UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: September 30, 2000
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
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(State of other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
370 Seventeenth Street, Suite 3580
Denver, Colorado 80202
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(Address and zip code of principal executive office)
Registrant's telephone number, including area code: (303) 592-1010
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class) Name of Each
Exchange On Which
Registered
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Common Stock, NASDAQ:BB
No Par Value
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained herein, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: None.
<PAGE>
As of the close of trading on December 15, 2000, there were 99,898,188
common shares outstanding, 98,478,848 of which were held by non-affiliates. The
aggregate market value of the common shares held by non-affiliates, based on the
average closing bid and asked prices on December 15, 2000, was approximately $
4,678,000.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Company Overview
Intercell Corporation (the "Company") was incorporated under the laws of
Colorado on October 4, 1983, and was originally engaged in the marketing of
business and cellular telephone equipment. This business was discontinued and
all remaining assets of the Company were liquidated or otherwise abandoned
during 1991, and all obligations of the Company were paid or otherwise
satisfied.
From 1991 until the acquisition of Modern Industries, Inc., on July 7,
1995, (which subsequently changed its name to Energy Corporation ("Energy"),
the Company was generally inactive and reported no operating revenues prior to
the fiscal year ended December 31, 1994. During that time period, the Company
considered various new business and investment opportunities involving,
primarily, companies engaged in specialty lines of business in the wireless
communications and electronic technology industries.
At September 30, 2000, the Company is engaged in only one line of business
through its affiliate Nanopierce Technologies, Inc. It currently owns
approximately 25% of Nanopierce Technologies, Inc.
The Company proposes to restructure itself in order to enhance its
prospects for financing, future business operations and acquisitions of new
technologies. The Company plans to merge into its proposed new wholly owned
subsidiary Intercell International Corporation to change its corporate domicile
to Nevada, reverse split its common stock 1 for 20 and finally increase its
authorized capital to permit the issuance of stock to honor certain obligations
to deliver stock issuable upon outstanding convertible and exercisable
securities. This restructuring should be accomplished by March 31, 2001. The
Company is currently arranging financing to pursue new business opportunities.
The Company is investigating different companies and technologies as possible
acquisitions.
Acquisition and Disposition of Particle Interconnect Technology - Particle
Interconnect Corporation ("PI Corp"), and Transfer of Intellectual Property
and Technology to Nanopierce Technologies, Inc.
On September 3, 1996 the Company completed the merger (the "PI Merger") of
Particle Interconnect, Inc., a California corporation ("Particle California"),
with and into the Company's wholly owned Colorado subsidiary, Particle
Interconnect Corporation ("PI Corp.").
On February 26, 1998, the Company caused PI Corp, the owner of the PI
Technology and the PE Process to transfer all such properties to Nanopierce
Technologies, Inc. ("Nanopierce"), a Nevada corporation. At the time of the
acquisition, the Company acquired a 63% ownership interest in the Nanopierce
common stock and a 100% ownership interest in the Nanopierce voting Series A
Preferred Stock; resulting in control of 77% of the voting interest of
Nanopierce. Through June 30, 1999, the Company consolidated the operations of
Nanopierce. Because of the issuance of additional securities by Nanopierce and
the sales of Nanopierce stock owned by Intercell, the Company's ownership
interest in Nanopierce fell to below 50% during the fourth fiscal quarter ended
September 30, 1999 (approximately 35% at September 30, 1999). Therefore, as of
September 30, 1999, the Company has presented Nanopierce as an affiliate of the
Company and beginning in July 1999, accounted for Nanopierce under the equity
method of accounting. The Company's investment in Nanopierce is $0; therefore,
the Company suspended recognition of its proportionate share of Nanopierce
losses under the equity method of accounting beginning in July 1999. As of
September 30, 2000, the Company's ownership interest in Nanopierce is
approximately 25%.
3
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Nanopierce has designated and is commercializing its PI technology as the
Nanopierce Connection System (NCS). NCS is based on a standardized manufacturing
process using low cost raw materials that are readily available. Unlike
conventional methods, e.g., soldering, spring-loaded and pin-in-hole connectors,
NCS technology focuses on co-deposition of microscopic particles (such as
inexpensive, industrial diamond dust) and metal on a contact surface. These
particles act like conductive sandpaper, serving as force concentrators to
multiply the pressure applied to the contact area while dramatically reducing
the mating force.
Nanopierce Technologies, Inc. of Denver, Colorado, USA, is traded on the
NASDAQ stock market (OTC:BB:NPCT) as well as on the Frankfurt and Hamburg
(OTC:NPI). In addition to the 12 patents it owns, Nanopierce has numerous
applications pending, others in preparation, and various other intellectual
properties related to Nanopierce's proprietary NCS. This advanced system is
designed to provide significant improvement over conventional electrical and
mechanical interconnection methods for high density circuit boards, components,
sockets, connectors, semiconductor packaging and electronic systems.
ARIZCAN PROPERTIES, LTD.
On March 13, 1996, Arizcan Properties, Ltd., a wholly owned subsidiary of
the Company ("Arizcan"), entered into an agreement with a group, including
certain minority shareholders of the Company, to acquire a 94-acre development
property located in Pinal County, Arizona for a total purchase price of
$1,424,362. This transaction was completed on June 18, 1996. The Company
acquired this property for the purpose of constructing a manufacturing facility
for the products developed under the Antenna Technology. Due to the Company's
acquisition of M.C. Davis in 1996, this property was no longer required for
manufacturing purposes, and it is currently being held for sale. In December
1997, the Company granted a First Deed Trust on this property to secure
re-payment of the Debentures issued to the Augustine Fund, LLC (this lien was
released in March 2000 upon final settlement of the debenture obligation). This
property is currently for sale and has been written down to $300,000 to reflect
its estimated fair value less cost to sell.
In August, 2000 the Company purchased an additional 2.7 acres in the
vicinity of the 94-acres. The property was purchased for $5,900 cash and 7,500
common shares of Nanopierce Technologies, Inc. valued at $10,000.
AQUISITION AND SUBSEQUENT CESSATION OF OPERATIONS AND BANKRUPTCY OF
SIGMA 7 CORPORATION
On June 6, 1997 The Company acquired control of Sigma 7 Corporation
("Sigma") and its subsidiary BMI Acquisition Group, Inc. (BMI) (collectively
referred to as "Sigma"). On June 5, 1998 the Company discontinued all
operations of Sigma. Due to the cancellation of financing for reasons
completely unrelated to the operations of Sigma and the significant price
erosion on a worldwide basis for memory modules, Sigma did not have the
capitalization to continue. On December 31, 1998, Sigma filed for voluntary
liquidation under Chapter 7 of the U.S. Bankruptcy Code.
Subsequent to the Company's 1997 acquisition of Sigma, Sigma issued
$1,712,000 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 to place 1,050,000 shares of Nanopierce common stock
in escrow in July 1999, to be held for the benefit of the Sigma investors. The
agreement stipulated that the 1,050,000 shares may be sold in order to pay the
Sigma investors. The Agreement provided that no sale of shares may be made
below $2.00 per share, and the volume of sales could not exceed 20% of the
average weekly trading volume of the common stock of Nanopierce prior to the
date of the transaction.
4
<PAGE>
During year ended September 30, 2000, 562,000 of the 1,050,000 Nanopierce
shares held in escrow were sold at prices ranging from $2.01 to $6.44 per share,
resulting in cash proceeds of approximately $2,412,000 (the aggregate market
value of the shares sold), the proceeds of which were utilized to pay the Sigma
7 note holders principal of $1,712,000 and interest of $700,000. The remaining
488,000 shares of Nanopierce held in escrow were transferred to the escrow agent
as consideration for services rendered. The transfer of these shares (with a
carrying value of $0, a market value of $4.00 per share, and an aggregate market
value of $1,952,000), resulted in a gain on investment in affiliate stock of
$1,952,000, as well as expense of $1,952,000, both presented within gain from
discontinued operations. Remaining Sigma 7 liabilities of $114,000 were
de-recognized as a result of a final judgment regarding Sigma 7 from the U.S.
Bankruptcy Court. In addition, $300,000 of BMI liabilities were satisfied in
connection with the Company's exchange of 170,000 Nanopierce common shares for
debt. These transactions and events resulted in a gain of $2,126,000, presented
as a gain on disposal of subsidiaries.
Loss from discontinued operations for fiscal 1999 represents $67,000 of
accrued interest on the notes payable of Sigma prior to Sigma filing for
voluntary liquidation under the U.S. Bankruptcy Code.
Liabilities of discontinued operations at September 30, 2000, consists of
Sigma liabilities as follows:
Accounts payable and accrued liabilities $ 872,000
Notes payable 240,000
Other liabilities 109,000
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$ 1,221,000
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The liabilities of $1,221,000 remain on the books of BMI as of
September 30, 2000 pending a final judgment from the U.S. Bankruptcy Court as
to the disposition of these liabilities.
DECEMBER 1997 $1,500,000 AUGUSTINE DEBENTURE FINANCING
In December 1997, the Company issued convertible debentures and attached
warrants to The Augustine Fund, LLC for $1,500,000 ("Debenture Offering"). This
funding was used for general working capital for the Company, advances to Sigma
to continue the operations of Sigma and to otherwise reduce current obligations
of the Company.
Effective December 1, 1999, at the option of the debenture holder, $91,425
of principal and $10,375 of accrued interest were converted into 10,000,000
shares of the Company's common stock at 80% of the market price of the common
stock at the date of conversion ($.01 per share).
During the three months ended March 31, 2000, the Company acquired the
remaining outstanding convertible debentures of $735,000, including accrued
interest and a related warrant to purchase 400,000 shares of common stock of
the Company, as well as a $300,000 note payable by Sigma to the debenture holder
(Note 7), in exchange for 170,000 shares of the Company's Nanopierce shares,
which had a market value on the date of the transaction of $5.13 per share.
This transaction released certain assets of the Company which had previously
been pledged as collateral on the convertible debentures.
Employees
As of September 30, 2000, the Company and its subsidiaries had 1 employee.
The Company's employee is not represented by a labor union or subject to a
collective bargaining agreement. The Company believes that its relation with
its employee is satisfactory.
5
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
Principal Executive Offices
The principal executive office of the Company is located at 370 Seventeenth
Street, Suite 3580, Denver, Colorado 80202. The monthly lease payments are
$2,072. Nanopierce currently maintains its executive and administrative office
in the same space as the Company, and at this time pays the rent for such space.
ITEM 3. LEGAL PROCEEDINGS
On November 30, 1999, the Company and Nanopierce Technologies, Inc.
obtained a court order of Declaratory Judgment that it has incontestable and
exclusive ownership of all patents, patent applications, licenses, trade names,
trademarks, trade secrets and other intellectual properties relating to the PI
Technology. In addition, as part of the court order, a permanent injunction has
been entered against Mr. DiFrancesco prohibiting him from, among other things,
directly or indirectly, privately or publicly, making any statements to any
actual or potential customer, licensee or investor of the Company or its related
entities, or that he has any ownership interest in the Company's intellectual
property.
As part of the Settlement Agreement, Mr. DiFrancesco will receive all
accrued and future royalty payments from the licenses, which were outstanding as
of September 3, 1996. The Company is prohibited from materially interfering
with Mr. DiFrancesco's rights to collect such royalties. The Company also
agreed to grant to Mr. DiFrancesco a two-year royalty bearing, non-exclusive
license to use the PI Technology for sockets, except for sockets used in the
automated handling and testing of integrated circuits and limited rights to use
the technology for layer to layer interconnections for one prospective customer.
Renewal of the license is dependent upon Mr. DiFrancesco achieving certain
minimum sales requirements.
Mr. DiFrancesco is currently appealing the November 30, 1999 court order.
The appeal has been fully briefed and the parties are awaiting the ruling of the
Colorado Court of Appeals.
