U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2000
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________________
Commission file number 0-14978
--------
PRE-CELL SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-0751916
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
385 East Drive, Melbourne, Florida 32904
(Address of principal executive offices)
(Zip Code)
(321) 308-2900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _____ No ___X___
Indicate number or shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
As of September 1, 2000, 40,130,749 shares of the Registrant's Common Stock were
issued and outstanding.
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PRE-CELL SOLUTIONS, INC.
Form 10-Q
TABLE OF CONTENTS
Heading Page
------- ----
PART I. FINANCIAL STATEMENTS
Item 1. Consolidated Financial Statements
Balance Sheet - July 31, 2000 (unaudited) and April 30, 2000......3
Statements of Operations Three months ended July 31, 2000
and 1999 (unaudited)............................................4
Statements of Stockholders Equity- Three months ended
July 31, 1999 (unaudited).......................................5
Statements of Cash Flows - Three months ended July 31, 2000
and 1999 (unaudited)............................................6
Notes to Consolidated Financial Statements........................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................11
Item 2. Changes in Securities............................................11
Item 3. Defaults Upon Senior Securities..................................12
Item 4. Submission of Matters to a Vote of Securities Holders............12
Item 5. Other Information................................................12
Item 6. Exhibits and Reports on Form 8-K.................................13
SIGNATURES..................................................................14
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PART I
Item 1. Financial Statements.
Pre-Cell Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
July 31, 2000 April 30, 2000
------------- --------------
(Unaudited)
Assets
<S> <C> <C>
Cash ...................................................................... $ 199,163 $ 383,333
Restricted cash............................................................ 541,000 500,000
Accounts receivable........................................................ 306,724 272,378
Inventory.................................................................. 169,278 186,875
Prepaid expenses........................................................... 132,822 120,565
-------------- --------------
Total current assets................................................... 1,348,988 1,463,151
Furniture, fixtures and equipment, net..................................... 392,002 343,175
Goodwill, net.............................................................. 18,098,282 18,331,219
Other assets............................................................... 101,808 107,554
-------------- --------------
$ 19,941,080 $ 20,245,099
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable.............................................................. $ 30,701 $ 31,716
Line of credit............................................................. 729,197 --
Accounts payable........................................................... 527,980 505,847
Customers deposits ........................................................ 188,894 253,099
Due to stockholders........................................................ 755,312 697,027
Accrued expenses .......................................................... 687,040 601,830
-------------- --------------
Total current liabilities.............................................. 2,919,124 2,089,518
-------------- --------------
Commitments and contingencies................................................... -- --
Stockholders' equity:
Preferred stock ........................................................... -- --
Common stock............................................................... 401,307 397,368
Additional paid in capital ................................................ 20,594,920 20,519,992
Accumulated other comprehensive gain/(loss)................................ 3,425 (3,894)
Accumulated deficit ....................................................... (3,977,696) (2,757,885)
-------------- --------------
Total stockholders' equity ..................................................... 17,021,956 18,155,581
-------------- --------------
........................................................................... $ 19,941,080 $ 20,245,099
============== ==============
See accompanying notes to consolidated financial statements
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Pre-Cell Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended July 31,
---------------------------
2000 1999
---- ----
<S> <C> <C>
Revenues...................................................................... $ 653,977 $ 17,572
Direct costs.................................................................. 251,165 14,323
Other expenses ............................................................... 1,343,371 21,652
Goodwill amortization......................................................... 232,937 8,500
------------ -----------
Operating loss................................................................ (1,173,496) (26,903)
Interest and other expense ................................................... 46,315 --
------------ -----------
Net loss...................................................................... (1,219,811) (26,903)
Other comprehensive income - foreign currency translation adjustments......... 7,319 --
------------ -----------
Comprehensive loss............................................................ $ (1,212,492) $ (26,903)
============ ===========
