SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the three months ended July 31, 2001
Commission File Number 1-13365
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INTERCORP EXCELLE INC.
(Exact name of Small Business Issuer as specified in its charter)
Ontario, Canada N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1880 Ormont Drive M9L 2V4
Toronto, Ontario, Canada (Zip Code)
(Address of principal executive offices)
(416) 744-2124
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Redeemable Common Stock Purchase Warrants
(Title of Class)
-----------
Indicate by check mark whether the issuer: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practical date: September 13, 2001 - 4,000,761
common shares, no par value.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Interim Consolidated Balance Sheets as at July 31, 2001 and January 31, 2001 1
Interim Consolidated Statements of Income for the three months and six months ended 2
July 31, 2001 and 2000
Interim Consolidated Statements of Cash Flows for the six months ended 3
July 31, 2001 and 2000
Interim Consolidated Statements of Stockholders' Equity for the six months 4
ended July 31, 2001
Notes to Interim Consolidated Financial Statements 5 - 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-13
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and reports on Form 8-K 16
Signatures 17
Item 1. Financial Statements
INTERCORP EXCELLE INC.
Interim Consolidated Balance Sheets
As at July 31, 2001 AND January 31, 2001
(Amounts expressed in US Dollars)
(Unaudited)
July 31, January 31,
2001 2001
$ $
ASSETS
CURRENT ASSETS
Cash and short term investments 642,947 2,011,397
Accounts receivable 1,663,530 1,067,972
Investment tax credit recoverable 154,553 140,944
Inventory 2,190,809 1,659,879
Income tax recoverable - 23,478
Prepaid expenses and sundry assets 203,609 85,967
Current maturities due from directors 15,363, 8,001
---------------------------------
Total Current Assets 4,870,811 4,997,637
DUE FROM DIRECTORS 102,347 57,004
PROPERTY, PLANT AND EQUIPMENT 4,165,203 3,987,666
INTANGIBLE ASSET 744,421 772,718
---------------------------------
Total Assets 9,882,782 9,815,025
=================================
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 2,154,793 1,896,414
Income tax payable 4,098 -
Current portion of long term debt 441,587 450,331
---------------------------------
Total Current Liabilities 2,600,479 2,346,746
LONG TERM DEBT 1,430,030 1,696,519
DUE TO DIRECTORS 115,664 117,954
DEFERRED INCOME TAXES 158,574 161,714
---------------------------------
Total Liabilities 4,304,746 4,322,933
---------------------------------
STOCKHOLDERS' EQUITY
COMMON STOCK 3,344,522 3,344,522
ADDITIONAL PAID IN CAPITAL 505,496 505,496
RETAINED EARNINGS 2,389,845 2,177,113
TREASURY STOCKS Note 3 (100,832) (81,591)
CUMULATIVE TRANSLATION ADJUSTMENTS (560,995) (453,448)
---------------------------------
Total Stockholders' Equity 5,578,036 5,492,092
---------------------------------
Total Liabilities and Stockholders' Equity 9,882,782 9,815,025
=================================
Page 1
INTERCORP EXCELLE INC.
Interim Consolidated Statements Of Income
For the three months and six months ended July 31, 2001 and 2000
(Amounts expressed in US Dollars)
(Unaudited)
3 months ended 6 months ended 3 months ended 6 months ended
July 31, 2001 July 31,2001 July 31, 2000 July 31, 2000
$ $
GROSS SALES 6,568,802 11,466,645 5,694,102 9,934,025
Trade Expenditures 642,208 1,141,677 526,360 882,264
-----------------------------------------------------------------------------
NET SALES 5,926,594 10,324,968 5,167,742 9,051,761
Cost of sales 3,968,866 7,066,213 3,501,858 6,214,382
-----------------------------------------------------------------------------
GROSS PROFIT 1,957,728 3,258,755 1,665,884 2,837,379
-----------------------------------------------------------------------------
EXPENSES
Selling 1,255,479 1,882,932 888,205 1,464,162
General & administrative 365,013 811,469 394,264 785,204
Research & development costs 106,903 202,687 105,679 201,625
Financial (net of interest income) 32,187 59,202 26,425 40,681
Amortization 25,299 50,134 29,308 57,881
-----------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 1,784,881 3,006,423 1,443,881 2,549,554
-----------------------------------------------------------------------------
OPERATING INCOME 172,847 252,332 222,003 287,826
Gain/(loss) on exchange (7,036) 9,604 4,022 24,411
-----------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 165,811 261,936 226,025 312,237
Income taxes (Note 4) 13,684 49,204 72,868 93,337
-----------------------------------------------------------------------------
NET INCOME 152,126 212,732 153,157 218,900
=============================================================================
NET INCOME PER WEIGHTED AVERAGE COMMON SHARE
0.03 0.05 0.04 0.06
=============================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
3,912,282 3,910,487 3,968,561 3,973,329
=============================================================================
Page 2
INTERCORP EXCELLE INC.
