FORM 10-QSB
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 December 31, 1998
OR
[ ] TRANSITION REPORT PURUSANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-14306
INTERCELL CORPORATION
---------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-0928627
-------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
370 17th Street, Suite 3580
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (303) 592-1010
Not applicable
(Former name, former address or former fiscal year, if changed since last
report)
Indicate by check mark whether the issuer (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 July 30, 1999 there were 55,544,743 shares of the registrant's sole class
of common shares outstanding.
Transitional Small Business Disclosure Format Yes X No
--- ---
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
----
Condensed Consolidated Balance Sheet
December 31, 1998 1
Condensed Consolidated Statements of Operations
For the Three Months Ended December 31, 1998 and 1997 2
Condensed Consolidated Statement of Changes in Stockholders' Equity
For the Three Months Ended December 31, 1998 3
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements
December 31, 1998 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION 12
ITEM 2. CHANGES IN SECURITIES 13
ITEM 6. EXHIBITS 13
SIGNATURES
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)
December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Assets
- -------------------------------------------------------------
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 24,000
Restricted cash . . . . . . . . . . . . . . . . . . . . . . 16,000
Note receivable, current portion. . . . . . . . . . . . . . 12,000
-------------
Total current assets. . . . . . . . . . . . . . . . . . . 52,000
Note receivable, less current portion . . . . . . . . . . . . 26,000
Investment in land held for sale. . . . . . . . . . . . . . . 500,000
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . 17,000
-------------
Total assets . . . . . . . . . . . . . . . . . . . . . $ 595,000
=============
Liabilities and Stockholders' Deficit
- -------------------------------------------------------------
Current liabilities:
Notes payable to related parties. . . . . . . . . . . . . . $ 86,000
Accounts payable and accrued liabilities. . . . . . . . . . 966,000
Convertible debentures. . . . . . . . . . . . . . . . . . . 826,000
Liabilities of discontinued operations. . . . . . . . . . . 3,347,000
-------------
Total current liabilities . . . . . . . . . . . . . . . . 5,225,000
-------------
Minority interest in subsidiary . . . . . . . . . . . . . . . 505,000
-------------
Contingencies
Stockholders' deficit:
Convertible preferred stock; 10,000,000 shares authorized:
Series C; 147 shares issued and outstanding
(liquidation preference of $1,653,750) . . . . . . . . . 1,391,000
Series D; 1,080 shares issued and outstanding
(liquidation preference of $2,700,000) . . . . . . . . . 2,438,000
Warrants to acquire common stock. . . . . . . . . . . . . . 3,075,000
Common stock; no par value; 100,000,000 shares authorized
37,964,533 shares issued and outstanding. . . . . . . . . 21,361,000
Additional paid-in capital. . . . . . . . . . . . . . . . . 4,187,000
Accumulated deficit . . . . . . . . . . . . . . . . . . . . (37,587,000)
-------------
Total stockholders' deficit . . . . . . . . . . . . . . ( 5,135,000)
-------------
Total liabilities and stockholders' deficit . . . . . $ 595,000
=============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
1
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------
1998 1997
---------- ----------
<S> <C> <C>
General and administrative expense $ 417,000 $ 1,481,000
---------- ----------
Loss from operations. . . . . . . . . . . . ( 417,000) ( 1,481,000)
---------- ----------
Interest income.. . . . . . . . . . . . . . - 115,000
Interest expense . . . . . . . . . . . . . ( 20,000) ( 5,000)
---------- ----------
( 20,000) 110,000
---------- ----------
Loss from continuing operations. . . . . . ( 437,000) ( 1,371,000)
--------- ----------
Discontinued operations:
Loss from operations to be disposed of. . ( 67,000) ( 1,628,000)
---------- ----------
Loss from discontinued operations.. . . . . ( 67,000) ( 1,628,000)
---------- ----------
Net loss . . . . . . . . . . . . .. . . . . ( 504,000) ( 2,999,000)
Deemed dividend on Series C and D preferred stock
