FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO 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
Commission file number 0-14306
INTERCELL CORPORATION
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(Exact name of registrant as specified in its charter)
Colorado 84-0928627
- ------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S employer identification number)
incorporation or organization
999 West Hastings Street, Suite 1750
Vancouver, B.C., Canada, V6C 2W2
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 684-1533
No Change
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(Former name, former address or former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No __
As of April 25, 1997 there were 18,472,606 shares of the registrant's sole class
of common shares, 111 Class B Preferred Shares and 525 Series C Preferred Shares
outstanding.
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INTERCELL CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1997 and September 30, 1996 1
Condensed Consolidated Statement of Operations
For the Three Months Ended March 31, 1997 and 1996
and the Six Months Ended March 31, 1997 and 1996 2
Condensed Consolidated Statement of Cash Flows
For the Six Months Ended March 31, 1997 and 1996 3
Notes to Condensed Consolidated Financial Statements
March 31, 1997 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERCELL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)
March 31, 1997 September 30, 1996
ASSETS -------------- ------------------
------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 7,029,000 $ 4,224,000
Short term investments - 3,063,000
Accounts receivable, net 967,000 746,000
Inventories 1,398,000 1,066,000
Prepaid expenses and other current assets 137,000 102,000
Investment land held for sale 1,424,000 1,424,000
---------- ----------
Total current assets 10,955,000 10,625,000
Property, plant and equipment, net 2,248,000 1,418,000
Goodwill and other intangible assets, net 1,438,000 1,583,000
Other assets 54,000 200,000
---------- ----------
$ 14,695,000 $ 13,826,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Note payable $ - $ 266,000
Notes payable to related parties - 932,000
Current portion of long-term debt - 120,000
Accounts payable and accrued liabilities 868,000 742,000
---------- ----------
Total current liabilities 868,000 2,060,000
Long term debt, less current portion - 86,000
---------- ----------
Total liabilities 868,000 2,146,000
---------- ----------
Commitments
Stockholders' equity:
Convertible preferred stock: 10,000,000 shares authorized
Series B; 186 and 787 issued and outstanding as of March 31, 1997
and September 30, 1996 respectively 1,308,000 5,533,000
Series C; 525 issued and outstanding as of March 31, 1997 3,492,000 -
Warrants to acquire common stock 3,051,000 1,870,000
Common stock; no par value; 100,000,000 shares authorized
18,019,508 and 15,734,229 shares outstanding as of March 31, 1997
and September 30, 1996 respectively 17,135,000 12,187,000
Deferred compensation ( 199,000) ( 331,000)
Accumulated deficit (10,960,000) ( 7,579,000)
---------- ----------
Total stockholders' equity 13,827,000 11,680,000
---------- ----------
$ 14,695,000 $ 13,826,000
========== ==========
See accompanying notes to condensed consolidated financial statements.
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INTERCELL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Operations
(Unaudited)
Three Months Ended Six Months Ended
March 31 March 31
---------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 1,849,000 $ 773,000 $ 3,448,000 $ 1,626,000
Cost of goods sold 1,298,000 779,000 2,441,000 1,350,000
----------- ----------- ----------- -----------
Gross profit 551,000 ( 6,000) 1,007,000 276,000
Selling, general and administrative expenses 1,226,000 1,119,000 3,290,000 1,660,000
Research and development 815,000 20,000 1,189,000 32,000
----------- ----------- ----------- -----------
Operating loss ( 1,490,000) ( 1,145,000) ( 3,472,000) ( 1,416,000)
Other income (expense) 31,000 20,000 91,000 -
---------- ----------- ----------- -----------
Loss before income taxes ( 1,459,000) ( 1,125,000) ( 3,381,000) ( 1,416,000)
Income taxes - - - -
---------- ----------- ----------- -----------
Net loss $( 1,459,000) $( 1,125,000) ( 3,381,000) ( 1,416,000)
Deemed Preferred Stock Dividend relating to
in-the-money conversion terms 496,000 - 717,000 -
Accretion on Preferred Stock 155,000 - 295,000 -
---------- ---------- ----------- ----------
Net loss applicable to common stockholders $( 2,110,000) $( 1,125,000) $( 4,393,000) $( 1,416,000)
=========== =========== =========== ===========
Net loss per common share $( 0.12) $( 0.09) $( 0.26) $( 0.12)
=========== =========== =========== ==========
Weighted average number of shares of
common stock outstanding 17,789,405 12,096,054 16,996,221 12,145,428
