UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the three months ended April 30, 1998
Commission File Number 1-13365
INTERCORP EXCELLE INC.
------------------------------------------------
(Exact name of registrant as specified in its charter)
Ontario, Canada N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1880 Ormont Drive
Toronto, Ontario, Canada M9L 2V4
(Address of principal executive offices) (Zip Code)
(416) 744-2124
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Redeemable Common Stock Purchase Warrants
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No | |
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practical date: June 11, 1998 - 4,075,000 shares of
common stock, no par value.
Transitional Small Business Disclosure Format (check one): Yes | | No |X|
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
1
INTERCORP EXCELLE INC.
Unaudited Interim Consolidated Balance Sheets
As of April 30, 1998 and January 31, 1998
(Amounts expressed in US Dollars)
April, 30 1998 January, 31 1998
-------------------------------------------------
$ $
ASSETS
CURRENT ASSETS
Cash and short term investments Note1 3,291,785 3,368,790
Accounts Receivable Note1 897,511 702,814
Investment tax Credit Receivable 59,980 35,134
Inventory Note 1 1,069,927 794,956
Income taxes Recoverable 0 26,640
Prepaid Expense And Sundry Assets 100,194 41,877
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Total Current Assets 5,419,397 4,970,211
PROPERTY, PLANT AND EQUIPMENT Note 1 3,091,143 2,917,989
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Total Assets 8,510,540 7,888,200
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-------------------------------------------------
CURRENT LIABILITIES
Accounts Payable And Accrued Expenses 1,486,981 1,165,751
Income taxes Payable 18,333 -
Current Portion Of Long Term Debt 200,811 198,348
Current Portion Of Mortgage Payable 48,821 48,223
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Total Current Liabilities 1,754,946 1,412,322
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LONG TERM DEBT 619,878 489,547
Mortgage Payable 903,194 904,174
DUE TO DIRECTORS 145,608 143,823
DEFERRED INCOME TAXES 137,321 135,637
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Total Liabilities 3,560,947 3,085,503
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COMMON STOCK Note 2 3,764,467 3,764,467
ADDITIONAL PAID-IN CAPITAL 139,975 139,975
RETAINED EARNINGS 1,264,790 1,177,189
CUMULATIVE TRANSLATION ADJUSTMENTS (219,639) (278,934)
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Total Stockholders' Equity 4,949,593 4,802,697
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Total Liabilities and Stockholders' equity 8,510,540 7,888,200
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2
INTERCORP EXCELLE INC.
Unaudited Interim Consolidated Statements Of Net Income
For the 3 months ended April 30
(Amounts expressed in US Dollars)
3 Months Ended
April, 30, 1998 April, 30, 1997
----------------------------------------------------
$ $
GROSS SALES 3,015,516 2,780,557
Trade Expenditures 235,262 183,431
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NET SALES 2,780,254 2,597,126
Cost of sales 1,787,741 1,749,127
----------------------------------------------------
GROSS PROFIT 992,513 847,999
EXPENSES
Selling 402,495 399,054
General & Administrative 258,157 197,031
Research & Development Costs 59,069 25,372
Interest Expense net of income 683 19,926
Amortization 98,198 91,318
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TOTAL OPERATING EXPENSES 818,602 732,701
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OPERATING INCOME 173,911 115,298
Gain /(loss) on exchange (40,836) 0
Income Taxes 45,474 36,145
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----------------------------------------------------
NET INCOME 87,601 79,153
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----------------------------------------------------
NET INCOME PER WEIGHTED AVERAGE COMMON SHARES 0.02 0.03
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 4,075,000 2,900,000
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3
INTERCORP EXCELLE INC.
