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 June 30, 1998
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.)
9314 Eton Ave., Chatsworth, California 91311
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 709-2300
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 August 13, 1998 there were 4,415,902 shares of the registrant's Common
Stock outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Intellicell Corp.
Balance Sheets
December 31, June 30,
1997 1998
------------ ------------
(Unaudited)
Assets
Current Assets:
Cash $ -- $ 70,000
Accounts receivable, net of allowance for
doubtful accounts of $2,697,000 and $1,994,000 6,578,000 2,926,000
Inventories, net of reserves of $550,000
and $747,000 3,494,000 1,598,000
Notes receivable, net of allowance for
doubtful notes of $739,000 and $1,521,000 195,000 41,000
Deposits for purchase of inventory 271,000 733,000
Prepaid expenses and other current assets 439,000 305,000
------------ ------------
Total current assets 10,977,000 5,673,000
Property and equipment, net of accumulated
depreciation of $98,000 and $129,000 286,000 420,000
Goodwill, net of accumulated amortization
of$23,000 and $26,000 77,000 72,000
Deferred financing costs, net of accumulated
amortization of $288,000 and $290,000 74,000 82,000
------------ ------------
Total assets $ 11,414,000 $ 6,247,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft $ 250,000 --
Revolving credit facility 3,402,000 1,539,000
Accounts payable 3,425,000 2,132,000
Accrued expenses 304,000 82,000
------------ ------------
Total current liabilities 7,381,000 3,753,000
------------ ------------
Commitments and contingencies -- --
Stockholders' equity
Preferred stock -$.01 par value, 1,000,000
shares authorized and none issued
Common stock -$.01 par value, 15,000,000
shares authorized 4,415,902 shares issued
and outstanding 44,000 44,000
Additional paid-in capital 11,792,000 11,990,000
Accumulated deficit (7,803,000) (9,540,000)
------------ ------------
Total stockholders' equity 4,033,000 2,494,000
------------ ------------
Total liabilities and stockholders' equity $ 11,414,000 $ 6,247,000
============ ============
See accompanying notes to financial statements
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Intellicell Corp.
Statements of Operations
(Unaudited)
For the Six Months Ended
June 30,
----------------------------
1998 1997
------------ ------------
Net sales $ 18,616,000 $ 40,993,000
Cost of sales 17,593,000 38,521,000
------------ ------------
Gross profit 1,023,000 2,472,000
Selling, general and administrative expenses 2,564,000 1,993,000
Non-recurring legal and auditing fees -- 1,024,000
------------ ------------
Loss from operations (1,541,000) (545,000)
Other income (expense):
Interest expense (163,000) (180,000)
Other Income (Expense) (33,000) 13,000
------------ ------------
Loss before income tax benefits (1,737,000) (712,000)
Income tax benefits -- 282,000
------------ ------------
Net loss $ (1,737,000) $ (430,000)
============ ============
Basic loss per share $ (0.39) $ (0.10)
============ ============
Diluted loss per share $ (0.39) $ (0.10)
============ ============
Weighted average number of common
shares outstanding 4,415,902 4,486,680
============ ============
See accompanying notes to financial statements
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Intellicell Corp.
Statements of Operations
(Unaudited)
For the Three Months Ended
June 30,
----------------------------
1998 1997
------------ ------------
Net sales $ 8,685,000 $ 19,211,000
Cost of sales 8,036,000 18,031,000
------------ ------------
Gross profit 649,000 1,180,000
Selling, general and administrative expenses 1,087,000 1,026,000
Non-recurring legal and auditing fees -- 124,000
------------ ------------
Income (Loss) from operations (438,000) 30,000
Other income (expense):
Interest expense (79,000) (113,000)
Other Income (expense) (45,000) 7,000
------------ ------------
Loss before income tax benefits (562,000) (76,000)
Income tax benefits -- 28,000
------------ ------------
Net loss $ (562,000) $ (48,000)
============ ============
Basic loss per share $ (0.13) $ (0.01)
============ ============
Diluted loss per share $ (0.13) $ (0.01)
============ ============
Weighted average number of common
shares outstanding 4,415,902 4,486,680
============ ============
See accompanying notes to financial statements
Page 4
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Intellicell Corp.
Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
----------------------------
1998 1997
----------- -----------
Cash flows from operating activities:
Net loss $(1,737,000) $ (430,000)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities
Depreciation and amortization 71,000 87,000
Non Cash Compensation Expense 198,000 --
Provision for doubtful accounts
receivable 703,000 63,000
Provision for inventory reserves 323,000 41,000
Provision for doubtful notes receivable 864,000 --
Change in net deferred tax asset (283,000)
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable 2,949,000 (4,206,000)
(Increase) decrease in inventories 1,573,000 1,309,000
(Increase) decrease in deposits for
purchases of inventory (462,000) 1,428,000
(Increase) decrease in other
receivables (710,000) (3,240,000)
(Increase) decrease in prepaid
expenses and other current assets 134,000 (73,000)
(Increase) decrease in other assets (5,000)
Increase (decrease) in accounts
payable and accrued expenses (1,515,000) 2,129,000
----------- -----------
Net cash provided by (used in)
operating activities 2,391,000 (3,180,000)
----------- -----------
Cash flows from investing activities:
Repayment of notes receivable -- (153,000)
Acquisition of fixed assets (200,000) (56,000)
----------- -----------
Net cash provided by investing activities (200,000) (209,000)
----------- -----------
Cash flows from financing activities:
Bank overdraft (payments) (250,000) (962,000)
Deferred financing costs (8,000)
Advances under credit facility (1,863,000) 3,010,000
Repayments under credit facility
Proceeds from the sale of common stock 1,341,000
----------- -----------
Net cash provided by (used in)
financing activities (2,121,000) 3,389,000
----------- -----------
Net increase in cash 70,000 --
Cash - beginning of period -- --
----------- -----------
Cash - end of period $ 70,000 $ --
----------- -----------
Supplemental Disclosures of Cash Flow
Information
Cash paid during the period for:
Interest $ 163,000 $ 180,000
Income taxes $ -- $ 222,000
Common stock reacquired from officer
as settlement of balance due from
officer and retirement of such shares $ -- $ 454,000
See accompanying notes to financial statements
Page 5
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INTELLICELL CORP.
Notes to Financial Statements
(Unaudited)
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 the Securities and Exchange Commission's
("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 audited financial statements contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997. Footnote
disclosures that substantially duplicate those in the Company's Form 10-K.
including significant accounting policies, have been omitted. The results of
operations for the three months and six months ended June 30, 1998, are not
necessarily indicative of the results to be expected for the full fiscal year.
2. Non-recurring Legal and Auditing Fees
During 1997, in connection with the audit of the Company's financial statements
for year ended December 31, 1996, (see 1997 Form 10-K, Item 9) the Company
incurred non-recurring expenses of $1,024,,000 for the six months ended June 30,
1997 ($1,300,000 for the year ended December 31, 1997) consisting primarily of
professional fees, including the fees of its auditors, fees of special counsel
and a special auditor retained by the Company's Audit Committee.
3. Credit Facility
In January 1998, the Company entered into a revolving line of credit agreement
with BankAmerica Business Credit, Inc. ("BankAmerica") which expires in January
2001, and provides for borrowings of up to a maximum of $12,000,000 based on a
maximum of 80% of eligible receivables and the lesser of $6,000,000 or 50% of
eligible inventory, as defined. Borrowing under the agreement accrued interest
at prime rate plus one half of one percent (0.5%) per annum. The credit facility
is collateralized by substantially all of the assets of the Company. The
agreement prohibits the Company from paying dividends or incurring additional
indebtedness except for trade indebtedness and, initially, required the Company
to maintain a tangible net worth of no less than, $5,500,000 at December 31,
1997, and annual earnings before interest taxes, depreciation and amortization
of $500,000. The Company was in violation of the tangible net worth covenant at
December 31, 1997. In April 1998, BankAmerica waived the December 31, 1997,
default of the tangible net worth covenant, and revised the January 1998 credit
agreement. Under the revised credit agreement the maximum borrowing was reduced
from $12 million to $6 million, with such borrowings limited to 80% of eligible
accounts receivable and the lesser of $1 million or 50% of eligible telephone
inventory as defined in the agreement. Borrowing under the revised credit
agreement bears interest at the prime rate plus two and one-half percent (2.5%)
per annum. The revised credit agreement requires the Company to meet monthly
levels of tangible net worth and earnings before interest, taxes, depreciation
and amortization. All other significant restrictive covenants and prohibitions
of the January 1998 agreement are included in the April
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1998 revised agreement.
