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 June 30, 2000
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 August 14, 2000 there were 99,891,188 shares of the registrant's sole
class of common shares outstanding.
Transitional Small Business Disclosure Format Yes No X
----- -----
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
----
Independent Accountants' Report 1
Condensed Consolidated Balance Sheet
June 30, 2000 2
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended
June 30, 2000 and 1999 3
Condensed Consolidated Statement of Changes in Stockholders' Deficit
Nine Months Ended June 30, 2000 5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2000 and 1999 7
Notes to Condensed Consolidated Financial Statements
Nine Months Ended June 30, 2000 and 1999 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 14
PART II - OTHER INFORMATION 17
ITEM 2. CHANGES IN SECURITIES 17
ITEM 6. EXHIBITS 18
SIGNATURES 19
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
Board of Directors
Intercell Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
Intercell Corporation and subsidiaries as of June 30, 2000, and the related
condensed consolidated statements of operations for the three-month and
nine-month periods then ended, and the condensed consolidated statement of
changes in stockholders' deficit and cash flows for the nine-month period then
ended. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
GELFOND HOCHSTADT PANGBURN, P.C.
Denver, Colorado
August 18, 2000
1
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 158,000
----------
Total current assets 158,000
Investment in land held for sale 300,000
Restricted cash 21,000
----------
Total assets $ 479,000
==========
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Accounts payable $ 99,000
Accrued liabilities 237,000
Notes payable - related parties 23,000
Notes payable - other 50,000
Deferred gain on agreement to sell affiliate stock 723,000
Liabilities of discontinued operations 3,347,000
----------
Total current liabilities 4,479,000
----------
Commitment and Contingencies
Stockholders' deficit:
Convertible preferred stock; 10,000,000 shares authorized:
Series C; 26 shares issued and outstanding
(liquidation preference of $334,000) 277,000
Series D; 1,080 shares issued and outstanding
(liquidation preference of $3,105,000) 2,749,000
Series E; 1,000 shares issued and outstanding
(liquidation preference of $102,000) 88,000
Warrants to acquire common stock 3,060,000
Common stock; no par value; 100,000,000 shares authorized
99,891,188 shares issued and outstanding 23,461,000
Additional paid-in capital 7,227,000
Accumulated deficit (40,168,000)
Receivable from agreement to sell affiliate stock ( 694,000)
----------
Total stockholders' deficit ( 4,000,000)
----------
Total liabilities and stockholders' deficit $ 479,000
==========
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
2
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
General and administrative
expense $ 101,000 1,998,000 290,000 2,726,000
Impairment of investment in land 200,000 - 200,000 -
---------- ---------- ---------- ----------
Loss from operations ( 301,000) ( 1,998,000) ( 490,000) ( 2,726,000)
---------- ---------- ---------- ----------
Gain on sale and exchange
of affiliate stock - 60,000 876,000 60,000
Interest income 2,000 1,000 3,000 1,000
Interest expense ( 2,000) ( 74,000) ( 27,000) ( 115,000)
---------- ---------- ---------- ----------
( - ) ( 13,000) 852,000 ( 54,000)
---------- ---------- ---------- ----------
Income (loss) from
continuing operations ( 301,000) ( 2,011,000) 362,000 ( 2,780,000)
---------- ---------- ---------- ----------
Discontinued operations:
Loss from operations to
be disposed of - - - ( 67,000)
---------- ---------- ---------- ----------
Loss from discontinued operations - - - ( 67,000)
---------- ---------- ---------- ----------
Net income (loss) before
extraordinary item ( 301,000) ( 2,011,000) 362,000 ( 2,847,000)
Extraordinary gain on
extinguishment of debt 98,000 - 98,000 -
---------- ---------- ---------- ----------
Net income (loss) ( 203,000) ( 2,011,000) 460,000 ( 2,847,000)
Deemed dividend on Series C and D
preferred stock relating to
in-the-money conversion terms ( 14,000) ( 14,000) ( 43,000) ( 43,000)
Accrued dividends on
Series D and E preferred stock ( 39,000) ( 38,000) ( 114,000) ( 113,000)