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
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<CAPTION>
INTERCELL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
March 31
--------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss $( 3,381,000) $( 1,416,000)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 277,000 24,000
Amortization of deferred compensation 662,000 897,000
Common stock issued for interest 43,000 -
Changes in operating assets and liabilities
Accounts receivable ( 221,000) 186,000
Inventory ( 332,000) ( 143,000)
Prepaid expenses ( 35,000) 7,000
Current liabilities 126,000 87,000
----------- -----------
Net cash used in operating activities ( 2,861,000) ( 358,000)
----------- ----------
Cash flows from investing activities
Proceeds from maturities of short-term investments 3,063,000 -
Acquisition of property, plant and equipment ( 962,000) ( 20,000)
Other assets 146,000 -
----------- -----------
Net cash provided by (used in) investing activities 2,247,000 ( 20,000)
----------- -----------
Cash flows from financing activities
Proceeds from issuance of common stock 150,000 360,000
Proceeds from issuance of Series C preferred stock and warrants 4,673,000 -
Repayments of notes payable ( 1,198,000) ( 1,000)
Repayment of long term debt ( 206,000) -
----------- -----------
Net cash provided by financing activities 3,419,000 359,000
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,805,000 ( 19,000)
Cash and cash equivalents at beginning of period 4,224,000 57,000
----------- -----------
Cash and cash equivalents at end of period $ 7,029,000 $ 38,000
=========== ===========
Cash paid during the period for interest $ - $ 25,000
=========== ===========
Non-cash investing and financing activities
Series B preferred stock converted to common stock $ 4,225,000 $ -
=========== ===========
Transfer of stock options from principal shareholders to
Company officer $ 530,000 $ -
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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INTERCELL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Intercell Corporation and its wholly-owned subsidiaries (the
"Company"). All intercompany transactions have been eliminated.
The condensed consolidated financial statements are unaudited (except
for the balance sheet information as of September 30, 1996, which is
derived from the Company's audited financial statements) and reflect
all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of
the financial position and operating results for the periods presented.
The condensed consolidated financial statements should be read in
conjunction with the September 30, 1996 audited financial statements of
Intercell Corporation and the notes thereto. The results of operations
for the three months and six months ended March 31, 1997 are not
necessarily indicative of the results for the entire year ended
September 30, 1997, or any future period.
2. NET LOSS PER SHARE
Net loss applicable to common stockholders is computed by dividing the
sum of net loss, deemed preferred stock dividends and accretion on
preferred stock by the weighted average number of common shares and
dilutive common equivalent shares outstanding for each period
presented. Common stock equivalent shares consist of stock options and
are computed using the treasury stock method.
3. INVENTORIES
Inventories consist of: March 31, 1997 September 30, 1996
-------------- ------------------
Raw materials $ 594,000 $ 422,000
Work in process 612,000 453,000
Finished goods 192,000 191,000
---------- ----------
$ 1,398,000 $ 1,066,000
========= =========
4. SERIES C PREFERRED SHARES
In December 1996, the Company issued 525 shares of no par value Series
C preferred stock (Series C preferred) and detachable warrants in a
private placement for $4,672,500 (net of issuance costs of $577,500).
Each share of Series C preferred is convertible into common stock at
the exchange rate in effect at the time of the conversion, as described
in the preferred stock agreements, and is subject to appropriate
adjustment for common stock splits, stock dividends, and other similar
transactions. Conversion of the Series C preferred is automatic upon
the expiration of three years from the original date of issuance. At
the date of issuance, the exchange rate was less than the prevailing
market rate, resulting in a deemed dividend of $932,000, of which
$81,000 and $496,000 has been recognized on a pro rata basis in the
first and second quarters of the 1997 fiscal year respectively. The
Series C preferred are junior to the Company's Series B preferred
shares and contain a liquidation preference equal to the original issue
price plus 8% of the original issue price per annum to the date of
liquidation. Series C preferred shares are not entitled to voting
rights.