In August 1998, the Company executed a third amendment to the credit agreement
which reduced the maximum borrowing permitted under the agreement from $4
million to $1.2 million as of August 17, 1998 and to $1 million on September 1,
1998 , with such borrowings limited to the sum of 80% of eligible accounts
receivable and the lesser of $750,000 or 50% of eligible telephone inventory as
defined in the agreement. A $50,000 extension fee that the Company had
previously agreed to was restructured, with the Company paying $10,000 of such
fee on August 1, 1998 and agreeing that in the event that the obligations under
the BankAmerica loan have not been repaid in full prior to August 24, 1998, the
Company will be obligated to pay an additional extension fee of $15,000, on
September 4, 1998 an additional extension fee of $15,000 and subsequent monthly
extension fees of $25,000 on the first day of each month thereafter until all
obligations under the loan are paid in full. All other significant restrictive
covenants and prohibitions of the credit agreement, as amended are included in
the August 1998 revised agreement.
The Company was in violation of the minimum tangible net worth and EBITDA
requirements at June 30, 1998. In August 1998, BankAmerica waived the default of
the tangible net worth covenant through June 30, 1998 and revised the credit
agreement. In this fourth amendment, the Company and BankAmerica agreed that
either party may terminate the credit agreement, as amended at any time after
October 31, 1998.
The Company has entered into negotiations for a new credit agreement with
another lending institution with terms similar to the BankAmerica credit
agreement. As of August 13, 1998 the other lender is performing its due
diligence in this endeavor and has issued the Company a letter of intent to
enter into a credit agreement subject to certain conditions, including
completion of the lender's due diligence. There can be no assurance, however,
that the lender will ultimately enter into a formal credit agreement with the
Company.
4. Commitments, Contingencies and Other Matters
Miami Facility
The Company has entered into a sublease with a third party for this facility
under the same terms, duration and conditions of the lease and sold the
leasehold improvements and the furniture and fixtures at this facility. The
leasehold improvements and furniture and fixtures were sold for a net loss. The
result of the sale is included in the accompanying statement of operations as a
component of other income in the quarter ended June 30, 1998.
5. Stock Options
As reported in the audited financial statements contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, the Company on
March 5, 1998, granted five-year options to purchase an aggregate of 300,000
shares of common stock under the 1998 Stock Option Plan. Of such options,
100,000 options were granted at an exercise price of $3.81 per share (the fair
market value of such stock on the date of grant) to each of Messrs. Sharma and
Page 7
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Henderson (outside directors of the Company) and to Sands Brothers & Co., Ltd.,
a financial advisor. Mr. Sharma subsequently agreed to the rescission and
cancellation of his granted 100,000 options.
The Company accounted for the granted and non-cancelled options to non-employees
under the provisions of SFAS 123, resulting in a fair value of $614,000 based on
the Black Scholes Option Pricing Model. The options vest in twelve months.
Non-cash compensation expense was recognized during the six months and the
quarter ended June 30, 1998 in the amount of $198,000 and $131,000 respectively.
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations.
Safe Harbor statement under the Private Securities Litigation Reform Act of
1995: The statements contained in this report which are not historical facts are
forward looking statements that involve risks and uncertainties, including but
not limited to, possible delays in the Company's expansion efforts, changes in
wireless communications markets and technologies, the nature of possible
supplier or customer arrangements which may become available to the Company in
the future, possible product obsolescence, uncollectible accounts receivable,
slow moving inventory, lack of adequate financing, increased competition and
unfavorable general economic conditions. The Company's actual results may differ
materially from the results discussed in any forward looking statement.
Changes in Financial Condition
For the six months and quarter ending June 30, 1998, the Company incurred
significant losses. The Company believes that these losses are primarily
attributable to changes in cellular phone technology. The cellular phone
industry changed from technology based on analog signals to technology based on
digital signals. The manufactures, who first produced the digital cellular
telephones, sold directly to phone carriers, eliminating all distributors,
including the Company. During the period, the Company's analog inventory
consistently lost much of its fair market value, which required reserves for
obsolescence. In addition, many of the Company's customers suffered from the
change in technology. As a result, the Company's accounts receivables required
additional reserves. Therefore, the Company believes that reduced sales were
caused by market conditions of obsolescence and the impact of the change of
technology on its customers.