Accretion on Series C and E
preferred stock ( 90,000) ( 27,000) ( 103,000) ( 85,000)
---------- ---------- ---------- ----------
Net income (loss) applicable to
common stockholders $( 346,000) ( 2,090,000) 200,000 ( 3,088,000)
========== ========== ========== ==========
</TABLE>
(CONTINUED)
3
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) per share,
applicable to common
stockholders:
Basic:
Income (loss)
from continuing operations $ 0.00 ( 0.05) 0.00 ( 0.08)
Loss from discontinued
operations ( 0.00) ( 0.00) ( 0.00) ( 0.00)
Extraordinary gain 0.00 0.00 0.00 0.00
---------- ---------- ---------- ----------
Net income (loss) $ 0.00 ( 0.05) 0.00 ( 0.08)
========== ========== ========== ==========
Diluted:
Income (loss)
from continuing operations $( 0.00) ( 0.05) 0.00 ( 0.08)
Loss from discontinued
operations ( 0.00) ( 0.00) ( 0.00) ( 0.00)
Extraordinary gain 0.00 0.00 0.00 0.00
---------- ---------- ---------- ----------
Net income (loss) $( 0.00) ( 0.05) 0.00 ( 0.08)
========== ========== ========== ==========
Weighted average number of common
shares outstanding:
Basic 99,891,188 45,081,546 93,044,268 40,735,635
========== ========== =========== ==========
Diluted 99,891,188 45,081,546 201,822,831 40,735,635
========== ========== =========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
NINE MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Warrants to Common Stock
--------------- Acquire ------------
Shares Amount Common Stock Shares Amount
------ ------ ------------ ------ ------
<S> <C> <C> <C> <C> <C>
Balances
September 30, 1999, 1,150 $3,282,000 3,075,000 66,309,089 $22,231,000
as previously stated
Adjustment to account
for change from
consolidation to
equity method of
accounting for
Nanopierce - - - - -
----- --------- ---------- ---------- ----------
September 30, 1999,
as restated 1,150 $3,282,000 3,075,000 66,309,089 $22,231,000
Conversion of Series
C Preferred Stock ( 44) ( 428,000) - 23,582,099 428,000
Amortization of
deemed dividend - 43,000 - - -
Accrual of
preferred stock
dividend - 114,000 - - -
Accretion on
preferred stock - 103,000 - - -
Issuance of Series E
preferred stock 1,000 - - - -
Receivable from
agreement to sell
affiliate stock - - - - -
Settlement of
convertible
debentures - - ( 15,000) 10,000,000 802,000
Net income - - - - -
----- --------- ---------- ---------- ----------
Balance as of
June 30, 2000 2,106 $3,114,000 3,060,000 99,891,188 $23,461,000
===== ========= ========== ========== ==========
</TABLE>
(CONTINUED)
5
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
NINE MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Receivable
from
Agreement
Additional to Sell Total
Paid-In Affiliate Accumulated Stockholders'
Capital Stock Deficit Deficit
------- ----- ------- -------
<S> <C> <C> <C> <C>
Balances
September 30, 1999, 6,885,000 ( 394,000) (40,604,000) (5,525,000)
as previously stated
Adjustment to account
for change from
consolidation to
equity method of
accounting for
Nanopierce 242,000 - 236,000 478,000
--------- -------- ---------- ---------
September 30, 1999,
as restated 7,127,000 ( 394,000) (40,368,000) (5,047,000)
Conversion of Series
C Preferred Stock - - - -
Amortization of
deemed dividend - - ( 43,000) -
Accrual of
preferred stock
dividend - - ( 114,000) -
Accretion on
preferred stock - - ( 103,000) -
Issuance of Series E
preferred stock 100,000 - - 100,000
Receivable from
agreement to sell
affiliate stock - ( 300,000) - ( 300,000)
Settlement of
convertible
debentures - - - 787,000
Net income - - 460,000 460,000
--------- -------- ---------- ---------
Balance as of
June 30, 2000 7,227,000 ( 694,000) (40,168,000) (4,000,000)
========= ======== ========== =========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
-----------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 460,000 ( 2,847,000)
Less loss from discontinued operations - 67,000
--------- ----------
Loss from continuing operations 460,000 ( 2,780,000)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Extraordinary gain on extinguishment of debt ( 98,000) -
Loss from asset impairment 200,000 -
Common stock and warrants issued for expenses - 118,000
Gain on sale and exchange of affiliate stock ( 876,000) ( 60,000)
Common stock of subsidiary issued for services - 1,774,000
Changes in operating assets and liabilities:
