<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, 2000
Commission File Number 1-13365
INTERCORP EXCELLE INC.
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(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
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(Address of principal executive offices) (Zip Code)
(416) 744-2124
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(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, 2000 were $15,225,382
As of April 27, 2000 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 on April 27, 2000) was approximately $4,000,000.
As of April 27, 2000, there were 4,000,761 shares of the registrant's
common stock outstanding.
<PAGE>
PART I.
Item 1. DESCRIPTION OF BUSINESS
Products
The Company manufactures, markets and distributes over 200 products
including salad dressings, dips, meat and steak sauces, marinades and
mayonnaise. Renee's Gourmet(TM) refrigerated salad dressings and sauces as well
as A1(TM) steak sauces are marketed throughout Canada. The Company distributes
these lines of gourmet salad dressings and sauces to supermarkets, gourmet
stores and specialty shops. Salad dressings, 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, and other institution's throughout Canada and the United
States. Private label products are primarily sold under the supermarket's own
name. The Company's private labels include "President's Choice" for Loblaw's
Company Ltd., "Our Compliments" for Sobeys, as well as Shaw's, Wegman's, Giant
Eagle and Fleming 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. Certain of the
Company's products are also designed to serve certain specific health conscience
markets. For example, the Company markets products which are made without milk,
sugars or vegetable oils for consumers who are lactose intolerant, diabetics, 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(TM) Naturally Light(TM) intended for the growing diet and health
conscience market. The low-fat line includes the flavour Ravin' Raspberry
Japanese, Roasted Red Pepper and Spring Herb Garlic Vinegrettes. The Company
also introduced a line of low-fat Renee's Gourmet(TM) sauces and meat marinades
which include Creole Mustard, Tangy Thai, Pineapple Ambrosia, Mandarin Orange
and Sesame Ginger.
In July 1999, the Company acquired A1(TM) steak sauces for Canada,
moving production into its facility in Toronto, Ontario, and markets two current
flavours (Original and Zesty Tex Mex). The 172ml product is distributed to most
major retail and food service customers across Canada.
Excelle products are also made from premium ingredients. The Company
produces many flavours of salad dressings, dips, sauces, marinades and
mayonnaise, including products such as Peanut Satay, Spicy Thai, Honey Garlic,
Roasted Red Pepper, and Hickory BBQ 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
distributors such as Serca, and restaurants across Canada such as Boston Pizza,
The KEG, Mr. SUB, Kentucky Fried Chicken, and Prime (East Side Mario's, Red
Devil, etc).
The Company's products are sold to supermarkets in a variety of bottle
sizes, one gallon containers, individual portions and pouches for food service
establishments. Refrigerated salad dressings are sold in the produce section of
supermarkets while Renees Gourmet(TM) branded sauces are located in the meat
section. Management believes that it is an advantage to sell its products in
both the produce and meat section's of the stores because fewer competing
products are generally sold in those sections, and because such products
naturally complement lettuce, other vegetables and meats. The products generally
have a four to twelve 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 all of its products at its Toronto, Ontario
facility. The Company utilizes an integrated manufacturing process for its
products which mixes the ingredients, bottles the dressings, applies the
appropriate labels and seals the bottles for consumer protection. Because no
preservatives are added to the branded 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.
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The Company currently produces over 15,000,000 pounds of its products
annually, while utilizing under 50% of its available manufacturing capacity.
There are two complete production lines that run all of the bottled products. In
addition, the Company has a one gallon line for food service and the capability
to produce one and two quart pouches, one to three ounce portion packs, 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), A1(TM) are
available in over 2,500 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 both private and branded label products. The
brokers each receive a territory and are responsible to ensure that each product
is properly code-dated and shelved.
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 and A1(TM) product launches. The
company also develop's and maintain's a "Renee's Gourmet(TM)" Website
(www.Renees.com), as well as handling all 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 is currently aggressively
pursuing the U.S. market for its branded Renee's Gourmet(TM) products, in
addition to private label.
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
Lighthouse, remain large competitors in the retail section. While the Company
does produce shelf-stable products under the Excelle label and for private
labels and food service, it is not a significant competitor in this area.
The Company's branded products compete with other larger and better
capitalized food companies that manufacture refrigerated dressings, sauces and
marinades. 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, Lighthouse, and Naturally Fresh, which
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 more quickly 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.
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Awards and Merits
The Company is constantly being recognized for developing innovative
new products and for its continued successes in the Canadian marketplace. The
Company has been awarded medals for success in Small Business and
Entrepreneurship as well as for best new product in various food categories,
including the prestigious Grand Prix award in May 1999 for its Renee's
Gourmet(TM) Naturally Light(TM) Sauces as best new condiment. 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(TM)
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 acquired the
Canadian A1(TM) steak sauces operation this year, and intends to continue to
make acquisitions of complementary companies or purchase the rights to
distribute or manufacture complimentary products to utilize available production
capacity.