Basic and diluted loss per common share....................................... $ (.03) $ --
============ ===========
Weighted average number of common shares outstanding.......................... 39,944,822 33,852,730
============ ===========
See accompanying notes to consolidated financial statements
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Pre-Cell Solutions, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Common Stock
------------ Accumulated
Number Additional Additional
of Par Paid-In Comprehensive Accumulated
Shares Value Capital Income (loss) Deficit Total
------ ----- ------- ------------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, April 30, 2000 39,736,859 $ 397,368 $ 20,519,992 $ (3,894) $(2,757,885) $ 18,155,581
Unaudited:
Common stock issued
for cash 88,890 889 65,778 -- -- 66,667
Exercise of common
stock options 305,000 3,050 9,150 -- -- 12,200
Other comprehensive income -- -- -- 7,319 -- 7,319
Net loss -- -- -- -- (1,219,811) (1,219,811)
---------- --------- ------------ --------- ------------ ------------
BALANCE, July 31, 2000
(unaudited) 40,130,749 $ 401,307 $ 20,594,920 $ 3,425 $ (3,977,696) $ 17,021,956
========== ========= ============ ========= ============ ============
See accompanying notes to consolidated financial statements
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Pre-Cell Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended July 31,
---------------------------
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net (loss).................................................................. $ (1,219,811) $ (26,903)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization............................................ 236,628 8,525
Translation gain......................................................... 7,319 --
Changes in operating assets and liabilities:
Restricted cash........................................................ (41,000) --
Accounts receivable.................................................... (34,346) (2,807)
Inventory.............................................................. 17,597 --
Prepaid expenses and deposits.......................................... (12,257) (2,000)
Accounts payable....................................................... (42,071) 2,753
Accrued expenses and other liabilities................................. 85,210 67
Due to stockholders/officers........................................... 58,285 15,000
Due to related party................................................... -- 9,858
------------ ------------
Net cash provided by (used in) operating activities............................ (944,447) 4,493
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment.......................................... (52,519) (5,000)
Decrease in other assets.................................................... 5,746 --
------------ ------------
Net cash used in investing activities.......................................... (46,773) (5,000)
------------ ------------
Cash flows from financing activities:
Proceeds from the sale of common stock and exercise of options.............. 78,867 --
Advances on note payable ................................................... 729,197 --
Repayment on note payable .................................................. (1,016) --
------------ ------------
Net cash provided by investing activities...................................... 807,048 --
------------ ------------
Net decrease in cash and cash equivalents...................................... (184,172) (507)
Cash at beginning of period.................................................... 383,333 507
------------ ------------
Cash at end of period.......................................................... $ 199,163 $ --
============ ============
Supplemental disclosure of cash flow information and non-cash
investing and financing activities is as follows:
Cash paid for interest for the year......................................... $ 3,446
See accompanying notes to consolidated financial statements
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Pre-Cell Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements of Pre-Cell
Solutions, Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for a complete financial statement presentation.
In the opinion of management, such unaudited interim information reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present the Company's financial position and results of operations for the
periods presented. The results of operations and cash flows for interim periods
are not necessarily indicative of the results to be expected for a full fiscal
year. The consolidated balance sheet as of April 30, 2000 was derived from the
audited consolidated financial statements as of that date but does not include
all the information and notes required by generally accepted accounting
principles. These consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended April
30, 2000.
The report of our independent certified public accountants on the Company's 2000
financial statements contained an explanatory paragraph emphasizing that there
were substantial doubts about the Company's ability to continue as a going
concern.
Note 2 - Acquisitions
During the fiscal year ended April 30, 2000, the Company acquired 100% of the
outstanding stock of two entities.
US Intellicom, Inc.
-------------------
On April 4, 2000 (the "Closing Date"), Pre-Cell Solutions, Inc. ("Pre-Cell"),
USI Merger Corp., a Georgia corporation and wholly-owned subsidiary of Pre-Cell
("USI Merger Subsidiary"), US/Intellicom, Inc., a Georgia corporation ("USI")
and Ronald I. Kindland and each of the other stockholders of USI ("USI
Stockholders") executed a Merger And Reorganization Agreement ("USI Merger
Agreement"), pursuant to which USI merged ("USI Merger") with and into USI
Merger Corp.