Shares of Series C preferred purchased in excess of certain quantities
as described in the preferred stock agreements, or purchased in
addition to previous purchases of Series B preferred shares are
accompanied by detachable warrants to purchase a number of shares of
common stock of the Company equal to between 20% and 50% of the
original aggregate purchase price of the Series C preferred shares
divided by a fixed conversion rate of $3.25 per share, exercisable 105
days after original issuance.
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5. Recent Accounting Pronouncements
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share".
SFAS No. 128 requires the presentation of basic earnings per share
("EPS") and, for companies with complex capital structures, diluted
EPS. SFAS No. 128 is effective for annual and interim periods ending
after December 31, 1997. Adoption of SFAS No. 128 is not expected to
have a material impact on net loss per common share as presented in
the accompanying consolidated statements of operations.
5
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto, and with the
Company's audited consolidated financial statements and notes thereto for the
year ended September 30, 1996. This report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 31E of the Securities Exchange Act of 1934, as amended. Actual results
could differ materially from those anticipated in forward-looking statements.
The Company is currently engaged in three lines of business: (i) the manufacture
and rebuilding of specialty electron power tubes; (ii) the design, development
and production of shielded cellular phone antennas that use the Company's
proprietary antenna technology (the "Antenna Technology") as well as the
manufacture of miniature and subminiature coils, transformers and other
electronic assemblies; and (iii) the design, development and production of
patented particle interconnect products that use the Company's patented particle
interconnect technology (the "PI Technology") and a proprietary trade secret
electroplating process (the "Proprietary Electroplating Process").
The Company's operations are conducted by and through its wholly owned
subsidiaries, California Tube Laboratory, Inc. ("CTL"), Cellular Magnetics, Inc.
("Cellular Magnetics"), Intercell Wireless Corp. , and Particle Interconnect
Corporation ("PI Corp.").
CTL is a manufacturer and rebuilder of a wide variety of electron power tubes.
Currently, CTL provides rebuilt and new electron tubes to a wide variety of
customers who use microwave technology in various types of applications,
including AM and VHF radio, television, linear accelerators, radar, electron
guns and industrial microwave and heating use.
The Company has the rights to certain patent applications relating to the
Antenna Technology that the Company jointly developed with the
Telecommunications Research Center at Arizona State University ("ASU"). The
Antenna Technology is designed to reduce actual or perceived health hazards that
may be associated with exposure to electromagnetic signals by using a "shielded"
antenna. The Antenna Technology has been tested in working prototypes in
cellular phones by ASU. These tests indicated a significant reduction in
radiation emissions caused by wireless devices, and cellular phones in
particular. The tests also indicated several other benefits, including increased
range and reception, and improved battery life.
In September, 1996, the Company formed a wholly owned subsidiary, Cellular
Magnetics, which acquired all the assets and liabilities of M.C. Davis Company
("M.C. Davis") in exchange for 277,778 shares of Common Stock valued at
$1,000,000 and $800,000 in cash. This acquisition, accounted for by the purchase
method of accounting, provides the Company with both a facility for the
immediate production of its Antenna Technology and an established manufacturing
facility. The Company has continued to produce the miniature and subminiature
electronic components previously produced by M.C. Davis and does not anticipate
that the production of the Antenna Technology will significantly impact its
ability to manufacture these electronic assemblies.
In September, 1996, the Company formed a wholly owned subsidiary, PI Corp.,
which merged with Particle Interconnect, Inc., a California corporation
("Particle California"). The Company exchanged 1,400,000 shares of Common Stock
for all of the outstanding stock of Particle California. The transaction was
accounted for as an immaterial pooling-of-interest as the prior operations of
Particle California are not material to the Company's consolidated financial
position, results of operations or cash flows. From the date of the merger, PI
Corp. has been engaged primarily in the construction of production capabilities
at its plant and the continuing development of the PI Technology. PI Corp.
expects to commence commercial production of Particle Interconnect Products in
1997.
As the Antenna Technology and the PI Technology are in the development stage,
the Company does not anticipate operating revenues from such lines of business
until such time, if ever, as products developed using the Antenna Technology and
PI Technology are completed, developed, manufactured in commercial quantities,
available for commercial delivery, and accepted in the market place.