Other than the above mentioned lawsuits, to the knowledge of the management
of the Company there are no material legal proceedings pending or threatened
(other than routine litigation incidental to the business) to which the Company
(or any officer, director, affiliate of beneficial owner of more than 5% of the
Company's voting securities) is party or to which property of the Company is
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no meetings of security holders during the period covered by
this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
The Common Stock is presently traded on the over-the-counter market on the
OTC Bulletin Board maintained by the National Association of Securities Dealers,
Inc. (the "NASD") The NASDAQ symbol for the Common Stock is "INCE." The
following table sets forth the range of high and low bid quotations for the
Common Stock of each full quarterly period during the fiscal year or equivalent
period for the fiscal periods indicated below. The quotations were obtained
from information published by the NASD and reflect interdealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
6
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<TABLE>
<CAPTION>
1999 FISCAL YEAR HIGH LOW
---------------- ---- ---
<S> <C> <C> <C>
December 31, 1998 $.01 $.01
March 31, 1999 .05 .04
June 30, 1999 .04 .04
September 30, 1999 .02 .02
2000 FISCAL YEAR
----------------
December 31, 1999 $.08 $.01
March 31, 2000 .47 .10
June 30, 2000 .28 .06
September 30, 2000 .09 .05
</TABLE>
As of September 30, 2000, there were approximately 527 holders of record of
the Company's Common Stock. Based upon information provided to the Company by
persons holding securities for the benefit of others, it is estimated that the
Company has in excess of 4,500 beneficial owners of its Common Stock as of that
date.
Dividend Policy
While there currently are no restrictions prohibiting the Company from
paying dividends to its shareholders, the Company has not paid any cash
dividends on its Common Stock in the past and does not anticipate paying any
dividends in the foreseeable future. Earnings, if any, are expected to be
retained to fund future operations of the Company. There can be no assurance
that the Company will pay dividends at any time in the future.
Recent Sales of Unregistered Securities
NONE
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The statements contained in this Form 10-KSB, if not historical, are
forward-looking statements 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. Therefore,
forward-looking statements should not be relied upon as a prediction of actual
future results or occurrences. In this regard, see "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-General" and "-Trends
and Uncertainties."
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
Certain Statements contained in this Form 10-KSB contain "forward-looking
statements" within the meaning of the private Securities Litigation Reform Act
of 1995. These are statements that do not relate strictly to historical or
current facts. Such forward-looking statements involve known and unknown risks
and uncertainties. The Company's actual results could differ materially from
the results discussed in the forward-looking statements. Factors that could
cause or contribute to such differences are discussed below. These risks and
uncertainties include, without limitation:
- The rate of market development and acceptance of the interconnect
technology the industry within which its investee, Nanopierce is
concentrating its business activities.
- The limited revenues and significant operating losses generated to date;
- The possibility of significant ongoing capital requirements
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- The ability of the Company to compete successfully with the other
providers of Interconnect technologies. See Description of Business
- Intellectual Property;
- The ability of the Company to secure additional financing as and when
necessary;
- The ability of the Company to retain the services of its key management,
and to attract new members of the management team;
- The ability of the investee to effect and retain appropriate patent,
copyright and trademark protection of its products;
For the purposes of the safe harbor protection for forward-looking
statements provided by the Private Securities Litigation Reform Act of 1995,
readers are urged to review the list of certain important factors set forth in
"Cautionary Statement for Purposes of the 'Safe Harbor' Provisions of the
Private Securities Litigation Reform Act of 1995".
The Company undertakes no obligation to release publicly any revisions to
the forward-looking statements or to reflect events or circumstances after the
date of this Report.
General
The following discussion should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto as of September 30,
2000, and for each of the years in the two-year period then ended. This report
contains forward-looking statements within the meaning of Section 27 A of the
Securities Act of 1933, as amended, and Section 31 E of the Securities Exchange
Act of 1934, as amended. Actual results could differ materially from those
anticipated in forward-looking statements.
Plan of Operation
On February 26, 1998, Intercell Corporation transferred all of the
intellectual property (which had a historical carrying value of zero) of its
wholly owned subsidiary Particle interconnect Corporation to Nanopierce
Technologies, Inc. for stock. Intercell Corporation owns approximately 25% of
the outstanding common stock of Nanopierce Technologies, Inc. on a diluted basis
as of September 30, 2000.
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. The market for Sigma 7 Corporation's main product
line of memory modules experienced significant price erosion on a worldwide
basis. Sigma 7 did not have the capitalization to continue and has sought
protection under U.S. bankruptcy laws. The Company recognized a loss from
discontinued Sigma 7 operations of approximately $67,000 in 1999.
Subsequent to the Company's 1997 acquisition of Sigma, Sigma issued
$1,712,000 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 to place 1,050,000 shares of Nanopierce common stock
in escrow in July 1999, to be held for the benefit of the Sigma investors. The
agreement stipulated that the 1,050,000 shares may be sold in order to pay the
Sigma investors. The Agreement provided that no sale of shares may be made
below $2.00 per share, and the volume of sales could not exceed 20% of the
average weekly trading volume of the common stock of Nanopierce prior to the
date of the transaction.
8
<PAGE>
During year ended September 30, 2000, 562,000 of the 1,050,000 Nanopierce
shares held in escrow were sold at prices ranging from $2.01 to $6.44 per share,
resulting in cash proceeds of approximately $2,412,000 (the aggregate market
value of the shares sold), the proceeds of which were utilized to pay the Sigma
7 note holders principal of $1,712,000 and interest of $700,000. The remaining
488,000 shares of Nanopierce held in escrow were transferred to the escrow agent
as consideration for services rendered. The transfer of these shares (with a
carrying value of $0, a market value of $4.00 per share, and an aggregate market
value of $1,952,000), resulted in a gain on investment in affiliate stock of
$1,952,000, as well as expense of $1,952,000, both presented within gain from
discontinued operations. Remaining Sigma 7 liabilities of $114,000 were
de-recognized as a result of a final judgment regarding Sigma 7 from the U.S.
Bankruptcy Court. In addition, $300,000 of BMI liabilities were satisfied in
connection with the Company's exchange of 170,000 Nanopierce common shares for
debt. These transactions and events resulted in a gain of $2,126,000, presented
as a gain on disposal of subsidiaries.
Loss from discontinued operations for fiscal 1999 represents $67,000 of
accrued interest on the notes payable of Sigma prior to Sigma filing for
voluntary liquidation under the U.S. Bankruptcy Code.
In December 1997, the Company issued convertible debentures and attached
warrants for $1,500,000 of this total, $750,000 is the Series A-1 debenture and
$750,000 is the Series A-2 debenture. The convertible debentures were, at the
time of issue, unsecured obligations of the Company. The Company in the Spring
of 2000, paid in full the issuer of the convertible debentures. The Company
issued 10,000,000 of its common shares and transferred 170,000 common shares of
its holdings in Nanopierce Technologies, Inc. as payment in full of the
convertible debentures and cancellation of the outstanding warrants issued in
conjunction with the debentures.
In March 2000, the Company issued 1,000 shares of its Series E Preferred
Shares to certain third parties and at that time the Company also transferred
1,500,000 shares to the third parties in return for $600,000 in cash and a
$300,000 note receivable. Such funds are to be used in the restructuring of the
Company.
The Company proposes to restructure itself in order to enhance its
prospects for financing, future business operation and acquisitions of new
technologies. The Company plans to merge into its proposed wholly owned
subsidiary Intercell International Corporation, to change its corporate domicile
to Nevada, effect a 1 for 20 reverse stock split and increase its authorized
capital to permit the issuance of stock to honor certain obligations to deliver
stock assumable upon outstanding convertible and exercisable securities.
Results of Operations
Revenues
The Company had no revenue from continuing operations for the year ended
September 30, 2000 or 1999.
General and Administrative Expenses
General and Administrative Expenses were $452,000 in the year ended
September 30, 2000 compared to $2,878,000 for 1999. The decrease is primarily
attributable to the Company no longer consolidating Nanopierce and therefore no
longer recognizes the general and administrative expenses of Nanopierce. The
decrease is also attributable to reductions in professional fees, consulting
fees, public relation fees and rent.
During the fiscal year of 2000 the Company wrote down the carrying amount
of the Arizcan property from $500,000 to $300,000 based upon an outstanding
offer to buy the property. As part of the write down, the Company took
impairment on the value of the land of approximately $216,000.
9
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Research and Development Expenses
Research and Development expenses were $0 in the fiscal year of 2000
compared to $11,000 in the fiscal year of 1999. The $11,000 in research and
development expense for the fiscal year of 1999 is attributable to Nanopierce.
The Company incurred no research and development expense in the fiscal year of
2000 because it has focused on its restructuring over the last year.
Other Income/Expense
The Company recognized a gain of $1,481,000 in the fiscal year of 2000 on
the sale and exchange of 1,677,500 shares of Nanopierce common stock.
During the fiscal year ended 1999, the Company's ownership in Nanopierce
fell below 50% to approximately 35%. As a result, the Company accounts for its
ownership in Nanopierce under the equity method of accounting. Because of the
change in ownership the Company's 1999 financial statements have been restated
to reflect such change.
The Company earned $5,000 in interest income in fiscal year 2000 compared
to $6,000 in fiscal year 1999. The Company incurred interest expense of $32,000
in fiscal year 2000 compared to $171,000 in fiscal year 1999. The decrease can
be attributed to the redemption of the outstanding convertible debt in March
2000.
Discontinued Operations
Subsequent to the Company's 1997 acquisition of Sigma, Sigma issued
$1,712,000 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 to place 1,050,000 shares of Nanopierce common stock
in escrow in July 1999, to be held for the benefit of the Sigma investors. The
agreement stipulated that the 1,050,000 shares may be sold in order to pay the
Sigma investors. The Agreement provided that no sale of shares may be made
below $2.00 per share, and the volume of sales could not exceed 20% of the
average weekly trading volume of the common stock of Nanopierce prior to the
date of the transaction.
During year ended September 30, 2000, 562,000 of the 1,050,000 Nanopierce
shares held in escrow were sold at prices ranging from $2.01 to $6.44 per share,
resulting in cash proceeds of approximately $2,412,000 (the aggregate market
value of the shares sold), the proceeds of which were utilized to pay the Sigma
7 note holders principal of $1,712,000 and interest of $700,000. The remaining
488,000 shares of Nanopierce held in escrow were transferred to the escrow agent
as consideration for services rendered. The transfer of these shares (with a
carrying value of $0, a market value of $4.00 per share, and an aggregate market
value of $1,952,000), resulted in a gain on investment in affiliate stock of
$1,952,000, as well as expense of $1,952,000, both presented within gain from
discontinued operations. Remaining Sigma 7 liabilities of $114,000 were
de-recognized as a result of a final judgment regarding Sigma 7 from the U.S.
Bankruptcy Court. In addition, $300,000 of BMI liabilities were satisfied in
connection with the Company's exchange of 170,000 Nanopierce common shares for
debt. These transactions and events resulted in a gain of $2,126,000, presented
as a gain on disposal of subsidiaries.
Net Income/Loss
The Company recognized a net income of $3,195,000 in the fiscal year 2000,
compared to a net loss of $3,057,000 in the fiscal year 1999. The change is
attributable to the gains realized upon the sale and exchange of Nanopierce
common shares for cash and in connection with the extinguishment of liabilities,
an overall decrease in general and administrative expenses, and the change to
the equity accounting method for the Company's investment in Nanopierce
Technologies, Inc.
10
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Income Taxes
As of September 30, 2000 the Company had a net operating loss carryover for
federal and state income tax purposes. The benefit of these net operating loss
carry forwards 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
carry forwards.