In connection with the USI Merger, Pre-Cell issued an aggregate of 11,440,000
shares of Pre-Cell common stock to the stockholders of USI determined on the
basis of a negotiated value of the business and proprietary technology developed
by USI and the market value of Pre-Cell's common stock. Under the terms of the
agreement, the holders of USI common stock were issued 8.8 shares of Pre-Cell
common stock in exchange for each share of USI common stock. In connection with
the acquisition and as a condition of closing, Pre-Cell established an option
pool in the aggregate of 2,133,333 shares of common stock whereby certain
stockholders of USI that had guaranteed USI's line of credit shall, until
December 31, 2000, have the right to acquire Pre-Cell common stock. As these
options are exercised the shareholder guarantees are released and the amount
available under the USI line of credit is reduced by a corresponding amount.
Additionally, all outstanding options to purchase USI shares became fully vested
and were automatically converted into options to purchase Pre-Cell shares on a
basis of 8.8 Pre-Cell shares for each USI share entitled to be purchased under
the USI options, at the per share price equal to the quotient of (i) the price
contained in the USI options, divided by (ii) 8.8.
Pre-Paid Solutions
------------------
On the Closing Date, Pre-Cell, Pre-Paid Acquisition Corp., a Florida corporation
and wholly-owned subsidiary of Pre-Cell ("Pre-Paid Merger Subsidiary"), Pre-Paid
Solutions, Inc., a Florida corporation ("Pre-Paid") and Thomas E. Biddix and
each of the other stockholders of Pre-Paid ("Pre-Paid Stockholders") executed a
Merger And Reorganization Agreement ("Pre-Paid Merger Agreement"), pursuant to
which Pre-Paid was merged ("Pre-Paid Merger") with and into Pre-Paid Acquisition
Corp.
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In connection with the Pre-Paid Merger, Pre-Cell issued an aggregate of
20,219,127 shares of Pre-Cell common stock to the stockholders of Pre-Paid
determined on the basis of a negotiated value of the business and certain
contracts of Pre-Paid and the market value of Pre-Cell's common stock. Under the
terms of the agreement, the holders of Prepaid common stock were issued 2.81915
shares of Pre-Cell common stock in exchange for each share of Prepaid common
stock. Additionally, all outstanding options and warrants to purchase Pre-Paid
shares became fully vested and were automatically converted into options and
warrants to purchase Pre-Cell shares on a basis of 2.81915 Pre-Cell shares for
each Pre-Paid share entitled to be purchased under the Pre-Paid options, at the
per share price equal to the quotient of (i) the price contained in the Pre-Paid
options and warrants, divided by (ii) 2.81915.
The acquisitions described above were accounted for by the purchase method of
accounting and accordingly, the operating results have been included in the
Company's consolidated results of operations from the date of acquisition. The
costs of the acquisitions have been allocated on the basis of the estimated fair
market values of the assets acquired and liabilities assumed. The excess of the
purchase prices over the fair values of the net assets acquired was
approximately $16,985,000 and has been recorded as goodwill, which is being
amortized on a straight-line basis over 20 years. Accordingly, the accompanying
consolidated statements of operations do not include any revenues or expenses
related to these acquisitions prior to the closing date. Following are the
Company's unaudited pro forma results for the three months ended July 31, 1999
assuming the acquisitions occurred on May 1, 1998:
Three months ended Year ended
July 31, 1999 April 30, 2000
------------- --------------
Net revenues................................. $ 667,702 $ 4,417,218
Net loss..................................... (431,818) (3,928,714)
Basic and diluted net loss per common share.. (.01) (.10)
Weighted average outstanding shares.......... 39,071,234 39,148,838
The pro forma consolidated results of operations include adjustments to give
effect to amortization of goodwill. The unaudited pro forma information is not
necessarily indicative of the results of operations that would have occurred had
the purchase been made at the beginning of the periods presented or the future
results of the combined operations.