As a result of decreased sales, the Company initiated cost cutting measures
including reducing in March 1998, its sales and administrative staff and
subleasing approximately one-third of its Chatsworth office location. This
sublease was executed on May 1, 1998 at rates and on terms consistent with the
Company's lease on such facility. The Company also closed its Miami location and
sold its furniture and fixtures and leasehold improvements in Miami to a third
party, who also signed a sublease for the remaining lease term.
In an effort to procure the current state-of-the-art digital product, the
Company has entered into non-exclusive distribution agreements with several
manufacturers, including Sony Electronics Inc. Wireless Communications ("Sony"),
LG/Sansys ("LG"), Samsung of America ("Samsung"), and
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NEC of America ("NEC"). Currently, these vendors of digital product provide the
Company product on a prepaid basis. See "Liquidity and Capital Resources." The
Company is in negotiations with these new suppliers of digital cellular product
to provide purchasing terms. There can be no assurance that the Company will be
able to obtain sufficient credit amounts to effect large purchases that will
allow the Company to subsequently sell such product at high enough volumes to
create a positive sustained impact for the Company.
Total assets at June 30, 1998 decreased by $5,167,000 or 45.3% from December 31,
1997, primarily as a result of a $3,652,000 or 55.5% decrease in accounts
receivable, a $1,896,000 or 54.3% decrease in inventories net of a $462,000 or
170.5% increase in deposits for purchases of inventory. The decrease in accounts
receivable is the result of reduced sales for the six months ending June 30,
1998 and increased reserves for doubtful accounts as a percentage of total
accounts receivable. The decrease in inventory is a result of lower purchases of
product caused by the reduced demand for the Company's analog cellular product
(phones and accessories) in inventory and its recent inability to procure
digital cellular phone product. Inventory also decreased as a result of
increased reserves for obsolescence. The increase in deposits for purchases
results from the Company's prepaid terms with its digital product vendors.
Net assets (assets less liabilities) of the Company decreased by $1,539,000 or
38.2% from December 31, 1997, reflecting the net loss for the six months ended
June 30, 1998.
The Company's inventory reserve was $747,000 at June 30, 1998, or 31.9% of
inventories at that date. The Company believes this reserve is currently
adequate for obsolescence and net realizable value, given the size and nature of
its inventories. Management believes that a concerted effort will be required to
reduce its inventory of analog accessories. The amounts the Company will
ultimately realize could, however, differ materially from the amounts estimated
in arriving at inventory reserves.
At June 30, 1998 the Company has a deferred tax asset of $3,276,000,
representing the future benefit of net operating losses and timing differences
and has established a valuation allowance of an equal amount reflecting current
assessment of realizability.
Total liabilities decreased by $3,628,000 or 49.1% from December 31, 1997 to
June 30, 1998. This reduction is primarily composed of a $1,293,000 reduction in
accounts payable, a $1,863,000 reduction in borrowings under the revolving
credit facility and a $250,000 reduction in the bank overdraft balance at June
30, 1998 as compared to December 31, 1997. This reduction in liabilities is
associated with reduced levels of business activity, including purchases and
inventory levels during the six months ending June 30, 1998.
Comparison of Operations
Net sales for the six months and three months ended June 30, 1998 decreased
$22,377,000, or 54.6%, and $10,526,000, or 54.8% from the comparable periods of
the prior year. The decrease in sales is the result of reduced demand for analog
products and the Company's recent inability to procure digital products
resulting in both volume and price decreases.