Increase in prepaid expenses - 2,000
(Decrease) increase in accounts payable
and accrued liabilities ( 433,000) 126,000
Decrease in payables to related parties ( 74,000) -
--------- ----------
Net cash used in continuing operations ( 821,000) ( 820,000)
--------- ----------
Cash flows from investing activities:
Proceeds from sale of stock 876,000 60,000
Other assets ( 7,000) ( 60,000)
--------- ----------
Net cash provided by investing activities 869,000 -
--------- ----------
Cash flows from financing activities:
Proceeds from sale of stock by subsidiary - 250,000
Proceeds from notes payable - 402,000
Repayment of notes payable - ( 72,000)
Proceeds from sale of convertible preferred stock 100,000 -
--------- ----------
Net cash provided by financing activities 100,000 580,000
--------- ----------
Net increase (decrease) in cash and cash equivalents 148,000 ( 240,000)
Cash and cash equivalents, beginning of period 10,000 251,000
--------- ----------
Cash and cash equivalents, end of period $ 158,000 11,000
========= ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ - 26,000
========= ==========
Supplemental disclosure of noncash investing and financing activities:
2000 1999
---- ----
Acquisition of convertible debt for stock $ 826,000 -
Conversion of Series B and Series C preferred stock
to common stock - 287,000
Amortization of deemed dividend on preferred stock 43,000 43,000
Accrual of preferred stock dividend 114,000 113,000
Accretion on preferred stock 103,000 85,000
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
7
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
1. BUSINESS, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------------------------------------------------
Presentation of Interim Information
The accompanying consolidated financial statements include the accounts of
Intercell Corporation, a Colorado corporation (the Company), and its
subsidiaries Sigma 7 Corporation, (a corporation that filed for voluntary
liquidation under Chapter 7 of the U.S. Bankruptcy Code on December 31, 1998),
Particle Interconnect Corp., and Arizcan Properties, Ltd. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Additionally as described below, the consolidated financial statements reflect
Nanopierce Technologies, Inc.'s (Nanopierce's) results of operations and cash
flows as a consolidated company from the date of acquisition (February 26, 1998)
through June 30, 1999, and as an investment accounted for under the equity
method of accounting beginning in July 1999, due to a decrease in the Company's
voting ownership interest to below 50% in July 1999. The Company's investment
in Nanopierce is carried at zero in the Company's financial statements and
therefore the equity method has been suspended and the Company's share of
Nanopierce's losses has not been recorded.
In the opinion of the management of the Company, the accompanying unaudited
condensed consolidated financial statements include all material adjustments,
including all normal and recurring adjustments, considered necessary to present
fairly the financial position and operating results of the Company 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, 1999. It is the Company's opinion that when the interim statements are read
in conjunction with the September 30, 1999 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 condensed 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 June 30, 2000. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The
independent auditors' report on the Company's financial statements for the year
ended September 30, 1999 included a "going concern" explanatory paragraph,
meaning the auditors expressed substantial doubt about the Company's 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.
To address its current cash flow concerns, during the three months ended March
31, 2000 the Company sold 1,000 shares of its Series E Preferred Stock for
$100,000 and sold 1,500,000 shares of its stock of Nanopierce for $900,000 (Note
7). The Company has also been in discussions with investment bankers and
financial institutions attempting to raise funds to support current and future
operations. This includes attempting to raise additional working capital
through the sale of additional capital stock (Note 3) or through the issuance of
debt.