Pending acquisitions
--------------------
On August 1, 2000, the Company entered into an agreement to acquire all of the
outstanding shares of Teleconex, Inc., a prepaid local exchange service company
in Pensacola, Florida, for 683,333 shares of Pre-Cell common stock plus cash of
$160,000. The closing of the transaction is subject to regulatory approval. In
addition, the Company has entered into a nonbinding letter of intent to acquire
a competitive local exchange company located in San Antonio, Texas. Consummation
of the merger remains subject to, among other things, regulatory approval, due
diligence, execution of a definitive agreement and the approval by the parties'
board of directors
Note 3 - Line of credit
The Company has a line-of-credit available under which it may borrow up to
$1,600,000 at an interest rate of 2.30% over the lender's commercial paper rate
(6.55% at July 31, 2000). The line expires on November 30, 2000, and is
guaranteed by certain shareholders.
Note 4 - Accrued expenses
Accrued expenses consist of the following:
Accrued claim (see Note 5)............................. $ 380,000
Accrued interest....................................... 112,163
Accrued compensation................................... 139,725
Accrued other.......................................... 55,152
----------
$ 687,040
Note 5 - Commitments and contingencies
Employment agreements
---------------------
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The Company has employment agreements with its executive officers. The
agreements cover a three-year period beginning April 1, 2000 and are terminable
for cause by either party. They also include provisions for discretionary
bonuses and in one instance an incentive bonus for product development. Certain
of the agreements provide for the grant of a total of 1,606,000 shares of the
Company's stock. The shares vest 20% on October 1, 2000, 30% on January 1, 2001
with the remaining 50% on April 1, 2001. The Company has recognized compensation
expense of $80,301 during the three months ended July 31, 2000 as a result of
the stock grants. The remaining compensation expense of $695,932 as a result of
the stock grants will be recognized in fiscal 2001 as they become fully vested.
The agreements include a covenant against competition with the Company and
prohibit divulgence of confidential information.
Letters of credit
-----------------
The Company is contingently liable under the terms of various letters of credit
of up to $541,000 issued to secure credit from certain of its suppliers of
cellular phone airtime. The letter of credit is secured by a $541,000
certificate of deposit. As of July 31, 2000 there were no claims against any of
the letters of credit.
Litigation
----------
On September 21, 1999, the two subsidiaries acquired during April 2000 were
named as defendants in two lawsuits alleging patent infringement arising out of
having made, used, offered for sale and/or sold in the United States products
which infringe one or more claims of Patent No. 5,631,947 and Patent No.
5,577,100. The claims for monetary damages are undisclosed. While any litigation
or investigation has an element of uncertainty, in the opinion of management and
legal counsel, there is no reasonable probability at present of any substantial
liabilities arising out of this matter.
An action was brought against US Intellicom, Inc. (USI), a subsidiary of the
Company, by RiverHawk Capital Resources, Inc., an affiliate of Riverhawk
Holdings, Inc. (RiverHawk) before the American Arbitration Association, claiming
that it is entitled to a "success" fee in connection with a letter agreement
between the parties. On June 9, 2000 the Arbitrator found that RiverHawk was
entitled to a success fee of $374,517, plus one-half of the costs and expenses
of arbitration. The Company has accrued $380,000 at April 30, 2000 and adjusted
the purchase price of the acquisitions discussed in Note 1. However, USI has
filed a Motion to Vacate the Decision of the Arbitrator.
From time-to-time, we are involved in other legal proceedings incidental to the
conduct of our business. The Company believes that this other litigation,
individually or in the aggregate, to which it is currently a party is not likely
to have a material adverse effect on our business, financial condition or
results of operations.
Note 6 - Income taxes
There was no income tax expense/benefit for the Company for the three months
ended July 31, 2000.
The Company maintains a valuation allowance to state its deferred tax assets at
an estimated net realizable value, this balance at July 31, 2000 was zero due to
the uncertainty related to realization of these assets through future taxable
income. The recognition of any future tax benefits resulting from the net
operating loss carryforwards acquired will reduce any goodwill related to the
acquisition of Pre-Paid remaining at the time of such reduction.
