UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(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, 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 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 April 30,1998 there were 4,415,902 shares of the registrant's Common Stock
outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Intellicell Corp.
Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ -- $ 353,000
Accounts receivable, net of allowance for doubtful
Accounts of $2,697,000 and $1,851,000 6,578,000 4,228,000
Inventories, net of reserve of $550,000 and $596,000 3,494,000 2,102,000
Notes receivable, net of allowance for doubtful
Notes of $739,000 and $1,521,000 195,000 43,000
Deposits for purchase of inventory 271,000 2,000
Prepaid expenses and other current assets 439,000 235,000
------------ ------------
Total current assets 10,977,000 6,963,000
------------ ------------
Property and equipment, net of accumulated
Depreciation of $98,000 and $129,000 286,000 509,000
Goodwill, net of accumulated amortization of
$23,000 and $26,000 77,000 74,000
Deferred financing costs, net of accumulated
Amortization of $288,000 and $9,000 -- 100,000
Other assets 74,000 74,000
------------ ------------
Total assets
$ 11,414,000 $ 7,721,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft $ 250,000 $ --
Revolving credit facility 3,402,000 2,885,000
Accounts payable 3,425,000 1,780,000
Accrued expenses 304,000 171,000
------------ ------------
Total current liabilities 7,381,000 4,796,000
------------ ------------
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 11,859,000
Accumulated deficit (7,803,000) (8,978,000)
------------ ------------
Total stockholders' equity 4,033,000 2,925,000
============ ============
Total liabilities and stockholders' equity $ 11,414,000 $ 7,721,000
============ ============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
Intellicell Corp.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the 3 Months Ended March 31,
1997 1998
------------ ------------
<S> <C> <C>
Net sales $ 21,782,000 $ 9,931,000
Cost of sales 20,490,000 9,557,000
Gross profit 1,292,000 374,000
Selling, general and administrative expenses 967,000 1,477,000
Non-recurring legal and auditing fees 900,000 --
------------ ------------
Loss from operations (575,000) (1,103,000)
Other income (expense):
Interest (67,000) (84,000)
Other Income 6,000 12,000
------------ ------------
Loss before income tax benefits (636,000) (1,175,000)
Income tax benefit 254,000 --
------------ ------------
Net loss $ (382,000) $ (1,175,000)
============ ============
Basic loss per share
$ (0.08) $ (0.27)
============ ============
Diluted loss per share
$ (0.08) $ (0.27)
============ ============
Weighted average number of common shares outstanding 4,507,464 4,415,902
============ ============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
Intellicell Corp.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the 3 Months Ended March 31,
--------------------------------
1997 1998
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (382,000) $ (1,175,000)
Adjustments to reconcile net loss to net cash
Provided by (used in) operating activities
Depreciation and amortization 42,000 47,000
Non Cash Compensation Expense -- 67,000
Provision for doubtful accounts receivable 19,000 18,000
Provision for inventory reserves 41,000 123,000
Provision for doubtful notes receivable -- (60,000)
Change in net deferred tax asset (255,000) --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (5,636,000) 2,234,000
(Increase) decrease in inventories (629,000) 1,269,000
(Increase) decrease in deposits for purchases of inventory (512,000) 269,000
(Increase) decrease in other receivables (229,000) --
(Increase) decrease in prepaid expenses and other current
assets 66,000 204,000
(Increase) decrease in other assets (1,000)
Increase (decrease) in accounts payable and accrued expenses 1,782,000 (1,818,000)
------------ ------------
Net cash provided by (used in) operating activities (5,694,000) 1,178,000
------------ ------------
Cash flows from investing activities:
Repayment of notes receivable 270,000 310,000
Acquisition of fixed assets (51,000) (259,000)
------------ ------------
Net cash provided by investing activities 219,000 51,000
------------ ------------
Cash flows from financing activities:
Bank overdraft (payments) 1,949,000 (250,000)
Deferred financing costs -- (109,000)
Advances under credit facility 17,852,000 14,324,000
Repayments under credit facility (15,667,000) (14,841,000)
Proceeds from the sale of common stock 1,341,000 --
------------ ------------
Net cash provided by (used in) financing activities 5,475,000 (876,000)
------------ ------------
Net increase in cash -- 353,000
Cash - beginning of period -- --
============ ============
Cash - end of period $ -- $ 353,000
============ ============
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 67,000 $ 84,000
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 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 ended March 31, 1998, 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, 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 $900,000 for the three months ended March 31,
1997 ($1,300,000 for the year ended December 31, 1997) consisting primarily of
professional fees, including the fees of its prior and current auditors, fees of
special counsel and a special auditor retained by the Company's Audit Committee.