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The Company believes that a significant requirement for introducing products
utilizing both the Antenna Technology and the PI Technology into the market will
be entering into joint venture, co-manufacturing, licensing or other similar
arrangements with existing manufacturers or distributors in these fields.
On July 7, 1996, the Company completed an offering pursuant to Regulation S
under the Securities Act (the "Regulation S Offering") of 1,000 shares of its
Series B Preferred Stock, with attached warrants, pursuant to which it received
net proceeds of $8,900,000. The Series B Preferred Stock is convertible into
Common Stock at the exchange rate in effect at the date of conversion, as
described in the preferred stock agreements. At the date of issuance, the
exchange rate was equal to 85% of the then prevailing market rate, resulting in
a deemed dividend of $1,765,000. The Company recognized on a pro rata basis
$1,625,000 of the dividend in its fiscal 1996 net loss per common share
calculation and the balance of $140,000 in the first quarter of the 1997 fiscal
year.
To further improve the Company's working capital position, the Company completed
an offering pursuant to Regulation D to institutional investors on December 15,
1996, of 525 shares of its Series C Preferred Stock, with attached warrants,
pursuant to which it received net proceeds of $4,672,500. The Series C Preferred
Stock is convertible into Common stock at the exchange rate in effect at the
date of conversion, as described in the preferred stock agreements. At the date
of issuance, the exchange rate was less than the prevailing market rate,
resulting in a deemed dividend of $932,000, of which $81,000 and $496,000 has
been recognized on a pro rata basis in the first and second quarters of the 1997
fiscal year respectively.
RESULTS OF OPERATIONS
REVENUES:
Total revenues in the second quarter of 1997 were $1,849,000 and represented a
139% increase over the second quarter revenues in the prior fiscal year. Total
revenues in the six months ended March 31, 1997 were $3,448,000, a 112% increase
over revenues in the six month period ending March 31, 1996. These increases in
revenue were primarily attributable to the inclusion of revenues from the
Company's new electronic components operations of $536,000 and $510,000 in the
first and second quarters of the 1997 fiscal year respectively and a $211,000
and $565,000 increase in first and second quarter sales of electron tube
products in the current fiscal year over the first and second quarter sales of
the prior fiscal year.
In September, 1996, the Company, through its wholly-owned subsidiary Cellular
Magnetics merged with AC Magnetics, Inc. doing business as M.C. Davis. M.C.
Davis was acquired by the Company to provide industrial engineering and
production capabilities for the Company's antenna technology. M.C. Davis has
production facilities located in Arizona City, Arizona and Sonora, Mexico, and
has been engaged in the production of miniature and subminiature electronic
components since 1968. The 1997 fiscal year represents the first year in which
the results of the Company's new electronic components operations have been
consolidated with the Company's.
Sales of electron tube products increased by 57% in the second quarter of 1997
compared to the second quarter of 1996 and by 48% in the first six months of
1997 compared to the first six months of the 1996 fiscal year. This increase was
primarily due to new defense related contracts entered into in the final quarter
of the 1996 fiscal year for which production did not begin until the first and
second quarters of the 1997 fiscal year. The Company anticipates that sales
under these contracts will continue for the remainder of the year at the rate
experienced in the second quarter of the 1997 fiscal year. The balance of the
Company's operations have remained stable in the first six months of 1997
compared to the first six months of the 1996 fiscal year.
GROSS PROFITS
Gross profits were 30% in the three months ended March 31, 1997 fiscal year
compared with -1% in the second quarter of the 1996 fiscal year. For the six
months ended March 31, 1997 gross profits were 29% compared to 17% for the six
months ended March 31, 1996. This increase in margins over the 1996 comparative
periods was primarily attributable to higher margins experienced on the sale of
electronic components, and on development contracts for new electron tube
products. In addition, the defense contracts entered into in the fourth quarter
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of 1996 are primarily for the rebuild of electron tube products which generally
carry higher margins than the manufacture and sale of new electron tube
products.