Item No. 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis of the Company's consolidated financial
position and consolidated results of operations should be read in conjunction
with the Company's condensed consolidated financial statements and related notes
thereto included in Item 1.
Forward-Looking Statements
This report contains forward-looking statements. Additional written or oral
forward looking statements may be made by the Company from time to time in
filings with the Securities and Exchange Commission or otherwise. Such
forward-looking statements are within the meaning of the term in Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended.
Forward-looking statements may include, but not be limited to, projections of
revenues, income, or loss, estimates of capital expenditures, plans for future
operations, products or services, and financing needs or plans, as well as
assumptions relating to the foregoing. The words "believe," "expect,"
"anticipate," "estimate," "project," and similar expressions identify forward
looking statements, which speak only as of the date the statement was made.
Forward-
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looking statements are inherently subject to risks and uncertainties, some of
which cannot be predicted or quantified. Future events and actual results could
differ materially from that set forth in, contemplated by, or underlying the
forward-looking statements. The Company undertakes no obligation to publicly
update or revise any forward looking statements, whether as a result of new
information, future events, or otherwise.
The following disclosures, as well as other statements in this Report on Form
10-Q, and in the notes to the Company's condensed consolidated financial
statements, describe factors, among others, that could contribute to or cause
such differences, or that could affect the Company's stock price.
Overview
Since 1995, we were inactive but structured to take advantage of business
opportunities which management believed would be in the best interest of our
shareholders. In December 1998, we acquired Pre-Cell Solutions (a Florida
corporation) through the issuance of 32,156,000 shares of our common stock and
we changed our name to Pre-Cell Solutions, Inc. In April 2000, we acquired
Pre-Paid Solutions and US Intellicom through the issuance of 31,659,127 shares
of our common stock. We currently offer prepaid wireless, long distance and
local telecommunication products and services through distributors and resellers
as well as licensing prepaid wireless technology to other wireless resellers.
Historical Results of Operations
Three months ended July 31, 2000 compared to three months ended July 31, 1999
Revenues for the three months ended July 31, 2000 were $653,977 up $636,405 from
$17,572 for the three months ended July 31, 1999. Of this increase $27,374
resulted from an increase in revenues of our Prepaid Dialtone business. Of the
remaining $609,032 of the increase, $250,131 resulted from the operations of
Pre-Paid Solutions, Inc. and $358,901 resulted from the operations of US
Intellicom, Inc., both of which occurred in April 2000, the last month of our
fiscal year ended April 30, 2000.
Direct costs for the three months ended July 31, 2000 were $251,165 up $236,842
from $14,323 for the three months ended July 31, 1999. Of this increase, $11,518
resulted from an increase of our Direct Dialtone business. The operations of
Pre-Paid Solutions accounted for $207,340 of the increase and the operations of
US Intellicom accounted for $17,984 of the increase.
Other operating expenses increased $1,321,719 from $21,652 in the three
months ended July 31, 1999 to $1,343,371 in the three months ended July 31,
2000. The operations of US Intellicom accounted for $674,913 of the increase
and $646,806 resulted from the operations of Pre-Paid Solutions and increases
in corporate overhead as we emerged from an inactive entity and continued to
establish the infrastructure necessary to accomplish our strategic business
plans.
The amortization of goodwill was approximately $233,000 for the quarter ended
July 31, 2000 as compared to $8,500 for the quarter ended July 31, 1999. This
increase was the result of an increase in goodwill of approximately $17,000,000
associated with the acquisitions of Pre-Paid Solutions and US Intellicom that
occurred in April 2000. This increase reflects three months of amortization in
the current period, which will be in excess of $800,000 annually.
There was no income tax expense/benefit for the Company for the three months
ended July 31, 2000 and 1999.
The Company maintains a valuation allowance to state its deferred tax assets at
an estimated net realizable value, this balance at July 31, 2000 was zero due to
the uncertainty related to realization of these assets through future taxable
income. The recognition of any future tax benefits resulting from the net
operating loss carryforwards acquired will reduce any goodwill related to the
acquisition of Pre-Paid remaining at the time of such reduction.