Note 3. Credit Facility
In January 1998, the Company entered into a new 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 in the agreement. Borrowing under the
agreement beared 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
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<PAGE>
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 1998 revised agreement.
The Company was in violation of the tangible net worth covenant at March 31,
1998.
In May 1998, BankAmerica waived the March 31, 1998, default of the tangible net
worth covenant and revised the credit agreement. Under the most recent revised
credit agreement, the maximum borrowing has been reduced from $6 million to $4
million, with such borrowings limited to the sum of 80% of eligible accounts
receivable and the lesser of $750,000 (which shall be reduced by $75,000 per
week until this amount is zero) or 50% of eligible telephone inventory as
defined in the agreement. In addition, if obligations under the BankAmerica loan
have not been repaid by July 31, 1998, the Company will be obligated to pay an
extension fee of $50,000 on August 1, 1998 and subsequent monthly 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 May 1998
revised agreement.
Note 4. Commitments, Contingencies and Other Matters
Recent Termination/Resignation
On May 7, 1998, the Company's Vice President and Chief Financial Officer
tendered his resignation, which was accepted by the Company. The Company has
commenced a search for a suitable person for this critical position. The
Company's President is acting as the Company's interim chief financial officer
pending the Company's hiring of a new executive for this position.
On May 15, 1998, as part of its cost cutting strategy, the Company terminated
its Executive Vice President and Chief Operating Officer. The parties signed an
agreement at such time which, among other things, included mutual releases of
the parties. The Company does not intend on filling this vacancy at the present
time.
Miami Facility
As reported under Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations, the Company recently closed its Miami
facility. The Company is seeking to assign or sublet this facility and is in
current negotiations with a third party with respect to such arrangement. The
Company is also negotiating the sale of the furniture and fixtures at this
facility. As of March 31, 1998, future obligations of approximately $462,604
remained under the terms of the lease which was entered into in November 1997.
The net book value of the furniture and fixtures was $69,593 at March 31, 1998
and the leasehold improvements have a net book value of $42,805 as of such date.
While the Company is confident that it will be successful in finding a suitable
subtenant or assignee for the Miami facility, no assurance can be given in this
regard. In the event the Company is unable to find a suitable subtenant/assignee
or the landlord refuses to consent to such proposed subtenancy/assignment, the
Company would have to write
6
<PAGE>
off the leasehold improvements and accrue a loss on abandoned lease for the
remaining term of the lease.
Note 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 eachof Messrs. Sharma and
Henderson (outside directors of the Company) and to Sands Brothers & Co., Ltd.,
a financial advisor.
The Company accounted for these granted options to non-employees under the
provisions of SFAS 123, resulting in a fair value of $921,000 based on the Black
Scholes Option Pricing Model. The options vest in twelve months. Non-cash
compensation expense was recognized during the quarter ended March 31, 1998 in
the amount of $67,000.
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
The Company continues to incur significant losses. These losses are primarily
attributable to the Company not participating to a significant extent in
technological changes in the industry, not obtaining reliable sources of product
which are in demand, untimely purchases of product at disadvantaged prices and
in excess of demand resulting in sales at low margins, purchasing and holding
inventories in periods of market value decline, failing to establish a sales
organization capable of selling the product at an adequate gross profit and the
development of a meaningful customer base other than other distributors.
In March 1998, in response to such continuing losses, the Company reduced its
sales and administrative staff by 14 employees or 35%. In May 1998, the Company
terminated two additional employees at its Miami warehouse, effectively closing
this warehouse which was opened in December 1997, and shipped all unsold product
to its Chatsworth, California
7
<PAGE>
warehouse. The Company is seeking to assign or sublease the Miami premises and
is in negotiations with third parties with respect to such an assignment or
sublease. The Company is also seeking to sell furniture and fixtures and
leasehold improvements to the third party assuming obligations under the Miami
lease. There can be no assurance that the Company will be successful in
assigning/subletting this property and selling the assets at such property. See
"Item 1 - Financial Statements - Note 4 Commitments Contingencies and Other
Matters." On May 1, 1998, the Company entered into a sublease for approximately
one third of the warehouse and office space of its Chatsworth offices at rates
and on terms consistent with the Company's lease on such facility. In addition,
in May, 1998, as part of its cost-cutting strategy, the Company terminated its
Chief Operating Officer. The Company also accepted the resignation of its Chief
Financial Officer. The foregoing cuts will effect a significant reduction in
overhead costs and will significantly curtail and potentially bring its overhead
cost structure in line with its level of operations. No assurance can be given
in this regard however.