8
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
Accounting for investment in Nanopierce and restatement of 1999 consolidated
financial statements
During the quarter ended September 30, 1999, the Company's ownership interest in
Nanopierce was reduced to below 50%. In the previously issued September 30,
1999, consolidated financial statements, included in the Company's September 30,
1999 Form 10-KSB, the Company reported Nanopierce as a consolidated subsidiary
through September 30, 1999, based on several factors which were believed to
constitute a controlling financial interest in Nanopierce by Intercell,
including common ownership by the President, Director, and CEO of the Company.
Subsequent to the original issuance of the Company's September 30, 1999,
consolidated financial statements, and based upon a further evaluation of the
factors utilized in determining a controlling financial interest, management
determined that beginning in July 1999, the Company's investment in Nanopierce
should be accounted for under the equity method of accounting.
At June 30, 1999, and through September 30, 1999, the Company's investment in
Nanopierce was $0. Therefore, as a result of the Company's change to the equity
method to account for its investment in Nanopierce, the Company suspended
recognition of its proportionate share of Nanopierce's net loss beginning with
the fourth quarter ended September 30, 1999, which was $478,000. As a result,
the Company has restated the accompanying statement of changes in stockholders'
equity by $478,000.
At June 30, 2000, the Company owns approximately 26% of the outstanding common
stock of Nanopierce. The summarized financial position and results of
operations of Nanopierce as of and for the periods ended June 30, 2000, was as
follows:
Current assets $ 2,527,000
Long-term assets:
Intellectual property 766,000
Other 195,000 961,000
--------- ---------
Total assets $ 3,488,000
=========
Current liabilities:
Notes payable $ 67,000
Accounts payable and
accrued expenses 141,000 208,000
---------
Long-term liabilities 3,256,000
Stockholders' equity 24,000
---------
Total liabilities and stockholders' equity $ 3,488,000
=========
Three months ended Nine months ended
June 30, June 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
Revenues $ - $ - $ - $ -
Net loss $( 597,000) $(2,007,000) $(3,204,000) $(2,585,000)
Net loss
attributable
to common
stockholders $( 597,000) $(2,007,000) $(3,204,000) $(2,701,000)
9
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
Nanopierce is engaged in the design, development and licensing of products using
its intellectual property, the PI Technology. The PI Technology consists of
patents, pending patent applications, patent applications in preparation, trade
secrets, trade names, and trade marks. The PI Technology improves electrical,
thermal and mechanical characteristics of electronic products. Nanopierce has
designated and is commercializing its PI Technology as the Nanopierce Connection
System (NCS) and markets the PI Technology to companies in various industries
for a wide range of applications. Nanopierce has not realized any royalty
revenue through June 30, 2000.
2. INVESTMENT IN LAND HELD FOR SALE
------------------------------------
The investment in land held for sale consists of approximately 94 acres of
undeveloped rangeland located in Arizona. Although the Company has entered into
negotiations with potential buyers, as of June 30, 2000, no agreement has been
reached, and an expected disposal date has not been determined. In June 2000,
the Company concluded that an impairment charge of $200,000 was necessary to
reduce the carrying value of the land to its estimated fair value less cost to
sell, based on negotiations with potential buyers and consideration of market
conditions, of $300,000. The impairment was due to several factors including
changes in planned developments adjacent to the land, concerns about zoning,
current negotiations with potential third-party buyers, and other factors.
3. AUTHORIZED CAPITAL
----------------------
The Company's authorized capital consists of, among other classes of securities,
100,000,000 common shares. As of June 30, 2000 there are 99,891,188 common
shares issued and outstanding. In addition, the Company has outstanding certain
classes of securities which are convertible into common shares which would, if
converted, cause the Company to exceed its authorized common shares. This is
prohibited by the laws of the State of Colorado and therefore until the Company
is able to convene a Special Meeting of the Shareholders pursuant to the proxy
solicitation requirements of Section 14 of the Securities Act of 1934, and the
law of the State of Colorado, it cannot permit such conversions, which means
the Company is or will be in default of certain terms and conditions of such
instruments. The securities affected consist of the following as of June 30,
2000:
(1) 26 shares of Series C Preferred shares,
(2) 1,080 shares of Series D Preferred shares,
(3) Warrants convertible into 2,637,450 shares; and
(4) Options convertible into 6,927,000 common shares.
