UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from_________ to___________
Commission File Number 1-12571
INTELLICELL CORP.
DELAWARE 95-4467726
(State of incorporation or organization) (IRS Employer Identification No.)
6929 Hayvenhurst Ave., Van Nuys California 91406
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 906-7777
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes X No___
As of May 30, 1997, there were 4,415,902 shares of the registrant's Common Stock
oustanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Intellicell Corp.
Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
----------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Accounts receivable, net of allowance for
doubtful accounts of $428,000 and $447,000 $ 6,287,000 $ 11,904,000
Inventories, net of reserve of $442,000 and $483,000 6,437,000 7,025,000
Note receivable 337,000 67,000
Other receivables 500,000 729,000
Deposits for purchase of inventory 1,443,000 1,955,000
Deferred tax asset 353,000 608,000
Prepaid expenses and other current assets 268,000 202,000
----------------------------
Total current assets 15,625,000 22,490,000
----------------------------
Property and equipment, net of accumulated
depreciation of $36,000 and $47,000 156,000 196,000
Goodwill, net of accumulated amortization of $13,000
and $15,000 87,000 85,000
Deferred financing costs, net of accumulated
amortization of $58,000 and $87,000 118,000 89,000
Other asset 39,000 40,000
----------------------------
Total assets $ 16,025,000 $ 22,900,000
============================
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft $ 1,012,000 $ 2,961,000
Revolving credit facility -- 2,185,000
Accounts payable 5,994,000 6,987,000
Accrued expenses 187,000 976,000
----------------------------
Total current liabilities 7,193,000 13,109,000
Deferred tax liability 23,000 23,000
----------------------------
Total liabilities 7,216,000 13,132,000
Commitments and contingencies
Stockholders' equity
Preferred stock -$.01 par value, 1,000,000 shares
authorized and none issued -- --
Common stock -$.01 per value, 15,000,000 shares
authorized, 4,217,464 and 4,517,464 shares issued
and outstanding 42,000 45,000
Additional paid-in capital 8,925,000 10,263,000
Retained earnings (deficit) 296,000 (86,000)
Due from officer (454,000) (454,000)
----------------------------
Total stockholders' equity 8,809,000 9,768,000
----------------------------
Total liabilities and stockholders' equity $ 16,025,000 $ 22,900,000
============================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
Intellicell Corp,
Statements of Operations
(Unaudited)
For The 3 Months Ended March 31,
--------------------------------
1996 1997
--------------------------------
Net Sales $ 22,288,000 $ 21,782,000
Cost of sales 21 336,000 20,490,000
--------------------------------
Gross profit 952,000 1,292,000
Selling, general and administrative expenses 651,000 967,000
Non-recurring legal and auditing fees -- 900,000
--------------------------------
Income (loss) from operations 301,000 (575,000)
Other income (expenses):
Interest (55,000) (67,000)
Other income 4,000 6,000
--------------------------------
Income (loss) before income tax benefit 250,000 (636,000)
Income tax benefit -- 254,000
--------------------------------
Net income (loss) $ 250,000 $ (382,000)
================================
Pro forma amounts:
Income (loss) before income taxes $ 250,000 $ (636,000)
Income tax (expense) benefit (100,000) 254,000
--------------------------------
Net income(loss) $ 150,000 $ (382,000)
================================
Earnings (loss) per share $ 0.07 $ (0.O8)
================================
Weighted average number of common shares
outstanding 2,195,810 4,507,464
See accompanying notes to financial statements.