Liquidity and Capital Resources
During the year ended September 30, 2000 the Company's cash and cash
equivalents from continuing operations increased by $90,000. This increase was
due to net cash provided by the sales of stock of Nanopierce and by cash
provided by financing activities.
During the fiscal year 2000 the Company had no capital expenditures.
The Company proposes to restructure itself in order to enhance its
prospects for financing, future business operation and acquisitions of new
technologies.
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, attempt to raise additional capital
through the sale of additional capital stock or through the issuance of debt,
or sell shares of Nanopierce common stock held as an investment by the Company.
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 further issuance of debt or equity in the Company.
Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS NO. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement, as amended, 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.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements. SAB No. 101, as amended by SAB No. 101A and SAB No. 101B,
is effective no later than the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. SAB No. 101 provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition issues.
Currently, the Company believes that it complies with the accounting and
disclosure described in SAB No. 101; therefore, management believes that SAB No.
101 will not impact the Company's financial statements.
ITEM 7. FINANCIAL STATEMENTS
The Consolidated Financial Statements and related financial information
required to be filed are indexed on page F-2 and are incorporated herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NONE.
11
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name and Age Position Period
<S> <C> <C>
Paul H. Metzinger (61) Director, President and Chief May 28, 1997 to present.
Executive Officer
Charles E. Bauer, Ph.D. (48) Director November 22, 1996 to present.
Kristi J. Kampmann (28) Secretary July 1999 to present.
Kevin B. Waide (48) Director January 1998 to present.
R. Mark Richards (50) Director February 2000 to present
Mallory Smith (51) Director February 2000 to present
</TABLE>
The directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. The officers are
elected by the Board of Directors at its annual meeting immediately following
the shareholders, annual meeting and hold office until they resign or are
removed from office. There are no family relationships that exist between any
director, executive officer, significant employee or person nominated or chosen
by the Company to become a director or executive officer. The Company has not
established an executive committee of the Board of Directors or any committee
that would serve similar functions such as an audit, incentive compensation or
nominating committee.
Biographical Information on Officers and
Directors and Significant Employees
Paul H. Metzinger. Mr. Metzinger has been President, Chief Executive
Officer and a director of the Company since May 28, 1997. In addition, he
serves as the President and Chief Executive Officer and a Director of
Nanopierce. Prior to becoming a director and officer of the Company, Mr.
Metzinger served as Intercell's General Counsel and practiced securities law in
Denver, Colorado for over 30 years.
Charles E. Bauer, Ph.D. Dr. Bauer has served as a director of the Company
since November 22, 1996. Dr. Bauer has been the Managing Director of TechLead
Corporation, an international consulting firm, since 1990.
Dr. Bauer received his B.S. in Materials Science and Engineering from
Stanford University in 1972, his M.S. in Metallurgical Engineering from Ohio
State University in 1975, his Ph.D. in Materials Science and Engineering from
Oregon Graduate Center, Beaverton, Oregon in 1980 and his M.B.A. from the
University of Portland in 1988.
12
<PAGE>
Kristi J. Kampmann. Ms. Kampmann has been Secretary of the Company since
July 1999. In addition, she has served as the Secretary of Nanopierce, since
February 1998 and the Chief Financial Officer of Nanopierce since October 15,
1999. Since June 1997, she has been the administrative assistant to the Chief
Executive Officer, Chief Financial Officer and the Executive Vice President of
Technology & Marketing and paralegal for Nanopierce. From April 1996 to June
1997, she served as a paralegal and administrative assistant for Paul H.
Metzinger, P.C. Ms. Kampmann graduated from the Denver Paralegal Institute in
1996. Ms. Kampmann received a B.A. from the University of Minnesota in Morris
in 1995, majoring in Political Science with a minor in Business Management. She
currently is attending the University of Colorado at Denver, where she is
completing work on an M.B.A.
Kevin B. Waide. Mr. Waide has been a director of the Company since January
28, 1998. Mr. Waide's experience includes six years of sales and marketing for
a large, independent, Denver-based accounting firm and fourteen years in various
positions in the securities industry. Mr. Waide has an extensive background in
business analysis, mergers, acquisitions and franchising. Mr. Waide is a
graduate of Central College in Pella, Iowa.
R. Mark Richards. Mr. Richards has been a director of the Company since
February 2000. Mr. Richards graduated in 1990 from Colorado School of Mines, in
Golden Colorado, with a Bachelor of Science-Engineering. He also attended the
University of Colorado in Boulder and completed a course in Project Management.
Mr. Richards worked for the Public Service Company of Colorado for 15 years in
various positions among them the Business Development Director among other
positions, and currently works as a Program Manager in Radiological Engineering
at Rocky Flats Environmental Technology Site.
Mallory Smith. CPA. Mr. Smith has been a director of the Company since
February 2000. He is currently self-employed as a Certified Public Accountant
with six employees. He has a client base of approx. 450 tax clients, 100 monthly
small business clients, and 25 business consulting clients. Mr. Smith graduated
from Queens College, New York with a B.S. Major Accounting, Mathematics. He has
been a member of the Small Business Finance Company Board since 1983, and served
on various other boards over the years.
Section 16(a) Beneficial
Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, and the
rules thereunder require the Company's officers and directors, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission and to furnish the Company with copies.
Based solely on its review of the copies of the Section 16(a) forms
received by it, or written representations from certain reporting persons, the
Company believes that, during the last fiscal year, all Section 16(a) filing
requirements applicable to its officers, directors and greater than 10%,
beneficial owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid by the Company to the Chief Executive Officer ("CEO") and any other
executive officer whose total annual salary and bonus exceeded $100,000 for the
fiscal year ended September 30, 2000 and 1999 (the "Named Executive Officers"):
13
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------
Name & Principal Year Salary Bonus Other Annual
Position ($) ($) Compensation
($)
<S> <C> <C> <C> <C>
Paul H. Metzinger, 1999 $ 17,500 $ -0- $ -0-
Director, 2000 $ 90,000 $ -0- $ -0-
President & CEO(1)
Long Term Compensation
------------------------------------------------------------
Awards Payouts
------------------------------------------------------------
Name & Principal Year Restricted Securities LTIP All Other
Position Stock Underlying Payouts Compensation
Awards ($) Options ($) ($)
(#)
<S> <C> <C> <C> <C> <C>
Paul H. Metzinger, 1999 -0- -0- $ -0- $ -0-
Director, 2000 -0- -0- $ -0- $ -0-
President & CEO(1)
<FN>
1 Paul Metzinger was elected President and Chief Executive officer on May 28, 1997. He
is compensated pursuant to a written Employment Agreement, dated June 1, 1998 at an annual
salary of $210,000.00. For the period of October 1, 1998 through September 30, 1999 Mr.
Metzinger was paid $17,500, the balance of Mr. Metzinger's salary has been accrued to be
paid at a later date. For the period of October 1, 1999 through September 30, 2000 Mr.
Metzinger's salary was accrued by the Company to be paid at a later date. The wife of Mr.
Metzinger is the holder of presently exercisable options to acquire 650,000 shares at
$0.50 per share and 1,700,000 shares at $0.3750 per share issued September 30, 1997 and
expiring September 30, 2007. Mr. Metzinger should be deemed the beneficial owner of such shares.
</TABLE>
The foregoing compensation table does not include certain fringe benefits
made available on a nondiscriminatory basis to all Company employees such as
group health insurance, dental insurance, long-term disability insurance,
vacation and sick leave. In addition, the Company makes available certain
non-monetary benefits to its executive officers with a view to acquiring and
retaining qualified personnel and facilitating job performance. The Company
considers such benefits to be ordinary and incidental business costs and
expenses. The aggregate value of such benefits in the case of each executive
officer listed in the above table, which cannot be precisely ascertained but
which is less than 10% of the cash compensation paid to each such executive
officer, is not included in such table.
Option/SAR Grants Table
The following table provides information relating to the grant of stock
options to the Company's executive officers during the fiscal year ended
September 30, 2000. No options were granted during the fiscal year ended
September 30, 2000.
14
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year End Option/SAR Values
The following table provides information relating to the exercise of stock
options during the fiscal year ended September 30, 2000 by the Company's
executive officers and the 1999 fiscal year-end value of unexercised options.
No options were exercised during the fiscal year ended September 30, 2000.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year,
and Fiscal Year-End Option/SAR Values
Number of Value of
Securities Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at Fiscal at FY-
Year (1) End ($) (1)
-----------------------------------
Shares
Name Acquired on Value Exercisable/ Exercisable/
---- Exercise (#) Realized Unexercisable Unexercisable
------------ -------- ------------- -------------
(#)
---
<S> <C> <C> <C> <C>
Paul H. Metzinger 0 0 2,350,000/0 0/0
Charles E. Bauer 0 0 100,000/0 0/0
Kristi J. Kampmann 0 0 200,000/0 1,500/0
Kevin B. Waide 0 0 100,000/0 1,000/0
<FN>
1 The average of the closing bid and asked price of the Common Stock on September 30, 2000($0.06) was used to calculate the
option value.
</TABLE>
Director Compensation
Non-employee directors of the Company have in the past and will in the
future receive $1,500 for their attendance at each regular or special meeting of
the board of directors. In addition, the board of directors intends to grant
non-employee directors options to purchase shares of Common Stock on a
case-by-case basis in the future. The basis for determining the number of
options to award future non-employee directors of the Company will be based on a
variety of factors including the following: experience of the director in the
industries the Company currently competes; previous management experience; the
size of the entity the director is currently or was formerly associated with;
and the overall value the current Board of Directors believes that non-employee
director will provide to the Company.
Employment Agreements
On June 1, 1998, the Company entered into a certain employment agreement
(the "Employment Agreement") with Paul H. Metzinger to serve as President and
Chief Executive Officer of the Company (an "Employee"). The Employment
Agreement is for a period of four years beginning June 1, 1998. Any extension
or renewal of the Employment Agreement must occur at least three months prior to
the end of the initial term or any renewal term and absent mutual agreement of
the parties, the failure to conclude such extension or renewal by such date
shall be deemed notice to the Company and the Employee, that the relevant
Employment Agreement shall not be extended. Under such Employment Agreement,
Mr. Metzinger will receive an annual salary of $210,000 (each referred to as an
"Annual Salary") for the year. If an Employment Agreement is subsequently
extended by the Board, the Employee's Annual Salary will increase by the amount,
if any, in which the Consumer Price Index increased during the previous year.
The Employee also is entitled to participate in the Company's bonus and stock
option plans and participate in the customary employee benefits programs
maintained by the Company, including health, life and disability insurance to
the extent provided to other senior executives of the Company.
15
<PAGE>
The Company or an Employee may terminate the Employment Agreement at any
time with or without cause. In the event the Company terminates an Employment
Agreement for cause or the Employee terminates his Employee Agreement without
cause, all of such Employee's rights to compensation would cease upon the date
of his termination. If the Company terminates an Employment Agreement without
cause, the Employee terminates his Employment Agreement for cause, or in the
event of a change in control, the Company will pay to the Employee all
compensation and other benefits that would have accrued and/or been payable to
the Employee during the full term of the Employment Agreement.
A change of control is considered to have occurred when, as a result of any
type of corporate reorganization, execution of proxies, voting trusts or similar
arrangements, a person or group of persons (other than incumbent officers,
directors and principal shareholders of the Company) acquires sufficient control
to elect more than a majority of the Company's Board of Directors, acquires 50%
or more of the voting shares of the Company, or the Company adopts a plan of
dissolution of liquidation. The Employment Agreement also include a noncompete
and nondisclosure provisions in which each Employee agrees not to compete with
or disclose confidential information regarding the Company and its business
during the term of the Employment Agreement and for a period of one year
thereafter.
Compensation Pursuant to Plans
Stock Option Plans. During the fiscal year ended September 30, 2000, the
Company did not grant any options to purchase shares of common stock to
directors, officers, employees and consultants of the Company and its
subsidiaries. As of September 30, 2000, 6,927,000 options are exercisable.
