-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AIFZ5JfcTqyulBzN47rgcx1eYxUOFTitGEIpaM5P/T/dnyRaWzuAKJoPiVj2pXlv 6bzCJo0rILDCQ02SY5DDdQ== 0000927356-97-000156.txt : 19970223 0000927356-97-000156.hdr.sgml : 19970223 ACCESSION NUMBER: 0000927356-97-000156 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19970220 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERCELL CORP CENTRAL INDEX KEY: 0000745655 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 840928627 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-14306 FILM NUMBER: 97540514 BUSINESS ADDRESS: STREET 1: 4455 E CAMELBACK RD STREET 2: STE E-160 CITY: PHOENIX STATE: AZ ZIP: 85028 BUSINESS PHONE: 6028521524 MAIL ADDRESS: STREET 1: 770-1130 WEST PENDER ST STREET 2: VANCOUVER BRITISH COLUMBIA V6E 4A4 CITY: TUCSON STATE: A1 ZIP: 85718-4535 10-K/A 1 FORM 10-K/A FORM 10-K/A-1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: September 30, 1996 Commission file number: 0-14306 INTERCELL CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Colorado 84-0928627 - ------------------------------- ----------------------- (State of other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 999 West Hastings Street, Suite 1750 Vancouver, B.C., Canada, V6C 2W2 ------------------------------------------------------ (Address and zip code of principal executive office) Registrant's telephone number, including area code: (604) 684-1533 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value -------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. [ ] As of the close of trading on December 20, 1996, there were 17,364,750 common shares outstanding, 10,135,891 of which were held by non-affiliates. The aggregate market value of the non-affiliated common shares, based on the average closing bid and asked prices on December 20, 1996, was approximately $41,177,000. DOCUMENTS INCORPORATED BY REFERENCE NONE PART II ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA On December 4, 1995, the Company changed its fiscal year end from December 31, 1995 to September 30, 1995 due to the acquisition of the assets and liabilities of Energy on July 7, 1995 for 5,412,191 shares of Common Stock, which represented 52% of the Common Stock outstanding at that time. As a result, for accounting purposes, Energy was considered the acquiring corporation and the comparative information presented herein represents that of Energy prior to July 7, 1995 and Energy and the Company subsequent to such date. See "--Recent Acquisitions and Transactions," the Company's Consolidated Financial Statements and Notes thereto included elsewhere herein, and "Financial Statements and Supplementary Data--Notes to Consolidated Financial Statements." The following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and Notes thereto included elsewhere herein. The Consolidated Statements of Operations data presented below for the fiscal year ended September 30, 1996, the eleven months ended September 30, 1995 and the fiscal year ended October 31, 1994 and the Consolidated Balance Sheet data as of September 30, 1996 have been derived from the Company's Consolidated Financial Statements included herein. The Consolidated Financial Statements as of and for the fiscal year ended September 30, 1996 and the eleven months ended September 30, 1995 were audited by KPMG Peat Marwick LLP, independent public accountants. The Consolidated Financial Statements, as of and for the fiscal year ended October 31, 1994 were audited by Mark Shelley, CPA, independent public accountant. The Statements of Operations data set forth below for the years ended October 31, 1993 and 1992 and the Balance Sheet data set forth below at October 31, 1994, 1993 and 1992 are derived from audited financial statements not included herein.
Year Eleven Year Year Year Ended Months Ended Ended Ended Ended 9/30/96 9/30/95(1) 10/31/94 10/31/93 10/31/92 ----------- ------------ ---------- ---------- ---------- Total net sales $ 3,405,000 $ 3,768,000 $2,066,000 $ 60,000 $ 0 Costs & expenses 8,688,000 5,089,000 2,428,000 142,000 43,000 Net loss (5,283,000) (1,321,000) (362,000) (82,000) (43,000) Net loss per common share $(0.54) $(0.18) $(0.08) $(0.04) $N/A Weighted average Number of common shares outstanding 13,072,683 7,391,275 4,828,007 2,066,979 1,781,880 At period end: Current assets $10,625,000 $ 1,796,000 $1,499,000 $ 4,000 $ 0 Current liabilities 2,060,000 1,799,000 1,621,000 82,000 149,000 Working capital (deficit) 8,565,000 (3,000) (122,000) (78,000) (149,000) Total assets 13,826,000 3,069,000 3,141,000 51,000 0 Long-term debt 86,000 48,000 48,000 175,000 0 Stockholders' equity $11,680,000 1,222,000 $1,472,000 $ (206,000) $ (149,000) Cash dividends per common share 0 0 0 0 0 Deemed preferred stock 1,624,648 -- -- -- -- dividend relating to in-the-money conversion