relating to in-the-money conversion terms. ( 14,000) -
Accrued dividends on Series D preferred stock ( 37,000) -
Accretion on Series B and C preferred stock. ( 29,000) ( 35,000)
---------- ----------
Net loss applicable to common stockholders $( 584,000) $( 3,034,000)
========== ==========
Net loss per share, basic and diluted, applicable
to common stockholders:
Loss from continuing operations.. . . . . $( 0.02) $( 0.05)
Loss from discontinued operations.. . . . ( 0.00) ( 0.05)
---------- ----------
Net loss . . . . . . . . . . . . .. . . . $( 0.02) $( 0.10)
========== ==========
Weighted average number of common
shares outstanding 37,514,481 29,481,871
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Stockholders' Equity(Deficit)
(Unaudited)
Three Months Ended December 31, 1998
<TABLE>
<CAPTION>
Convertible
Preferred Stock Warrants to Common Stock
------------------ Acquire ------------
Shares Amount Common Stock Shares Amount
------------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Balances, October 1, 1998 1,227 $ 3,749,000 3,075,000 36,670,634 $ 21,329,000
Common stock issued for
settlement 1,293,899 32,000
Conversion of preferred stock
to common stock by subsidiary
Accretion on preferred stock 29,000
Amortization of deemed dividend 14,000
Accrual of preferred stock
dividend 37,000
Net loss
------- --------- --------- ---------- ----------
Balance as of December 31, 1998 1,227 $ 3,829,000 3,075,000 37,964,533 $ 21,361,000
======= ========= ========= ========== ==========
Total
Additional Stockholders'
Paid-In Accumulated Equity
Capital Deficit (Deficit)
--------- --------------- -----------
<S> <C> <C> <C>
Balances, October 1, 1998 4,098,000 (37,003,000) (4,752,000)
Common stock issued for
settlement 32,000
Conversion of preferred stock
to common stock by subsidiary 89,000 89,000
Accretion on preferred stock ( 29,000)
Amortization of deemed dividend ( 14,000)
Accrual of preferred stock
dividend ( 37,000)
Net loss ( 504,000) ( 504,000)
--------- ---------- ---------
Balance as of December 31, 1998 4,187,000 (37,587,000) (5,135,000)
========= ========== =========
</TABLE>
3
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
---------------------
1998 1997
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . $ ( 504,000) $( 2,999,000)
Less loss from discontinued operations. . . . . . . . . . 67,000 1,628,000
------------ ------------
Loss from continuing operations . . . . . . . . . . . . ( 437,000) ( 1,371,000)
Adjustments to reconcile net loss to net cash used in
in operating activities:
Common stock and warrants issued for interest/services . - 194,000
Changes in operating assets and liabilities:
Decrease in prepaid expenses
and other current assets. . . . . . . . . . . . . . . - ( 80,000)
Increase (decrease) in accounts payable
and accrued liabilities . . . . . . . . . . . . . . . 185,000 372,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 -
------------ ------------
Net cash used in continuing operations . . . . . . . . ( 249,000) ( 885,000)
------------ ------------
Net cash (used in) provided by discontinued operations ( - ) 214,000
------------ ------------
Cash flows from investing activities:
Other assets. . . . . . . . . . . . . . . . . . . . . . . 21,000 -
Payments received on notes receivable . . . . . . . . . . 1,000 -
------------ ------------
Net cash provided by investing activities . . . . . . . 22,000 -
----------- ------------
Cash flows from financing activities:
Proceeds from notes payable . . . . . . . . . . . . . . . - 1,500,000
------------ ------------
Net cash provided by financing activities. . . . . . . . - 1,500,000
------------ ------------
Net increase (decrease) in cash and cash equivalents . . . ( 227,000) 829,000
Cash and cash equivalents beginning of period. . . . . . . 251,000 11,000
------------ ------------
Cash and cash equivalents end of period. . . . . . . . . . $ 24,000 $ 840,000
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest. . . . . . . . . . . . . . . . . . $ 2,000 $ 5,000
============ ============
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
1998 1997
---- ----
Additional paid-in capital from conversion
feature of debentures $ - $ 225,000
Common stock issued for settlement 32,000 -
Accretion on preferred stock 29,000 35,000
Amortization of deemed dividend on preferred stock 14,000 -
Accrual of preferred stock dividend 37,000 -
See accompanying notes to consolidated financial statements.