3
<PAGE>
Intellicell Corp.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Increase (Decrease) in Cash For the 3 Months Ended March 31,
--------------------------------
1996 1997
--------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ 250,000 $ (382,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,000 42,000
Provision for doubtful accounts 72,000 19,000
Provision for inventory reserves 8,000 41,000
Change in net deferred tax asset -- (255,000)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (1,344,000) (5,636,000)
(Increase) in inventory (160,000) (629,000)
(Increase) in deposits for purchases of inventory -- (512,000)
(Increase) in other receivables -- (229,000)
(Increase) decrease in prepaid expenses and
other current assets (157,000) 66,000
(Increase) in other assets -- (1,000)
Increase in accounts payable and accrued expenses 2,169,000 1,782,000
----------------------------------
Net cash provided by (used in) operating activities 842,000 (5,694,000)
----------------------------------
Cash flows from investing activities:
Loans to employees and third parties 211,000 --
Repayments of note receivable -- 270,000
Advances to officers 137,000 --
Acquisition of fixed assets (11,000) (51,000)
----------------------------------
Net cash provided by investing activities 337,000 219,000
----------------------------------
Cash flows from financing activities:
Bank overdraft (96,000) 1,949,000
Deferred financing costs (45,000) --
Proceeds from line of credit, net -- 2,185,000
Proceeds from sale of common stock -- 1,341,000
Payments on loan payable (648,000) --
----------------------------------
Net cash provided by (used in) financing activities (789,000) 5,475,000
----------------------------------
Net increase in cash 390,000 --
Cash - beginning of period -- --
----------------------------------
Cash - end of period $ 390,000 $ --
==================================
Supplemental Dislosures of Cash Flow Information
Cash paid during the period for:
Interest $ 55,000 $ 67,000
Income taxes -- 20,000
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
INTELLICELL CORP.
Notes to Financial Statements
(Unaudited)
Note 1. Company's Quarterly Report Under Form 10-Q
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with the instructions set forth in Securities and Exchange
Commission ("SEC") regulations. In the opinion of Management, the accompanying
financial statements include all adjustments consisting of normal recurring
accruals necessary to present fairly the financial statements of Intellicell
Corp. for the periods presented. The accompanying financial information should
be read in conjunction with the Company's Annual Report on Form 10-K for the
year ended December 31, 1996. Footnote disclosures that substantially duplicate
those in the Company's Annual Audited Report on Form 10-K, including significant
accounting policies, have been omitted. The results of operations for the three
months ended March 31, 1997, are not necessarily indicative of the results to be
expected for the full fiscal year.
Note 2. Non-recurring Legal and Auditing Fees
During 1997 and in connection with the audit of the Company's financial
statements for the year ended December 31, 1996 (see, SEC Form 10-K, Item 9),
the Company incurred non-recurring expenses of approximately $900,000 consisting
primarily of professional fees, including the fees of its prior and current
independent auditor, fees of special counsel and a special auditor retained by
the Company's Audit Committee. Such fees were expensed in the quarter ended
March 31, 1997.
Note 3. Contingent Liabilities
In October 1996, an action was filed against the Company seeking a judgment
to cancel the Company's trademark registration for the name "Intellicell". The
action is in a preliminary stage and the Company is unable to determine the
outcome of the action. Although the Company intends to vigorously defend this
action, there can be no assurance that such action will be resolved in a manner
favorable to the Company. The probability of an unfavorable outcome and range of
possible loss, if any cannot be determined.
Note 4. Common Stock
In December 1996, the Company consummated an initial public offering of
2,000,000 shares of Common Stock and received proceeds of $8,047,000 (net of
underwriting discounts and commissions and expenses of the offering). In January
1997, the managing underwriter exercised an overallotment option to purchase an
additional 300,000 shares, resulting in net proceeds of $ 1,341,000.
In December 1996, $1,000,000 principal amount of a note payable was
converted into 223,464 shares of Common Stock. In addition, the Company
repurchased 36,000 shares of Common Stock from the Company's President in
cancellation of $180,000 due from such officer. In May 1997, the President
repaid excess S corporation distributions in the amount of $454,000 by
delivering 101,562 shares of Common Stock to the Company for cancellation. As a
result, the Company reflected as "Due from officer" the amount of $454,000 at
both December 31, 1996 and March 31, 1997.
5
<PAGE>
Note 5. Pro forma Income Taxes (Benefit)-Unaudited
As a result of the Company's S corporation status which terminated in
December 1996, the financial statements do not include a provision for federal
and state income taxes for the period ended March 31, 1996. As a result of the
initial public offering the S corporation election was terminated and the
Company became subject to federal and state income taxes. Accordingly, pro forma
net income in the accompanying statements of operations includes pro forma
adjustments for income taxes which would have been provided had the S
corporation election not been in effect.
Safe Harbor statement under the Private Securities Litigation Reform Act of
1995: The statements which are not historical facts are forward looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discovered in any forward looking
statement.
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations.