Patents and Trademarks
The Company holds trademarks in Canada, on Renee's Gourmet(TM), Renee's
Gourmet Naturally Light(TM), and A1(TM) steak sauce. In addition, the Company
holds the trademark for Renee's Gourmet(TM) in the USA. 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.
Employees
As of January 31, 2000, the Company employs 62 persons, which includes
3 senior executives, 12 managers, 19 support staff and 28 full-time
non-unionized hourly laborers. The Company has no unionized employees and
believes that its relationship with its employees is good.
Business System Implementations and Uncertainty due to the Year 2000
Starting November 1999, the Company successfully implemented a new integrated
MRP system to run its manufacturing operations. This company wide installation
ensured Y2K readiness and currently all significant business systems are
functioning effectively.
Although the change in date to the Year 2000 has occurred, it is not possible to
conclude that all aspects of the Year 2000 issue that may affect the company,
including those related to customers, suppliers, or other third parties have
been fully resolved.
Item 2. Description of property
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.
Item 3. Legal Proceedings
The Company is not aware of any material legal proceedings now pending
or threatened against the Company.
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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
The Company's common stock is currently traded on the Nasdaq SmallCap market
under the symbol "RENE". The following table sets forth the high and low bid
prices of the Company's common stock during each quarter for the last 2 fiscal
years through the first quarter of fiscal year 2001:
COMMON STOCK
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HIGH LOW
FISCAL 1999
First quarter $5 3/4 $4 7/8
Second quarter 7 1/4 5 1/2
Third quarter 7 1/2 1 5/8
Fourth quarter 4 13/16 1 5/8
FISCAL 2000
First quarter $3 1/8 $ 5/8
Second quarter 1 13/16 7/8
Third quarter 1 13/16 3/8
Fourth quarter 1 5/16 1 11/16
FISCAL 2001
First(February 1, 2000 through April 27, 2000) $2 1/4 $ 1.00
On April 27, 2000, the Common Stock had a closing bid price of $1.00.
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.
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 569,492
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Total Expenses $1,323,413
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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.
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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 $ 404,444
Acquisition of A1 sauces business 1,290,332
Capital expenditure (net of capital loans) 885,791
Short term investments (2) 1,218,495
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Total Application of Net Proceeds 3,799,062
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(2) Money market investments
Short term invenstments represent term deposits with the Company's bank
for maturity terms less than 3 months.
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>
Item 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The statements contained in this Filing that are not historical are
forward looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, including statements regarding the
Company's expectations, intentions, beliefs or strategies regarding the future.
All forward looking statements include the Company's statements regarding
liquidity, anticipated cash needs and availability and anticipated expense
levels. All forward looking statements included in this report are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward looking statement. It is important to
note that the Company's actual results could differ materially from those in
such forward looking statements.
The salad dressing and sauce markets are highly competitive, for both
refrigerated and non-refrigerated products, and consist 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 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,
Serca, The KEG, and Mr. SUB in Canada, as well as Shaws, Giant Eagle, Fleming
and Wegman's in the United States.
Results of Operations
Fiscal Year ended January 31, 2000 compared to the fiscal year ended
January 31, 1999.
Gross Sales for the year ended January 31,2000 were CDN$22.5million
(USD$15.2million), which represented 27.1% increase over prior year Sales of
CDN$17.7million (USD$11.9million). This increase traced to growth from all three
major business segments (Retail branded, Retail Private Label, Food Service), in
addition to incremental unplanned sales of A1(TM) steak sauces (acquired thru
purchase of the trademark and manufacturing rights in July 1999). The Company
also obtained new listings of Renee's Gourmet(TM) salad dressings in Western
Canada markets and had continued growth of Renee's Gourmet Naturally Light?
dressings as well. Food service generated incremental branded and private label
business (Mr. SUB, The KEG, Serca), in all markets while retail private label
business also expanded in the United States (Fleming) and across Canada.
<TABLE>
<CAPTION>
Gross Sales Gross Sales by Major Business Segment
(In CDN$'000) ----------------------------------------------------
Business Segment 2000 1999 1998
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<S> <C> <C> <C>
RETAIL RENEE'S Gourmet(TM) $9,866 $7,645 $6,793
- --------------------------------------------------------------------------------------------
A1(TM)STEAK SAUCE (note a) 400 0 0
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RETAIL PRIVATE LABEL 4,181 3,870 3,565
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FOOD SERVICE 8,056 6,211 5,532
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TOTAL BUSINESS (Cdn $) 22,503 17,726 15,890
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TOTAL BUSINESS (US $) 15,225 11,939 11,441
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</TABLE>
Note a: Sales of A1(TM) steak sauces are generated from August 1999 to January
31, 2000.