4
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1998
1. PRESENTATION OF INTERIM INFORMATION
The accompanying consolidated financial statements include the accounts of
Intercell Corporation and its wholly-owned subsidiaries (the "Company"). All
inter-company transactions have been eliminated.
In the opinion of the management of the Company, the accompanying unaudited
consolidated financial statements include all material adjustments, including
all normal recurring adjustments, considered necessary to present fairly the
financial position of and operating results for the periods presented. The
financial statements and notes are presented as permitted by Form 10-QSB, and
do not contain certain information included in the Company's last Annual Report
on Form 10-KSB for the fiscal year ended September 30, 1998. It is the
Company's opinion that when the interim statements are read in conjunction with
the September 30, 1998 Annual Report on Form 10-KSB, the disclosures are
adequate to make the information presented not misleading. Interim results are
not necessarily indicative of results for a full year or any future period.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has incurred
significant operating losses, and has a working capital deficiency and a
stockholders' deficit at December 31, 1998. These conditions raise substantial
doubt about its ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or amounts and
classifications of liabilities that might result from the outcome of this
uncertainty.
The Company has formulated plans and strategies to address the Company's
financial condition and increase profitability, including the following:
a. Through 1998, the Company discontinued, sold, and/or abandoned certain of
its operations, which management anticipates will eliminate significant
operating and overhead expenses, and which have contributed to the Company's
losses in the past.
b. The Company completed the acquisition of Nanopierce in 1998, which the
Company intends to market its PI Technology, primarily through the development
of strategic relationships with established leaders in the technology industry,
the licensing of the PI Technology and/or the sale of products incorporating
the PI Technology.
c. The Company is continuing efforts to seek and obtain debt and/or equity
financing to further support its operating needs.
2. USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
3. RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been reclassified to
conform with the 1998 presentation.
5
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1998
4. NET LOSS PER SHARE
Net loss per share of common stock is computed based on the weighted average
number of common shares outstanding during the year. Stock options, warrants
and convertible preferred stock are not considered in the calculation as the
impact of the potential common shares would be to decrease loss per share.
Therefore, diluted loss per share is equivalent to basic loss per share.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128
Earnings Per Share during 1998. This statement requires dual presentation of
basic and diluted earnings per share (EPS) with a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Basic EPS excludes dilution.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. The adoption of SFAS 128 did not result in a change to
the previously presented EPS for 1997.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In 1997, the FASB, issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Financial Information, and in February 1998, the FASB
issued SFAS No. 132, Employers' Disclosure about Pensions and Other Post
Retirement Benefits. Both of these statements are effective for fiscal years
beginning after December 31, 1997, require disclosure only and therefore will
not impact the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement is effective for fiscal
years beginning after June 15, 1999. Currently, the Company does not have any
derivative financial instruments and does not participate in hedging
activities. Therefore, management believes that SFAS No. 133 will not have an
impact on its financial statements.
6. RISK CONSIDERATIONS
BUSINESS RISK
The Company is subject to risks and uncertainties common to technology-based
companies, including rapid technological change, dependence on principal
products and third party technology, new product introductions and other
activities of competitors, dependence on key personnel, and limited operating
history.
YEAR 2000 CONVERSION
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. Software failures due to processing
errors potentially arising from calculations using the Year 2000 date are a
known risk. The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of the operational systems.
