<PAGE>
UNITED STATES
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 April 30, 1999
Commission File Number 1-13365
-----------
INTERCORP EXCELLE INC.
(Exact name of Small Business Issuer as specified in its charter)
ONTARIO, CANADA N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1880 ORMONT DRIVE M9L 2V4
TORONTO, ONTARIO, CANADA (Zip Code)
(Address of principal executive offices)
(416) 744-2124
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(Title of Class)
-----------
Indicate by check mark whether the issuer: (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [ X ] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practical date: June 14, 1999 - 4,085,633 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
Consolidated Balance Sheets as at April 30, 1999 and January 31, 1999 1
Interim Consolidated Statements of Operations for the three months ended 2
April 30, 1999 and 1998
Interim Consolidated Statements of Cash Flows for the three months ended 3
April 30, 1999 and 1998
Interim Consolidated Statements of Stockholders' Equity for the three months 4
ended April 30, 1999
Notes to Interim Consolidated Financial Statements 5 - 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 13
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 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 APRIL 30, 1999 AND JANUARY 31, 1999
(Amounts expressed in US Dollars)
(Unaudited)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1999 1999
$ $
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash And Short Term Investments Note 1(c) 3,006,362 3,170,147
Accounts Receivable Note 1(d) 1,068,403 784,979
Investment Tax Credit Recoverable 68,542 51,406
Inventory Note 1(f) 1,224,148 1,041,310
Income Tax Recoverable 21,872 16,258
Prepaid Expenses And Sundry Assets 127,307 141,468
---------------------------
Total Current Assets 5,516,634 5,205,568
---------------------------
PROPERTY, PLANT AND EQUIPMENT Note 1(g) 3,062,244 2,951,207
---------------------------
Total Assets 8,578,878 8,156,775
===========================
CURRENT LIABILITIES
Bank Indebtedness Note 1(c) 246,238 -
Accounts Payable And Accrued Liabilities Note 1(d) 1,348,687 1,216,681
Current Portion Of Long Term Debt 320,031 309,817
Current Portion Of Mortgage Payable 47,880 46,351
---------------------------
Total Current Liabilities 1,962,836 1,572,849
---------------------------
LONG TERM DEBT 429,167 480,256
MORTGAGE PAYABLE 835,764 822,739
DUE TO DIRECTORS 124,640 120,662
DEFERRED INCOME TAXES 174,114 168,557
---------------------------
Total Liabilities 3,526,521 3,165,063
===========================
COMMON STOCK Note 2(a) 4,018,192 4,018,192
RETAINED EARNINGS 1,457,232 1,461,041
TREASURY STOCKS Note 4 (98,536) -
CUMULATIVE TRANSLATION ADJUSTMENTS Note 1(I) (324,531) (487,521)
---------------------------
Total Stockholders' Equity
5,052,357 4,991,712
---------------------------
Total Liabilities and Stockholders' Equity 8,578,878 8,156,775
===========================
</TABLE>
Page 1
<PAGE>
INTERCORP EXCELLE INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998
(Amounts expressed in US Dollars)
(Unaudited)
<TABLE>
<CAPTION>
3 MONTHS ENDED 3 MONTHS ENDED
APRIL 30, 1999 APRIL 30, 1998
$ $
<S> <C> <C>
GROSS SALES (Note 1 (j)) 3,257,955 3,015,516
Trade Expenditures 248,288 235,262
----------------------------------
NET SALES 3,009,667 2,780,254
Cost of sales 2,006,686 1,787,741
----------------------------------
GROSS PROFIT 1,002,981 992,513
EXPENSES
Selling 441,775 402,495
General & Administrative 326,776 258,157
Research & Development Costs 61,451 59,069
Financial (net of interest income) 10,076 683
Amortization 92,043 98,198
----------------------------------
TOTAL OPERATING EXPENSES 932,121 818,602
----------------------------------
OPERATING INCOME 70,860 173,911
Loss on foreign exchange (74,669) (40,836)
----------------------------------
INCOME/(LOSS) BEFORE INCOME TAXES (3,809) 133,075
Income Taxes - 45,474
==================================
NET INCOME (LOSS) (3,809) 87,601
==================================
NET INCOME PER WEIGHTED AVERAGE COMMON SHARE (Note 3)
0.00 0.02
==================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 4,085,633 4,075,000
==================================
</TABLE>
Page 2
<PAGE>
INTERCORP EXCELLE INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998
(Amounts expressed in US Dollars)
(Unaudited)
<TABLE>
<CAPTION>
APRIL 30, 1999 APRIL 30, 1998
$ $
<S> <C> <C>
Cash flows from operating activities:
Net Income (Loss) (3,809) 87,601
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization 92,043 98,198
Increase in accounts receivable (250,290) (186,675)
Increase in investments tax credits (15,007) (24,503)
Increase in inventory (144,325) (266,104)
Decrease/(Increase) in prepaid expenses 18,295 (58,015)
Increase in accounts payable and accrued liabilities 89,305 307,912
Decrease/(increase) in income taxes recoverable (4,935) 45,476
--------------------------------
Total adjustments (214,914) (83,711)
--------------------------------
Net cash provided by (used in) operating activities (218,723) 3,890