Net loss for the three months ended July 31, 2000 was $1,219,811 as compared to
a loss of $26,903 for the three months ended July 31, 1999. This increase in net
loss of $1,192,908 is primarily the result of the combined effects of the
increased other operating expenses of $1,321,719 and increased goodwill
amortization of $224,000 offset by approximately $400,000 in increased gross
profit margins on revenues.
Liquidity and Capital Resources
For the three months ended July 31, 2000, net cash used in operating activities
was $944,447. This was mainly due to the operating loss for the period. As of
April 30, 2000, we had cash of $199,163 and a net working capital deficit of
$1,570,136.
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Net cash provided from financing activities for the three months ended July 31,
2000 was $807,048. This financing of operating losses was provided by borrowing
approximately $729,000 on our $1,600,000 line of credit and approximately
$79,000 from the sale of our common stock and exercise of options.
Our ability to meet our future obligations in relation to the orderly payment of
our recurring, general and administrative expenses on a current basis is
dependent on our ability to expand our current customer base, secure and develop
new business opportunities and raise additional capital. We are unable to
predict how long it may be able to survive without a significant infusion of
capital from outside sources and we cannot predict whether such capital
infusion, if available, will be on terms and conditions favorable to us.
The Company's audited financial statements for the year ended April 30, 2000
were prepared on a going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of
business. However, absent our ability to execute our plans to expand our current
customer base, secure and develop new business opportunities and raise
additional capital, we may be unable to continue as a going concern, which could
significantly impact the liquidation or settlement value of our assets and
liabilities.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On May 6, 1999 Telemac Cellular Corporation filed suit against US Intellicom,
Inc., our wholly owned subsidiary, in the Northern District of California.
Telemac Cellular alleges patent infringement arising out of US Intellicom's use
of its prepaid cellular software products. Telemac is seeking, among other
relief, an undetermined amount of damages. As there are numerous disputed facts
and because Telemac has yet to quantify its claim, we cannot provide a range of
potential loss.
On September 21, 1999, two of our subsidiaries were named as defendants in
lawsuits filed by Topp Telecom, Inc., alleging patent infringement arising out
of having made, used, offered for sale and/or sold in the United States products
which infringe one or more claims of Patent No. 5,613,947 and Patent No.
5,577,100. The claim for monetary damages are undisclosed. As this litigation is
in the early stages, and Topp Telecom has yet to quantify its claim, we cannot
provide a range of potential loss.
On March 7, 2000 RiverHawk Capital Resources instituted an action against US
Intellicom, Inc., in the Superior Court of Fulton County, Georgia. RiverHawk
Capital Resources alleged breach of contract against U.S. Intellicom seeking
damages in excess of $300,000 in connection with a "success fee", pursuant to
the letter agreement dated October 27, 1998 between RiverHawk Capital Resources
and US Intellicom, on account of the merger transaction among U.S. Intellicom,
Pre-Cell Solutions and USI Merger Corp. effective April 5, 2000. The complaint
was amended to allege that a "success fee" of $2.5 million was owed to RiverHawk
Resources. An arbitrator ruled on June 9, 2000 that US Intellicom pay to
RiverHawk $374,517 as the success fee, plus expenses for the arbitration
proceeding. On July 24, 2000 US Intellicom filed a Response to the claim and an
Application to Vacate the Award in Arbitration. In the event of the arbitrators
decision being upheld, we will be required to pay to RiverHawk $374,517.
From time-to-time, we are involved in other legal proceedings incidental to the
conduct of our business. We believe that this other litigation, individually or
in the aggregate, to which we are currently a party is not likely to have a
material adverse effect on our business, financial condition or results of
operations.
Item 2. Changes in Securities and Use of Proceeds.
Described below are the sales of securities by the Company during the three
months ended July 31, 2000 that were not registered under the Securities Act of
1933, as amended (the "1933 Act"). On the issuance of these securities the
Company relied on the exemption from registration under the 1933 Act set forth
in Section 4(2) thereof, based on established criteria for effecting a private
offering, including the number of offerees for each transaction, access to
information regarding the Company, disclosure of information by the Company,
restrictions on resale of the securities offered, investment representations by
the purchasers, and the qualification of the offerees as "accredited investors."