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Gross Sales by Major Business Segment
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Geographical Segment 2000 1999 1998
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Canada $20,941 $16,086 $14,896
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United States of America 1,562 1,640 994
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Total business ($CDN) 22,503 17,726 15,890
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Total business ($US) $15,225 11,939 11,441
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Gross profits for the year ended January 31, 2000 of USD$4.5million
improved by USD$.7million (primarily due to sales volume increases) and, at
31.2% percent of net Sales, compared unfavorably to prior year at 33.3%. This is
attributed to a mix of lower margin Food Service business and increased direct
labour, packaging, distribution and operating factory overhead expenses. This
was only partially offset by the impact of lower contracted prices for oil, and
other primary ingredients, including dry sugar and eggs. The Company chose to
maintain its product price during the fiscal year, to offset justified cost
increases.
Total selling and marketing expenses of USD$2.0million (14.2% of net
Sales), for the fiscal year, were slightly lower than prior year percent of net
Sales. This was in line with the Company's continued strategy to invest in the
growth of branded business thru 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 representation at
Food Shows across North America and future opportunities. These increased
expenditures were offset by a focused effort to reduce expenses of code dated
product returns, primarily on branded products.
General and Administrative expenses of USD$1.3million (8.5% of net
Sales), were in line with prior year's general and administrative expenses. The
Company continued its investment in research and development resources to
support both incremental sales generated and future business opportunities.
Operating income increased by $106,000, or 30.8% versus prior year, to
USD$450,335 for the twelve months ended January 31, 2000. This improvement is
directly as a result of continued sales growth and associated margin, which more
than offset increases in selling and marketing expenses necessary to support
that growth.
The Company has recorded an exchange loss of USD$55,652 compared
to gain of USD$83,405 in the prior year primarily due to loss on conversion of
USD to CDN at overall stronger CDN Vs. USD during the fiscal period. The
Company's functional currency is Canadian dollars, and is converted into US
currency for reporting purposes.
Net income was USD$308,191 for the year ending January 31,2000. Despite
the Canadian dollar's depreciation versus the US dollar thruout 1998 (versus
previous year), the Company generated earning per share of .08cents versus
.07cents per share for the prior year.
Fiscal Year ended January 31, 1999 compared to the fiscal year ended January 31,
1998.
Gross Sales for the year ended January 31,1999 were CDN$17.7million
(USD$11.9million), which represented 11.1% increase over prior year revenues of
CDN$15.9million (USD$11.4million). This increase traced to growth of Renee's
Gourmet(TM) and Renee's Gourmet Naturally Light(TM) dressings as well as the
launch of Renee's Gourmet(TM) sauces and marinades in the meat section of
supermarkets across Canada. As well, food service branded and private label
business in all markets generated growth in Canada while retail private label
business also grew incrementally in the United States (Shaws, Wegman's, Giant
Eagle).
Gross profits for twelve months ended January 31, 1999 of
USD$3.7million was 33.3% percent of net revenues, slightly favorable to 32.7%
for 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 materially affected by selling price
increases during 1999 or prior year.
Total selling and marketing expenses of USD$1.6million for fiscal year
1999, were only marginally higher than prior year. This reflected a 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$1.3million increased by
USD$368,726 over prior year due to increased overheads for supporting business
growth.
Opearting income was USD$344,093 for the twelve months ended January
31, 1999. This result was 7.1% ahead of reported income in the prior year.
The Company also recorded a favorable USD$83,405 translation gain
on US funds converted from Canadian dollars as at the end of 1999, which was
substantially lower than the gain reported in prior year. The company's
functional currency is Canadian dollars, and is converted into US currency for
reporting purposes.
<PAGE>
Net income was USD$283,852 for the year ending January 31, 1999. The
Company generated earnings per share of .07cents, which was .03cents lower than
prior year.
Liquidity and Capital Resources
The Company reported a net decrease in cash flow of USD$1.4million for
the fiscal year ending January 31, 2000. This reflected primarily the
acquisition of A1(TM) steak sauces of $1.3million mid year, which was funded
entirely from available cash resources from the Company's I.P.O. This was
partially offset by an increase in cash from operating activities of
USD$543,753, which traced to net income and an increase in accounts payable and
accrued liabilities. This was offset by an increase in account's receivables,
and inventory at year end. 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 ending
January 31, 2000 of USD$1.8million were used primarily for the A1(TM)
acquisition, as well as processing equipment capital additions for the operating
company. The Company's financing activities generated a negative cash flow of
USD$302,916. Repayments of long term debt during the year were more than offset
by additional bank financing on capital assets purchased. As well, the Company
repurchased 129,000 of its shares during the fiscal year for a total of $199,624
- - as part of a share repurchase program approved by its Board of Directors in
April 1999.
The Company believes that the proceeds of the initial 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 remaining proceeds from 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) and A1(TM) businesses 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. The Company has during the
fiscal year, secured from National Bank of Canada, a total credit and standby
facility of USD$3.1M for the purpose of meeting daily business operations need
and financing capital purchases requirement. As of end of January 2000, total
utilisation amounted to $ 150,000.