The Company has established processes for evaluating and managing the risks and
costs associated with this problem. Management believes the total cost of
compliance, and its effect on the Company's future results of operations will
be insignificant.
6
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1998
7. COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income. This standard establishes requirements for
disclosure of comprehensive income consisting of certain items previously not
included in the statements of operations including unrealized gains and losses
among others. For the three months ended December 31, 1998 and 1997, the
Company has no items of comprehensive income.
8. DISCONTINUED OPERATIONS
The Company sold its wholly-owned subsidiary, CTL, on February 6, 1998; the
Company effectively terminated the non-PI Technology related operations and
activities of PI Corp. in September 1997 and transferred the PI Technology to
Nanopierce in February, 1998; the Company sold CMI and IWC in July 1997, and in
June 1998, the Company discontinued all operations of Sigma. Sigma filed for
voluntary liquidation under Chapter 7 of the U.S. Bankruptcy Code on December
30, 1998. The summarized results of discontinued operations are as follows:
1998 CTL CMI IWC SIGMA PI CORP TOTAL
- ---- ------ ------ ------ ------- -------- -----
Net sales $ - - - - - -
Loss from
Operations $ - - - ( 67,000) - (67,000)
Gain (loss)
on Disposal $ - - - - - -
1997 CTL CMI IWC SIGMA PI CORP TOTAL
- ---- ------ ------ ------ ------- ------- -----
Net sales $1,302,000 464,000 - 288,000 - 2,054,000
Income
(loss) from
operations $ 246,000 20,000 (789,000) ( 941,000) (164,000) (1,628,000)
Liabilities of discontinued operations at December 31, 1998, consist of Sigma
liabilities as follows:
Accounts payable and accrued liabilities $ 986,000
Notes payable 2,240,000
Other liabilities 121,000
----------
$ 3,347,000
==========
Notes payable of discontinued operations primarily consist of $1,700,000, 10%,
unsecured notes payable issued in a 1997 private placement, originally due in
October 1998.
7
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1998
9. ACQUISITION OF NANOPIERCE TECHNOLOGIES, INC.
In February 1998, the Company acquired control of Nanopierce Technologies, Inc.
in a transaction accounted for using the purchase method of accounting. The
results of operations of Nanopierce have been included in the Company's
financial statements from the date of acquisition. The unaudited results of
operations of the Company on a pro forma basis, as though Nanopierce has been
acquired as of October 1, 1997 are as follows for the three months ended
December 31, 1997:
Revenue $ -
Loss from continuing operations $(1,385,000)
Net Loss $(3,013,000)
Net Loss applicable to
common shareholders $(3,048,000)
Net Loss per share $ (0.10)
10. MINORITY INTEREST IN SUBSIDIARY AND SUBSIDIARY STOCK TRANSACTIONS
Through December 31, 1998, Nanopierce issued 75,000 shares of Series B
Preferred Stock at $10 per share, resulting in net proceeds of $660,000 (net of
$90,000 of issuance costs). The Series B shares are non-voting with cumulative
dividends of $.70 per share per year and are redeemable by Nanopierce at $12
per share plus any accumulated and unpaid dividends. The Series B shares are
convertible into shares of Nanopierce common stock at a conversion rate of $10
per share plus accumulated and unpaid dividends, divided by the lessor of 110%
of the average closing bid price of the Nanopierce common stock for the five
days prior to the purchase of the Series B shares or 80% of the average closing
bid price of Nanopierce's common stock for the five days prior to the
conversion date.
Through December 31, 1998, 16,500 shares of the Series B Preferred Stock were
converted into common shares of Nanopierce, and 58,500 shares of Nanopierce
Series B Preferred Stock were outstanding with a balance of $505,000, which has
been presented as a minority interest in subsidiary in the accompanying
consolidated financial statements.