The Company has one Stock Option Plan titled the Intercell Corporation 1995
Compensatory Stock Option Plan (the "1995 Plan"). The Company has reserved
14,000,000 shares of common stock for issuance under the 1995 Plan.
Compensation Committee Interlocks
and Insider Participation
The Company does not have a compensation committee; all decisions on the
compensation of executive officers and directors of the Company are made by the
full board of directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial Ownership
The following table sets forth certain information regarding the beneficial
ownership of outstanding shares of Common Stock as of September 30, 2000, by (a)
each person known by the Company to own beneficially 5% or more of the
outstanding shares of Common Stock, (b) the Company's directors, Chief Executive
Officer and executive officers whose total compensation exceeded $100,000 for
the last fiscal year, and (c) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
% of
Name and Address of Beneficial Owner Number of Shares Outstanding (5)
<S> <C> <C>
Paul H. Metzinger, President
Chief Executive Officer and Director
370 Seventeenth Street, Suite 3580
Denver, CO 80202 3,852,541 (1/6) 3.86%
Cheri L. Perry
3236 Jellison Street
Wheat Ridge, CO 80033 3,852,541 (1/6) 3.86%
16
<PAGE>
Charles E. Bauer, Chief Operating
Officer and Director
31312 Island Drive
Evergreen, CO 80439 100,000 (2) 0.10%
Kristi J. Kampmann, Secretary
370 17th Street, Suite 3580
Denver, CO 80202 200,000 (3) 0.20%
Kevin B. Waide, Director
5790 Yukon Street
Arvada, CO 80002
100,000 (4) 0.10%
Mallory Smith, Director
- -
R. Mark Richards
Technology Investors, LLC 7
3892 Weld County Road 45
P.O. Box 388
Hudson, CO 80642
- -
Timothy Solomon
Gemini Investments, Ltd. 8
Cayman National Building
Elgin Avenue
Grand Cayman Islands
B.W.I.
- -
H. Glenn Bagwell, Jr.
Triad Technologies, LLC 9
3005 Anderson Drive, Suite 294
Raleigh, NC 27609
- -
All officers and directors as a group
(6 persons) 4,252,5416 (6) 4.26%
<FN>
(1) Includes the following shares and options currently held by corporations whose
sole shareholder, president and director is Cheri L. Perry, the wife of Mr.
Metzinger: 1,419,340 shares owned of record and beneficially; 650,000 shares of
common stock subject to a presently exercisable option, exercisable at $.050 per
share, issued September 30, 1997, expiring September 30, 2007; and 1,700,000
shares of common stock subject to a presently exercisable option, exercisable at
$0.3750 per share, issued September 30, 1997, expiring September 30, 2007. Mr.
Metzinger owns directly, of record and beneficially, 83,201 shares of common
stock. His wife should be deemed the beneficial owner of such shares. Mr.
Metzinger's and his wife's stock ownership are not duplicated in this computation.
(2) Includes 100,000 shares of common stock subject to a presently exercisable
option, exercisable at $0.3750 per share, issued September 30, 1997, expiring on
September 30, 2007.
(3) Includes 50,000 shares of common stock subject to a presently exercisable
option, exercisable at $0.3750 per share, issued September 30, 1997, expiring on
September 30, 2007. Includes 150,000 shares of common stock subject to a
presently exercisable option, exercisable at $0.05 per share, issued June 1, 1998
and expiring June 1, 2008.
(4) Shares underlying a presently exercisable option, at $0.10 per share, issued
February 6, 1998, expiring February 6, 2008.
(5) Based on 99,898,188 shares of common stock issued and outstanding on September
30, 2000.
(6) Does not include 33,868,929 shares underlying certain convertible securities
held by such person, which cannot be converted and the underlying shares issued by
the Company unless and until the Company, after shareholder approval, increases
its authorized capital sufficient to issue such common shares. It is the intent of
such person to convert the convertible securities immediately after the increase
in authorized capital has been approved and made effective. Following such
issuance and issuances to others persons holding similar convertible securities
the Company will have, on a fully diluted basis, 172,087,546 shares issued and
outstanding. On that basis such person will beneficially own 21.9% of the then
issued and outstanding shares.
17
<PAGE>
(7) Does not include 6,020,000 shares underlying certain convertible securities held
by such person, which cannot be converted and the underlying shares issued by the
Company unless and until the Company, after shareholder approval, increases its
authorized capital sufficient to issue such common shares. It is the intent of
such person to convert the convertible securities immediately after the increase
in authorized capital has been approved and made effective. Following such
issuance and issuances to other persons holding similar convertible securities the
Company will have, on a fully diluted basis, 172,087,546 shares issued and
outstanding. On that basis such person will beneficially own 3.5% of the then
issued and outstanding shares.
(8) Does not include 9,627,881 shares underlying certain convertible securities held
by such person, which cannot be converted and the underlying shares issued by the
Company unless and until the Company, after shareholder approval, increases its
authorized capital sufficient to issue such common shares. It is the intent of
such person to convert the convertible securities immediately after the increase
in authorized capital has been approved and made effective. Following such
issuance and issuances to other persons holding similar convertible securities the
Company will have, on a fully diluted basis, 172,087,546 shares issued and
outstanding. On that basis such person will beneficially own 5.5% of the then
issued and outstanding shares.
(9) Does not include 10,182,583 shares underlying certain convertible securities
held by such person, which cannot be converted and the underlying shares issued by
the Company unless and until the Company, after shareholder approval, increases
its authorized capital sufficient to issue such common shares. It is the intent of
such person to convert the convertible securities immediately after the increase
in authorized capital has been approved and made effective. Following such
issuance and issuances to other persons holding similar convertible securities the
Company will have, on a fully diluted basis, 172,087,546 shares issued and
outstanding. On that basis such person will beneficially own 6.2% of the then
issued and outstanding shares.
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NONE.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report.
Exhibits. The following is a complete list of exhibits filed as
part of this Form 10-KSB. Exhibit numbers correspond to the
numbers in the Exhibit Table of Item 601 of Regulation S-B.
EXHIBIT NO. DESCRIPTION
2.1(7) Agreement and Plan of Reorganization, dated July 7, 1995,
between the Company and Modern Industries, Inc.
2.2(3) Plan and Agreement of Merger dated September 3, 1996, by and
between Particle Interconnect, Inc., Particle Interconnect
Corporation and the Company.
2.3(4) Agreement and Plan of Merger dated October 14, 1996, by and
between AC Magnetics, Inc., doing business as M.C. Davis
Company, Cellular Magnetics, Inc. and the Company.
2.4(5) Stock Purchase Agreement dated July 18, 1997 between Intercell
Corporation and Intercell Technologies Corporation and Addendum
2.5(6) Stock Sale and Purchase Agreement dated June 6, 1997 between
Intercell Corporation and Sigma Corporation.
2.6(11) Offer for Development Agreement of Microlink Technologies
Corporation.
2.7(9) Stock Purchase Agreement dated February 6, 1998 by and among
Intercell Corporation, California Tube Laboratory and Jaymark,
Inc.
18
<PAGE>
2.8(10) Agreement dated February 26, 1998 by and among Intercell
Corporation, Particle Interconnect Corporation and Sunlight
Systems, Ltd.
2.9(12) Securities Purchase Agreement between the Company and the
Augustine Fund, LLC, dated December 3, 1998.
3.1(7) Articles of Incorporation of the Company, and all amendments
thereto, as amended.
3.2(7) Bylaws of the Company.
4.1(7) Form of Common Stock Certificate.
4.2(11) Certificate of Designation for Series B Preferred Stock is
included in the Company's Articles of Incorporation filed as
Exhibit 3.1 and incorporated herein by reference.
4.3(1) Specimen of Warrant attached to Series B Preferred Stock.
4.4(11) Certificate of Designation for Series C Preferred Stock is
included in the Company's Articles of Incorporation filed as
Exhibit 3.1 and is incorporated herein by reference.
4.5(7) Form of Warrant attached to Series C Preferred Stock.
4.6(11) Certificate of Designation for Series D Preferred Stock
4.7(7) Specimen of Registration Rights Agreement for Series B
Preferred Stock.
4.8(7) Specimen of Registration Rights Agreement for Series C
Preferred Stock.
4.9(7) Plan of Liquidating Dissolution of Energy Corporation dated
July 8, 1996.
10.1(2) 1995 Compensatory Stock Option Plan.
10.2(7) Assignment Agreement dated September 3, 1996, assigning certain
Patents and Patent Applications and trade secrets relating to
the PI Technology to the Company, as assignee, and Particle
Interconnect, Inc. as assignor.
10.3(7) Assignment Agreement dated June 5, 1996, assigning the Patent
Application for the Antenna Technology to the Company, as
assignee, and El-Badawy Amien El-Sharaway, as assignor.
10.4(13) Employment and Non-Disclosure Non-Competition Agreement, dated
June 1, 1998, between Paul H. Metzinger and the Company.
10.5(9) Side Letter Agreement and Security Agreement dated as of
January 30, 1998 between Intercell Corporation and Jaymark, Inc.
10.6(9) Environmental Remediation and Indemnity Agreement dated as of
February 6, 1998 by and among Intercell Corporation, California
Tube Laboratory, and Jaymark, Inc.
10.7(9) Promissory Note, dated as of February 6, 1998 between Intercell
Corporation and Jaymark, Inc.
10.8(9) Indemnity escrow agreement dated as of February 6, 1998 by and
among Intercell Corporation, Jaymark, Inc. and Chicago Title
Company.
10.9(5) Warrant Agreement dated as of July 18, 1997 between Intercell
Corporation and Intercell Technologies Corporation.
19
<PAGE>
10.10(5) Royalty Agreement dated as of July 18, 1997 between Intercell
Corporation and Intercell Technologies Corporation.
10.11(5) $2,200,000 Promissory Note dated as of July 18, 1997 between
Intercell Technologies Corporation and Intercell Corporation.
10.12(5) Stock Pledge and Security Agreement dated July 18, 1997 between
Intercell Corporation and Intercell Technologies Corporation.
10.13(11) Microlink Technologies Corporation Standard Industrial Lease.
10.14(11) Sigma Corporation Lease.
10.15(11) CTL Lease
11* Statement regarding Computation of Per Share Earnings.
21(7) Subsidiaries of the Company.
27* Financial Data Schedule.
*Filed herewith.
(1) Incorporated by reference to the Company's Current Report on Form 8-K dated
July 10, 1996.
(2) Incorporated by reference to the Company's Current Registration Statement on
Form S-8, Registration No. 333-604 effective January 24, 1996.
(3) Incorporated by reference to the Company Current Report on Form 8-K dated
September 3, 1996.
(4) Incorporated by reference to Company Current Report on Form 8-K dated the
October 14, 1996.
(5) Incorporated by reference to the Company Current Report on Form 8-K dated
July 18, 1997.
(6) Incorporated by reference to the Company Current Report on Form 8-K dated
May 28, 1997.
(7) Incorporated by reference to the Company Annual Report on Form 10-K for the
year ended September 30, 1996.
(8) Incorporated by reference to the Company Quarterly Report on Form 10-KSB for
the quarter ended December 31, 1997.
(9) Incorporated by reference to the Company Current Report on Form 8-K dated
February 6, 1998.
(10) Incorporated by reference to the Company Current Report on Form 8-K dated
February 26, 1998.
(11) Incorporated by reference to the Company Annual Report on Form 10-K for the
year ended September 30, 1997.
(12) Incorporated by reference to the Company Form 10-QSB for the quarter ended
December 31, 1997, filed September 17, 1998.