Changes in Financial Condition
The Company's financial condition remained relatively consistent with past
quarters. Total assets at March 31, 1997, increased by $6,875,000 from December
31, 1996, representing a 42.9% increase. Net assets (assets less liabilities) of
the Company increased by $959,000 or 10.9% from December 31, 1996, reflecting
the net effect of the issuance of additional shares of the Company's capital
stock amounting to $1,341,000, offset by a net loss for the first quarter of
1997.
At March 31, 1997, the Company's working capital was $949,000 greater than
at December 31, 1996, as discussed in "Liquidity and Capital Resources" below.
The largest increase in assets was $5,617,000, or 89.3%, in accounts
receivable from December 31, 1996 to March 31, 1997. The increase in accounts
receivable was primarily the result of a relatively large increase in sales
activity occurring late in the quarter. At March 31, 1997, the Company's
allowance for doubtful accounts receivable was $447,000. The Company believes
the allowance is currently adequate for the size and nature of its accounts
receivable. Delays in the collection or the uncollectibility of accounts
receivable could have an adverse effect on the Company's liquidity and working
capital position. The Company is subject to credit risks, particularly in
foreign markets, which could require the Company to increase its allowance for
doubtful accounts. The Company attempts to minimize losses on credit sales by
closely monitoring its customers' creditworthiness. The Company seeks to obtain
letters of credit or similar security in connection with open account sales to
customers located in foreign markets.
Inventory and deposits for purchases of inventory increased by $1,100,000
or 14.0% from December 31, 1996 to March 31, 1997. At March 31, 1997, the
Company's inventory reserve was $483,000, which the Company believes is
currently adequate for obsolescence and net realizable value, given the size and
nature of its inventories. The amounts the Company will ultimately realize
could, however, differ materially from the amounts estimated in arriving at
inventory reserves.
At December 31, 1996 and March 31, 1997, the Company had recorded a
deferred income tax asset of $353,000 and $608,000 with no valuation allowance.
A deferred tax asset for the net operating loss incurred for the three months
ended March 31, 1997 in the amount of $254,000 was recorded in the current
period. The Company believes it is more likely than not that the deferred tax
asset will be realized.
6
<PAGE>
Total liabilities increased by $5,916,000 or 82.0% from December 31, 1996
to March 31, 1997, consistent with the increased level of operations. Bank
overdraft increased by $1,949,000, borrowings under the revolving credit
facility increased by $2,185,000 and accounts payable increased by $993,000 from
December 31, 1996 to March 31, 1997. These increases are in line with the
increase in inventories and deposits for purchases of inventories. Accrued
expenses increased by $789,000 from December 31, 1996 to March 31, 1997 and is
primarily the result of accruing non-recurring legal and auditing, fees incurred
in 1997, associated with the independent audit of the financial statements for
fiscal year ended December 31, 1996.
Comparison of Operations
Net sales for the three months ended March 31, 1997 decreased $506,000, or
2.3%, from the prior comparable quarter. Such decrease was the result of both
volume and price decreases.
Gross profit increased by $340,000 or 35.7%, from the first quarter of 1996
to the first quarter of 1997 and increased as a percentage of net sales from
4.3% to 5.9% during these periods. Such increase was primarily due to increased
volume discounts earned from manufacturers in the first quarter of 1997.
Selling, general and administrative expenses increased by $316,000, or
48.5%, from the quarter ended March 31, 1996 to the quarter ended March 31,
1997. As a percentage of sales, selling, general and administrative expenses
were 2.9% and 4.4% for the quarters ended March 31, 1996 and March 31, 1997,
respectively. This increase was primarily attributable to the Company's
anticipated expanded level of operations and was evidenced in generally all
expense classifications.
During the three months ended March 31, 1997, the Company incurred
non-recurring legal and auditing fees relating to the Company's change in
auditors of $900,000, including the fees of its current and prior independent
auditor, fees of special counsel and a special auditor retained by the Company's
Audit Committee of the Board of Directors. These expenses were non-recurring in
nature.
The Company incurred a loss from operations of $575,000 for the three
months ended March 31, 1997 as compared to income from operations of $301,000
for the three months ended March 31, 1996. The Company incurred a net loss of
$382,000 for the three months ended March 31, 1997 as compared to pro forma net
income of $150,000 for the three months ended March 31, 1996. The loss from
operations and net loss for the three months ended March 31, 1997, are primarily
attributable to the non-recurring legal and auditing fees described above.