11. STOCKHOLDERS EQUITY
In connection with the acquisition of M.C. Davis Co., Inc. (M.C. Davis) in
1996, the Company guaranteed the former shareholders of M.C. Davis that the
277,778 shares of the Company's common stock issued to them would have a value
on October 8, 1998 of not less than $4.00 per share. On October 8, 1998, the
price per share of the Company's common stock was $.025. In satisfaction of
the guarantee, in October 1998, the Company agreed to transfer 850,000
restricted common shares of its Nanopierce common stock held by the Company and
issue 1,293,899 restricted shares of the Company's common stock to certain
former shareholders. As a result of these transactions, the Company recorded a
loss of $32,000 in fiscal year 1998. On February 8, 1999 the Company agreed to
issue 1,424,864 restricted shares of the Company's common stock to certain
additional former shareholders of M.C. Davis. The Company recognized a loss of
$85,000 in the quarter ended December 31, 1998 in connection with the
February 8, 1999 agreement.
8
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1998
12. CONTINGENCIES
SUBSIDIARY SHAREHOLDER AGREEMENT
Subsequent to the Company's 1997 acquisition of Sigma, Sigma issued $1,700,000
of promissory notes in a private placement. In connection with the Company's
decision to discontinue operations of Sigma in June 1998, the Company entered
into an agreement in September 1998 to place 750,000 shares of Nanopierce
common stock in escrow, to be held for the benefit of the Sigma investors. The
agreement stipulates that the 750,000 shares may be sold in order to utilize
the proceeds to pay the Sigma investors. The Agreement provides that no sale
of shares may be made below $2.00 per share and the volume of sales cannot
exceed 20% of the average weekly trading volume of the common stock of
Nanopierce prior to the date of the transaction. Any shares not required to be
sold are to be returned to the Company. The Company is not required to provide
any further shares of Nanopierce or any other consideration in the event the
sale of these shares is insufficient to repay all the obligations.
LICENSE AGREEMENTS
Nanopierce has license agreements with third parties which allow the third
parties to utilize defined aspects of the intellectual property rights in
return for royalty fees. All but one license agreement is idle and therefore
these agreements have not produced any royalty fees for Nanopierce. With
regard to all current licensees, Nanopierce is involved in pending litigation
with a third party who is asserting ownership of the rights to the related
royalty revenues. Royalties under this agreement through December 31, 1998
total approximately $49,000. These monies are being held in an escrow account,
outside of Nanopierce's control, until the litigation is resolved. Although
management believes that Nanopierce will ultimately be successful in defending
this matter, the Company has not recognized any royalty revenue until the
ultimate outcome can be determined. In the opinion of management, the ultimate
disposition of this matter will not have a material impact on the Company's
operations or the further development of the PI Technology.
9
<PAGE>
ITEM 2. MANAGEMENTS'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, 1998. 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.
On February 26, 1998 Intercell Corporation transferred all of the intellectual
property of its wholly owned subsidiary Particle Interconnect Corporation to
Nanopierce Technologies, Inc for 7,250,000 shares of common stock of Nanopierce
and 100 Series A 8% Voting, Convertible, Cumulative, Participating, Preferred
shares of Nanopierce. The preferred shares are convertible into 7,250,000
shares of common stock. Intercell Corporation has an approximately 74%
controlling interest in Nanopierce Technologies, Inc, a public company, on a
fully diluted basis.
Intercell Corporation discontinued all operations of its majority owned
subsidiary Sigma 7 Corporation, a manufacturer of memory modules located in San
Diego, CA, on June 5, 1998. Sigma 7 Corporation subsequently filed for
protection under Chapter 7 of the United States Bankruptcy Code on
December 30, 1998.
The Company is currently engaged in the design, development and licensing of
products using its patented particle interconnect technology, through its
majority owned subsidiary Nanopierce Technologies, Inc.
In December 1997, the Company issued convertible debentures and attached
warrants for $1,500,000. Of this total $674,000 has been repaid.