--------------------------------
Cash flows from investing activities:
Cash used in purchase of property, plant and equipment (105,395) (235,646)
--------------------------------
Cash flows from financing activities
Repayment of bank indebtedness 239,301 -
Mortgage repayments (13,702) (12,251)
Proceeds from long term debt - 176,590
Repayment of long term debt (65,037) (64,116)
Repurchase of common shares (98,536) -
--------------------------------
Net cash provided by financing activities 62,026 100,223
--------------------------------
Effect of foreign currency exchange rate changes 98,307 54,528
--------------------------------
Net decrease in cash and cash equivalents (163,785) (77,005)
--------------------------------
Cash and cash equivalents
Beginning of period 3,170,147 3,368,790
--------------------------------
End of period 3,006,362 3,291,785
================================
Income tax paid /(refund received) - -
================================
Interest paid , net 10,076 683
================================
</TABLE>
Page 3
<PAGE>
INTERCORP EXCELLE INC.
INTERIM CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED APRIL 30, 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 Stocks - - (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
==============================================================================
</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. 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.
Page 5
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaudited)
e) Long-term Financial Instruments
The fair value of each of the Company's long-term financial assets and
debt instruments is based on the amount of future cash flows associated with
each instrument discounted using an estimate of what the Company's current
borrowing rate for similar instruments of comparative maturity would be.
f) Inventory
Inventory is valued at lower of cost or net realizable value. Cost is
determined on the first-in, first-out basis.
g) Property, Plant and Equipment
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.
Page 6
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaudited)
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.
Page 7
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaudited)
2. COMMON STOCK
a) Authorized
An unlimited number of common and preference shares.
The preference shares are issuable in series upon approval by the
directors with the appropriate designation, rights, and conditions attaching to
each share of such series.
Issued:
April 30, 1999 January 31, 1999
--------------- ----------------
4,044,230 Common shares 3,878,217 3,878,217
1,399,750 Warrants 139,975 139,975
--------- ---------
4,018,192 4,018,192
========= ==========
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 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.
Page 8
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaudited)
c) Bridge Warrants
In May, 1997, the company issued an aggregate of 175,000 Warrants (the
"Bridge Warrants"). The Bridge Warrants entitle the holder to purchase one share
of common stock for $3.75 per share for a period of four years. Bridge Warrants
are exchangeable at the option of the holder for a like number of warrants with
identical terms as the Warrants.
d) Stock Option Plan
In May, 1997, the board of directors and shareholders adopted the
Intercorp Excelle Inc. Stock Option Plan (the "1997 Plan"), pursuant to which
500,000 shares of common stock are reserved for issuance.
The 1997 Plan is administered by the compensation committee or the
board of directors, who determine, those individuals who shall receive options,
the time period during which the options may be partially or fully exercised,
the number of shares of common stock issuable upon the exercise of the options
and the option exercise price.
The 1997 Plan is for a period for ten years, expiring in May, 2007.
Options may be granted to officers, directors, consultants, key employees,
advisors and similar parties who provide their skills and expertise to the
company. Options granted under the 1997 Plan may be exercisable for up to ten
years, may require vesting, and shall be at an exercise price as determined by
the board. Options are non-transferable except by the laws of descent and
distribution or a change in control of the company, as defined in the 1997 Plan,
and are exercisable only by the participant during his or her lifetime. Change
in control includes (i) the sale of substantially all of the assets of the
company and merger or consolidated with another, or (ii) a majority of the board
changes other than by the shareholders pursuant to board solicitation or by
vacancies filled by the board caused by death or resignation of such person. If
a participant ceases affiliation with the company by reason of death, permanent
disability or retirement at or after age 70, the option remains exercisable for
one year from such occurrence but not beyond the option's expiration date. Other
termination gives the participant three months to exercise, except for
termination for cause which results in immediate termination of the option.