RESEARCH AND DEVELOPMENT
Research and development expenses increased to $815,000 in the second quarter of
fiscal 1997 compared to $20,000 in the second quarter of fiscal 1996 and to
$1,189,000 in the six months ended March 31, 1997 compared to $32,000 in the six
months ended March 31, 1996. This increase was primarily attributable to
research and development activities incurred in connection with the Company's
new PI Technology ($615,000 and $956,000 in the three month and six month
periods ended March 31, 1997 respectively) as the Company commenced design,
assembly and testing of its production line and continued testing of the
technology. In addition, the Company continued its developmental work on its
antenna technology ($200,000 and $233,000 in the three month and six month
periods ended March 31, 1997 respectively) in conjunction with Arizona State
University.
GENERAL, SELLING AND ADMINISTRATIVE
General, selling and administrative expenses increased by 10% to $1,226,000 in
the second quarter of 1997 compared to $1,119,000 in the second quarter of the
1996 fiscal year. For the six months ended March 31, 1997, general selling and
administrative expenses increased by 98% to $3,290,000 compared to $1,660,000 in
the six months ended March 31, 1996. This increase was primarily attributable to
the inclusion of compensation recognized on the transfer of stock options from
three principal shareholders to an officer and director of the Company
($530,000) in the first quarter of the 1997 fiscal year, additional legal and
accounting costs in the 1997 fiscal year related to the filing of a Registration
Statement on Form S-1 in January, 1997, and the inclusion of general, selling
and administrative expenses for the Company's new electronic components and
cellular antenna operations and particle interconnect operations for the first
time in the 1997 fiscal year.
OTHER INCOME/EXPENSE
Other income/expense includes $64,000 in interest income earned on its cash and
short term investments in the second quarter of the 1997 fiscal year and
$162,000 in the six months ended March 31, 1997. In the first six months of the
1996 fiscal year, the amount of interest income earned by the Company was
insignificant. The remaining balance of other income/expense is comprised of
miscellaneous expense accruals.
INCOME TAXES
As of March 31, 1997 the Company had a net operating loss carryover for federal
and California income tax purposes. The benefit of these net operating loss
carryforwards has not been recorded by the Company as it is uncertain that the
Company will generate sufficient income in future periods to utilize the loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended March 31, 1997, cash and cash equivalents increased
by $2,805,000. Net cash used in operations was $2,861,000, due primarily to an
operating loss of $3,381,000 and increases in accounts receivable of $221,000
and inventories of $332,000, partially offset by depreciation and amortization
of $277,000, amortization of deferred compensation of $662,000 and an increase
in current liabilities of $126,000. Net cash provided by investments was
$2,247,000 due primarily to the maturity of short-term investments and the
disposition of other assets, offset by the acquisition of property, plant and
equipment. Net cash provided by financing activities was $3,419,000. This was
due primarily to net proceeds of $4,673,000 from the private placement of 525
Series C Preferred Shares and warrants in December, 1996. A portion of these
proceeds were used to pay off liabilities of $1,198,000 assumed on the
acquisition of PI Corp. and M.C. Davis and to repay long-term debt of $206,000.
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In the 1997 fiscal year, the Company intends to make capital expenditures of
approximately $1,700,000. These expenditures will be made on the Company's new
manufacturing facility in Watsonville, California, establishing the Company's
initial full production line and facility using its PI Technology in Colorado
Springs, Colorado and purchasing new equipment for the Company's manufacturing
plants in Arizona City, Arizona and Sonora, Mexico in connection with the
manufacture of the Antenna Systems. In the second quarter of fiscal 1997,
capital expenditures totaled $672,000.
The Company believes that current and known future capital resources will be
adequate to fund its operations over the next 12 months. The Company also
believes that sales of its Antenna Systems and Particle Interconnect Products,
both anticipated to commence in the 1997 fiscal year, in combination with the
sales of the electronic assemblies of Cellular Magnetics and electron tube
products of CTL will provide sufficient funds to meet the Company's capital
requirements for the next two years. This assumption is based on the Company's
belief that it will be successful in entering into a joint venture,
co-manufacturing, licensing or other similar arrangement with existing connector
manufacturers (with respect to the manufacture of Particle Interconnect
Products) and with existing manufacturers of the internal components for
cellular phones or cellular service providers (with respect to the Antenna
Systems). The failure to enter into such relationships could result in the
Company requiring substantial additional capital and resources to bring the
Particle Interconnect Products and its Antenna Systems to market.