Interim Consolidated Statements Of Cash Flows
For the six months ended July 31, 2001 and 2000
(Amounts expressed in US Dollars)
(Unaudited)
July 31, 2001 July 31, 2000
$ $
Cash flows from operating activities:
Net Income 212,732 218,900
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization 243,482 270,978
Gain on disposal of assets 265 -
Increase in accounts receivable (613,115) (370,391)
Increase in investments tax credits (16,261) (17,002)
Increase in inventory (560,255) (447,210)
Increase in prepaid expenses (118,695) (90,000)
Increase in accounts payable and accrued liabilities 293,678 627,056
Changes in income tax payable/recoverable 26,980 77,867
---------------------------------
Total adjustments (743,921) 51,298
---------------------------------
Net cash provided (used) by operating activities (531,190) 270,198
---------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (484,171) (359,128)
Advances to directors (53,690) -
---------------------------------
Net cash used in investing activities (537,861) (359,128)
---------------------------------
Cash flows from financing activities
Mortgage repayments (22,764) (23,801)
Proceeds from long term debt - 429,678
Repayment of long term debt (209,579) (128,493)
Repurchase of common shares (19,241) (14,131)
---------------------------------
Net cash provided by (used in) financing activities (251,584) 263,253
---------------------------------
Effect of foreign currency exchange rate changes (47,816) (39,164)
---------------------------------
Net increase/(decrease) in cash and cash equivalents (1,368,451) 135,159
Cash and cash equivalents
Beginning of period 2,011,397 1,749,012
---------------------------------
End of period 642,947 1,884,171
=================================
Income tax paid 31,126 15,977
=================================
Interest paid , net 59,178 40,843
=================================
Page 3
INTERCORP EXCELLE INC.
Interim Consolidated Statements of Stockholders' Equity
As at July 31, 2001
(Amounts expressed in US Dollars)
(Unaudited)
Additional Cumulative
Common Paid-in Treasury Translation Retained
Stock Capital Stock Adjustments Earnings Total
$ $ $ $ $ $
Balance as of January 31, 2001 3,344,522 505,496 (81,591) (453,448) 2,177,113 5,492,092
Repurchase of 7,500 common - - (5,044) - - (5,044)
shares
Foreign currency translation - - - (148,511) - (148,511)
Net income for the quarter - - - - 60,605 60,605
-------------------------------------------------------------------------------------------------
Balance as of April 30, 2001 3,344,522 505,496 (86,635) (601,959) 2,237,718 5,399,142
Repurchase of 20,000 common - - (14,197) - - (14,197)
shares
Foreign currency translation - - - 40,964 - 40,964
Net income for the quarter - - - - 152,126 152,126
Balance as of July 31, 2001 3,344,522 505,496 (100,832) (560,995) 2,389,845 5,578,036
=================================================================================================
Page 4
INTERCORP EXCELLE INC.
Notes to Interim Consolidated Financial Statements
(Amounts expressed in US Dollars)
(Unaudited)
1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
The consolidated financial statements include the accounts of Intercorp
Excelle Inc. ("the Company") and its wholly owned subsidiary, Intercorp Excelle
Foods Inc. The Company was incorporated on April 18, 1997. All significant
transactions and balances among the consolidated entities have been eliminated
in the preparation of these consolidated financial statements.
In the opinion of management all adjustments that are necessary to a
fair statement of results for the interim periods has been included.
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.
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.
Accordingly, the carrying value approximates the fair value.
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 Straight-line over a year
Amortization for assets acquired during the period are recorded at
one-half of the indicated rates.
Amortization has not been recorded on capital assets under
construction.
Page 5
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaudited)
h) Income Taxes
The company accounts for income taxes 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 measured using the enacted tax rates that
would be in effect when these differences are expected to be reversed. Deferred
income tax assets, if any, are recognized only to the extent that, in the
opinion of management, it is more likely than not that the assets will be
realized.
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.
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.
k) Sales
Sales represent the invoiced value of goods supplied to customers.
Sales are recognized upon delivery of goods and passage of title to customers.
l) Government Assistance and Investment Tax Credits
Government Assistance and Investment Tax Credits are recorded on the
accrual basis and are accounted for as a reduction of the related current
expenditures.
m) Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of sales and expenses during
the reporting period. Actual results could differ from those estimates.