Unaudited Interim Consolidated Statements Of Changes in Financial Position
For the 3 months ended April 30
(Amounts expressed in US Dollars)
April, 30 1998 April, 30 1997
----------------------------------------------------
$ $
Cash flows from operating activities:
Net Income 87,601 79,153
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Amortization 98,198 91,318
Decrease/(increase) in accounts receivable (186,675) (468,459)
Decrease/(increase) in investments tax credits (24,503) (23,495)
Decrease/(increase) in inventory (266,104) (266,727)
Decrease/(increase) in prepaid expenses (58,015) (60,741)
Increase/(decrease) in accounts payable 307,912 769,536
Change in income taxes payable/recoverable 45,476 3,368
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Total adjustments (83,711) 44,800
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Net cash provided by (used in) operating activities 3,890 123,953
----------------------------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (235,646) (186,202)
Financing Activities:
Advance / (Repayment) of Bank Indebtedness 0 1,001,038
Mortgage repayments (12,251) 0
Repayment of Long Term Debt (64,116) (20,463)
Proceeds from Long Term Debt 176,590 0
----------------------------------------------------
Cash provided by (used in) Financing Activities 100,223 980,575
----------------------------------------------------
Effect of foreign currency exchange rate changes 54,528 (18,311)
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Net Increase / (Decrease) in cash and Cash Equivalents (77,005) 900,015
Cash and Cash Equivalents
Beginning of period 3,368,790 176,117
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----------------------------------------------------
End of period 3,291,785 1,076,132
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Income taxes paid(refund received) 0 0
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Interest paid 683 19,926
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4
INTERCORP EXCELLE INC.
Unaudited Consolidated Statements of Stockholders' Equity
for the 3 months ended April 30, 1998 and 1997
Cumulative
Common Additional Translation Retained
Stock Paid-in Capital Adjustments Earnings Total
-----------------------------------------------------------------------------------------------
$ $ $ $ $
Balance as of January 31, 1998 3,764,467 139,975 (278,934) 1,177,189 4,802,697
Foreign currency translation - - 59,295 - 59,295
Net Income for the period - - - 87,601 87,601
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Balance as of April 30, 1998 3,764,467 139,975 (219,639) 1,264,790 4,949,593
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Balance as of January 31, 1997 380 - (31,929) 844,011 812,462
Foreign currency translation - - (9,284) - (9,284)
Net Income for the period - - - 79,153 79,153
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-----------------------------------------------------------------------------------------------
Balance as of April 30, 1997 380 - (41,213) 923,164 882,331
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5
INTERCORP EXCELLE INC.
NOTES TO UNAUDITED 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 16, 1997 by its shareholders of the
purpose of consolidating their 100% interests in anticipation of an initial
public offering. 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). 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. 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 in the U.S.
c) Cash and Short term investments (Bank Indebtedness)
Cash and short term investments 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 companies' accounts receivable and payable
approximates fair value because of payable approximates fair value because of
the short maturity of these instruments.
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 current borrowing
rate for similar instruments of comparative maturity would be.
6
INTERCORP EXCELLE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in US dollars)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
Equipment 20% Declining Balance
Leasehold Improvement 10% Straight Line
Vehicle 30% Declining Balance
Computer Equipment 30% Declining Balance
Office Furniture 20% 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 companies account 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 have been 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 companies maintained their 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 period.
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 period. No representation is
made that the Canadian dollar amounts could havebeen 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.
7
INTERCORP EXCELLE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in US dollars)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 or capital
expenditures.
l) Net Income per Weighted Average Common Shares
Net Income per common shares is computed by dividing net income for the period
by the weighted number of common shares outstanding during the period.
m) Use of Estimates
The preparation of financial statements required 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 revenues and expenses during
the reporting period. Actual results could differ from those estimates.
n) Accounting Changes
On February 1, 1996 the company adopted the provision of SFAS No.121, Accounting
for the Impairment of long-lived Assets and for long-lived Assets to be Disposal
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.
8
INTERCORP EXCELLE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in US dollars)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In December 1995, SFAS No. 123, Accounting for Stock-Based Compensation, was
issued. It introduces a fair value-based method of accounting for stock-based
compensation. It encourages, but does not require, companies to recognized
compensation expenses 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
Opinion 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 financial statements for fiscal years
beginning after December15, 1995. The Company has adopted the disclosure
provisions of SFAS No. 123.
2 Authorized
An unlimited number of common and preference shares
The preference shares are issuable in series upon approval by the directors with
the appropriate appropriate designation, rights, and conditions attaching to
each share of such series.
Issued April 30, 1998 April 30, 1997
------------------------------------------
$ $
4,075,000 Common Shares (1997 - 2,900,000 Common Shares) 3,764,467 380
------------------------------------------
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9
Item 2 Management's Discussion and Analysis of Results of Operations and
Financial Condition
General
The statements contained in this report 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 "Company" shall mean Intercorp Excelle
Inc. and its wholly owned subsidiary Intercorp Excelle Foods Inc.