Options granted under the 1997 Plan, at the discretion of the
compensation committee or the board, may be exercised either with cash, common
stock having a fair market equal to the cash excisable price, the participant's
personal recourse note, or with an assignment to the company of sufficient
proceeds from the sale of the common stock acquired upon exercise of the options
with an authorization to the broker or selling agent to pay that amount to the
company, or any combination of the above.
Any unexercised options that expire or terminate upon an employee's
ceasing to be employed by the company become available again for issuance under
the 1997 Plan. The 1997 Plan may be terminated or amended at any time by the
board of directors, except that the number of shares of common stock reserved
for issuance upon the exercise of options granted under the 1997 Plan may not be
increased without the consent of the shareholders of the company.
Page 9
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INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaudited)
d) Stock Option Plan (continue)
In March 1999, the Board granted 10,000 options under the 1997 Plan to two of
the Company's independent Directors. The options are exercisable at $3.50 per
share. 40% of the options are immediately exercisable, an additional 30% become
exercisable after March 2, 2000 and all the options are exercisable after March
2, 2001.
In April 1999, the Board granted 26,500 options under the 1997 Plan to employees
and 20,000 options to five directors
under the 1997 Plan. All options are exercisable immediately.
Summarized below are options granted and outstanding as at April 30, 1999:
<TABLE>
<CAPTION>
Weighted Average
Options granted to: Expired Exercise Price
Options Date $
<S> <C> <C> <C>
Directors 167,500 May 1, 2007 3.50
Key Employees And Independent Directors 40,000 April 30, 2008 5.00
----------- -------------
Options outstanding as at January 31, 1999 207,500 3.79
----------- -------------
Options granted during 1ST quarter ending April 30, 1999:
Independent Directors 10,000 May 1, 2009 3.50
Employees 26,500 May 1, 2009 1.88
Directors 20,000 May 1, 2009 1.88
----------- -------------
Total options granted during 1ST quarter ending April 30, 1999
56,500 2.16
----------- -------------
Total options outstanding as at April 30, 1999 264,000 3.44
=========== =============
</TABLE>
No options were exercised in the quarter ending April 30, 1999.
Page 10
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INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaudited)
c) Application of SFAS 123: Accounting for Stock-Based Compensation
As all options granted are exercisable at between the price range of
$1.88 to $5.00 per share, which is greater than the grant-date fair value of the
options granted, no stock-based compensation has been recognized in connection
with these options.
3. Earnings Per Share
Net Income per common share is computed by dividing net income for the
period by the weighted number of common shares outstanding during the period.
Fully diluted net income per share was the same as the basic net income
per common share for the periods ended April 30, 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 April 30, 1999, the company
has repurchased 63,270 common shares at an average price of $1.56 for a total
cost of $98,536. (market value $114,519 at market closing price of $1.81.)
5. COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130 "Reporting Comprehensive Income and its components in the financial
statements. However, it does not affect net income or stockholders' equity. The
components of comprehensive income are as follows:
<TABLE>
<CAPTION>
April 1999 April 1998
$ $
<S> <C> <C>
Net icome /(loss) (3,809) 87,601
Other comprehensive income 162,990 59,295
------------------ ---------------
Comprehensive income 159,181 146,895
================== ===============
The components of accumulated other comprehensive income /(loss) are as follows:
Accumulated other comprehensive loss, January 31, 1996 (45,445)
Foreign currency translation adjustments for the year ended
January 31, 1997 13,516
---------------
Accumulated other comprehensive loss, January 31, 1997 (31,929)
---------------
Foreign currency translation adjustments for the year ended
January 31, 1998 (247,005)
---------------
Accumulated other comprehensive loss, January 31, 1998 (278,934)
---------------
Foreign currency translation adjustments for the year ended
January 31, 1999 (208,587)
---------------
Accumulated other comprehensive losses, April 30, 1999 (487,521)
---------------
Foreign currency translation adjustments for the quarter
ended April 30, 1999 162,990
---------------
Accumulated other comprehensive losses, April 30, 1999 (324,531)
===============
</TABLE>
Page 11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Amount expressed in US Dollars unless otherwise noted)
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
THREE MONTHS ENDED APRIL 30, 1999 COMPARED TO THE THREE MONTHS ENDED
APRIL 30, 1998.
Revenues for the three months ended April 30, 1999 were $3.3 million, an 8.0%
increase over prior year first quarter revenues of $3.0 million . This increase
reflected the launch of new Renee's Gourmet(TM) sauces and marinades in the meat
section of grocery stores across Ontario, Quebec and the Maritimes, in addition
to growth in Renee's Gourmet(TM) regular branded dressings in Western Canada,
Private Label and Food Service incremental new accounts. Actual sales growth in
Canadian dollars, net of foreign exchange differentials, was significantly
higher at 15.0%.