In March, 1998, the Company signed a non-exclusive distribution agreement with
Sony Electronics Inc. Wireless Communications Company ("Sony") pursuant to which
it distributes cellular telephones and accessories to carriers, agents and
retailers. Purchases from Sony are on a prepaid basis, The Company is in
negotiations with other manufacturers of digital cellular and PCS product. While
the Company has experienced an apparent demand for these products, there can be
no assurance that the Company will be able to obtain sufficient quantities
either because of lack of availability or a lack of resources to effect
purchases or that it will be able to sell such product at a high enough gross
profit to create a positive sustained impact for the Company.
Total assets at March 31, 1998, decreased by $3,693,000 or 32.4% from December
31, 1997, primarily as a result of a $2,350,000 or 35.7% decrease in accounts
receivable, a $1,392,000 or 39.8% decrease in inventories and a $269,000 or
99.3% decrease in deposits for purchases of inventory. The decrease in assets is
the result of reduced first quarter 1998 sales and purchases of product and is a
reflection of the reduced demand for the analog cellular product (phones and
accessories) the Company has in inventory and/or can obtain from its sources.
Sales for the three months ended March 31, 1998 were 50.1% less than sales for
the three months ended December 31, 1997 and 54.4% less than the sales for the
three months ended March 31, 1997.
Net assets (assets less liabilities) of the Company decreased by $1,108,000 or
27.5% from December 31, 1997, reflecting the net loss for the three months ended
March 31, 1998.
The Company's inventory reserve was $596,000 at March 31, 1998, or 22.1% 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 March 31, 1998 the Company has a deferred tax asset of $3,069,000
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.
8
<PAGE>
Total liabilities decreased by $2,585,000 or 35% from December 31, 1997 to March
31, 1998. This reduction is primarily composed of a $1,645,000 reduction in
accounts payable, a $517,000 reduction in borrowings under the revolving credit
facility and a $250,000 reduction in the bank overdraft balance at March 31,
1998 as compared to December 31, 1997. This reduction in liabilities is
associated with reduced levels of business activity during the first quarter of
1998.
Comparison of Operations
Net sales for the three months ended March 31, 1998, decreased $11,851,000, or
54.4%, from the comparable period of the prior year and decreased by $9,965,000
or 50.1% from the quarter ended December 31, 1997. The decrease in sales is the
result of both volume and price decreases. Comparison of the sales for the
quarter ended March 31, 1998 as compared to the comparable period of the prior
year indicate the following; phone unit sales decreased by 44,000 or 40% with an
average sales price reduction of 22.9% and accessory unit sales decreased by
138,000 or 59.3% at an average sales price reduction of 4.5%.
The Company has experienced and expects to continue to experience reduced demand
for its supplies of analog cellular phones and accessories. Supplies of digital
cellular and PCS phones are available to the Company in limited quantities, if
at all.
Gross profit decreased by $918,000 or 71.1%, for three months ended March 31
1998, from the prior comparable period. As a percentage of sales, gross profit
for the three months ended March 31, 1997 and 1998 was 5.9% and 3.8%
respectively. The decrease in gross profit as a percentage of sales was
primarily the result of a 2% increase in the direct cost of product as a
percentage of net sales and is reflective of lower margins on accessory sales.
The decreased profitability on accessory sales is reflective of decreased demand
for analog product. The Company's current inventory and sources of supply are
predominately analog and as such the Company is experiencing significant profit
deterioration.
Selling, general and administrative expenses increased by $443,000, or 45.8%,
from the three months ended March 31, 1997 to the three months ended March 31,
1998. As a percentage of sales, such expenses were 4.4% and 14.7% for the three
months ended March 31, 1997 and 1998, respectively. The above mentioned increase
in expenses over those of the comparable period of the prior fiscal year are as
follows: computer system repair and maintenance, $166,000; legal and auditing
fees of $159,000 of which $48,000 is associated with an abandoned acquisition of
Wholesale Cellular de Latina; increased payroll and payroll related costs in all
areas aggregating approximately $138,000; and operating and payroll expenses of
$112,000 associated with the Miami warehouse which began operations in November
1997.
The Company incurred a loss from operations of $1,103,000 and a net loss of
$1,175,000 for the three months ended March 31, 1998, as compared to a loss from
operations of $575,000 and a net loss of $382,000, for the three months ended
March 31, 1997. The loss from operations for the first quarter of 1997 included
a non-recurring charge of $900,000 for legal and auditing fees associated with
the fiscal year end 1996 audit. Excluding this non-recurring charge the
operating results would have been a profit of $325,000. The net loss for the
quarter ended March 31, 1997 was net of a income tax benefit of $254,000.