_______________ (1) On December 4, 1995, the Company changed its fiscal year end from December 31 to September 30. The comparative information presented herein represents that of Energy which was deemed to be the acquiring company in the July 7, 1995 transaction. Energy's fiscal year was previously October 31. 2 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion should be read in conjunction with the "Selected Consolidated Financial Data" and the "Financial Statements and Supplementary Data." The statements contained in this report, if not historical, are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and involve risks and uncertainties that could cause actual results to differ materially from the results, financial or otherwise, or other expectations described in such forward-looking statements. These risks and uncertainties that may affect the operations, performance, development and results of the Company's business include those, among others, discussed under "Trends and Uncertainties" below. Any forward looking statement or statements speak only as of the date on which such statement was made, and the Company undertakes no obligation to update any forward looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. Therefore, forward- looking statements should not be relied upon as a prediction of actual future results. From 1991 through the fiscal year ended December 31, 1994, the Company was generally inactive and reported no operating revenues. In July 1995, the Company completed the acquisition of Energy and its wholly owned subsidiary CTL. See "Business--Overview." The Company has substantially expanded the scope of its business and revised its business strategy subsequent to the Energy transaction through the acquisition of certain patents, patent applications and proprietary technology relating to the Antenna Technology and the PI Technology. During this time, the Company has been engaged primarily in directing, supervising and coordinating the Company's activities in the continuing development of its new lines of business, in addition to the recruitment of management and technical personnel and raising new capital to fund its operations. The primary asset acquired in the Energy transaction, its wholly owned subsidiary CTL, continued to generate positive cash flows in the 1996 fiscal year, although sales decreased 9.6% over the 1995 fiscal year. This decrease in sales was primarily attributable to a change in product mix, the delayed timing of certain orders in the fourth quarter of 1996 and production capacity constraints at CTL's current manufacturing facilities. CTL anticipates moving to new production facilities in February of 1997, which the Company believes will eliminate the production capacity constraints. On November 15, 1995, the Company entered into a research and development agreement with ASU for the development of the Antenna Technology. To date the Company has developed several working prototypes of the External Antenna and anticipates commencing commercial production of both the External Antenna and Internal Antenna in the 1997 fiscal 3 year. There can be no assurance, however, that the Company will commence production in 1997 or thereafter. On September 30, 1996, the Company formed a wholly owned subsidiary, Cellular Magnetics, which acquired all the assets and liabilities of M.C. Davis in exchange for 277,778 shares of Common Stock valued at $1,000,000 and $800,000 in cash. While the Company had initially considered constructing its own manufacturing facility, this acquisition, accounted for by the purchase method of accounting, provides the Company with both a facility for the immediate production of its Antenna Technology and an established manufacturing facility. The Company intends to continue to produce the miniature and subminiature electronic components previously produced by M.C. Davis and does not anticipate that the production of the Antenna Technology will significantly impact its ability to manufacture these electronic assemblies. To further diversify the Company's operations and to capitalize on a new and emerging technology, the Company formed a wholly owned subsidiary, PI Corp., which merged with Particle California. The Company exchanged 1,400,000 shares of Common Stock for all of the outstanding stock of Particle California. The transaction was accounted for as an immaterial pooling-of-interest as the prior operations of Particle California are not material to the Company's consolidated financial position, results of operations or cash flows. Accordingly, the consolidated financial statements for periods prior to the date of acquisition have not been restated, except for loss per common share information. From the date of the merger, PI Corp. has been engaged primarily in the construction of production capabilities at its plant and the continuing development of the technology. PI Corp. expects to commence commercial production in 1997. On July 7, 1996, the Company completed an offering pursuant to Regulation S under the Securities Act (the "Regulation S Offering") of 1,000 shares of its Series B Preferred Stock, with attached warrants, pursuant to which it received net proceeds of $8,900,000. The Series B Preferred Stock is convertible into Common Stock at the exchange rate in effect at the date of conversion, as described in the preferred stock agreements. At the date of issuance, the exchange rate was equal to 85% of the then prevailing market rate, resulting in a deemed dividend of $1,764,704. The Company recognized $1,624,648 of the dividend in its fiscal 1996 net loss per common share calculation. The amount recognized was calculated on a pro rata basis over the period beginning with the issuance of the security to the first date conversion could occur. To further improve the Company's working capital position, the Company completed an offering pursuant to Regulation D to institutional investors on December 15, 1996, of 525 shares of its Series C Preferred Stock, with attached warrants, pursuant to which it received net proceeds of $4,672,500. The Series C Preferred Stock is convertible into Common Stock at the exchange rate in effect at the date of conversion, as described in the preferred stock agreements. At the date of issuance, the exchange rate was less then the prevailing market rate, which will result in a deemed dividend that will be recognized by the Company in fiscal 1997. See "--Liquidity and Capital Resources" below. 4 RESULTS OF OPERATIONS Fiscal Year Ended September 30, 1996 compared to Fiscal Year Ended September 30, 1995 (Eleven Months). Net Sales. Net sales, which are derived solely from the operations of CTL, decreased 9.6% in 1996 to $3,405,000 from $3,768,000 in 1995. This decrease in sales is generally due to a combination of a change in the Company's product mix and the delayed timing of significant orders which were originally planned for the fourth quarter of 1996, but were not placed until the end of the 1996 calendar year. In the 1996 fiscal year, net sales of new magnetrons totaled $1,436,000, accounting for 42% of sales, compared with $1,455,000 or 39% of net sales in 1995. Net revenues from rebuilding of magnetrons decreased from $1,849,000 or 49% of net sales in 1995 to $1,403,000 or 43% of net sales in 1996. This shift in sales mix was due primarily to the Company's focus on new and more complex tube types such as certain Pulse magnetrons in an attempt to broaden the Company's product line and a slow down in orders for rebuilt magnetrons for the food processing industry in the last two quarters of 1996. It is anticipated that the sales mix experienced in the final six months of fiscal 1996 will continue for the foreseeable future. The Company obtained a significant contract for the manufacture of new and rebuilt Pulse magnetrons in June of 1996. However, the initial order under this contract was not placed until September, 1996. As a result, sales were not recorded under this contract until the first quarter of fiscal 1997, resulting in a significant increase in sales in the first quarter of 1997 over the final quarter of 1996. In conjunction with the changes in sales mix noted above, the Company experienced a decrease in gross margins to 17% in the 1996 fiscal year from 23% in 1995. This decrease was due to the increased development time and costs associated with the new and more complex tube types now being constructed by the Company. In particular, direct labor costs increased to 34% of net sales in 1996 compared to 30% in 1995, while direct materials costs increased to 26% in 1996 from 25% in 1995. The Company anticipates that gross margins will improve in the 1997 fiscal year as development of these new tube types is now complete and production should therefore become more efficient. In addition to the above, the Company's current electron tube manufacturing facility is operating at maximum capacity. The Company believes that its move to the new Watsonville manufacturing facility in February, 1997 should satisfy the Company's production needs for the foreseeable future. The Company anticipates that it may experience minor disruptions in production due to the movement of equipment and the familiarization of employees with the new manufacturing facility, which disruptions are not expected to have a material impact on the Company's operations. 5 Allowance for Doubtful Accounts. The Company's allowance for doubtful accounts increased from $81,000 in 1995 to $255,000 in 1996. This increase is primarily a result of the return of certain Pulse magnetrons, a new product of the Company, for which rework was requested by the purchasers. The Company does not believe that similar returns will occur in the future. Selling, General and Administrative Expense. Selling, general and administrative ("SGA") expenses increased 331.5% from $1,317,000 in 1995 to $5,683,000 in 1996. This increase is primarily attributable to an increase in compensation expense of $3,686,000 resulting from the vesting of stock options to purchase an aggregate of 4,841,000 shares of Common Stock granted to the Company's officers, directors, employees and consultants in 1996 at exercise prices below the fair value of