(13) Incorporated by reference to the Company Annual Report on Form 10-KSB for
the year ended September 30, 1998.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the Company's quarter
ended September 30, 2000.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, (a Colorado corporation)
Date: January 5, 2001 By /s/ Paul H. Metzinger
--------------------------------------------
Paul H. Metzinger, Director, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and the capacities and on the dates indicated.
Date: January 5, 2001 By /s/ Paul H. Metzinger
--------------------------------------------
Paul H. Metzinger, Director, Chief Executive
Officer, President & Chief Financial Officer
Date: January 5, 2001 By /s/ Kevin B. Waide
--------------------------------------------
Kevin B. Waide, Director
Date: January 5, 2001 By /s/ R. Mark Richards
--------------------------------------------
R. Mark Richards, Director
21
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements
September 30, 2000 and 1999 (as restated)
(With Independent Auditors' Report Thereon)
F-1
<PAGE>
FINANCIAL STATEMENTS
INTERCELL CORPORATION
Index to Consolidated Financial Statements
Page
----
Independent Auditors' Report F-3
Consolidated Balance Sheet - September 30, 2000 F-4
Consolidated Statements of Operations - Years ended
September 30, 2000 and 1999 (as restated) F-5
Consolidated Statements of Changes in Stockholders'
Equity (Deficit) - Years ended September 30,
2000 and 1999 (as restated) F-6
Consolidated Statements of Cash Flows - Years ended
September 30, 2000 and 1999 (as restated) F-10
Notes to Consolidated Financial Statements F-12
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Intercell Corporation
We have audited the accompanying consolidated balance sheet of Intercell
Corporation and subsidiaries as of September 30, 2000, and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for each of the years in the two-year period ended September 30,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Intercell
Corporation and subsidiaries as of September 30, 2000, and the results of their
operations and their cash flows for each of the years in the two-year period
ended September 30, 2000, in conformity with generally accepted accounting
principles.
As discussed in Note 14, the Company restated its 1999 consolidated financial
statements to reflect the correction of an error in accounting for an
investment.
GELFOND HOCHSTADT PANGBURN, P.C.
Denver, Colorado
January 4, 2001
F-3
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
September 30, 2000
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current assets:
Cash and cash equivalents $ 100,000
----------
Total current assets 100,000
Investment in land held for sale (Note 5) 300,000
Restricted cash 22,000
----------
Total assets $ 422,000
==========
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Accounts payable $ 108,000
Accrued liabilities 261,000
Note payable - related party (Note 6) 23,000
Note payable - other (Note 6) 50,000
Deferred gain on agreement to sell affiliate stock (Note 8) 723,000
Liabilities of discontinued operations (Note 7) 1,221,000
----------
Total liabilities (all current) 2,386,000
----------
Commitments and contingencies (Notes 8 and 13)
Stockholders' deficit (Note 10)
Convertible preferred stock; 10,000,000 shares authorized:
Series C; 26 shares issued and outstanding
(liquidation preference of $339,000) 283,000
Series D; 1,080 shares issued and outstanding
(liquidation preference of $3,146,000) 2,801,000
Series E; 1,000 shares issued and outstanding
(liquidation preference of $103,000) 3,000
Warrants to acquire common stock 3,045,000
Common stock; no par value; 100,000,000 shares authorized
99,898,188 shares issued and outstanding 22,762,000
Additional paid-in capital 7,242,000
Accumulated deficit (37,406,000)
Receivable under agreement to sell affiliate stock (Note 8) ( 694,000)
----------
Total stockholders' deficit ( 1,964,000)
----------
Total liabilities and stockholders' deficit $ 422,000
==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended
September 30,
-------------
2000 1999
---- ----
(As restated,
Note 14)
<S> <C> <C>
General and administrative expense $ 452,000 2,878,000
Impairment of investment in land (Note 5) 216,000 -
Research and development expense - 11,000
---------- ----------
Loss from operations ( 668,000) ( 2,889,000)
---------- ----------
Gain on sale and exchange of affiliate stock (Note 8) 1,481,000 62,000
Interest income 5,000 6,000
Interest expense ( 32,000) ( 171,000)
Other income - 2,000
---------- ----------
1,454,000 ( 101,000)
---------- ----------
Income (loss) from continuing operations 786,000 ( 2,990,000)
---------- ----------
Discontinued operations (Note 7):
Gain on disposal of subsidiaries 2,126,000 -
Loss from operations to be disposed of - ( 67,000)
---------- ----------
Gain (loss) from discontinued operations 2,126,000 ( 67,000)
---------- ----------
Income (loss) before extraordinary item 2,912,000 ( 3,057,000)
Extraordinary gain on extinguishment of debt (Note 11) 283,000 -
---------- ----------
Net income (loss) 3,195,000 ( 3,057,000)
Deemed dividend on Series C and D preferred stock
relating to in-the-money conversion terms (Note 10) ( 57,000) ( 57,000)
Accrued dividends on Series D and E
preferred stock (Note 10) ( 153,000) ( 150,000)
Accretion on Series B and C preferred stock (Note 10) ( 23,000) ( 101,000)
---------- ----------
Net income (loss) applicable to common stockholders $ 2,962,000 $( 3,365,000)
========== ==========
Net income (loss) per share, applicable to
common stockholders:
Basic:
Income (loss) from continuing operations $ 0.01 ( 0.07)
Income (loss) from discontinued operations 0.02 ( 0.00)
Extraordinary gain 0.00 ( 0.00)
---------- ----------
Net income (loss) 0.03 ( 0.07)
========== ==========
Diluted:
Income (loss) from continuing operations 0.01 ( 0.07)
Income (loss) from discontinued operations 0.01 ( 0.00)
Extraordinary gain 0.00 ( 0.00)
---------- ----------
Net income (loss) $ 0.02 ( 0.07)
========== ==========
Weighted average number of common shares outstanding:
Basic 94,737,158 45,274,227
=========== ==========
Diluted 157,159,437 45,274,227
=========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Years Ended September 30, 2000 and 1999
(As restated, Note 14)
<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
Conversion of Series C
preferred stock
to common stock ( 77) ( 775,000) - 26,569,692 775,000
Shares issued in exchange
for services - - - 350,000 9,000
Shares issued for
settlements - - - 2,718,763 118,000
Common stock issued by
subsidiary and other - - - - -
Amortization of deemed
dividend - 57,000 - - -
Accrual of preferred
stock dividend - 150,000 - - -
Accretion on preferred
stock - 101,000 - - -
Note receivable under
agreement to sell
affiliate stock (Note 8) - - - - -
Cash received on note
receivable - - - - -
Net loss, as restated
(Note 14) - - - - -
----- --------- --------- ---------- ----------
Balances,
September 30, 1999,
as restated (Note 14) 1,150 3,282,000 3,075,000 66,309,089 22,231,000
(Continued)
F-6
<PAGE>
Receivable
Under
Agreement
Additional to sell Total
Paid-In Affiliate Accumulated Stockholders'
Capital Stock Deficit (Deficit)
------- ----- ------- ---------
<S> <C> <C> <C> <C>
Balances,
October 1, 1998 4,098,000 - (37,003,000) (4,752,000)
Conversion of Series C
preferred stock
to common stock - - - -
Shares issued in exchange
for services - - - 9,000
Shares issued for
settlements - - - 118,000
Common stock issued by
subsidiary and other 3,029,000 - - 3,029,000
Amortization of deemed
dividend - - ( 57,000) -
Accrual of preferred
stock dividend - - ( 150,000) -
Accretion on preferred
stock - - ( 101,000) -
Note receivable under
agreement to sell
affiliate stock (Note 8) - (423,000) - ( 423,000)
Cash received on note
receivable - 29,000 - 29,000
Net loss, as restated
(Note 14) - - ( 3,057,000) (3,057,000)
--------- ------- ---------- ---------
Balances,
September 30, 1999,
as restated (Note 14) 7,127,000 (394,000) (40,368,000) (5,047,000)
</TABLE>
(Continued)
F-7
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Years Ended September 30, 2000 and 1999
(As restated, Note 14)
(Continued)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Warrants to Common Stock
--------------- Acquire ------------
Shares Amount Common Stock Shares Amount
------ ------ ------------ ------ ------
<S> <C> <C> <C> <C> <C>
September 30, 1999,
as restated
(Note 14) 1,150 3,282,000 3,075,000 66,309,089 22,231,000
Conversion of Series
C Preferred Stock
to common stock ( 44) ( 428,000) - 23,579,099 428,000
Amortization of
deemed dividend - 57,000 - - -
Accrual of
preferred stock
dividend - 153,000 - - -
Accretion on
preferred stock - 23,000 - - -
Issuance of Series E
preferred stock 1,000 - - - -
Shares issued for
exercise of warrant - - ( 15,000) 10,000 -
Receivable under
agreement to sell
affiliate stock - - - - -
Exchange of
convertible
debentures
for common stock - - ( 15,000) 10,000,000 103,000
Net income - - - - -
----- --------- --------- ---------- ----------
Balance,
September 30, 2000 2,106 $ 3,087,000 3,045,000 99,898,188 $22,762,000
===== ========= ========= ========== ==========
(Continued)
F-8
<PAGE>
Receivable
Under
Agreement
Additional to sell Total
Paid-In Affiliate Accumulated Stockholders'
Capital Stock Deficit (Deficit)
------- ----- ------- ---------
<S> <C> <C> <C> <C>
September 30, 1999,
as restated
(Note 14) 7,127,000 ( 394,000) (40,368,000) (5,047,000)
Conversion of Series
C Preferred Stock
to common stock - - - -
Amortization of
deemed dividend - - ( 57,000) -
Accrual of
preferred stock
dividend - - ( 153,000) -
Accretion on
preferred stock - - ( 23,000) -
Issuance of Series E
preferred stock 100,000 - - 100,000
Shares issued for
exercise of warrant 15,000 - - -
Receivable under
agreement to sell
affiliate stock - ( 300,000) - ( 300,000)
Exchange of
convertible
debentures
for common stock - - - 88,000
Net income - - 3,195,000 3,195,000
--------- -------- ---------- ---------
Balance,
September 30, 2000 7,242,000 ( 694,000) (37,406,000) (1,964,000)
========= ======== ========== =========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
F-9
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended
September 30,
-------------
2000 1999
---- ----
(As restated,
Note 14)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,195,000 ( 3,057,000)
Less (gain) loss from discontinued operations ( 2,126,000) 67,000
---------- ---------
Income (loss) from continuing operations 1,069,000 ( 2,990,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Extraordinary gain on extinguishment of debt ( 283,000) -
Loss from asset impairment 216,000 -
Common stock and warrants issued for expenses 127,000
Common stock of subsidiary issued for services - 1,775,000
Gain on sale and exchange of affiliate stock ( 1,481,000) ( 62,000)
Provision for loss on note receivable - 38,000
Changes in operating assets and liabilities:
Increase in restricted cash ( 1,000) ( 5,000)
Increase (decrease) in accounts payable and
accrued liabilities ( 349,000) 257,000
Decrease in payable to affiliate ( 74,000) -
---------- ----------
Net cash used in continuing operations ( 903,000) ( 860,000)
---------- ----------
Cash flows from investing activities:
Proceeds from sale of affiliate stock 886,000 62,000
Other assets 7,000 20,000
Increase in notes receivable - ( 10,000)
---------- ----------
Net cash provided by investing activities 893,000 72,000
---------- ----------
Cash flows from financing activities:
Proceeds from notes payable to related parties - 135,000
Proceeds from notes payable, other - 133,000
Payment received on note receivable from agreement
to sell affiliate stock - 29,000
Proceeds from sale of convertible preferred stock 100,000 -
Proceeds from issuance of common and preferred
stock by subsidiary - 250,000
---------- ----------
Net cash provided by financing activities 100,000 547,000
---------- ----------
Net increase (decrease) in cash and cash equivalents 90,000 ( 241,000)
Cash and cash equivalents, beginning of year 10,000 251,000
---------- ----------
Cash and cash equivalents, end of year $ 100,000 10,000
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ - -
========== ==========
</TABLE>
(CONTINUED)
F-10
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Continued)
Supplemental disclosure of noncash investing and financing activities:
<TABLE>
<CAPTION>
Years Ended
September 30,
-------------
2000 1999
---- ----
(As restated,
Note 14)
<S> <C> <C>
Exchange of convertible debentures for common stock $ 88,000 -
Conversion of Series B and C preferred stock to common stock 428,000 775,000
Amortization of deemed dividend on preferred stock 57,000 57,000
Accrual of preferred stock dividend 153,000 150,000
Accretion on preferred stock 23,000 101,000
Note receivable from agreement to sell affiliate stock 300,000 423,000
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
F-11
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(1) Basis of Presentation, Business and Plan of Restructuring
Basis of Presentation
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, the consolidated financial statements for the year ended
September 30, 1999 reflect Nanopierce Technologies, Inc.'s (Nanopierce's)
results of operations and cash flows as a consolidated company through
June 30, 1999 and as an investment accounted for under the equity method
of accounting for the remainder of the year due to a decrease in the
Company's voting ownership interest to below 50% in July 1999 (Note 14).