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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
March 31, 1998 was $2,167,000 compared to working capital of $3,596,000 at
December 31, 1997. This decrease in working capital reflects the losses
sustained by the Company and the use of working capital for property and
equipment additions for its new Chatsworth and Miami facilities and the fees and
expenditures capitalized as deferred financing costs associated with the
entering into the new bank credit facility.
Net cash provided by operating activities was $1,178,000 for the three months
ended March 31, 1998 as compared to net cash used in operating activities of
$5,694,000 for the three months ended March 31, 1997. The cash provided by
operating activities for the three months ended March 31, 1998 was primarily the
result of a reduction of accounts receivable, inventories and deposits for
purchase of inventory which exceeded uses of cash represented by reduced
accounts payable and accrued expenses and the net loss for the period. Net cash
provided by investing activities for the three months ended March 31, 1998 was
$51,000 as compared to $219,000 for the three months ended March 31, 1997. Net
cash provided by investing activities for the three months ended March 31, 1998
was the result of payments received on notes receivable in excess of additions
to fixed assets. For the three months ended March 31, 1998, net cash used in
financing activities was $876,000 as compared to $5,475,000 of net cash provided
by financing activities for the three months ended March 31, 1997. The net cash
used in financing activities was the result of increased borrowings under the
Company's credit facility, the decrease in bank overdraft and the incurring of
deferred financing costs with the entering into a new credit facility in January
1998. The cash provided by financing activities for the three months ended March
31, 1997 were primarily attributable to the net proceeds from the exercise of
the Over-allotment Option of $1,340,000.
The Company has incurred significant losses which have negatively impacted its
cash flow and liquidity. The Company currently does not have significant
borrowing availability under its credit facility. Under the Company's line of
credit, the Company is prohibited from incurring additional indebtedness, except
for trade indebtedness. There can be no assurance that additional financing will
be available to the Company on commercially reasonable terms, or at all.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 10.11 Form of Waiver and Amendment No. 2 to Loan and
Security Agreement
Exhibit 27 Financial Data Schedule
(b) No Reports on Form 8-K were filed during the three months ended
March 31, 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: May 19, 1998
Ben Neman
Acting Chief Financial Officer
WAIVER AND AMENDMENT NO. 2 TO
LOAN AND SECURITY AGREEMENT
This WAIVER AND AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT'
("Amendment") is dated as of May 19, 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 Event of Default has occurred under the Agreement; and
WHEREAS, the Borrower desires to have the Event 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 Event of
Default arising from the failure of the Borrower to comply with the minimum
Adjusted Tangible Net Worth requirement for the month ending March 31, 1998 as
required by Section 10.23 of the Agreement. This waiver is only applicable and
shall only be effective for the specific instance, for the specific purpose, 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 noncompliance 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
the
<PAGE>
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 Four Million and 00/100 Dollars ($4,000,000.00)
(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
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 Section1. Section 1 of the Agreement is amended by adding
a new definition to read as follows:
Maximum Inventory Loan" means $750,000 as of May 19, 1998 and shall
be reduced by $75,000 on each subsequent Monday until the Maximum
Inventory Loan is zero.
C. Amendment to Section 3. Section 3 of the Agreement is amended by adding
a new Section 3.6 to read as follows:
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3.6 Extension Fee. In the event the Obligations are not paid in full
by July 31, 1998. the Borrower agrees to pay the Lender $50,000 on August
1, 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.
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
3
<PAGE>
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.
13. 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 0F 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. 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 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
4
<PAGE>
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITFEN 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
5
<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-31-1998
<CASH> 353,000
<SECURITIES> 0
<RECEIVABLES> 6,079,000
<ALLOWANCES> 1,851,000
<INVENTORY> 2,102,000
<CURRENT-ASSETS> 6,963,000
<PP&E> 638,000
<DEPRECIATION> 129,000
<TOTAL-ASSETS> 7,721,000
<CURRENT-LIABILITIES> 4,796,000
<BONDS> 0
0
0
<COMMON> 44,000
<OTHER-SE> 2,881,000
<TOTAL-LIABILITY-AND-EQUITY> 7,721,000
<SALES> 9,931,000
<TOTAL-REVENUES> 9,931,000
<CGS> 9,557,000
<TOTAL-COSTS> 9,557,000
<OTHER-EXPENSES> 1,410,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,000
<INCOME-PRETAX> (1,175,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,175,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,175,000)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