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.
<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) Reports on Form 8-K.
None
<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 , 2000
By: ARNOLD UNGER
/s/ Arnold Unger
- ----------------------
Arnold Unger
Co-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.
<TABLE>
<CAPTION>
Name Position Date
- ---- -------- ----
<S> <C> <C>
/s/ Renee Unger Co-Chairman and President April 27, 1999
- -----------------
Renee Unger
/s/ Arnold Unger Co-Chairman and Chief Executive Officer April 27, 1999
- -----------------
Arnold Unger
/s/ Fred Burke Director, Chief Operating Officer, Chief Financial April 27, 1999
- ----------------- Officer
Fred Burke
/s/ Lori Gutmann Director April 27, 1999
- -----------------
Lori Gutmann
/s/ Alysse Unger Director April 27, 1999
- -----------------
Alysse Unger
/s/ John Rothschild Director April 27, 1999
- -----------------
John Rothschild
/s/ Taketo Murato Director April 27, 1999
- -----------------
Taketo Murato
/s/ Karen Unger Director January 15, 2000
- -----------------
Karen Unger
</TABLE>
<PAGE>
INTERCORP EXCELLE INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 2000 AND 1999
TOGETHER WITH AUDITORS' REPORT
TABLE OF CONTENT
Report of Independent Auditors F-1
Consolidated Balance Sheets F-2-3
Consolidated Statements of Income F-4
Consolidate Statements of Cash flow F-5
Consolidated Statements of Changes in Stockholders' Equity F-6
Notes to Consolidated Financial Statements F-7-19
<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, 2000 and 1999 and the
related consolidated statements of income, cash flows and changes in
stockholders' equity for each of the years ended ended January 31, 2000, 1999
and 1998. 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, 2000 and 1999 and the results of its operations and its cash
flows for each of the three years in the period ended January 31, 2000, in
conformity with generally accepted accounting principles in the United States of
America.
Since the accompanying financial statements have not been prepared and audited
in accordance With generally accepted accounting principles and standard in
Canada, they may not satisfy the Reporting requirements of Canada Statutes and
regulations.
Toronto, Ontario
March 16, 2000
Chartered Accountants
/s/ Schwartz Levitsky Feldman LLP
- ------------------------------
1167 Caledonia Road
Toronto, Ontario M6A 2X1
Tel: 416 785 5353
Fax: 416 785 5663
F-1
<PAGE>
Item 1. Financial Statements
INTERCORP EXCELLE INC.
Consolidated Balance Sheets
As at January 31
(Amounts expressed in US Dollars)
2000 1999
$ $
ASSETS
CURRENT ASSETS
Cash and short term investments 1,749,012 3,170,147
Accounts receivable (note 3) 1,332,659 784,979
Investment tax credit recoverable 99,230 51,406
Inventory (note 4) 1,527,818 1,041,310
Income tax recoverable 16,258
35,043
Prepaid Expenses And sundry assets 77,847 141,468
-------------------------
Total Current Assets 4,821,609 5,205,568
PROPERTY, PLANT AND EQUIPMENT (note 5) 3,546,530 2,951,207
INTANGIBLE ASSET (note 6) 828,042 -
-------------------------
Total Assets 9,196,181 8,156,775
=========================
F-2
<PAGE>
INTERCORP EXCELLE INC.
Consolidated Balance Sheets
As at January 31
(Amounts expressed in US Dollars)
<TABLE>
<CAPTION>
2000 1999
$ $
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 2,029,487 1,216,681
Current portion of long term debt 227,335 309,817
Current portion of mortgage payable 48,316 46,351
---------------------------
2,305,138 1,572,849
LONG TERM DEBT (Note 8) 409,039 480,256
MORTGAGE PAYABLE (Note 9) 809,290 822,739
NOTES PAYABLE 34,511 -
DUE TO DIRECTORS (Note 10) 125,775 120,662
DEFERRED INCOME TAXES 198,478 168,557
---------------------------
Total liabilities 3,882,231 3,165,063
---------------------------
STOCKHOLDERS' EQUITY
COMMON STOCK (Note 11) 3,344,522 3,878,217
ADDITIONAL PAID IN CAPITAL (Note 11) 505,496 139,975
RETAINED EARNINGS 1,769,232 1,461,041
TREASURY STOCK (35,543) -
CUMULATIVE TRANSLATION ADJUSTMENTS (269,757) (487,521)
---------------------------
Total Stockholders' Equity 5,313,950 4,991,712
---------------------------
Total Liabilities and Stockholders' Equity 9,196,181 8,156,775
===========================
</TABLE>
F-3
<PAGE>
INTERCORP EXCELLE INC.