To the extent the Company's operations are not sufficient to fund the Company's
capital requirements, the Company may enter into a revolving loan agreement with
a financial institution, or attempt to raise additional capital through the sale
of additional capital stock or through the issuance of debt. At the present time
the Company does not have a revolving loan agreement with any financial
institution nor can the Company provide any assurances that it will be able to
enter into any such agreement in the future or be able to raise funds through
the issuance of debt or equity in the Company.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was notified of a potential litigation matter (the "Complaint") that
was to be filed by American Microcell Corp. ("AMC") and MicroAntenna, Inc.
(collectively, "Plaintiffs") against, among others, the Company, Terry Neild, a
director and Executive Vice President of the Company, and Lucius Ross, a
consultant to the Company, in Superior Court of Maricopa County, No. CV 96-___.
The Complaint alleged that Messrs. Ross and Neild, former directors of
Plaintiffs, breached their fiduciary duties to Plaintiffs by appropriating a
corporate opportunity, the acquisition of the Antenna Technology, of Plaintiffs
for their personal benefit and the benefit of the Company. The Complaint
requests both compensatory damages, an assignment of all rights to the Antenna
Technology and a lien or constructive trust on the Antenna Technology and all
proceeds therefrom.
The Company agreed to settle this matter through the payment of $40,000 to the
Plaintiffs, which amount was paid subsequent to March 31, 1997.
Subsequent to the date of the Company's acquisition of Particle California, the
Company became aware of a purported assignment on February 14, 1991 of a
one-half interest, title and right to the then patent application, which is now
U.S. Patent No. 5,083,697 (a basic patent underlying the PI Technology) made by
Louis Difrancesco, the inventor of the PI Technology, to Mr. Kenneth Bahl. Based
upon documentation the Company has been able to obtain to date, the Company
believes the assignment was given in consideration of the formation of a
business that was never formed and, thus, the assignment appears to be invalid
due to a failure of consideration and appears to be voidable for failure of
performance. Mr. Bahl may have licensed at least one company, PI Materials,
Inc., to practice the inventions that are the subject of the assignment. To the
extent the assignment is valid, Mr. Bahl would have a one-half interest in
certain patents based on the PI Technology. Any future activity by Mr. Bahl
including assignment, sale or license of these patents by Mr. Bahl to other
persons or entities could materially adversely affect the Company's business,
financial conditions and results of operations. The Company is currently
vigorously pursuing a resolution to this matter, including the possibility of
initiating all legal remedies available to it to obtain the full and
unconditional rights to the PI Technology.
Other than the complaint, no material legal proceedings (other than routine
litigation incidental to the business) to which the Company (or any officer or
director of the Company, or any affiliate or owners of record or beneficially of
more than 5% of the common stock) to management's knowledge, is a party or to
which the property of the Company is subject, is pending and no such material
proceedings are known by management of the Company to be contemplated.
ITEM 2. CHANGES IN SECURITIES
On December 16, 1996, the Company completed an offering of 525 shares of Series
C Preferred Stock (the "Series C Preferred Stock"). Each share of Series C
Preferred Stock is convertible at the option of the holder into Common Stock as
described below during the following period: (i) up to 20% of the Series C
Preferred Stock initially issued to the holder at any time on and after April
15, 1997; and (ii) an additional 20% per month on the 15th day of each month
thereafter; provided, however, that the holder of the Series C Preferred Stock
may not convert more than 25% of the aggregate Series C Preferred Stock
initially issued to such holder in any given one month period beginning April
15, 1997 and ending on April 15, 1998.
In general, each share of Series C Preferred Stock is convertible into shares of
Common Stock pursuant to the following formula (the Conversion Formula") (800) x
(N/365) + 10,000/Conversion Price (with N being the number of days that have
expired between the date of conversion and December 16, 1996, and the
"Conversion Price" being the lessor of: $3.25 (the "Fixed Conversion Price") or
85% of average closing bid price (the "Closing Bid Price") of the Common Stock
for the five trading days immediately preceding the date of conversion (the
"Variable Conversion Price")). If at the time of conversion the Variable
Conversion Price is less than the Fixed Conversion Price, the Company may elect,
in its sole discretion, to redeem the shares of Series C Preferred Stock offered
for conversion in an amount equal to $10,000 x 117.60%.