Investment in Nanopierce
The Company's wholly owned subsidiary Particle Interconnect Corp. (PI
Corp.), was engaged in the design and development of particle-coated
substrates for integrated circuits using patented interconnect technology
(the PI Technology) and a proprietary trade secret electro-plating process
(the PE Process).
In February 1998, the Company transferred all of the intellectual property
of PI Corp. (which had a historical carrying value of zero) to Nanopierce
for common and preferred shares of Nanopierce resulting in a controlling
ownership interest of approximately 63% of the Nanopierce common stock and
a 100% ownership interest of the Nanopierce voting Series A Preferred
Stock, resulting in control of 77% of the voting interest of Nanopierce at
the date of acquisition. No cash was exchanged in the transaction, and
the Company accounted for the common stock and preferred stock received at
$0, which was the carrying value of the intellectual property exchanged
for the common and preferred stock. At the date of the Company's
acquisition of Nanopierce, Nanopierce was a public shell company, with no
significant assets or liabilities, including contingent assets or
liabilities, or operations. During the three months ended June 30, 1999,
the Company converted all of its Series A Preferred Stock into 7,250,000
shares of Nanopierce common stock. The Company's ownership interest in
Nanopierce's outstanding common stock decreased from approximately 73% at
October 1, 1998, to approximately 35% at September 30, 1999 and to
approximately 25% at September 30, 2000. The decrease in ownership
interest was due to the Company's sale of certain Nanopierce shares owned
by the Company (Note 8) and various Nanopierce stock transactions
(Note 9).
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. The Company 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 significant revenues
through September 30, 2000.
F-12
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The summarized financial position and results of operations of Nanopierce
as of September 30, 2000 and for the 12 month periods ended September 30,
2000 and 1999, were as follows:
Current assets $1,951,000
---------
Long-term assets:
Intellectual property 741,000
Other 290,000
---------
1,031,000
---------
Total assets $2,982,000
=========
Current liabilities:
Notes payable $ 67,000
Accounts payable and
accrued expenses 211,000
---------
Total current liabilities 278,000
Long-term liabilities 1,977,000
---------
2,255,000
Stockholders' equity 727,000
---------
Total liabilities and stockholders' equity $2,982,000
=========
2000 1999
---- ----
Revenues $ 15,000 $ -
Net loss $(4,171,503) $(2,847,000)
Net loss attributable to
common stockholders $(4,171,503) $(2,962,000)
At September 30, 2000, the Company owned 9,170,050 shares of Nanopierce
common stock, and based upon the closing bid price of $1.84 per share,
the market value of the Company's investment in Nanopierce common shares
at September 30, 2000, was approximately $16,900,000. At December 31,
2000, the Company owned 9,133,050 shares of Nanopierce common stock with
a market value of approximately $7,400,000, based upon the closing bid
price of $0.81 per share. The Company is subject to various restrictions
on the sale and/or exchange of Nanopierce shares owned by the Company,
which limits the marketability of this investment.
Business and Plan of Restructuring
In addition to the investment in Nanopierce described above, the Company
disposed of two manufacturing subsidiaries in the 1998 fiscal year and in
June, 1998 discontinued the operations of Sigma 7 Corporation (Sigma).
Sigma through its subsidiary BMI Acquisition Group, Inc. ("BMI"),
developed and utilized a proprietary patch technology to produce fully
functional computer memory modules from defective memory chips. On
December 31, 1998, Sigma and BMI filed for voluntary liquidation under
Chapter 7 of the U.S. Bankruptcy Code. During the year ended September
30, 2000, the U.S. Bankruptcy Court closed the Sigma 7 bankruptcy case.
The Company is awaiting final approval regarding the BMI bankruptcy case
(Note 7).
F-13
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company incurred significant operating losses in 1999 and has a
working capital deficiency and a stockholders' deficit at September 30,
2000. To address its current cash flow concerns, during the year ended
September 30, 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 $600,000 cash and a $300,000 note receivable (Note 8). The Company
has also been able to sell and/or exchange shares of Nanopierce common
stock held by the Company for cash or in exchange for services or
liabilities in the past (Note 8), and may be able to perform similar
transactions during 2001, subject to various restrictions on such
sales/exchanges of Nanopierce common stock. 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 10) or through the issuance of debt.
(2) Summary of Significant Accounting Policies
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.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less and money market instruments to be cash
equivalents.
Restricted Cash
Restricted cash consists of cash held in an escrow account to be used for
indemnification obligations in connection with the Company's sale of a
former subsidiary in 1998.
Notes Receivable
Management periodically evaluates receivable balances. Evaluations are
based primarily on assessments of the borrowers' financial condition and
the underlying value of the collateral to determine if any impairment is
evident.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of long-lived assets is measured
by comparison of their carrying amount to future net cash flows expected
to be generated from the operation and sale of the long-lived assets. If
such assets are considered to be impaired, the impairment to be recognized
is measured by the amount in which the carrying amount of the long-lived
assets exceeds their fair values.
Fair Value of Financial Instruments
The carrying amounts of cash, restricted cash, accounts payable, accrued
liabilities, and other notes payable approximate fair values due to the
short maturities of such instruments. Management is not able to
practicably estimate the fair value of the remaining liabilities of
discontinued operations due to uncertainties in connection with the BMI
Chapter 7 bankruptcy (Note 7) or the related party notes payable, due to
the related party nature of the underlying transactions.
F-14
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Research and Development
The Company charges research and development costs to operations as
incurred.
Income Taxes
Income taxes are accounted for by the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. Valuation allowances are
established when necessary to reduce deferred tax assets to amounts
expected to be realized.
Income (Loss) Per Share
Statement of Financial Accounting Standards (SFAS) No. 128 Earnings Per
Share, 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.
Basic income (loss) per share of common stock is computed based on the
weighted average number of common shares outstanding during the year.
Diluted EPS includes the potential conversion of stock options, warrants,
convertible debt and convertible preferred stock for the year ended
September 30, 2000. Stock options, warrants and convertible preferred
stock are not considered in diluted EPS for the year ended September 30,
1999 as the impact of the potential common shares (108,778,563 shares at
September 30, 1999) would be to decrease loss per share. Therefore,
diluted loss per share for the year ended September 30, 1999 is equivalent
to basic loss per share. At September 30, 2000 and 1999 the total number
of common shares issuable under the exercise of outstanding options and
warrants and upon the conversion of convertible preferred stock was
70,348,573 and 335,617,178 respectively.
Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, allows companies to
choose whether to account for employee stock-based compensation on a fair
value method, or to continue accounting for such compensation under the
intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25). The Company
has chosen to continue to account for employee stock-based compensation
using APB 25.
Subsidiary Equity Transactions
The Company recognizes in its consolidated financial statements, gains and
losses resulting from the sales of previously unissued stock by its
subsidiaries which have the effect of reducing the parent's percentage
equity holding. There were no gains or losses in connection with these
transactions in 2000 or 1999.
F-15
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards 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.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements. SAB No. 101, as amended by SAB No. 101A and SAB
No. 101B, is effective no later than the fourth fiscal quarter of fiscal
years beginning after December 15, 1999. SAB No. 101 provides the staff's
views in applying generally accepted accounting principles to selected
revenue recognition issues. Currently, the Company believes that it
complies with the accounting and disclosure described in SAB No. 101;
therefore, management believes that SAB No. 101 will not impact the
Company's financial statements.
Reclassifications
Certain amounts reported in the 1999 financial statements have been
reclassified to conform with the 2000 presentation.
(3) 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.
(4) Notes Receivable
In connection with a sale of assets in 1996, the Company received a
$60,000 non-interest bearing note receivable, in which interest was
imputed on the note at 10%. At October 1, 1998, the outstanding balance
of the note, net of the unamortized balance of the discount, was $38,000.
During the year ended September 30, 1999, no scheduled payments were
received, and collection efforts were unsuccessful. Therefore, the
Company recorded a loss of $38,000 in connection with the write off of
the note in the 1999 fiscal year.
(5) Investment in Land Held for Sale
The investment in land held for sale consists of approximately 97 acres of
undeveloped rangeland located in Arizona. Although the Company has
entered into negotiations with potential buyers, as of September 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 $216,000 was necessary to reduce the carrying amount of the land to
$300,000, which is the estimated fair value less cost to sell based on
negotiations with potential buyers and consideration of market conditions.
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.
F-16
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Notes Payable and Convertible Debentures
Note Payable - Related Party
At September 30, 2000, the note payable to related party consists of an
unsecured promissory note for $23,000 due to an officer of the Company for
funds advanced to the Company. This note is non-interest bearing and is
due on demand.
Note Payable - Other
Note payable - other, represents a note for $50,000 which is due on
demand, bears interest at 10%, and is collateralized by 500,000 shares of
Nanopierce stock, issued by Nanopierce.
Convertible Debentures
In December 1997, the Company issued $750,000 of Series A-1 and $750,000
of Series A-2 convertible debentures with warrants attached. In
connection with the debt issue, warrants were issued to the debt holders,
entitling each holder to purchase 200,000 shares of the Company's common
stock for $.17, $.50 and $1.00 per share, respectively through December 1,
1999. The portion of the proceeds applicable to these warrants was
$15,000. The Company also issued warrants to purchase 200,000 shares of
the Company's common stock at an exercise price of $.15 per share as a
part of the commission paid to a third party investment banker on the
debentures.
The Series A-1 debentures required quarterly interest payments at 9% per
annum, beginning March 1, 1998 with the balance due on December 1, 1999.
The debenture was convertible at the option of the holder after 60 days
from the date of issuance at a conversion price per share equal to the
lessor of 85% of the market price as defined, or $0.75.
The Series A-2 convertible debentures required quarterly interest payments
at 9% per annum, beginning June 1, 1998, with an original maturity date of
April 1999, at a conversion price for each share of common stock at 85% of
the market price as defined in the financing agreement.
Effective December 1, 1999, at the option of the debenture holder, $91,425
of principal and $10,375 of accrued interest were converted into
10,000,000 shares of the Company's common stock at 85% of the market price
of the common stock at the date of conversion ($.01 per share).
During the three months ended March 31, 2000, the Company acquired the
remaining outstanding convertible debentures of $735,000, accrued interest
and other liabilities of $225,000, and a related warrant to purchase
200,000 shares of common stock of the Company, as well as a $300,000 note
payable by BMI to the debenture holder (Note 7), in exchange for 170,000
shares of the Company's Nanopierce shares (with a carrying value of $0, a
market value of $5.13 per share, and an aggregate market value of
$871,000), resulting in a $300,000 gain on disposal of subsidiaries (BMI)
and a $104,000 extraordinary gain. This transaction released certain
assets of the Company which had previously been pledged as collateral on
the convertible debentures.