the Common Stock on the date of grant. The Company recorded deferred compensation expense of $4,017,000 based on these grants. The options were granted as an incentive to such persons at a time when the Company did not have sufficient funds to otherwise compensate such persons. In the future, the Company does not intend to grant stock options in the amounts granted in 1996 or at less than the fair value of the Common Stock on the date of grant. In addition to the above, SGA expenses increased in 1996 due to higher legal and audit costs ($387,000 in 1996 compared to $102,000 in 1995) associated with the Company's acquisitions, financings and compensation arrangements, and increased compensation paid to management and administrative personnel. In the 1997 fiscal year, it is anticipated that sales and marketing expenses will increase considerably over 1996 levels. In 1996, sales and marketing expenses were limited to costs associated with CTL's operations. In 1997, significant costs will be incurred in order to bring the Company's Antenna Systems and Particle Interconnect Products to market. In addition, the Company intends to significantly expand its marketing activities for its electron tube products in an effort to capture a larger share of the market. Research and Development. Research and development expenses increased from -0-in 1995 to $88,000 in 1996. This increase was attributable entirely to costs associated with research and development of the Company's Antenna Systems. It is anticipated that research and development activities will materially increase in 1997 as the Company continues to develop its Antenna Technology and the PI Technology. Interest Income and Expense. The Company earned interest income of $36,000 in 1996 compared to -0- in 1995. This increase was due to the investment in Treasury Bills of undeployed cash resources realized through the sale of its Series B Preferred Stock. The Company anticipates that interest income will increase in 1997 as undeployed funds, including those raised through the sale of its Series C Preferred Stock, will continue to be invested in low risk interest bearing securities. 6 Interest expense increased to $90,000 in 1996 compared to $88,000 in 1995 due to continued bank financing and outstanding notes payable to related parties. The Company repaid these financings and notes with the proceeds received from the Series B Preferred Stock financing and does not currently anticipate obtaining further debt financing. Net Operating Loss Carryforwards for Tax Purposes. As of September 30, 1996 the Company had a net operating loss carryover for federal and California income tax purposes of approximately $7,376,000 and $3,463,000 respectively. The federal net operating losses expire from 2007 to 2011. The California net operating losses expire from 2000 to 2001. The benefit of these net operating loss carryforwards has not been recorded by the Company as it is uncertain that the Company will generate sufficient income in future periods to utilize the loss carryforwards. Eleven Months Ended September 30, 1995 compared to Fiscal Year Ended October 31, 1994. On July 7, 1995, the Company acquired all of the assets and assumed all of the liabilities of Energy through the issuance of 5,412,191 shares of Common Stock. The principal asset acquired in this transaction was all of the issued and outstanding common stock of CTL. Energy had acquired its investment in CTL on May 1, 1994. In accordance with generally accepted accounting principles, the results of operations disclosed in the Company's audited consolidated financial statements include CTL's operations for the eleven-month period ended September 30, 1995 for the 1995 fiscal year and for the six-month period ended October 31, 1994 for the comparative 1994 fiscal year. Net Sales and Gross Margins. The Company's net sales of $3,768,000, which are attributable entirely to the operations of CTL, increased 82% in the 1995 fiscal year compared to net sales of $2,066,000 in 1994. This increase was due primarily to the inclusion in the financial statements of eleven months of CTL's operations in the 1995 fiscal year compared to only six months in fiscal 1994 as described above. Monthly sales in both the 1995 and 1994 fiscal years averaged approximately $340,000 due to capacity limitations at CTL's manufacturing facilities. Although CTL's average monthly sales remained constant in the 1995 and 1994 fiscal years, the Company experienced a decline in gross margins on sales of electron tubes to 23% of net sales in 1995 from 42% in 1994. This decrease was due primarily to increased costs associated with the development and manufacture of new types of tubes. In addition, the Company sold a greater percentage of new tubes relative to rebuilt tubes in the 1995 fiscal year compared to 1994. As new tubes carry a lower gross margin than rebuilt tubes, an overall decline in gross margins was experienced. Selling, General and Administrative Expenses. SGA expenses increased by 11% in the 1995 fiscal year due to increased consulting, legal and audit costs associated with the Energy transaction and the Company's financing activities. 