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Gross profit decreased by $1,449,000 or 58.6%, for six months and $531,000 or
45.0% for the three months ended June 30, 1998, from the prior comparable
period. As a percentage of sales, gross profit for the six months and three
months ended June 30, 1998 was 5.5% and 7.5%, compared to 6.0% and 6.1% for the
six months and three months ended June 30, 1997, respectively. The decrease in
gross profit as a percentage of sales for the six months was primarily the
result of a 2.0% increase in the direct cost of product as a percentage of net
sales and is reflective of lower margins on analog product, including telephones
and accessories. The lower gross margins is reflective of decreased demand for
analog product. During the first quarter, the Company's inventory and sources of
supply were predominately analog and as such the Company experienced significant
gross margin deterioration. During the second quarter, the phone inventory has
been transferred to predominately digital and, as a result, the gross profit
deterioration has been reduced. The current phone inventory is balanced between
diminishing analog phone sales and growing digital phone sales.
Selling, general and administrative expenses increased by $571,000 or 28.7% from
the six months ended June 30, 1997 to the six months ended June 30, 1998.
Selling, general and administrative expenses increased by $61,000 or 5.9% from
the three months ended June 30, 1997 to the three months ended June 30, 1998.
The above mentioned increases in expenses over those of the comparable period of
the prior fiscal year is due non-cash expenses of stock options to
non-employees, moving costs for the Company's new facilities in Chatsworth, loan
fees for the credit agreement, increased reserves for doubtful accounts
receivables and increased reserves for inventory obsolescence, net of decreased
payroll and related payroll costs as a result of the Company's costs-cutting
efforts in 1998.
For the six months ending June 30, 1998, the Company incurred a loss from
operations of $1,541,000 and a net loss of $1,737,000 compared to a loss from
operations and net loss of $545,000 and $430,000, respectively for the
comparable period in 1997. For the three months ended June 30, 1998, the Company
incurred a loss from operations of $438,000 and a net less of $562,000 compared
to a income from operations and net loss of $30,000 and $48,000 for the
comparable period in 1997. The loss from operations for the six months ending
June 30, 1997 included a non-recurring charge of $1,024,000 for legal and
auditing fees associated with the fiscal year end 1996 audit. Excluding this
non-recurring charge, the operating results for the six months ending June 30,
1997 would have been a profit of $479,000.
Liquidity and Capital Resources
Historically, the Company's primary cash requirements have been to fund
increased levels of inventories and accounts receivable. The Company has
satisfied its working capital requirements principally through cash flow from
operations, the issuance of equity securities and borrowings. Working capital at
June 30, 1998 was $1,920,000 compared to working capital of $3,596,000 at
December 31, 1997. This decrease in working capital reflects the losses
sustained by the Company.
Net cash provided by operating activities was $2,391,000 for the six months
ended June 30, 1998 as compared to net cash used in operating activities of
$(3,180,000) for the six months ended June 30, 1997. The cash provided by
operating activities for the six months ended June 30, 1998
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was primarily the result of a reduction of accounts receivable and inventories
and net of increase use of cash for deposits for purchase of inventory. Net cash
used by investing activities for the six months ended June 30, 1998 was $200,000
as compared to $209,000 for the six months ended June 30, 1997. Net cash used by
investing activities for the six ended June 30, 1998 was the result of
repayments on the Company's credit agreement and it overdraft position at
December 31, 1997. For the six months ended June 30, 1997, net cash provided by
financing activities of $3,389,000, which was the result of increased borrowings
under the Company's credit facility and proceeds from the exercise of the
over-allotment option from the Company's initial public offering of $1,340,000.
The Company has incurred significant losses which have adversely impacted its
cash flow and liquidity. The Company currently does not have significant
borrowing availability under its existing credit facility or through many of its
vendors so as to able to maintain or expand the current level of its operations.
Under the Company's line of credit, the Company is prohibited from incurring
additional indebtedness, except for trade indebtedness. The lender that provides
the Company's current credit facility has reduced the maximum borrowings
permitted under that facility and may cancel the facility after October 31,
1998. The Company is seeking a replacement facility from another lending
institution and has received a letter of intent for such a facility from one
such lender. However, the letter of intent is subject to certain conditions and
there can be no assurance that additional financing will be available to the
Company on commercially reasonable terms, or at all, from either the foregoing
lender or any other party.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 10.11 Form of Amendment No. 3 to Loan and Security Agreement
Exhibit 10.12 Form of Waiver and Amendment No. 4 to Loan and Security
Agreement
Exhibit 27 Financial Data Schedule
(b) One Form 8-K (Item 4) was filed on May 27, 1998 and one Form 8-K/A (Item 4)
was filed on June 2, 1998
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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/ Ben Neman Dated: August 13, 1998
- --------------------------------
Ben Neman
President and Acting Chief Financial Officer
Page 12
AMENDMENT NO. 3 TO
LOAN AN) SECURITY AGREEMENT
THIS AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT ("Amendment") is
dated as of August 1, 1998 and is entered into by and between BankAmerica
Business Credit, Inc. ("Lender") and Intellicell Corp. ("Borrower"). All
capitalized terms used herein but not otherwise defined shall have the meanings
ascribed to them in the Agreement (as hereinafter defined).