RESULTS OF OPERATIONS
REVENUES:
The Company had no revenue from continuing operations for the periods ended
December 31, 1998 and 1997.
RESEARCH AND DEVELOPMENT
The Company had no research and development expenses for the periods ended
December 31, 1998 and 1997.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased by 71.8% to $417,000 in the first
quarter of the 1999 fiscal year compared to $1,481,000 in the first quarter of
fiscal 1998. Management of the Company has attempted to reduce and control
expenses by selling and/or abandoning certain of its operations.
OTHER INCOME/EXPENSE
The Company earned $115,000 in interest income on its cash and short-term
investments during the three months ended December 31, 1997. The Company had no
interest income during the three months ended December 31, 1998 due to the
reduction in its cash and short-term investments. Interest expense increased
as a result of the convertible debentures issued in December of 1997.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The independent auditors' report on Intercell Corporation's consolidated
financial statements as of September 30, 1998, and for each of the years in the
two-year period ended September 30, 1998 includes a "going concern" paragraph
that describes substantial doubt about the Company's ability to continue as a
going concern.
The Company has taken several steps regarding future operations including the
following. In February and April 1998, the Company sold its interest in
California Tube Laboratory, Inc. and A.C. Magnetics, Inc. to raise additional
capital for ongoing operations. The Company received $1,500,000 in cash,
including $200,000 in escrow, and a $500,000 note receivable for the sale of
California Tube Laboratory, Inc. The Company received $700,000 in cash for the
sale of A.C. Magnetics, Inc. which it used to pay down its debt on the
convertible debenture.
The Company has also discontinued operations at Sigma 7 Corporation and
Particle Interconnect Corporation during 1998 and in December 1998 Sigma filed
for protection under the U.S. bankruptcy laws. The intellectual property
rights to the Particle Interconnect technology have been transferred to
Nanopierce Technologies, Inc. resulting in an approximate 74% ownership of that
company on a diluted basis. Intercell Corporation has reduced its costs to a
bare minimum and is currently seeking its own financing.
During the three months ended December 31, 1998 and 1997 the Company's cash and
cash equivalents from continuing operations decreased by $227,000. This
decrease was due primarily to net cash used in continuing operations.
During the three months ended December 31, 1998 and 1997 the Company had no
capital expenditures.
The Company believes that if financing of Nanopierce Technologies, Inc. can be
completed, adequate funding is then available to support operations for the
next twelve months. The Company also believes that sales of its Nanopierce
Technologies, Inc. products and technology licenses will provide sufficient
funds to meet the Company's capital requirements for the next two years. This
assumption is based on the signing of Technology Cooperation Agreements with
both ORGA Kartensystemes, GmbH, and Meinen, Ziegel & Co., an agreement to form
a joint venture with Cirexx Corporation and an Application and Development
Agreement with Multitape, GmbH & Co during the Spring of 1999.
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 assurances that it will be
able to raise funds through issuance of debt or equity in the Company.
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. Software failures due to processing
errors potentially arising from calculations using the Year 2000 date are known
risks. The Company is addressing this risk to the availability and integrity
of financial systems and the reliability of the operational systems.
Management believes the total cost of compliance and its effect on the
Company's future results of operations will be insignificant.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Louis DiFrancesco, the inventor of Nanopierce's technology filed a lawsuit on
March 10, 1998 with the Superior Court of California, County of Santa Clara,
Case No. CV772523, purportedly against the Company and other parties. Mr.
DiFrancesco made numerous allegations purportedly against the Company, its
employees, directors and officers and other affiliated companies and licensees.
Pursuant to a stipulation among the parties, none of the defendants were
required to file responsive pleadings until Mr. DiFrancesco's Complaint was
amended or refiled. On December 24, 1998, DiFrancesco finally filed a First
Amended and Supplemental Complaint against the Company, Nanopierce and Paul H.