Liquidity and Capital Resources
The Company's primary cash requirements have been to fund increased levels
of inventories and accounts receivable. The Company has historically satisfied
its working capital requirements principally through cash flow from operations,
the issuance of equity securities and borrowings. At March 31, 1997, the Company
had working capital of $9,381,000 compared to working capital of $8,432,000 at
December 31, 1996.
Net cash used in operating activities was $5,694,000 for the quarter ended
March 31, 1997, as compared to net cash provided by operating activities of
$842,000 for the three months ended March 31, 1996. The increase in cash used
was primarily attributable to the net loss and increased levels of accounts
receivable with such increase primarily the result of sales in March 1997. Net
cash provided by investing activities was $219,000 for the first quarter of
1997, primarily related to the repayment of a note receivable, as compared to
$337,000 for the first
7
<PAGE>
quarter of 1996. Net cash provided by financing activities was $5,475,000 for
the first quarter of 1997, as compared to net cash used in financing activities
of $789,000 for the first quarter of 1996. This increase was primarily
attributable to the proceeds from the exercise of an over-allotment option of
$1,341,000, a bank overdraft position of $1,949,000 and the proceeds from the
Company's line of credit in the amount of $2,185,000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In October 1996, an action was filed against the Company seeking a judgment
to cancel the Company's trademark registration for the name "Intellicell". The
action is in a preliminary stage and the Company is unable to determine the
outcome of the action. Although the Company intends to vigorously defend this
action, there can be no assurance that such action will be resolved in a manner
favorable to the Company.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibit 11 Computations of Earnings Per Share
b) Exhibit 27 Financial Data Schedule
c) No Reports on Form 8-K were filed during the three months ended March
31, 1997.
8
<PAGE>
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, Intellicell Corp. has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Intellicell Corp.
By /s/John C. Snyder II Dated: June 2, 1997
------------------------------
John C. Snyder II
Chief Financial Officer
and Duly Authorized Officer
9
Intellicell Corp,
EXHIBIT 11
Computation of Earnings (Loss) Per Share
(Unaudited)
<TABLE>
<CAPTION>
For the 3 Months Ended March 31,
--------------------------------
1996 1997
--------------------------------
<S> <C> <C>
Earnings (Loss) per share:
Pro forma net income (loss) for primary
earnings (loss) per share $ 150,000 $ (382,000)
=========================
Weighted average common shares outstanding 2,030,000 4,507,464
Weighted average shares sold to fund stockholder
distribution paid out of proceeds of initial public offering 142,346 --
Weighted average shares resulting from conversion of
convertible notes payable at a discount from market 23,464 --
-------------------------
Weighted average common shares and equivalents 2,195,810 4,507,464
=========================
Primary pro forma earnings (lose) per share $ 0.07 $ (0.08)
=========================
</TABLE>
For the quarters ended March 31, 1996 and 1997, no additional common stock
equivalents (upon exercise of common share equivalents under the modified
treasury stock method) were included in the calculation of earnings (loss) per
share. For the quarter ended March 31, 1996, no such common shares equivalents
existed and for the quarter ended March 31, 1997, the results would be
anti-dilutive. For the quarter ended March 31, 1996 and 1997 earnings (loss) per
share was identical under the primary and fully diluted basis.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENT INCLUDED IN THIS QUARTERLY REPORT ON FORM 10-Q,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 12,351,000
<ALLOWANCES> 447,000
<INVENTORY> 7,025,000
<CURRENT-ASSETS> 22,490,000
<PP&E> 243,000
<DEPRECIATION> 47,000
<TOTAL-ASSETS> 22,900,000
<CURRENT-LIABILITIES> 13,109,000
<BONDS> 0
0
0
<COMMON> 45,000
<OTHER-SE> 9,723,000
<TOTAL-LIABILITY-AND-EQUITY> 22,900,000
<SALES> 21,782,000
<TOTAL-REVENUES> 21,782,000
<CGS> 20,490,000
<TOTAL-COSTS> 20,490,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,000
<INCOME-PRETAX> (636,000)
<INCOME-TAX> (254,000)
<INCOME-CONTINUING> (382,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (382,000)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