WITNESSETH
WHEREAS, the Borrower and the Lender have entered into that certain Loan
and Security Agreement dated as of January 12, 1998, as amended and supplemented
(the "Agreement"); and
WHEREAS, the Borrower desires to amend the Agreement and the Lender is
willing to do so, subject to the terms and conditions stated herein; and
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Borrower and Lender hereby agree as follows:
Section 1. Amendment to the Agreement. The Lender and Borrower agree that
the Agreement shall be amended as follows:
A. Amendment to Section 1 The definition of "Availability" contained
in Section 1 of the Agreement is amended to read as follows:
"'Availability' means at any time the lesser of:
(a) The amount of One Million Five Hundred Thousand Dollars
($1,500,000), which shall be reduced to One Million Two Hundred
Thousand Dollars ($1,200,000) as of August 17, 1998 and which shall
be further reduced to One Million Dollars ($1,000,000) as of
September 1, 1998 (the "Maximum Revolving Credit Line") or
(b) The sum of
(i) up to eighty (80%) percent of the Net Amount of
Eligible Accounts, and
(ii) the lesser of
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a) the Maximum Inventory Loan or
b) up to fifty (50%) of the value of Eligible Inventory;
provided, however, that at all times Availability shall be reduced
by the sum of:
(a) the unpaid balance of Revolving Loans at that time;
(b) the aggregate undrawn face amount of all outstanding
Letters of Credit which the Lender has caused to be issued or
obtained for the Borrower's account;
(c) reserves for accrued interest on the Revolving Loans and
reserves for accounts payable 30 days or more past due date;
(d) the Environmental Compliance Reserve; and
(e) all other reserves which the Lender in its reasonable
discretion deems necessary or desirable to maintain with respect to
the Borrower's account, including, without limitation, with respect
to any amounts which the Lender may be obligated to pay in the
future for the account of the Borrower."
B. Amendment to Section 3. Section 3.6 of the Agreement is amended in its
entirety to read as follows:
"3.6 Extension Fee. The Borrower agrees to pay the Lender $10,000 on
August 1, 1998 and, in the event the Obligations are not paid in full
prior thereto, $15,000 on August 24, 1998, $15,000 on September 4, 1998,
and $25,000 on the first day of each month thereafter until the
Obligations are paid in full."
Section 2. Conditions. The effectiveness of this Amendment is subject to
the satisfaction of the following conditions precedent:
A. Amendment. Fully executed copies of this Amendment signed by the
Borrower.
B. Resolution. A certificate executed by the Secretary or Assistant
Secretary of Borrower certifying that the Borrower's Board of Directors
has adopted resolutions authorizing the execution, delivery and
performance by Borrower of the Amendment shall be delivered to Lender.
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C. Other Documents. Borrower shall have executed and delivered to
Lender such other documents and instruments as Lender may require.
Section 3. Miscellaneous.
A. Survival of Representations and Warranties. All representations
and warranties made in the Agreement or any other document or documents
relating thereto, including, without limitation, any Loan Document
furnished in connection with this Amendment, shall survive the execution
and delivery of this Amendment and the other Loan Documents, and no
investigation by Lender or any closing shall affect the representations
and warranties or the right of Lender to rely thereon.
B. Reference to Agreement. The Agreement, each of the Loan
Documents, and any and all other agreements, documents or instruments now
or hereafter executed and delivered pursuant to the terms hereof, or
pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference therein to the Agreement shall mean a
reference to the Agreement as amended hereby.
C. Agreement Remains in Effect. The Agreement and the Loan Documents
remain in full force and effect and the Borrower ratifies and confirms its
agreements and covenants contained therein.
D. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
E. APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
F. Successors and Assigns. This Amendment is binding upon and shall
inure to the benefit of Lender and Borrower and their respective
successors and assigns; provided, however, that Borrower may not assign or
transfer any of its rights or obligations hereunder without the prior
written consent of Lender.
G. Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and
the same instrument.
H. Headings. The headings, captions and arrangements used in this
-3-
<PAGE>
Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
I. Expenses of Lender. Borrower agrees to pay on demand (i) all
costs and expenses reasonably incurred by Lender in connection with the
preparation, negotiation and execution of this Amendment and the other
Loan Documents executed pursuant hereto and any and all subsequent
amendments, modifications, and supplements hereto or thereto, including,
without limitation, the costs and fees of Lender's legal counsel and the
allocated cost of Lender's in-house counsel and (ii) all costs and
expenses reasonably incurred by Lender in connection with the enforcement
or preservation of any rights under the Agreement, this Amendment and/or
other Loan Documents, including, without limitation, the costs and fees of
Lender's legal counsel and the allocated cost of Lender's in-house
counsel.
J. NO ORAL AGREEMENTS. THIS AMENDMENT, TOGETHER WITH THE OTHER LOAN
DOCUMENTS AS WRITTEN, REPRESENTS THE FINAL AGREEMENT BETWEEN LENDER AND
BORROWER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN LENDER AND BORROWER.
IN WITNESS WHEREOF, the parties have executed this Amendment under seal on
the date first written above.
INTELLICELL CORP.
/s/ Ben Newman
---------------------------
Signature
President
---------------------------
Title
BANKAMERICA BUSINESS CREDIT, INC.
---------------------------
Signature
---------------------------
Title
-4-
WAIVER AND AMENDMENT NO. 4 TO
LOAN AND SECURITY AGREEMENT
THIS WAIVER AND AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT
("Amendment") is dated as of August 12, 1998 and is entered into by and between
BankAmerica Business Credit, Inc. ("Lender") and Intellicell Corp. ("Borrower").
All capitalized terms used herein but not otherwise defined shall have the
meanings ascribed to them in the Agreement (as hereinafter defined).
WITNESSETH
WHEREAS, the Borrower and the Lender have entered into that certain Loan
and Security Agreement dated as of January 12, 1998, as amended and supplemented
(the "Agreement"); and
WHEREAS, an Events of Default has occurred under the Agreement; and
WHEREAS, the Borrower desires to have the Events of Default waived and to
amend the Agreement and the Lender is willing to do so, subject to the terms and
conditions stated herein; and
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Borrower and Lender hereby agree as follows:
Section 1. Waiver of Default. The Lender hereby waives the Events of
Default arising from the failure of the Borrower to comply with the minimum
Adjusted Tangible Net Worth requirement for the months ending April 30, 1998,
May 31, 1998 and June 30, 1998 as required by Section 10.23 of the Agreement and
the minimum EBITDA requirement for the months ending April 30, 1998, May 31,
1998 and June 30, 1998 as required by Section 10.22 of the Agreement. This
waiver is only applicable and shall only be effective for the specific
instances, for the specific purposes, and for the specific period for which
given. Such waiver is expressly limited to the facts and circumstances referred
to herein and shall not operate (a) as a waiver of or consent to non-compliance
with any other section of the Agreement or any other Loan Document, (b) as a
waiver of or a restriction on or prejudice with respect to, any right, power or
remedy of the Lender under the Agreement or any other Loan Document, or (c) as a
waiver of or consent to any other Event of Default or Event under the Agreement
or any other Loan Document.
Section 2. Amendment to the Agreement. The Lender and Borrower agree that
Section 14 the Agreement is amended in its entirety to read as follows:
"The initial term of this Agreement shall expire on October
31, 1998 ("Stated Termination Date") and shall automatically be
renewed thereafter for successive monthly terms unless the Agreement
is Terminated as
-1-
<PAGE>
provided below. Each of the Borrower and the Lender shall have the
right to terminate the Agreement, without premium or penalty, at the
end of the initial term or any monthly term by giving the other
written notice not less than ten (10) days prior to the end of such
initial or monthly term. The Lender may also terminate this
Agreement without notice upon and at any time during the
continuation of an Event of Default. Upon the effective date of
termination of this Agreement for any reason whatsoever, all
Obligations shall become immediately due and payable and Borrower
shall immediately arrange for the cancellation of Letters of Credit
then outstanding. Notwithstanding the termination of this Agreement,
until all Obligations are paid and performed in full, the Lender
shall retain all its rights and remedies hereunder (including,
without limitation, in all then existing and after-arising
Collateral)."