Metzinger. The Company filed responsive motions to dismiss or stay the claims
arguing among other grounds that Mr. DiFrancesco was merely "forum shopping"
and that the action was an attempt to retry the same matters which are the
subject of litigation pending in the District Court in and for the City and
County of Denver, Colorado and therefore should be dismissed or stayed by the
court. The Court entered an order staying any further prosecution of the
action in California pending the outcome of the Colorado litigation. The
Company believes that the California action is without merit and intends to
vigorously defend itself with respect to the matter alleged, if the lawsuit is
further prosecuted.
The Company filed suit against Mr. Louis DiFrancesco on October 5, 1998, with
the District Court for the City and County of Denver, Colorado, to enjoin him
from certain specified actions against the Company and the licensees and to
confirm Nanopierce's ownership of its intellectual property rights. On October
19, 1998, the District Court for the City and County of Denver, Colorado issued
a temporary restraining order prohibiting Mr. DiFrancesco from, among other
things, claiming any ownership of Nanopierce's patents and claiming any rights
to royalty payments under Nanopierce's licenses. On November 5, 1998, the
District Court for the City and County of Denver, Colorado issued a preliminary
injunction prohibiting Mr. DiFrancesco from: (i) contacting any actual or
potential customer, licensee or investor of the Company or its related entities
using the name "Particle Interconnect Research & Development" or any other name
confusingly similar to the Company's trade name and trademark "Particle
Interconnect"; (ii) contacting any actual or potential customer, licensee or
investor of the Company or its related entities under the auspices that he
represents, works for, or its associated with the Company; and (iii) making any
statement to any actual or potential customer, licensee or investor of the
Company or its related entities which directly or by implication asserts that
(a) he owns all or any portion of the patents or patent applications which he
previously has assigned to the Company or (b) his consulting agreement with
Particle Interconnect Corporation has not expired.
On November 24, 1998, Mr. DiFrancesco filed an answer in the District Court for
the City and County of Denver, Colorado, generally denying the allegations
contained in the Company's complaint and asserting certain affirmative
defenses. He also filed a Third Party Complaint against the Company,
Nanopierce and Paul H. Metzinger. The answer also asserts counterclaims
against the Company, Nanopierce and Paul H. Metzinger, individually, for breach
of contract, fraud in the inducement and legal malpractice and seeks rescission
of the merger pursuant to which Particle Interconnect Corporation and seeks
rescission of the merger pursuant to which Particle Interconnect Corporation (a
subsidiary of Intercell) acquired the Particle Interconnect Technology and
certain declaratory relief. The Company, Nanopierce and Mr. Metzinger filed
answers denying all of the allegations contained in the DiFrancesco Complaint.
In addition, they filed motions requiring DiFrancesco's counterclaims to be
more definite and certain in their alleged claims against the Company,
Nanopierce and Metzinger. The District Court ruled in favor of the motions and
required DiFrancesco to submit amended counterclaims. DiFrancesco failed to
timely file the amended Counterclaims by February 19, 1999 when due.
DiFrancesco did eventually file amended counterclaims on April 5, 1999. The
12
<PAGE>
Company, Nanopierce and Metzinger filed motions to strike or dismiss the
amended counterclaims for lacking the specificity required and because they
were untimely filed. The Court denied this motion. The Company, Nanopierce
and Metzinger filed Answers generally denying the allegations of the Third
Party Complaint and the Counterclaims and, in turn, asserting affirmative
defenses and Counterclaims against DiFrancesco. DiFrancesco has yet to answer
the Counterclaims. The Court has scheduled the matter for trial setting.
On July 1, 1998, the Company was served a summons and complaint naming it, its
subsidiary, Sigma and others affiliated with the Company, by Classic Trading,
Inc., a California corporation, with the Superior Court of the State
California, Count of Orange, CV 796047 (the " Classic Trading Lawsuit").