In July, 2000, the Company sold 88,890 shares of its common stock for $66,667 to
two private investors. Based on the knowledge, experience and economic strength
of these investors, the Company believes this transaction was exempt from
registration with the Commission under Section 4(2) of the Securities Act of
1933.
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Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Filed Herewith or Incorporated
No. Exhibit Description by Reference to:
--- ------------------- -------------------------------
2.1 Merger and Reorganization Filed as an exhibit to report on Form
Agreement among Pre-Cell, USI 8-K filed April 19, 2000
Merger Corp., USI and USI
Stockholders
2.2 Merger and Reorganization Filed as an exhibit to report on Form
Agreement among Pre-Cell, 8-K filed April 19, 2000
Pre-Paid Merger Corp., Pre-Paid
and Pre-Paid Stockholders
4.1 Stock Option Agreement for the Filed as an exhibit to report on Form
purchase of 4,000,000 shares S-8 filed March 8, 2000
between Pre-Cell and Thomas E.
Biddix dated December 1, 1998
4.2 Stock Option Agreement for the Filed as an exhibit to report on Form
purchase of 3,000,000 shares S-8 filed March 8, 2000
between Pre-Cell and Timothy F.
McWilliams dated December 1, 1998
4.3 Stock Option Agreement for the Filed as an exhibit to report on Form
purchase of 100,000 shares S-8 filed March 8, 2000
between Pre-Cell and Tobin &
Reyes, P.A. dated February 2,
2000
4.4 Consulting Agreement for the Filed as an exhibit to report on Form
purchase of 265,625 shares S-8 filed March 8, 2000
between Pre-Cell and Harry
Christenson. dated May 4, 1999
10.1 Share Exchange Agreement entered Filed as an exhibit to report on Form
into between the Company and 10-K filed February 2, 200
Pre-Cell Solutions, Inc., a
Florida corporation.
10.2 Employment Agreement between the Filed as an exhibit to report on Form
Company and Thomas Fricks dated 8-K filed April 19, 2000
April 1, 2000
10.3 Employment Agreement between the Filed as an exhibit to report on Form
Company and Jonathan O'Neal dated 8-K filed April 19, 2000
April 1, 2000
10.4 Stock Redemption Agreement Filed as an exhibit to report on Form
between the Company and Thomas E. 8-K filed April 19, 2000
Biddix dated April 1, 2000
10.5 Employment Agreement between the Filed as an exhibit to report on Form
Company and Thomas E. Biddix 8-K filed April 19, 2000
dated April 1, 2000
10.6 Employment Agreement between the Filed as an exhibit to report on Form
Company and Timothy F. McWilliams 8-K filed April 19, 2000
April 1, 2000
11.1 Statement re Computation of *
Earnings Per Share.
27.1 Financial Data Schedule. Filed herewith.
* Information regarding the computation of loss per share is set forth in
the Consolidated Financial Statements.
Page 13
<PAGE>
(b) Report on Form 8-K
We filed a Report of Form 8-K dated July 14, 2000 disclosing a
change in our auditors from Vestal & Wiler, LLP to BDO Seidman,
LLP. We filed a report on Form 8-K/A dated July 19, 2000 amending
the disclosure of the purchases of US Intellicom, Inc. and Pre-paid
Solutions, Inc. by providing the required audited and pro forma
financial statements in connection with these acquisitions.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on September 13, 2000.
PRE-CELL SOLUTIONS, INC.
By: /s/ Thomas E. Biddix
-------------------------------------
Thomas E. Biddix
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Thomas E. Biddix President and September 14, 2000
-------------------- Chief Executive Officer
Thomas E. Biddix
/s/ Harry Christenson Chief Financial Officer September 14, 2000
--------------------- (Principal Accounting
Harry Christenson and Financial Officer)
Page 14