The Company intends to promptly prepare and file proxy solicitation materials to
convene a Special Meeting of Shareholders to among other things, increase its
authorized common shares in an amount sufficient to permit the conversion of its
authorized and/or outstanding convertible securities.
4. INCOME (LOSS) PER SHARE
---------------------------
SFAS No. 128, Earnings per Share, requires dual presentation of basic and
diluted earnings or loss 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.
10
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
Basic income (loss) per share of common stock is computed based on the weighted
average number of common shares outstanding during the period. Diluted EPS
includes the potential conversion of stock options, warrants, convertible debt
and convertible preferred stock during the nine month period ended June 30,
2000. Stock options, warrants, convertible debt and convertible preferred stock
are not considered in diluted EPS for those periods with net losses in the
calculation, as the impact of the potential common shares (approximately
124,907,700 shares at June 30, 1999 and 108,778,563 at June 30, 2000) would be
to decrease loss per share.
5. BUSINESS RISK
-----------------
The Company and its equity investment, Nanopierce, are 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.
6. DISCONTINUED OPERATIONS
---------------------------
Liabilities of discontinued operations at June 30, 2000, 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
==========
The liabilities of $3,347,000 remain on the books of Sigma as of June 30, 2000,
pending a final judgment from the U.S. Bankruptcy Court as to the disposition of
these liabilities. Management's estimates of these liabilities have not changed
during the period ended June 30, 2000.
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.
The $67,000 loss from discontinued operations for the nine months ended June 30,
1999 represents accrued interest on the notes payable to the date of the
bankruptcy filing.
11
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
7. AFFILIATE STOCK SALES
-------------------------
During the three months ended March 31, 2000, the Company agreed to sell
1,500,000 shares of its restricted Nanopierce common shares to the holders of
the Series E Preferred Stock for $900,000. At June 30, 2000, $600,000 of the
$900,000 had been received in cash, and the remaining $300,000 was receivable,
and was secured by 60,000 shares of Nanopierce. The Company recognized a
$600,000 gain on the sale of the Nanopierce stock, which represented the
difference between the carrying value of the Company's investment in the
Nanopierce stock ($0) and the cash received. Due to the uncertainty regarding
the ultimate realization of the gain on the receivable portion of the
transaction, the receivable balance is classified as a reduction to
stockholders' equity (deficit) at June 30, 2000, and a liability has been
recorded for the unrealized gain.
During the three months ended March 31, 2000, the Company exchanged 170,000
restricted shares of Nanopierce as partial payment on the Company's convertible
debentures of $826,000 (Note 8). A gain of $278,000 was recognized on the
disposition of these shares.
8. CONVERTIBLE DEBENTURES
--------------------------
During the three months ended March 31, 2000, the Company acquired the
outstanding convertible debentures of $826,000, including accrued interest and a
related warrant to purchase 400,000 shares of common stock of the Company in
exchange for 10,000,000 shares of the Company's common stock and 170,000 shares
of the Company's Nanopierce shares. This transaction released certain assets of
the Company which had previously been pledged as collateral on the convertible
debentures.
9. STOCKHOLDERS' EQUITY
------------------------
During the nine months ended June 30, 2000, the Company issued 23,582,099 shares
of common stock in connection with Series C Preferred Stock conversions and
issued 10,000,000 shares of common stock as partial satisfaction of the
Company's convertible debentures.
On February 14, 2000, the Company's Board of Directors authorized the issuance
of 1,000 shares of a newly created Series E Convertible Preferred Stock and
approved a plan to re-incorporate the Company from Colorado to Nevada subject to
shareholder approval.