Classic Trading, Inc. alleges breach of contact and believes that it is owed
$135,000.00. The Company has filed an answer denying the allegations. The
litigation has not been further prosecuted since then.
ITEM 2. CHANGES IN SECURITIES
The Company made the following unregistered sales of its securities from
September 30, 1998 to December 31, 1998.
<TABLE>
<CAPTION>
DATE OF SALE TITLE OF SECURITIES SHARES CONSIDERATION PURCHASER
- ------------ ------------------- ------ ------------- ---------
<C> <S> <C> <C> <C>
11/2/98 Common Stock. . . . 793,899 Settlement Jerry W. & June E.
Tooley Family Trust
11/2/98 Common Stock. . . . 500,000 Settlement David Putnam
</TABLE>
EXEMPTION FROM REGISTRATION CLAIMED
All of the sales by the Company of its unregistered securities were made by the
Company in reliance upon Section 4(2) of the Act. All of the individuals
and/or entities listed above that purchased the unregistered securities were
all known to the Company and its management, through pre-existing business
relationships, as long standing business associates, friends, and employees.
All purchasers were provided access to all material information which they
requested and all information necessary to verify such information and were
afforded access to management of the Company in connection with their
purchases. All purchasers of the unregistered securities acquired such
securities for investment and not with a view toward distribution,
acknowledging such intent to the Company. All certificates or agreements
representing such securities that were issued contained restrictive legends,
prohibiting further transfer of the certificates or agreements representing
such securities, without such securities either being first registered or
otherwise exempt from registration in any further resale or disposition.
ITEM 6. EXHIBITS
EXHIBITS
Exhibit 11 Statement of Computation of Earnings per Share
Exhibit 27 Financial Data Schedule
13
<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)
Date: August 2, 1999 By: /s/ Paul H. Metzinger
--------------------------
Paul H. Metzinger, President,
Chief Executive Officer &
Chief Financial Officer
<PAGE>
EXHIBIT 11
INTERCELL CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET LOSS PER SHARE
(Unaudited)
Three months
ended December 31,
1998 1997
---- ----
<TABLE>
<CAPTION>
<S> <C> <C>
Net loss. . . . . . . . . . . . . . . . . . . . . . . $( 504,000) $( 2,999,000)
Deemed dividends on Series B,C, and D preferred stock
relating to in-the-money conversion terms . . . . . ( 14,000) -
Accrued dividends on Series D preferred stock . . . . ( 37,000) -
Accretion on Series B and C preferred stock . . . . . ( 29,000) ( 35,000)
--------- ----------
Net loss applicable to common shareholders. . . . . . $( 584,000) $( 3,034,000)
========= ==========
Weighted average number of common shares outstanding. 37,514,481 29,481,871
Common equivalent shares representing shares issuable
upon exercise of outstanding options and warrants . - -
---------- ----------
37,514,481 29,481,871
========== ==========
Basic and diluted loss per share applicable
to common shareholders:
Loss from continuing operations . . . . . . . . . $( 0.02) $( 0.05)
Loss from discontinued operations . . . . . . . . ( 0.00) ( 0.05)
--------- ----------
Basic and diluted loss per common share . . . . . . . $( 0.02) $( 0.10)
========= ==========
</TABLE>
No impact to weighted average number of shares as the inclusion of additional
shares assuming the exercise of outstanding options and warrants would have
been antidilutive.
Fully diluted and supplementary net loss per share is not presented as the
amounts are not dilutively or incrementally different from primary net loss per
share amounts.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CAPTION>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 40,000
<SECURITIES> 0
<RECEIVABLES> 12,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 595,000
<CURRENT-LIABILITIES> 5,225,000
<BONDS> 0
0
3,829,000
<COMMON> 21,361,000
<OTHER-SE> (30,325,000)
<TOTAL-LIABILITY-AND-EQUITY> 595,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 417,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,000
<INCOME-PRETAX> (504,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (437,000)
<DISCONTINUED> (67,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (504,000)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