F-17
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Discontinued Operations
Subsequent to the Company's 1997 acquisition of Sigma, Sigma issued
$1,712,000 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 to place 1,050,000 shares of
Nanopierce common stock (which had a carrying value of $0) in escrow in
July 1999, to be held for the benefit of the Sigma investors. The
agreement stipulated that the 1,050,000 shares could be sold in order to
pay the Sigma investors, provided that no sale of shares could be made
below $2.00 per share, and the volume of sales could not exceed 20% of the
average weekly trading volume of the common stock of Nanopierce prior to
the date of the transaction.
During year ended September 30, 2000, 562,000 of the 1,050,000 Nanopierce
shares held in escrow were sold at prices ranging from $2.01 to $6.44 per
share, resulting in cash proceeds of approximately $2,412,000 (the
aggregate market value of the shares sold), the proceeds of which were
utilized to pay the Sigma 7 note holders principal of $1,712,000 and
interest of $700,000. The remaining 488,000 shares of Nanopierce held in
escrow were transferred to the escrow agent as consideration for services
rendered. The transfer of these shares (with a carrying value of $0, a
market value of $4.00 per share, and an aggregate market value of
$1,952,000), resulted in a gain on investment in affiliate stock of
$1,952,000, as well as expense of $1,952,000, both presented within gain
from discontinued operations. Remaining Sigma 7 liabilities of $114,000
were de-recognized as a result of a final judgment regarding Sigma 7 from
the U.S. Bankruptcy Court. In addition, $300,000 of BMI liabilities were
satisfied in connection with the Company's exchange of 170,000 Nanopierce
common shares for debt. These transactions and events resulted in a gain
of $2,126,000, presented as a gain on disposal of subsidiaries.
Loss from discontinued operations for fiscal 1999 represents $67,000 of
accrued interest on the notes payable of Sigma prior to Sigma filing for
voluntary liquidation under the U.S. Bankruptcy Code.
Liabilities of discontinued operations at September 30, 2000, consists of
remaining BMI liabilities as follows:
Accounts payable and accrued liabilities $ 872,000
Notes payable 240,000
Other liabilities 109,000
----------
$ 1,221,000
==========
The liabilities of $1,221,000 remain on the books of BMI as of
September 30, 2000 pending a final judgment from the U.S. Bankruptcy
Court as to the disposition of these BMI liabilities.
(8) Affiliate Stock Sales and Agreement to Sell Affiliate Stock
On July 7, 1999, the Company entered into an agreement to sell 845,000
shares of Nanopierce common stock held by the Company (with a carrying
value of $0, a market value of $0.36 per share, and an aggregate market
value of $304,000) in exchange for a $423,000 note receivable. The note
bears interest at 10% and is due June 30, 2001. The shares were sold at
$0.50 per share representing a premium of 38.9% over the closing bid price
per share ($0.36) on the date of the agreement. The purchaser of the
stock has the option of putting back to the Company the 845,000 shares of
common stock on the due date of the note in full satisfaction of the note.
F-18
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As the carrying value of the Nanopierce common stock exchanged for the
$423,000 note receivable was $0, the transaction resulted in a potential
$423,000 gain. Due to the uncertainty regarding the ultimate realization
of the gain on the transaction, the note receivable balance is classified
as a reduction to stockholders' equity (deficit) at September 30, 2000,
and a liability has been recorded for the potential unrealized gain. A
payment of $29,000 was received in September 1999, and was recorded as a
reduction to the note receivable.
In February 2000, the Company agreed to sell 1,500,000 shares of its
Nanopierce common shares (with a carrying value of $0, a market value of
$5.00 per share, and an aggregate market value of $7,500,000) to the
holders of the Series E Preferred Stock for $900,000. At September 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 held by the Series E Preferred Stock holders. 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 September
30, 2000, and a liability has been recorded for the unrealized gain. This
transaction resulted in an approximate 4.4% decrease in the Company's
voting interest in Nanopierce.
During the year ended September 30, 2000, the Company exchanged 170,000
shares of its Nanopierce common stock (with a carrying value of $0, a
market value of $5.13 per share, and an aggregate market value of
$871,000) as payment on the Company's convertible debentures accrued
interest and certain BMI liabilities. A gain of $871,000 was recognized
on this transaction.
(9) Nanopierce Transactions
2000 Nanopierce equity transactions
During the three months ended December 31, 1999, Nanopierce issued 565,934
shares of its common stock in satisfaction of approximately $153,000 of
related party liabilities, resulting in an approximate .6% decrease in the
Company's voting interest in Nanopierce. In addition, Nanopierce issued
825,125 shares of its common stock in exchange for services valued at
approximately $208,000. The value of the services and commissions was
based upon the market price of the Nanopierce common stock at the date the
services were performed, which ranged from $0.33 to $2.25 per share. The
shares issued for services resulted in an approximate .9% decrease in the
Company's voting interest in Nanopierce. In December 1999, Nanopierce
also issued 590,116 shares of its common stock for cash of $180,000,
resulting in a decrease of approximately .6% in the Company's voting
interest in Nanopierce.
In January 2000, Nanopierce issued an additional 264,795 shares of its
common stock for cash of $50,000, resulting in an approximate .3% decrease
in the Company's voting interest in Nanopierce. During the three months
ended March 31, 2000, Nanopierce also issued 1,156,207 shares of its
common stock in connection with the exercise of Nanopierce warrants and
options, issued 374,000 shares in connection with the conversion of
promissory notes, and cancelled 250,000 shares under a previous guarantee
of debt. These transactions resulted in a net decrease in the Company's
voting interest in Nanopierce of approximately 1.7%.
During the three months ended June 30, 2000, Nanopierce issued 399,861
shares of its common stock in exchange for debt of approximately $704,000,
resulting in an approximate .3% decrease in the Company's voting interest
in Nanopierce, and issued 278,022 in connection with the exercise of
Nanopierce warrants, resulting in an approximate .2% decrease in the
Company's' voting interest in Nanopierce.
F-19
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the three months ended September 30, 2000, Nanopierce issued an
additional 1,116,407 shares of common stock in exchange for debt of
approximately $1,327,000, resulting in an approximate .8% decrease in the
Company's voting interest in Nanopierce. In addition, Nanopierce issued
36,000 shares of common stock for services valued at approximately
$82,000, which was based upon the market price of the Nanopierce common
stock at the date the services were performed ($2.18 per share), resulting
in an approximate .03% decrease in the Company's voting interest in
Nanopierce.
The total net effect of the 2000 Nanopierce equity transactions and other
transactions was a reduction in the Company's ownership percentage in
Nanopierce from approximately 35% at September 30, 1999, to approximately
25.3% at September 30, 2000.
In October 2000, Nanopierce issued an additional 14,142,342 shares, which
reduced the Company's voting interest in Nanopierce from approximately
25.3% at September 30, 2000 to approximately 18% in October 2000.
1999 Nanopierce equity transactions
During the year ended September 30, 1999, the remaining 67,000 shares of
Nanopierce Series B Preferred Stock were converted into 508,728 shares of
common stock during the three months ended December 31, 1998 (resulting
in an approximate 1.9% decrease in the Company's voting interest in
Nanopierce) and 2,314,083 shares in February 1999 (resulting in an
approximate 6.6% decrease in the Company's voting interest in Nanopierce).
The Series B Preferred Stock conversions resulted in an increase of
$590,000 to the Company's additional paid-in capital and an equivalent
decrease in minority interest. The Series B Preferred Stock was converted
into common stock based on the market price of the Nanopierce common stock
at the date of conversion, which ranged from $.27 to $1.63 per share.
In January 1999, Nanopierce issued 1,097,277 shares of common stock at
$.20 per share for cash of $200,000 and in satisfaction of accrued
interest of approximately $25,000, resulting in an approximate 3.7%
decrease in the Company's voting interest percentage in Nanopierce. In
June 1999, Nanopierce issued 70,000 shares of common stock at $.71 per
share for $50,000 cash, resulting in an approximate .1% decrease in the
Company's ownership percentage in Nanopierce.
Through June 30, 1999, Nanopierce issued 5,039,000 shares of its common
stock in exchange for services valued at approximately $1,755,000. The
value of the services was based upon the market price of the Nanopierce
common stock at the date the services were performed, which ranged from
$.33 to $.48 per share. The shares issued for services resulted in an
approximate 10.5% decrease in the Company's voting interest in Nanopierce.
In June 1999, Nanopierce also issued 805,050 shares of common stock as
dividends on its Series A Preferred Stock and upon the exercise of stock
options, resulting in a net increase in the Company's voting interest in
Nanopierce of approximately 1.2%.
During July and August 1999, Nanopierce issued 515,000 shares of common
stock at $0.20 per share in exchange for cash of $103,000. The market
price of the Nanopierce common stock at the date of these issuances ranged
from $0.36 to $0.55 per share. During the three months ended September
30, 1999, Nanopierce also issued 160,000 shares of common stock for
services valued at approximately $69,000. The value of these services was
based upon the market price of the Nanopierce common stock at the date of
the transaction, which ranged from $0.29 to $0.55 per share. The
transactions during the three months ended September 30, 1999, resulted in
a decrease in the Company's voting interest in Nanopierce of approximately
0.8%.
F-20
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other 1999 transactions
The Company recognizes in its consolidated financial statements, gains and
losses resulting from the sales of previously unissued stock by its
subsidiaries which have the effect of reducing the parent's percentage
equity holding. There were no gains or losses in connection with the
sales of previously unissued stock by subsidiaries in 2000 or 1999.
In June 1999, the Company sold 155,000 shares of Nanopierce common stock
held by the Company for $62,000 cash (approximately $0.40 per share). The
carrying value of the Nanopierce shares was $0, resulting in a $62,000
gain on the transactions and a .8% decrease in the Company's voting
interest in Nanopierce. No provision for current or deferred income taxes
has been provided on this gain due to the availability of offsetting net
operating losses.
The total net effect of the 1999 Nanopierce equity transactions and other
transactions was a reduction in the Company's ownership percentage in
Nanopierce from approximately 73.4% at October 1, 1998 to approximately
51% at June 30, 1999.
During the three months ended September 30, 1999, the Company exchanged
555,000 shares of Nanopierce common stock held by the Company for services
valued at approximately $272,000. The value of the services was based
upon the market price of the Nanopierce common stock at the date of the
transaction, which ranged from $0.29 to $0.55 per share. These
transactions resulted in an approximate 0.8% decrease in the Company's
voting interest in Nanopierce.
(10) Stockholders' Equity (Deficit)
Authorized Capital
The Company's authorized capital consists of, among other classes of
securities, 100,000,000 common shares. As of September 30, 2000 there
are 99,898,188 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 Exchange
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
consists of the following as of September 30, 2000:
(1) 26 shares of Series C Preferred shares,
(2) 1,080 shares of Series D Preferred shares,
(3) Warrants convertible into 2,227,450 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.
F-21
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Series C Preferred Stock
In December 1996, the Company issued 525 shares of no par value Series C
Preferred Stock (Series C Preferred Stock) and detachable warrants in a
private placement for $4,672,500 (net of issuance costs of $577,500).
Each share of Series C Preferred Stock 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.
The Series C Preferred Stock became subject to automatic conversion in
December 1999.
The conversion terms include a beneficial adjustment to the exchange rate
equal to the original issue price plus 8% of the original issue price per
annum since December 16, 1996. The beneficial adjustment is treated as an
accretion on the Series C Preferred Stock. For the years ended September
30, 2000 and 1999, the amount of accretion was $ 23,000 and $101,000,
respectively. The Series C Preferred Stock contains a liquidation
preference equal to the original issue price plus 8% of the original issue
price per annum to the date of liquidation. Shares of Series C Preferred
Stock are not entitled to voting rights.