Results of Operations
Three months ended April 30, 1998 compared to the three months ended
April 30, 1997.
Revenues for three months ended April 30, 1998 were $3,015,516, a
8.5% increase over prior year first quarter revenues of $2,780,557. This
increase was primarily due to growth in Renee's branded business (Renee's
Gourmet regular and Naturally Light(TM) dressings), and food service
incremental distribution.
Gross profit for the same three months of $992,513 was 35.6% of net
revenues, as compared to 32.6% for the same period one year ago. This
positive change can be attributed to a favourable mix towards higher margin
branded business as well as improvements in operational efficiency (including
lower manufacturing conversion costs and distribution). Gross margins were
not affected by price changes, which, for the most part, remained unchanged,
as compared to the first quarter of the prior year.
Selling and marketing expenses during the first quarter of 1998 were
for the most part in line with the first quarter of 1997, reflecting
management's decision to delay Renee's new sauces launch until the second
quarter of the current fiscal year. General and administrative expenses for
the first quarter of $258,158 were $61,127 higher than the first quarter for
prior year, reflecting increased administrative support for the public
entity, wages and benefits.
Income from operations (before income taxes and extraordinary items),
increased substantially by $58,613 to $173,911 for first quarter of 1998 versus
the first quarter of 1997. Although a portion of this incremental profitability
is timing related only, this improvement is directly as a result of continued
sales growth, and improved gross margins, which more than offset an additional
investment in research and development and administrative overhead.
The Company reported a translation loss of $40,836 on US funds
converted from Canadian dollars as at the end of the first quarter. The
Company's functional currency is Canadian dollars, and is converted into US
currency for reporting purposes.
10
Income after taxes and extraordinary items was $87,601 for the first
quarter of 1998, an increase of 10.7% from the first quarter of 1997.
Liquidity and Capital Resources
The Company had a break-even net change in cash from operations for the
three months ending April 30, 1998. The principal source of cash traced to
reported net income of $87,601 and an increase in accounts payable and accrued
liabilities. This was offset by cash used to increase inventories and an
increase in accounts receivable at the end of the period. This is in line with
prior year's first quarter, in which the Company generated a net increase in
cash flows of $123,953, which also traced to operating profits and an increase
in accounts payable.
Cash flows used in investing activities during the three months
ending April 30, 1998 were $235,646. This reflected planned capital additions
for the quarter. Capital additions in the current fiscal year are
substantially higher that for the first quarter of 1997, most of which is the
result of the timing of capital expenditures.
The Company's secured credit arrangement with National Bank of Canada
is unchanged since June 1997. This facility includes a credit line of
Cdn$900,000, that is due on demand and bears interest at prime plus 1.0%. All
borrowings are collateralized by the assets of the Company.
The Company received net proceeds from its initial public offering
effective October 9, 1997 in a net amount of $3,799,062. The Company believes
that the proceeds of the offering, coupled with income from operations will
fulfill the Company's working capital needs for at least the next eighteen
months. It is the Company's intention to utilize a significant portion of the
proceeds to aggressively seek synergistic acquisitions, which would utilize
currently available capacity. 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.
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, 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
11
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
Finders Fees 0
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 $ 408,676
Temporary Investments (1) 2,735,386
Repayment of Indebtedness 655,000
Total Application of Net Proceeds $ 3,799,062
(1) money market investments
None of the foregoing application of the net proceeds were paid, directly
or indirectly, to any director or officer of the Company or their associates, to
any person who owns 10 percent or more of any class of equity securities of the
Company, or to any affiliate of the Company.
The application of the net proceeds to date is not a material change in the
use of proceeds described in the prospectus in the Registration Statement.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports of Form 8-K
None
12
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 15, 1998 By: /s/ ARNOLD UNGER
---------------------------
Arnold Unger
Chief Executive Officer
June 15, 1998 By: /s/ FRED BURKE
---------------------------
Fred Burke
Principal Accounting Officer and Chief
Financial Officer
13
EXHIBIT INDEX
27 Financial Data Schedule