Consolidated Statements Of Income
For the years ended January 31
(Amounts expressed in US Dollars)
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C> <C>
GROSS SALES 15,225,382 11,938,764 11,440,643
Trade Expenditures 1,160,434 830,473 881,087
--------------------------------------------------
NET SALES 14,064,948 11,108,291 10,559,556
Cost of sales 9,613,016 7,410,898 7,106,749
--------------------------------------------------
GROSS PROFIT 4,451,932 3,697,393 3,452,807
--------------------------------------------------
EXPENSES
Selling and Marketing 1,959,473 1,615,817 1,529,834
General & Administrative 1,271,928 1,270,472 901,746
Research & Development Costs (note 12) 231,446 161,728 179,115
Financial (net of interest income) 39,834 10,588 208,330
Amortization (note 17) 498,916 294,695 312,578
--------------------------------------------------
TOTAL OPERATING EXPENSES 4,001,597 3,353,300 3,131,603
--------------------------------------------------
OPERATING INCOME 450,335 344,093 321,204
Gain/(loss) on foreign exchange (55,652) 83,405 148,175
--------------------------------------------------
INCOME BEFORE INCOME TAXES 394,683 427,498 469,379
Income Taxes (note 13) 86,492 143,646 136,201
--------------------------------------------------
NET INCOME 308,191 283,852 333,178
==================================================
NET INCOME PER WEIGHTED AVERAGE COMMON SHARE
0.08 0.07 0.10
==================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 4,014,798 4,092,897 3,327,534
==================================================
</TABLE>
F-4
<PAGE>
INTERCORP EXCELLE INC.
Consolidated Statements Of Cash Flows
For the years ended January 31
(Amounts expressed in US Dollars)
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income 308,191 283,852 333,178
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization 498,916 294,695 312,578
Loss on disposal of equipment (5,968) (5,247) (6,823)
Increase in accounts receivable (504,250) (137,964) (173,363)
Increase/(decrease) in investments tax credits (44,744) (19,533) 142,124
Increase in inventory (433,637) (278,949) (122,959)
Decrease/(increase) in prepaid expenses 68,242 (105,413) 32,963
Increase in accounts payable and accrued liabilities 652,415 193,211 408,320
Change in income tax recoverable/payable (17,739) 13,923 (33,450)
Increase in deferred income tax 22,327 37,642 25,585
--------------------------------------------
Total adjustments 235,562 (7,635) 584,975
--------------------------------------------
Net cash provided by operating activities 543,753 276,217 918,153
--------------------------------------------
Cash flows from investing activities:
Proceeds from disposal of equipment 812 14,015 14,366
Purchase of property, plant and equipment (476,072) (360,714) (2,087,482)
Acquisition of A1 Sauce 1,290,332) - -
--------------------------------------------
(1,765,592) (346,699) (2,073,116)
--------------------------------------------
Cash flows from financing activities
Repayment of bank indebtedness - - (277,439)
Mortgage borrowings - - 1,005,602
Mortgage repayments (47,361) (45,695) (12,569)
Proceeds from long term debt 145,178 317,410 165,843
Repayment of long term debt (234,938) (360,343) (266,087)
Notes payable on acquisition of A1 Sauces business 33,829 - -
Proceeds from additional paid in capital - - 139,975
Net proceeds from issuance of common stock - 113,750 3,764,087
Repurchase of common shares (199,624) - -
--------------------------------------------
Net cash provided by(used in) financing activities (302,916) 25,122 4,519,412
--------------------------------------------
Effect of foreign currency exchange rate changes 103,620 (153,283) (171,996)
============================================
Net increase/(decrease) in cash and cash equivalents (1,421,135) (198,643) 3,192,453
Cash and cash equivalents
Beginning of year 3,170,147 3,368,790 176,337
--------------------------------------------
End of year 1,749,012 3,170,147 3,368,790
============================================
Income tax paid (recovered) 35,240 70,997 (128,269)
============================================
Interest paid (received), net 39,834 10,588 208,330
============================================
</TABLE>
F-5
<PAGE>
INTERCORP EXCELLE INC.
Consolidated Statements of Stockholders' Equity
For the years ended January 31,
(Amounts expressed in US Dollars)
<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, 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
Foreign currency translation - - - (208,587) - (208,587)
Net income for the quarter - - - - 283,852 283,852
--------------------------------------------------------------------------------------------
Balance as of January 31, 1999 3,878,217 139,975 - (487,521) 1,461,041 4,991,712
Repurchase of 129,298 common
shares (203,717) - - (203,717)
Cancellation of 106,739 common
shares (533,695) 365,521 168,174 -
Foreign currency translation 217,764 217,764
Net income for the year - - - - 308,191 308,191
--------------------------------------------------------------------------------------------
Balance as of January 31, 2000 3,344,522 505,496 (35,543) (269,757) 1,769,232 5,313,950
============================================================================================
</TABLE>
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. All significant
transactions and balances among the consolidated entities have been eliminated
in the preparation of these consolidated financial statements.
b) Principal Activities
The 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 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 comparable maturity would be.
f) Inventory
Inventory is valued at the 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
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.
h) Income Taxes
The company accounts for income tax under the provisions of Statement of
Financial Accounting Standard No. 109, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recorded in the financial statements or tax returns. Deferred
income taxes are provided using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities.
i) Intangible Asset
Intangible asset represents the cost of acquiring the Canadian trademark, brand
name and proprietary information of A-1(TM) Sauce business. It is being
amortized over a period of 30 years.