Gross profit for the same three month period of $1.0 million was 33.3%
of net sales, which was unfavorable to the same period one year ago (35.6% of
net sales). This was attributed to higher cost of goods, including canola oil,
other primary ingredients and packaging, in addition to an unfavorable mix
towards lower margin food service business. Also, plant startup expenses
associated with the launch of incremental food service pouch and four litre tub
products had a negative impact on operational efficiency for the first quarter.
Selling expenses of $442,000 for the three months ended April 30, 1999
were 10% higher than the comparable prior year period in 1998, reflecting
additional support costs behind Renee's Gourmet(TM) new sauces and marinades
launch. General and Administrative expenses of $327,000 were $69,000 higher than
prior year first quarter, primarily due to higher professional fees,
administrative headcount and wage increases year to date, primarily to support
sales growth.
Financial costs have been more than offset by interest income on funds
invested in interest bearing term accounts.
Operating Income from operations (before loss on foreign exchange and
income taxes ), decreased by $103,051 over the comparable period in the prior
year to $70,860 for the three months ended April 30, 1999. This reflected lower
than anticipated gross margins on higher sales, combined with higher than
expected administrative overhead expenses during the quarter.
The company also reported a net translation loss of $74,669 on US
funds converted from Canadian dollars for the first three months of the current
fiscal year. This reflects continued strengthening of the Canadian dollar since
the beginning of current fiscal year. (Although the company's functional
currency is Canadian dollars, the majority of available cash funds are held in
US dollars).
Net loss of $3,809 was primarily due to internal operating
inefficiencies, higher administrative expenses and translation losses for the
quarter as compared to net income of $87,601 for the comparable prior year
period.
LIQUIDITY AND CAPITAL RESOURCES
The company had a net use of cash from operations of $218,723 for the
three months ending April 30, 1999 as a result of higher inventories and
receivables at the end of the quarter partly reduced by an increase in accounts
payable and accrued liabilities. The principal source of cash traced to an
increase in accounts payable and accrued liabilities.
Capital spending during the first three months of 1999 reflected
planned capital additions of $105,395. Capital additions in the current fiscal
year to date are substantially lower than the comparable period in the prior
year. The Company's secured credit arrangement with National Bank of Canada
includes a credit line of Cdn$1.0 million that is due on demand and bears
interest at prime plus 1.0% - only a portion of which is used due to the
company's positive cash position in US dollars. All borrowings are
collateralized by the assets of the Company.
Page 12
<PAGE>
The Company received net proceeds from an initial public offering of
its securities ("Offering"), effective October 9, 1997, 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.
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 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.
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 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:
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-
QSB:
ITEM AMOUNT
Purchase of Building $ 400,793
Temporary Investments (2) 2,743,269
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.
Page 14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit description
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended April 30,
1999
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.
June 14, 1999 By: /s/ ARNOLD UNGER
---------------------------------
ARNOLD UNGER
CHIEF EXECUTIVE OFFICER AND
CO-CHAIRPERSON
June 14, 1999 By: /s/ RENEE UNGER
---------------------------------
RENEE UNGER
PRESIDENT AND CO-CHAIRPERSON
June 14, 1999 By: /s/ FRED BURKE
---------------------------------
FRED BURKE
CHIEF FINANCIAL OFFICER, CHIEF
OPERATING OFFICER AND SECRETARY
Page 16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF INCOME INCLUDED IN THE
REGISTRANT'S FORM 10-QSB FOR THE QUARTER ENDED APRIL 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> 3,006,362
<SECURITIES> 0
<RECEIVABLES> 1,068,403
<ALLOWANCES> 0
<INVENTORY> 1,224,148
<CURRENT-ASSETS> 5,616,634
<PP&E> 5,246,593
<DEPRECIATION> 2,184,349
<TOTAL-ASSETS> 8,578,878
<CURRENT-LIABILITIES> 1,962,836
<BONDS> 1,563,685
0
0
<COMMON> 4,018,192
<OTHER-SE> 1,034,165
<TOTAL-LIABILITY-AND-EQUITY> 8,578,878
<SALES> 3,257,955
<TOTAL-REVENUES> 3,257,955
<CGS> 2,006,688
<TOTAL-COSTS> 932,122
<OTHER-EXPENSES> 74,669
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,076
<INCOME-PRETAX> (3,809)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,809)
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