The Series E Preferred shares were issued in March 2000, bear a cumulative
dividend of six percent per year and are convertible into common stock after the
Company is re-incorporated in Nevada, after a reverse split of the shares of the
Nevada Corporation is effective, and after the authorized number of common
shares of the Nevada Company has been increased as considered necessary. The
Series E Preferred Stock is convertible into common stock equal to five percent
of the common stock outstanding of the Company on a fully diluted basis. The
intrinsic value of the beneficial conversion feature of the Series E Convertible
Preferred Stock was $100,000 and is being amortized to dividends over the period
from issuance to the earliest date of conversion which is July 15, 2000. The
Series E Preferred Stock shall have 120,000 votes per Series E Preferred share.
The votes on the Series E shares shall be identical in every other respect to
the voting rights of the holders of common stock entitled to vote.
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INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
10. LITIGATION
---------------
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
financial statements of the Company.
11. EXTRAORDINARY ITEM
-----------------------
The Company recorded an extraordinary gain of $98,000 during the three months
ended June 30, 2000 as a result of the settlement of certain accounts payable at
less than the carrying amount.
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ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS
GENERAL
The statements contained in this Form 10-QSB, if not historical, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, and involve risks and uncertainties that could
cause actual results to differ materially from the results, financial or
otherwise, or other expectations described in such forward-looking statements.
Any forward-looking statement or statements speak only as of the date on which
such statements were made, and the Company undertakes no obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which such statements are made or reflect the occurrence of unanticipated
events. Therefore, forward-looking statements should not be relied upon as
prediction of actual future results.
The independent auditors' report on the Company's financial statements for the
year ended September 30, 1999 included a "going concern" explanatory paragraph,
that describes substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to the factors prompting the
explanatory paragraph are discussed below and also in Note 1 of the audited
financial statements contained in the Company's Annual Report on Form 10-KSB for
the fiscal year ended September 30, 1999.
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
liquidation under Chapter 7 of the United States Bankruptcy Code on December 30,
1998. The liabilities of $3,347,000 remain on the books pending a final
judgment from the U.S. Bankruptcy Court as to the disposition of these
liabilities.
At June 30, 2000, the Company owns approximately 26% of the outstanding common
stock of Nanopierce Technologies, Inc. During the quarter ended September 30,
1999, the Company's ownership interest in Nanopierce was reduced to below 50%.
In the previously issued September 30, 1999, consolidated financial statements,
included in the Company's September 30, 1999 Form 10-KSB, the Company reported
Nanopierce as a consolidated subsidiary through September 30, 1999, based on
several factors which were believed to constitute a controlling financial
interest in Nanopierce by Intercell, including common ownership by the
President, Director, and CEO of the Company.
Subsequent to the original issuance of the Company's September 30, 1999,
consolidated financial statements, and based upon a further evaluation of the
factors utilized in determining a controlling financial interest, management
determined that beginning in July 1999, the Company's investment in Nanopierce
should be accounted for under the equity method of accounting.
At June 30, 1999, and through September 30, 1999, the Company's investment in
Nanopierce was $0. Therefore, as a result of the Company's change to the equity
method to account for its investment in Nanopierce, the Company suspended
recognition of its proportionate share of Nanopierce's net loss beginning with
the fourth quarter ended September 30, 1999, which was $478,000. As a result,
the Company has restated the accompanying statement of changes in stockholder's
equity by $478,000.
The Company, through its 26% - owned affiliate, Nanopierce Technologies, Inc.,
is currently engaged in the design, development and licensing of products using
its patented particle interconnect technology.
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RESULTS OF OPERATIONS
The Company had no revenue from continuing operations for the nine months ended
June 30, 2000 and 1999.
The Company had net income of $460,000 for the nine months ended June 30, 2000
compared to a net loss of $2,847,000 for the nine months ended June 30, 1999.
General and administrative expenses decreased to $290,000 for the nine months
ended June 30, 2000 from $2,726,000 for the nine months ended June 30, 1999.