Section 3. Conditions. The effectiveness of this Amendment is subject to
the satisfaction of the following conditions precedent:
A. Amendment. Fully executed copies of this Amendment signed by the
Borrower.
B. Resolution. A certificate executed by the Secretary or Assistant
Secretary of Borrower certifying that the Borrower's Board of Directors
has adopted resolutions authorizing the execution, delivery and
performance by Borrower of the Amendment shall be delivered to Lender.
C. Other Documents. Borrower shall have executed and delivered to
Lender such other documents and instruments as Lender may require.
Section 4. Miscellaneous.
A. Survival of Representations and Warranties. All representations
and warranties made in the Agreement or any other document or documents
relating thereto, including, without limitation, any Loan Document
furnished in connection with this Amendment, shall survive the execution
and delivery of this Amendment and the other Loan Documents, and no
investigation by Lender or any closing shall affect the representations
and warranties or the right of Lender to rely thereon.
B. Reference to Agreement. The Agreement, each of the Loan
Documents, and any and all other agreements, documents or instruments now
or hereafter executed and delivered pursuant to the terms hereof, or
pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference therein to the Agreement shall mean a
reference to the Agreement as amended hereby.
-2-
<PAGE>
C. Agreement Remains in Effect. The Agreement and the Loan Documents
remain in full force and effect and the Borrower ratifies and confirms its
agreements and covenants contained therein.
D. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
E. APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
F. Successors and Assigns. This Amendment is binding upon and shall
inure to the benefit of Lender and Borrower and their respective
successors and assigns; provided, however, that Borrower may not assign or
transfer any of its rights or obligations hereunder without the prior
written consent of Lender.
G. Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and
the same instrument.
H. Headings. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
I. Expenses of Lender. Borrower agrees to pay or demand (i) all
costs and expenses reasonably incurred by Lender in connection with the
preparation, negotiation and execution of this Amendment and the other
Loan Documents executed pursuant hereto and any and all subsequent
amendments, modifications, and supplements hereto or thereto, including,
without limitation, the costs and fees of Lender's legal counsel and the
allocated cost of Lender's in-house counsel and (ii) all costs and
expenses reasonably incurred by Lender in connection with the enforcement
or preservation of any rights under the Agreement, this Amendment and/or
other Loan Documents, including, without limitation, the costs and fees of
Lender's legal counsel and the allocated cost of Lender's in house
counsel.
J. NO ORAL AGREEMENTS. THIS AMENDMENT, TOGETHER WITH THE OTHER LOAN
DOCUMENTS AS WRITTEN, REPRESENTS THE FINAL AGREEMENT BETWEEN LENDER AND
BORROWER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
-3-
<PAGE>
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN LENDER AND BORROWER.
IN WITNESS WHEREOF, the parties have executed this Amendment under seal on
the date first written above.
INTELLICELL CORP.
--------------------------------
Signature
--------------------------------
Title
BANKAMERICA BUSINESS CREDIT, INC.
--------------------------------
Signature
--------------------------------
Title
-4-
<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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 70,000
<SECURITIES> 0
<RECEIVABLES> 4,920,000
<ALLOWANCES> 1,994,000
<INVENTORY> 1,598,000
<CURRENT-ASSETS> 5,673,000
<PP&E> 584,000
<DEPRECIATION> 164,000
<TOTAL-ASSETS> 6,247,000
<CURRENT-LIABILITIES> 3,753,000
<BONDS> 0
0
0
<COMMON> 44,000
<OTHER-SE> 2,450,000
<TOTAL-LIABILITY-AND-EQUITY> 6,247,000
<SALES> 18,616,000
<TOTAL-REVENUES> 18,616,000
<CGS> 17,593,000
<TOTAL-COSTS> 17,593,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 163,000
<INCOME-PRETAX> (1,737,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,737,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,737,000)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