Page 6
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaudited)
n) Accounting Changes
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 the 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.
o) 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 the period ended July 31, 2001.
p) Comparative Figures
Certain figures in the 2000 financial statements have been reclassified
to conform with the basis of presentation used in the current year.
Page 7
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaudited)
2.) 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:
July 31, 2001 January 31, 2001
$ $
4,000,761 common shares 3,344,522 3,344,522
===================== =====================
b) Purchase Warrants
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 per share, subject to adjustment in accordance with the anti-dilution and
other provision referred to below.
The Warrants may be redeemed by the company at any time from October 9,
1998 (or earlier with the consent of the representative) and prior to their
expiration, at a redemption price of $0.10 per Warrant, on not less than 30
days' prior written notice to the holders of such Warrants, provided that the
closing bid price of the common stock if traded on the NASDAQ SmallCap Market or
the OTC Bulletin Board, 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 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.
Effective October 10, 2000 the exercise price of the Warrants has been
amended to $2.50 for the purchase of each common share.
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 of the 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.
As at July 31, 2001, none of the Warrants have been exercised.
Page 8
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaudited)
c) Bridge Warrants
In May, 1997, the company issued an aggregate of 175,000 Warrants (the
"Bridge Warrants"). The Bridge Warrants entitle the holder to purchase one share
of common stock for $3.75 per share for a period of four years. Bridge Warrants
are exchangeable at the option of the holder for a like number of warrants with
identical terms as the Warrants.
As at July 31, 2001, none of the Bridge Warrants has been exercised.
d) Stock Option Plan
In May, 1997, the board of directors and shareholders adopted the
Intercorp Excelle Inc. Stock Option Plan (the "1997 Plan"), pursuant to which
500,000 shares of common stock are reserved for issuance. The 1997 Plan is
administered by the compensation committee or the board of directors, who
determine those individuals who shall receive options, the time period during
which the options may be partially or fully exercised, the number of shares of
common stock issuable upon the exercise of the options and the option exercise
price.
The 1997 Plan is for a period for ten years, expiring in May, 2007.
Options may be granted to officers, directors, consultants, key employees,
advisors and similar parties who provide their skills and expertise to the
company. Options granted under the 1997 Plan might 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 causes which results in immediate termination of the option.
Options granted under the 1997 Plan, at the discretion of the
compensation committee or the board, may be exercised either with cash, common
stock having a fair market equal to the cash excisable price, the participant's
personal recourse note, or with an assignment to the company of sufficient
proceeds from the sale of the common stock acquired upon exercise of the options
with an authorization to the broker or selling agent to pay that amount to the
company, or any combination of the above.
Any unexercised options that expire or terminate upon an employee's
ceasing to be employed by the company become available again for issuance under
the 1997 Plan. The 1997 Plan may be terminated or amended at any time by the
board of directors, except that the number of shares of common stock reserved
for issuance upon the exercise of options granted under the 1997 Plan may not be
increased without the consent of the shareholders of the company.
Page 9
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaudited)
d) Stock Option Plan (continue)
In April 2000, the Board granted 12,000 options under the 1997 Plan to
three of the company's independent directors, 56,000 options to five directors
and 35,000 options to employees. Forty percent of the options are exercisable at
January 31, 2001, an additional 30% become exercisable after April 26, 2001 and
all of the remaining options are exercisable after April 26, 2001.
In March 1999, the Board granted 10,000 options under the 1997 Plan to
two of the company's independent directors. Thirty percent of these options are
not exercisable until after March 3, 2001. In April 1999, the Board granted
26,500 options to employees and 20,000 options to five directors under the 1997
Plan, which are exercisable at January 31, 2001.
On September 8, 1999, the Board of Directors approved a change to the
exercise price of existing outstanding stock options to US$1.00.
On May 17,2001 the Board of Directors approved a change to the exercise
price of existing outstanding stock options to US$0.42.
Options outstanding as at July 31, 2001 are as follows:
Options granted to: Weighted Average
Options Exercise Price
$
Directors 243,500 0.42
Employees 50,500 0.42
Options granted to two independent directors 32,000 0.42
--------------------- ----------------------
Options oustanding at July 31, 2001 326,000 0.42
===================== ======================
No options are exercised or granted during the quarter ended July 31,
2001
e.) Application of SFAS 123: Accounting for Stock-Based Compensation
As all options granted are exercisable at $0.42 per share which
approximates the fair value of the share using the Black-Schole option-pricing
model. Accordingly, no stock-based compensation has been recognized in
connection with these options.