F-8
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
J) Foreign Currency Translation
The company maintains its books and records in Canadian dollars. Foreign
currency transactions are translated using the temporal method. Under this
method, all monetary items are translated into Canadian funds at the rate of
exchange prevailing at balance sheet date. Non-monetary items are translated at
historical rates. Income and expenses are translated at the rate in effect of
the transaction dates. Transaction gains and losses are included in the
determination of earnings for the year.
The translation of the financial statements from Canadian dollars ("CDN $")
into United States dollars is performed for the convenience of the reader.
Balance sheet accounts are translated using closing exchange rates in effect at
the balance sheet date and income and expenses accounts are translated using an
average exchange prevailing during each reporting year. No representation is
made that the Canadian dollar amounts could have been or could be, converted
into United States dollars at the rates on the respective dates and or at any
other certain rates. Adjustments resulting from the translation are included in
the cumulative translation adjustments in stockholder's equity.
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.
F-9
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
m) Accounting Changes (continue)
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.
In 1998, the Company adopted the provisions of SFAS No. 130 "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS 130 requires companies to disclose
comprehensive income in their financial statements. In addition to items
included in net income, comprehensive income includes items currently charged or
credited directly to stockholders' equity, such as the change in unrealized
appreciation (depreciation) of securities and foreign currency translation
adjustments. SFAS 131 established new standards for reporting operating
segments, products and services, geographic areas and major customers. Segments
are defined consistent with the basis management used internally to assess
performance and allocate resources.
On March 4, 1998, the AICPA Accounting Standards Executive Committee
issued Statement of Position No. 98-1 (SOP 98-1), "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 was issued
to address diversity in practice regarding whether and under what conditions the
costs of internal-use software should be capitalized. SOP 98-1 is effective for
finaicial statements for years beginning after December 15, 1998. In 1999, the
Company adopted the new requirements of the SOP which did not have significant
effect on net earnings during 1999.
In June 1998 SFAS No. 133, as amended, "Accounting for Derivative
Instruments and Hedging Activities" was issued, to be effective for fiscal
quarters and fiscal years beginning after June 15, 2000. The Company does not
have any derivative instruments or hedging activities therefore, the Company
believes that SFAS No. 133 will have no material impact on the Company's
financial statements or notes thereto.
n) Earnings per share
The Company's basic earnings per share calculations are based upon the
weighted average number of shares of common stock outstanding during each
period. The number of shares outstanding for the computation of fully diluted
earnings per share is calculated based upon the application of the treasury
stock method for outstanding options and warrants.
Fully diluted earnings per share was the same as basic net income per
common share for fiscal 2000.
2 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 credit operating line of $0.7M, as part of a total
banking facilities of $3.1M. As at end of the fiscal year, the Company has no
outstanding balance in the credit operating line.
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.
