property, plant and equipment charged to
operations and amounts deducted from taxable income.
F-17
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements
(Amounts expressed in US dollars)
13. NET INCOME PER COMMON SHARE
Fully diluted net income per common share was the same as basic net
income per common share for fiscal 1999.
14. 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>
1999 1998
$ $
<S> <C> <C>
Net income 283,852 333,178
Other comprehensive loss (208,587) (247,005)
-------------- -------------
Comprehensive income 75,265 86,173
============== =============
The components of accumulated other comprehensive
income (loss) are as follows:
Accumulated other comprehensive losses, January 31, (45,445)
1996
Foreign currency translation adjustments for the year
ended January 31, 1997 13,516
Accumulated other comprehensive losses, January 31, (31,929)
1997
Foreign currency translation adjustments for the year
ended January 31, 1998 (247,005)
Accumulated other comprehensive losses, January 31, (278,934)
1998
Foreign currency translation adjustments for the year
ended January 31, 1999 (208,587)
-------------
Accumulated other comprehensive losses, January 31, (487,521)
1999 =============
</TABLE>
The foreign currency translation adjustments are not currently adjusted
for income taxes since the company is situated in Canada and the adjustments
relate to the translation of the financial statements from Canadian dollars into
United States dollars done only for the convenience of the reader.
F-18
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements
(Amounts expressed in US dollars)
15. CONTINGENCY
The company is contingently liable under a contested lawsuit amounting to
approximately US$70,000. US$ 12,000 has been accrued in the accounts for court
related costs. Should additional expenditures be incurred by the company for
resolution of this lawsuit, it will be charged to the operations of the year in
which expenditures are incurred.
16. SALES TO MAJOR CUSTOMERS
The breakdown of sales by geographic area is as follows:
1999 1998 1997
$ $ $
Canada 10,002,804 9,843,813 8,843,699
United States of America 1,105,487 715,743 739,817
-------------- ---------------- ----------------
11,108,291 10,559,556 9,583,516
============== ================ ================
F-19
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements
(Amounts expressed in US dollars)
17. OTHER SUPPLEMENTAL INFORMATION
The following items were included in the statements of income:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Amortization of property, plant and
equipment 294,695 312,578 285,320
=============== ================ ==============
Operating lease rentals for rental
premises (net of rent received) - 53,871 51,141
=============== ================ ==============
Interest paid/(received) on:
Bank indebtedness (cash on deposit) (131,618) 3,570 26,891
Stockholders' loans - 14,041 14,696
Long term debt 142,206 56,385 35,537
Bridge financing - 134,334 -
--------------- ---------------- --------------
10,588 208,330 77,124
=============== ================ ==============
</TABLE>
F-20
<PAGE>
EXHIBIT INDEX
-------------
3.1 Articles of Incorporation of the Registrant(3)
3.2 By-laws of Registrant(2)
4.1 Form of Underwriters' Warrant(1)
4.2 Form of Warrant Agreement(1)
4.3 Specimen Common Stock Certificate(3)
4.4 Specimen Redeemable Common Stock Purchase Warrant
Certificate(3)
10.2 1997 Stock Option Plan(2)
10.4 Form of Employment Agreement with Arnold Unger(3)
10.5 Form of Employment Agreement with Renee Unger(3)
10.6 Business Development Bank of Canada Note(3)
10.7 National Bank of Canada Revolving Demand Credit
Facility(3)
10.8 National Bank of Canada Loan Agreement(3)
21 List of Subsidiaries of Registrant*
27 Financial Data Schedule*
99.1 Share Exchange Agreement(2)
* Filed herewith
(1) Incorporated by reference from registrant's Registration
Statement on Form SB-2, Amendment No. 1, filed on August 22, 1997.
(2) Incorporated by reference from registrant's Registration
Statement on Form SB-2, Amendment No. 2, filed on September 9, 1997.
(3) Incorporated by reference from registrant's Registration
Statement on Form SB-2, Amendment No. 3, filed on September 26, 1997.
<PAGE>
Exhibit 21
List of Subsidiaries
Intercorp Excelle Foods, Inc.
<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 INLCUDED IN
THE REGISTRANT'S FORM 10K FOR THE YEAR ENDED 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 3,170,147
<SECURITIES> 0
<RECEIVABLES> 784,979
<ALLOWANCES> 6,622
<INVENTORY> 1,041,310
<CURRENT-ASSETS> 5,205,568
<PP&E> 4,974,152
<DEPRECIATION> 2,022,945
<TOTAL-ASSETS> 8,156,775
<CURRENT-LIABILITIES> 1,572,849
<BONDS> 1,592,214
0
0
<COMMON> 4,018,192
<OTHER-SE> 973,520
<TOTAL-LIABILITY-AND-EQUITY> 8,156,775
<SALES> 11,108,291
<TOTAL-REVENUES> 11,938,764
<CGS> 7,410,898
<TOTAL-COSTS> 3,342,712
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,588
<INCOME-PRETAX> 427,498
<INCOME-TAX> 143,646
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 283,852
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