3.) Treasury Stock
On March 1, 1999, the Board of Directors approved a Company stock
repurchase program to buy back up to 250,000 common shares of the Company at a
market price per share not exceeding $2.00. As at July 31, 2001 the Company had
repurchased 205,218 shares and of which 106,739 shares were cancelled in January
2000. As at July 31, 2001, the Company has on hand 98,479 common shares.
Page 10
INTERCORP EXCELLE INC.
Notes to Consolidated Financial Statements (continued)
(Amounts expressed in US Dollars)
(Unaudited)
4.) INCOME TAXES
Income taxes for the three months ended July 31, 2001 have been reduced
by approximately $44,000, representing the benefit of tax losses included in
deferred tax assets, net of changes in the valuation allowance.
5.) COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130 "Reporting Comprehensive Income and its components in the financial
statements. However, it does not affect net income or stockholders' equity. The
components of comprehensive income are as follows:
July 2001 July 2000
$
Net income 152,126 153,157
Other comprehensive income / (loss) 40,964 (14,290)
--------------------- ---------------------
Comprehensive income 193,090 138,867
===================== =====================
Accumulated other comprehensive losses, January 31, 1999 (487,521)
Foreign currency translation adjustments for the quarter ended April 30, 1999 162,990
--------------------
Accumulated other comprehensive losses, April 30, 1999 (324,531)
Foreign currency translation adjustments for the quarter ended July 30, 1999 (135,693)
--------------------
Accumulated other comprehensive losses, June 30, 1999 (460,224)
Foreign currency translation adjustments for the quarter ended October 31, 1999 122,402
--------------------
Accumulated other comprehensive losses, October 31, 1999 (337,822)
Foreign currency translation adjustments for the quarter ended January 31, 2000 68,065
--------------------
Accumulated other comprehensive losses, January 31, 2000 (269,757)
Foreign currency translation adjustments for the quarter ended April 30, 2000 (105,157)
--------------------
Accumulated other comprehensive losses, April 30, 2000 (374,914)
Foreign currency translation adjustments for the quarter ended July 31, 2000 (14,290)
--------------------
Accumulated other comprehensive losses, July 31, 2000 (389,204)
Foreign currency translation adjustments for the quarter ended October 31, 2000 (172,098)
--------------------
Accumulated other comprehensive losses, October 31, 2000 (561,302)
Foreign currency translation adjustments for the quarter ended January 31, 2001 107,854
--------------------
Accumulated other comprehensive losses, January 31, 2001 (453,448)
Foreign currency translation adjustments for the quarter ended April 30, 2001 (148,511)
--------------------
Accumulated other comprehensive losses, April 30, 2001 (601,959)
Foreign currency translation adjustments for the quarter ended July 31, 2001 40,964
--------------------
Accumulated other comprehensive losses, July 31, 2001 (560,995)
====================
Page 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The statements contained in this Filing that are not historical are
forward looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, including statements regarding the
Company's expectations, intentions, beliefs or strategies regarding the future.
All forward-looking statements include the Company's statements regarding
liquidity, anticipated cash needs and availability and anticipated expense
levels. All forward looking statements included in this report are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward looking statement. It is important to
note that the Company's actual results could differ materially from those in
such forward-looking statements.
Results of Operations (All amounts expressed in US Dollars unless otherwise
stated).
Six months ended July 31, 2001 compared to the six months ended July
31, 2000.
Sales for the six months ended July 31, 2001 were CDN$17.6 million
($11.5 million), a 20.2% increase over prior year six months sales of CDN$14.7
million ($9.9 million). This increase in sales reflected continued growth and
distribution of Renee's Gourmet(TM) branded dressings primarily across Canada,
as well as Private Label, Food Service and A1 Sauces(TM). Incremental US branded
and Private Label business also contributed to strong second quarter results.
Gross profit for the six month period ended July 31, 2001 of $3.3
million was 31.6% of net sales, which was only slightly higher than the same
period one year ago $2.8 million (31.3% of net sales). Lower prime ingredient
and plant operating costs were more than offset by higher distribution expenses
due to heavier shipments to the Western marketplace.
Selling and marketing expenses for the six month period ended July 31,
2001 of $1.88 million were 28.6% higher than the comparable six month period in
2000, reflecting additional consumer marketing and sales support expenditures
behind Renee's Gourment(TM) dressings, sauces and marinades as well as Food
Service business. General and Administrative expenses of $811,469 were 3.3%
higher than prior year six month, primarily due to support sales growth and wage
increases. R&D expenditures of $202,687 also reflect continuous commitment to
innovation, product research and the development work necessary to support the
company's continued aggressive growth over the last few years.