Shares of Series C Preferred Stock, purchased in excess of certain
quantities as described in the preferred stock agreements, or purchased in
addition to previous purchases of shares of Series B Preferred Stock, are
accompanied by detachable warrants to purchase a number of shares of
common stock of the Company equal to between 25% and 50% of the original
aggregate purchase price of the shares of Series C Preferred Stock divided
by a fixed conversion rate of $3.25 per share, exercisable 105 days after
original issuance. The amount of proceeds allocated to the warrants was
based on the fair value of the warrants on the date of the Series C
Preferred Stock offering as determined using the Black-Scholes pricing
model. As of September 30, 2000, warrants to acquire 735,386 shares of
common stock were outstanding. The warrants will expire if not exercised
by November 30, 2001.
For the year ended September 30, 2000, 44 shares of Series C Preferred
Stock were converted into 23,579,099 shares of common stock. For the
year ended September 30, 1999, 77 shares of Series C Preferred Stock were
converted into 26,569,692 shares of common stock. A total of 26 shares
of Series C Preferred Stock are outstanding at September 30, 2000.
Series D Preferred Stock
At September 30, 2000, 1,080 shares of Series D redeemable convertible
preferred stock (Series D Preferred Stock) are outstanding. Each share of
Series D Preferred Stock became convertible into the Company's common
stock beginning on January 1, 1999, at the option of each holder, or
automatically upon the affirmative vote of the holders of a majority of
the Series D Preferred Stock. Each share of Series D Preferred Stock is
to convert into that number of shares of the Company which would be
acquired at the then current market price multiplied by the conversion
factor as follows:
Year Factor
---- ------
2000 1.3
2001 1.1
2002 1.0
2003 and
thereafter .9
F-22
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 2003, the exchange rate will be equal to 90% of the then
prevailing market rate, resulting in a deemed dividend of approximately
$300,000. The Company recognized the dividend in its net income (loss)
per common share calculation over the period beginning with the date of
issuance through January 1, 2003. The amount of deemed dividend for the
years ended September 30, 2000 and 1999 was $57,000 for each year.
In the event the total number of shares issuable upon conversion exceeded
10% of the then issued and outstanding shares, the Company was to redeem
those Series D Preferred shares, which, if converted, would exceed the 10%
limitation, at their face value, plus all accrued dividends.
The holders' right to give notice of conversion, which could have lead to
possible redemptions, began on January 1, 1999. At that date, if the
holders would have given notice of conversion, the Company would have been
required to redeem a significant portion of the preferred stock in
exchange for cash due to the low market price of the Company's common
stock. Because this situation existed, management began negotiations with
the preferred stockholders, and from January 1999 through February 2000,
the holders verbally agreed they would not give notice of conversion.
In February 2000, third parities agreed to purchase the Series D Preferred
shares from the original holders. In connection with their purchase of
the Series D Preferred shares, the third parties agreed to waive the
possible redemption that could occur under the certificate of designation
in exchange for the Company agreeing to convert the preferred shares to
common shares upon shareholder approval of an increase in the number of
authorized shares of common stock.
The Series D Preferred stock contains a liquidation preference equal to
the sum of the deemed purchase price of $2,500 per share, and 6% of the
deemed purchase price per annum for the period from January 1, 1998 to the
date of the event of liquidation. Shares of Series D Preferred Stock are
not entitled to voting rights. Such shares are entitled to receive a
cumulative 6% dividend commencing January 1, 1998 and will receive
registration rights permitting the resale of not more than 20% of the
outstanding Series D Preferred shares in connection with any registered,
firm commitment to underwrite the Company's common stock after December
31, 1998. For the years ended September 30, 2000 and 1999, deemed
dividends on the Series D Preferred Stock was $150,000 for each year.
Series E Preferred Stock
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 to be amortized to dividends upon satisfaction
of the contingencies necessary for conversion. Each share of Series E
Preferred Stock has 120,000 votes. The voting rights on the Series E
shares are identical in every other respect to the voting rights of the
holders of common stock entitled to vote. The Series E Preferred Stock
contains protective provisions whereby the Company cannot create any new
Series of stock having distribution preferences over the Series E
Preferred Stock, as defined, without Series E shareholders approval.
F-23
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
Intercell has established a Compensatory Stock Option Plan (the Option
Plan) and has reserved 14,000,000 shares of common stock for issuance
under the Option Plan. Incentive stock options can be granted under the
Option Plan at prices not less than 110% of the fair market value of the
stock at the date of grant, and nonqualified options can be granted at not
less than 50% of the stock's fair market value at the date of grant or the
date the exercise price of any such option is modified. Vesting
provisions are determined by the board of directors. All stock options
expire 10 years from the date of grant.
A summary of the status of the Option Plan is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
2000 1999
------------------------ ------------------------
Weighted- Weighted-
Average Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 6,927,000 $ 0.87 6,927,000 $ 0.87
Granted - - - -
Forfeited - - - -
--------- ---------
Outstanding at end of year 6,927,000 0.87 6,927,000 0.87
========= =========
Options exercisable at end of year 6,927,000 0.87 6,927,000 0.87
Weighted-average fair value of options
granted during the year at market - -
Weighted-average fair value of options
granted during the year at less than
market - -
</TABLE>
The following table summarizes information about stock options outstanding
as of September 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- ----------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.05-0.50 5,670,000 6.66 years $ 0.40 5,670,000 $0.40
0.75-1.50 296,000 5.54 0.93 296,000 0.93
2.00-4.00 961,000 5.89 3.60 961,000 3.60
--------- ---------
6,927,000 6.30 0.87 6,927,000 0.87
========= =========
</TABLE>
F-24
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting for Stock-Based Compensation Under SFAS No. 123
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations for its stock plans. Had
compensation cost for the Company's stock plan been determined based on
the fair value at the grant dates for awards under the plan consistent
with the method prescribed under SFAS No. 123, Accounting for Stock-Based
Compensation, the Company's net income (loss) and net income (loss) per
share amounts would not change for 2000 or 1999 since no options were
granted or vested during those years.
Warrants
At September 30, 2000, the following warrants to purchase common stock
were outstanding:
Number of Common Exercise Expiration
shares covered by warrants price date
-------------------------- ----- ----
1,092,063 (a) $0.03 July 1, 2001
735,387 (b) $0.02 November 30, 2001
200,000 (c) $0.17 - 1.00 December 3, 2000
200,000 (d) $0.15 December 3, 2002
---------
2,227,450
=========
(a) Warrants issued in connection with series B Preferred Stock.
The initial exercise price was $3.94. On each anniversary
after issuance of the warrant, the exercise price is reset to
the lessor of the initial exercise price or the lowest reset
price. The reset price is the average closing price of the
common stock for the five trading days ending on the
anniversary date of the date of issuance.
(b) Warrants issued in connection with Series C Preferred Stock.
The initial exercise price was $3.25. On each anniversary
after issuance of the warrant, the exercise price is reset to
the lessor of the initial exercise price or the lowest reset
price. The reset price is the average closing price of the
common stock for the five trading days ending on the
anniversary date of the date of issuance.
(c) Warrants issued in connection with Series A-1 Convertible
Debentures.
(d) Warrants issued for consulting services.
During April 2000, warrants to purchase 10,000 shares of the Company's
common stock were exercised at an exercise price of $0.02 per share.
(11) Extraordinary Item
The Company recorded an extraordinary gain of $283,000 during the fiscal
year 2000 as a result of the settlement of certain accounts payable at
less than the carrying amount, resulting in a $179,000 extraordinary
gain, and in connection with the exchange of Nanopierce common shares
for convertible debentures and related accrued interest, resulting in a
$104,000 extraordinary gain.
(12) Income Taxes
The Company did not incur income tax expense for the years ended
September 30, 2000 and 1999. Income tax expense differed from amounts
computed by applying the federal statutory income tax rate of 34% to
pretax income (loss) from continuing operations as a result of the
following:
F-25
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended
September 30,
-----------------
2000 1999
---- ----
Expected income tax (benefit) $ 295,000 $(1,089,000)
State income taxes 39,000 ( 160,000)
Change in valuation allowances ( 334,000) 1,249,000
--------- ---------
$ - $ -
========= =========
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets at September 30, 2000 are as follows:
Deferred tax assets:
Net operating loss carryovers $ 1,600,000
Basis in land held for sale 430,000
----------
2,030,000
Less valuation allowance ( 2,030,000)
----------
Net deferred tax assets $ -
==========
As of September 30, 2000, the Company had net operating loss carryover for
income tax purposes of approximately $1,000,000 and a capital loss
carryover of approximately $3,200,000 after giving effect to an ownership
change and liquidation of certain subsidiaries. The capital loss
carryover expires in 2004, and the net operating losses expire from 2004
to 2019. The Company's net operating loss carryforwards are subject to
annual limitations which may defer the utilization of the losses as a
result of an ownership change as defined in section 382 of the Internal
Revenue Code.
(13) Commitments and Contingencies
Office Lease
The Company leases office space under a non-cancelable operating lease
agreement. This lease requires future minimum lease payments of $24,000
per year through September 30, 2001. The lease also requires the Company
to pay property tax, maintenance, insurance, and certain other operating
costs of the leased property. The Company's affiliate, which shares the
office space, paid all of the required lease payments during the 2000
fiscal year.
The portion of lease expense allocated to the Company was not material in
2000, rent expense under this lease was $24,000 in 1999.
Guarantee Agreement
In 1996, the Company guaranteed the former shareholders of M.C. Davis Co.,
Inc. that 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 was $.025, which resulted in a
total difference of $1,104,000 at October 8, 1998. The Company negotiated
a $721,000 settlement with the former shareholders of M.C. Davis, in lieu
of the $1,104,000 amount. As a result, the Company recorded a charge to
expense of $721,000, and recorded a liability to these shareholders during
the year ended September 30, 1998.
F-26
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company subsequently agreed with the former M.C. Davis Co., Inc.
shareholders to satisfy the $721,000 liability by (1) transferring to
them, 850,000 shares of Nanopierce common shares held by Intercell; these
shares were recorded by Intercell at a carrying value of $0, and the
transaction resulted in a gain of $689,000 to the Company, which has been
reflected in the 1998 "discontinued operations loss from operations to be
disposed of", and (2) issuing 1,293,899 shares of the Company's common
stock which was trading at $.025 per share on the date of the transaction,
to satisfy the remaining $32,000 balance of the obligation. On February
8, 1999, the Company agreed to issue an additional 1,424,864 restricted
shares of the Company's common stock to certain additional former
shareholders of M.C. Davis. The Company recognized expense of $85,000 in
fiscal year 1999 in connection this agreement.
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 impact
either individually or in the aggregate on either results of operations,
financial position or cash flows of the Company.
(14) 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, 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 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.
F-27
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
for the fourth quarter ended September 30, 1999, and accordingly, the
Company's 1999 consolidated financial statements have been restated to
reflect this accounting change as follows:
<TABLE>
<CAPTION>
As previously
Reported As restated
-------- -----------
<S> <C> <C>
Total assets $ 563,000 $ 538,000
Total liabilities 6,088,000 5,585,000
Stockholders' deficit (5,525,000) (5,047,000)
Loss from continuing operations (3,226,000) (2,990,000)
Loss from discontinued operations ( 67,000) ( 67,000)
Net loss (3,293,000) (3,057,000)
Net loss applicable to
Common stockholders (3,601,000) (3,365,000)
Net loss per share (basic
and diluted) applicable
to common stockholders:
Loss from continuing operations ( 0.08) ( 0.07)
Loss from discontinued operations ( 0.00) ( 0.00)
Net loss ( 0.08) ( 0.07)
</TABLE>
F-28
<PAGE>