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The Company also has the right to redeem the Series C Preferred Stock on or
after December 16, 1997, provided the Company purchases at least $1,500,000 of
Series C Preferred Stock (based on the Original Issuance Price defined below)
for a price equal to 130% of the Original Issuance Price for the first 18
months. For each six months thereafter, the redemption percentage decreases by
5% until the expiration of three years.
Each share of Series C Preferred Stock outstanding at December 16, 1999,
automatically shall either be converted in accordance with the Conversion
Formula or the Original Issuance Price plus an accrued premium of 8% per year
(the "Accrued Premium").
The holders of the Series C Preferred Stock are not entitled to receive
dividends and shall have no voting power, except as otherwise provided by the
Colorado Business Corporation Act (which generally provides voting rights for
any action that directly adversely affects the rights of the holders of the
Series C Preferred Stock). In the event of any liquidation, dissolution or
winding up of the Company (a "Liquidation Event"), the holders of Series C
Preferred Stock shall be entitled to receive, after any distribution to the
holders of the Series B Preferred Stock and other senior securities, if any, and
prior to any Distribution to any junior securities (including holders of Common
Stock) the sum of $10,000 (the "Original Issue Price") and the Accrued Premium.
At the option of each holder of Series C Preferred Stock, a sale, conveyance or
disposition of substantially all of the assets of the Company or the
effectuation by the Company of a transaction, or series of transactions, in
which more than 50% of the voting power of the Company is disposed of, will
generally be deemed to be a Liquidation Event.
So long as the shares of Series C Preferred Stock are outstanding, the Company
may not, without the written approval of the holders of at least 75% of the then
outstanding shares of Series C Preferred Stock (i) alter or change the rights,
preferences or privileges of the Series C Preferred Stock or any senior
securities, if any that would adversely effect the holders of the Series C
Preferred Stock; (ii) create any class or series of capital stock having a
preference over or on parity with the series C Preferred Stock with respect to
Distributions; (iii) cause the holders of the Series C Preferred Stock to be
taxed under Section 305 of the Internal Revenue Code; or (iv) issue any
additional shares of Series C Preferred Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit 11.1: Statement of computation of earnings per share.
Exhibit 27: Financial Data Schedule
(b) Reports:
No reports on Form 8-K were filed during the quarter ended
March 31, 1997
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTERCELL CORPORATION
(Registrant)
/s/ Gordon Sales
Date: May 13, 1997 By: _______________________________________
Gordon Sales, President and Chief
Executive Officer
/s/ Alan Smith
Date: May 13, 1997 By: ________________________________________
Alan Smith, Secretary and Chief
Financial Officer
12
Exhibit 11.1
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Six Months Ended
March 31 March 31
---------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net loss $( 1,459,000) $( 1,125,000) ( 3,381,000) ( 1,416,000)
Deemed Preferred Stock Dividend relating to
in-the-money conversion terms 496,000 - 717,000 -
Accretion on Preferred Stock 155,000 - 295,000 -
---------- ---------- ----------- ----------
Net loss applicable to common stockholders $( 2,110,000) $( 1,125,000) $( 4,393,000) $( 1,416,000)
=========== ========== ========== ==========
Net loss per common share $( 0.12) $( 0.09) $( 0.26) $( 0.12)
========== ========== ========== ==========
Weighted average number of shares of
common stock outstanding 17,789,405 12,096,054 16,996,221 12,145,428
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 7,029,000
<SECURITIES> 0
<RECEIVABLES> 1,219,000
<ALLOWANCES> 252,000
<INVENTORY> 1,398,000
<CURRENT-ASSETS> 10,955,000
<PP&E> 2,839,000
<DEPRECIATION> 591,000
<TOTAL-ASSETS> 14,695,000
<CURRENT-LIABILITIES> 868,000
<BONDS> 0
0
4,800,000
<COMMON> 17,135,000
<OTHER-SE> (8,108,000)
<TOTAL-LIABILITY-AND-EQUITY> 14,695,000
<SALES> 1,849,000
<TOTAL-REVENUES> 1,913,000
<CGS> 1,298,000
<TOTAL-COSTS> 3,339,000
<OTHER-EXPENSES> 33,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,459,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,459,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,459,000)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