F-10
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
3. ACCOUNTS RECEIVABLE
2000 1999
$ $
Accounts receivable 1,347,637 791,601
Less: Allowance for doubtful accounts (14,978) (6,622)
----------- ----------
Accounts receivable 1,332,659 784,979
=========== ==========
4. INVENTORY
Inventory comprised the following:
2000 1999
$ $
Raw materials 504,595 333,934
Work in progress 27,956 -
Finished Goods 995,267 707,376
------------------------
Inventory 1,527,818 1,041,310
========================
5. PROPERTY, PLANT AND EQUIPMENT
2000 1999
$ $
Cost:
Land 507,316 486,690
Building 863,445 828,341
Equipment 4,006,720 2,999,177
Leasehold improvements 350,100 319,949
Vehicle 54,547 52,329
Computer equipment 133,851 130,162
Office furniture 96,006 87,700
Computer software 137,413 69,804
------------------------
6,149,398 4,974,152
------------------------
Accumulated amortization:
Building 75,651 41,086
Equipment 2,097,405 1,659,789
Leasehold improvements 172,723 147,677
Vehicle 49,653 45,623
Computer equipment 90,406 72,127
Office furniture 63,970 54,238
Computer software 53,060 2,405
------------------------
Accumulated amortization 2,602,868 2,022,945
------------------------
Net 3,546,530 2,951,207
========================
F-11
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
6) INTANGIBLE ASSET
<TABLE>
<CAPTION>
2000 1999
$ $
<S> <C> <C>
Cost 842,077 -
Accumulated amortization (14,035) -
---------------------------
Net 828,042 -
==========================
</TABLE>
7.) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
2000 1999
$ $
<S> <C> <C>
Trade payables 862,759 895,430
Accrued liabilities 1,166,728 321,251
----------------------------
Accounts payable and accrued liabilities 2,029,487 1,216,681
============================
</TABLE>
8.)LONG-TERM DEBT
<TABLE>
<CAPTION>
2000 1999
$ $
<S> <C> <C>
a.) Ontario Development Corporation loans
Onatrio Development Corporation loan under the Food Industry Financial - 106,896
Assistance Program. Repaid in full during the year
b.) Capital loans
Capital loans, repayable monthly, $2,531 principal plus interest at the Cdn
bank's prime rate plus 11/2% per annum, due June, 2001 (Note 8e) 43,024 70,409
Capital loans, repayable monthly, $2,588 principal plus interest at the Cdn
bank's prime rate plus 11/2% per annum, due November, 2002 (Note 8e) 55,886 83,410
Capital loans, repayable monthly, $7,662 principal plus interest at the Cdn
bank's prime rate plus 3/4% per annum, due August, 2002 (Note 8e) 256,249 334,062
Capital loans, repayable monthly, $3,693 principal plus interest at the bank's
prime rate plus 3/4% per annum, due July, 2002 (Note 8e) 145,453 182,053
Capital loans, repayable monthly, $2,468 principal plus interest at the Cdn
bank's prime rate plus 3/4% per annum, due May, 2004 (Note 8e) 135,762 -
Accounts payable under settlement agreements, non-interest bearing. Repaid in
full during the year - 13,243
---------------------------------
636,374 790,073
Less: Current portion 227,335 309,817
---------------------------------
409,039 480,256
=================================
</TABLE>
F-12
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements
(Amounts expressed in US dollars)
8.) LONG-TERM DEBT - cont'd
c) Bank term loans are secured by the security as described in note 2.
d) Ontario Development Corporation loans are secured by a first and fixed
mortgage charge on specific equipment and a floating charge on all other assets.
e) 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.
f) Future principal payment obligations are as follows:
2001 $ 227,335
2002 203,384
2003 146,239
2004 42,136
2005 17,280
----------
$ 636,374
==========
9.) 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 $4,026 principal plus interest at the Cdn
bank's prime rate plus 3/4% per annum, due October, 2002.
Future principal payment obligations are as follows:
2001 $ 48,316
2002 809,290
----------
$ 857,606
==========
10.) 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.
F-13
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
11.) Stockholders' Equity
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:
2000 1999
$ $
4,000,761 (4,107,500 common shares in 1999) 3,344,522 3,878,217
========================
Common shares issued comprised of:
<TABLE>
<CAPTION>
2000 1999
-----------------------------------------------------------------------
Shares $ Shares $
<S> <C> <C> <C> <C>
Initial subscription 300 220 300 220
Share purchase acquisition 2,899,700 160 2,899,700 160
Private placement bridging finance 175,000 87,500 175,000 87,500
Initial public offering 1,000,000 5,000,000 1,000,000 5,000,000
Share issuance costs - (1,323,413) - (1,323,413)
Exercise of stock options 32,500 113,750 32,500 113,750
Retirement of shares (106,739) (533,695) - -
-----------------------------------------------------------------------
4,000,761 3,344,522 4,107,500 3,878,217
=======================================================================
</TABLE>
b) ADDITIONAL PAID IN CAPITAL:
Additional Paid in Capital comprised of:
<TABLE>
<CAPTION>
2000 1999
----------------------------- -----------------------------
Shares $ Shares $
<S> <C> <C> <C> <C>
1,399750 Warrants outstanding 1,399,750 139,975 1,399,750 139,975
Excess of purchase price over original stated value of
common shares of 106,739 treasury stock retired - 365,521 - -
----------------------------- -----------------------------
1,399,750 505,496 1,399,750 139,975
============================= =============================
</TABLE>
c) 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.
F-14
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
c) Purchase Warrants (continued)
The Warrants may be redeemed by the company at any time 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-15
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
d) 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.
e) 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.
F-16
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
e) Stock Option Plan (continued)
In May 1999, the Board granted 10,000 options under the 1997 Plan to two of the
Company's independent Directors. 40% of the options are immediately exercisable,
an additional 30% become exercisable after March 2, 2000 and all the options are
exercisable after March 2, 2001. In April 1999, the Board granted 26,500 options
to employees and 20,000 options to five directors under the 1997 Plan. All
options are exercisable immediately.
On September 8, 1999, the Board of Directors has approved to change the exercise
price of existing outstanding stock options to $1.00.