This decrease is primarily due to stock, valued at $1,500,000, issued by the
Company for marketing services in the prior year periods, and expenses incurred
by Nanopierce in the 1999 periods (as described elsewhere, the Company
consolidated the operations of Nanopierce through June 30, 1999). During the
nine months ended June 30, 2000 the Company realized gains on the sales of its
Nanopierce stock of $876,000 compared to gains of $60,000 in the prior year
periods. Interest expense decreased in the 2000 period as compared to the 1999
period as a result of the Company purchasing its outstanding convertible debt.
For the three months and nine months ended June 30, 2000 no loss has been
recorded for the Company's equity in losses of Nanopierce because the Company's
investment in Nanopierce is carried at zero and therefore the equity method has
been suspended. The Company had an extraordinary gain of $98,000 for the three
and nine month periods ended June 30, 2000 as a result of the settlement of
certain accounts payable at less than the net carrying amount. The Company
recognized an impairment of investment in land of $200,000 for the three and
nine month periods ended June 30, 2000 which was based on negotiations with
potential buyers and consideration of market conditions. Although the Company
has entered into negotiations with potential buyers, as of June 30, 2000, no
agreement has been reached, and an expected disposal date has not been
determined. The impairment was due to several factors such as concern in
zoning, current negotiations with potential third-party buyers and other
factors.
LIQUIDITY AND FINANCIAL CONDITION
The Company has a working capital deficit of $4,321,000 at June 30, 2000
compared to a working capital deficit of $5,575,000 at September 30, 1999.
The Company's liabilities decreased to $4,479,000 at June 30, 2000 compared to
$5,585,000 at September 30, 1999. The decrease was due in part to a decrease of
$826,000 in convertible debentures which were repurchased by the Company and a
decrease in accounts payables of $421,000 primarily resulting from payments on
and/or settlement of various accounts.
Without gains on the sale of its Nanopierce stock, the Company's current
operations are not generating positive cash flow. To address its current cash
flow concerns during the current fiscal year the Company sold 1,000 shares of
its Series E Preferred Stock for $100,000 and sold 1,500,000 shares of its stock
of Nanopierce for cash of $900,000 of which $600,000 was received by June 30,
2000. The Company also exchanged 170,000 shares of Nanopierce, valued at
$278,000 as partial consideration for the repurchase of the Company's
convertible debentures.
Since 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 (Notes 3 and 9), sale of additional Nanopierce
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.
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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standard Board (FASB) issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. This
statement, as amended by SFAS No. 137, is effective for fiscal years beginning
after June 15, 2000. 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 impact the Company's financial
statements.
16
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 October
1, 1999 to June 30, 2000.
<TABLE>
<CAPTION>
DATE OF TITLE OF
SALE SECURITIES SHARES CONSIDERATION PURCHASER
------- ---------- ------ ------------- ---------
<S> <C> <C> <C> <C>
10/05/99 Common 12,218,767 Series C Conversion Queensway Financial
Group
10/26/99 Common 3,333,333 Series C Conversion The Gifford Fund,
Ltd.
12/31/99 Common 2,071,416 Series C Conversion Capital Venture
Group
1/03/00 Common 9,000,000 Payment of Debt Augustine Fund, LP
1/11/00 Common 2,909,119 Series C Conversion Capital Venture
Group
1/14/00 Common 1,000,000 Payment of Debt Augustine Fund, LP
1/20/00 Common 3,019,464 Series C Conversion Capital Venture
Group
</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.
17
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
Exhibit 11 Statement of Computation of Earnings per Share
Exhibit 27 Financial Data Schedule
REPORTS ON FORM 8-K
On April 10, 2000 the Company filed Form 8-K reporting the authorization and
issuance of Series E Preferred Stock, the temporary change in control of the
Company and other events.
18
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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 18, 2000 By: /s/ Paul H. Metzinger
--------------------------
Paul H. Metzinger, President,
Chief Executive Officer &
Chief Financial Officer
19
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