Financial costs have been only partially offset by interest income on
funds invested in USD interest bearing term accounts.
Operating income (before income taxes and extraordinary items),
decreased $35,494 over prior year to $252,332 for the six months ended July 31,
2001. Overall, gross margins were offset by higher distribution expenditures,
and planned incremental investments in marketing and selling support behind new
product launches.
The Company also reported a net translation gain of $9,604 on US
funds converted to Canadian dollars for the first six months of the current
fiscal year. This reflects some strengthening of the US dollar versus the
Canadian dollar since the beginning of current fiscal year.
Net income was $212,732 or $0.05 per share for the six months ended
July 31, 2001 versus $218,900 for the comparable prior year period.
Page 12
Liquidity and Capital Resources
The Company used cash in operations of $531,190 for the six months
ending July 31, 2001. The principal use of cash traced to an increase in
accounts receivable and inventories. This was partially offset by cash released
from the increase in accounts payable at the end of the period.
Capital spending during the first six months of 2001 reflected planned
capital additions of $484,171. Capital additions in the current fiscal year to
date are higher than prior year in part to the completion of a new 14,000 sq.ft.
on-site cooler. The additional space is integral to support the current and
future growth.
The Company's secured credit arrangement with the National Bank of
Canada includes a credit line of CDN$3.0 million that is due on demand and bears
interest at National Bank's Prime plus 0.5%, which is not currently being used
due to the Company's positive cash position in US dollars. The Company
renegotiated its secured credit facility with the National Bank of Canada
effective June 11, 2001. As part of that arrangement, the Company also has a
CDN$1.5 million acquisition line available for future mergers or acquisitions
which may be drawn down as an operating loan and bears interest at National
Bank's Prime plus 1.0%, subject to certain conditions. As well, the Company has
an additional CDN$1.79 million non-revolving demand loan available for current
year capital expenditures and bears interest at National Bank's Prime plus 0.5%.
All borrowings are collateralized by the assets of the Company.
The Company currently 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 and other debt
placements may be considered, in part, or in combination, as the situation
warrants.
Page 13
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company made an initial public offering of its common stock, no par
value ("Common Stock") and common stock purchase warrants ("Warrants") (the
Common Stock and Warrants are collectively referred to as the "Securities")
pursuant to a registration statement declared effective by the Securities and
Exchange Commission on October 9, 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-QSB:
Expense Amount
Underwriter's Discounts and Commissions $512,247
Expenses paid to or for the Underwriters 241,674
Other expenses 569,492
-----------------
Total Expenses $1,323,413
=================
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 $383,080
Temporary Investments (1) 1,533,791
Purchase of A1 Sauce business 1,227,191
Repayment of Indebtedness 655,000
-----------------
Total Application of Net Proceeds $3,799,062
=================
(1) Money market investments
Temporary investments 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 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 17, 2001, the Company held its 2001 Annual Meeting of
Stockholders. At the annual meeting, the Company's stockholders were asked to
vote upon: (i) the election of eight directors to serve for the ensuing year;
and (ii) the appointment of an independent accounting firm for the ensuing year.
The following persons were elected as directors of the company for the
ensuing year by the votes next to such persons name:
For Withheld Against
Arnold Unger 3,594,673 600 0
Renee Unger 3,594,673 600 0
Fred Burke 3,595,173 100 0
Lori Gutmann 3,595,173 100 0
Alysse Unger 3,593,673 1,6000
John Rothschild 3,594,673 600 0
Taketo Murata 3,595,173 100 0
Karen Unger 3,594,173 1,1000
Arnold Unger, Renee Unger, Fred Burke, Lori Gutmann, Alysse Unger, John
Rothschild, Taketo Murata and Karen Unger were duly elected as Directors of the
Corporation to serve until the Annual Meeting of Stockholders in the year 2002
or until their respective successors have been duly elected and qualified.
Richter, Usher & Vineberg, Chartered Accountants was approved to act as
the Company's independent chartered accountants for the ensuing year by the
following vote:
For Against Abstain
3,594,773 4,001 -0-
Page 15
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit description
27. Financial Data Schedule
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three-month
period ended July 31, 2001.
Page 16
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.
September 14, 2001 By: /s/ ARNOLD UNGER
----------------
ARNOLD UNGER
Chief Executive Officer and
Co-Chairperson
September 14, 2001 By: /s/ RENEE UNGER
---------------
RENEE UNGER
President and Co-Chairperson
September 14, 2001 By: /s/ FRED BURKE
--------------
FRED BURKE
Chief Financial Officer, Chief
Operating Officer and Secretary
Page 17