Activity in the stock option plan for the year is summarised below:
<TABLE>
<CAPTION>
Options granted to: Weighted Average
Options Exercise Price
$ $
<S> <C> <C>
Directors 167,500 1.00
Key employees 23,000 1.00
Independent Directors 10,000 1.00
----------------------------------
Options outstanding at February 1, 1999 200,500 1.00
----------------------------------
Options granted to two independent directors 10,000 1.00
Options granted to employees 24,500 1.00
Options granted to Directors 20,000 1.00
----------------------------------
Options oustanding at January 31, 2000 255,000 1.00
==================================
</TABLE>
No options were exercised or expired during the fiscal year.
e) Application of SFAS 123: Accounting for Stock-Based Compensation
As all options granted are exercisable at $1.00 per share which approximates the
fair value of the share using the Black-Schole option pricing model, no
stock-based compensation has been recognized in connection with these options.
12. RESEARCH AND DEVELOPMENT COSTS
Research and development cost are comprised of:
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C> <C>
Expense incurred 328,979 251,847 298,582
Less: Investment tax credits (97,433) (90,119) (119,467)
---------------------------------------------------
Net expense 231,446 161,728 179,115
===================================================
13. INCOME TAXES
2000 1999 1998
$ $ $
Current 64,077 123,671 110,616
Deferred 22,415 19,975 25,585
---------------------------------------------------
86,492 143,646 136,201
===================================================
Current income taxes consists of:
Amount calculated at basic Federal and provincial rates 101,351 100,677 134,406
Increase (dercrease) resulting from:
Ontario Research and Development super allowance (17,800) - -
Prior year's tax - 25,001 -
Permanent and other differences 2,802 17,968 1,795
Timing difference (22,276) (19,975) (25,585)
---------------------------------------------------
64,077 123,671 110,616
===================================================
</TABLE>
F-17
<PAGE>
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements
(Amounts expressed in US dollars)
13. INCOME TAXES (continue)
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.
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:
2000 1999
$ $
Net income 308,191 283,852
Other comprehensive income / (loss) 217,764 (208,587)
-----------------------
Comprehensive income 525,955 86,173
=======================
<TABLE>
<CAPTION>
<S> <C>
Accumulated other comprehensive losses, January 31, 1997 (31,929)
Foreign currency translation adjustments for the year ended January 31, 1998
(247,005)
----------
Accumulated other comprehensive losses, January 31, 1998 (278,934)
Foreign currency translation adjustments for the year ended January 31, 1999
(208,587)
----------
Accumulated other comprehensive losses, January 31, 1999 (487,521)
Foreign currency translation adjustments for the year ended January 31, 2000 217,764
----------
Accumulated other comprehensive losses, January 31, 2000 (269,757)
==========
</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. SALES TO MAJOR CUSTOMERS:
2000 1999 1998
$ $ $
Canada 13,006,380 10,002,804 9,843,813
United States of America 1,058,568 1,105,487 715,743
---------------------------------------
14,064,948 11,108,291 10,559,556
=======================================
16. SUBSEQUENT EVENTS
Subsequent to year end, the Company settled a lawsuit amounting to $34,000. The
$34,000 has been accrued in the accounts along with $12,000 for related legal
costs.
17. OTHER SUPPLEMENTAL INFORMATION
The following items were included in the statements of income:
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C> <C>
Amortization of property, plant and equipment 498,916 294,695 312,578
Amortization of intangible assets 14,035 - -
Operating lease rentals for rented premises ( net of rent
received - - 53,871
Interest paid/(received) on:
Bank indebtedness (86,303) (131,618) 3,570
Stockholders' loan - - 14,041
Long term debt 126,137 142,206 56,385
Bridging finance - - 134,334
--------------------------------------
39,834 10,588 208,330
======================================
</TABLE>
18. The year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive Systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is Processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something Other than a date. Although the change in date has
occurred, it is not possible to conclude that all aspects of the year 2000
issue That may affect the entity, including those related to customers,
suppliers, or other third parties, have been fully resolved.
F-19
<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>
<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, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JAN-31-1999
<CASH> 1,749,012
<SECURITIES> 0
<RECEIVABLES> 1,332,659
<ALLOWANCES> 0
<INVENTORY> 1,527,818
<CURRENT-ASSETS> 4,821,609
<PP&E> 6,149,398
<DEPRECIATION> 2,602,868
<TOTAL-ASSETS> 9,196,181
<CURRENT-LIABILITIES> 2,305,138
<BONDS> 1,577,093
0
0
<COMMON> 3,850,018
<OTHER-SE> 1,463,932
<TOTAL-LIABILITY-AND-EQUITY> 9,196,181
<SALES> 15,225,382
<TOTAL-REVENUES> 15,225,382
<CGS> 9,613,016
<TOTAL-COSTS> 4,017,415
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,834
<INCOME-PRETAX> 394,683
<INCOME-TAX> 86,492
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 308,191
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