7 Interest Expense. Interest expense increased to $88,000 in 1995 from $3,000 in 1994 primarily due to an increase in notes payable to former owners of CTL and other third parties. Loss on Investments. During fiscal 1995, the Company purchased approximately 15% of the outstanding stock of American Microcell for 712,571 shares of common stock at a deemed price of approximately $0.70 per share, or $500,000. American Microcell was engaged in the research and development of improved technologies for cellular phones. However, American Microcell proved unsuccessful in its efforts to finance continuing development of the technologies acquired, and the rights to these technologies reverted to the original developers. Accordingly, the Company wrote off its investment in American Microcell in fiscal 1995. In addition, the Company sold certain microwave technology rights to a related party for a note in the face amount of $1,250,000. Due to concerns about collectibility, the Company reserved the remaining carrying value in fiscal 1995. In addition, related deferred development costs totalling $44,631 were written off in fiscal 1995. Losses on investments in fiscal 1994 were not significant. Net Operating Loss Carryforwards for Tax Purposes. As of September 30, 1995 the Company had a net operating loss carryover for federal and California income tax purposes of approximately $1,083,000 and $317,000 respectively. The federal net operating losses expire from 2007 to 2010. The California net operating losses expire in 2000. The benefit of these net operating loss carryforwards has not been recorded by the Company as it is uncertain that the Company will generate sufficient income in future periods to utilize the loss carryforwards. Fiscal 1994 compared to Fiscal 1993 On May 1, 1994, Energy acquired all of the issued and outstanding common shares of CTL for 762,031 shares of Energy's common stock (valued at $1,069,140) and notes payable to two major stockholders of CTL for $955,860. In addition, Energy bought out an employment contract with a former owner of CTL for 222,572 shares of Energy common stock (valued at $312,272). From the date of acquisition of CTL to October 31, 1994, the Company's net sales were $2,066,462. For the 1994 fiscal year, the Company incurred a net loss of $362,102. Prior to the acquisition of CTL, Energy had been engaged in the development of technologies designed to enhance the production of hydrocarbons from oil properties. Subsequent to the acquisition of CTL, Energy incurred no additional costs or revenues relating to the development of these technologies. As discussed above, this technology was sold in the 1995 fiscal year in exchange for certain royalty payouts and a note in the face amount of $1,250,000 bearing interest at 6%. Due to concerns about collectibility, this note was fully reserved as of September 30, 1995. 8 LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1996, the Company had cash and cash equivalents on hand of $4,224,000 as compared to $57,000 at September 30, 1995. This increase in working capital was primarily due to net proceeds of $8,900,000 received from the issuance of Series B Preferred Stock and warrants and the proceeds of $1,342,000 received from sales of Common Stock. In addition, the Company acquired $167,000 in connection with its acquisition of Particle California and M.C. Davis and realized proceeds of $174,000 on the sale of property. These proceeds were used to finance the Company's operating activities of $1,697,000, to repay bank debt of $190,000 and other debt totalling $994,000, and to acquire property, plant, equipment and other assets of $472,000. The Company acquired assets comprised of working capital and property, plant and equipment, and recorded related goodwill and other intangibles, totalling $1,649,000 in 1996 as a result of the business combinations of M.C. Davis and PI Corp. In addition, the Company acquired land in exchange for 400,000 shares of the Company's common stock valued at $1,000,000, the assumption of mortgages of $367,000 and acquisition costs of $57,000. The Company also disposed of equipment held for resale through the return and cancellation of its Series A Preferred Stock for which it recognized neither a gain or loss, except for $40,000 in storage costs. As a result of the transactions described above and the Series C Preferred Stock financing, the Company believes that current and known future capital resources will be adequate to fund its operations in the near term. The Company also believes that sales of its Antenna Systems and Particle Interconnect Products, both anticipated to commence in the 1997 fiscal year, in combination with the sales of the electronic assemblies of Cellular Magnetics and the operations of CTL will provide sufficient funds to meet the Company's capital requirements for the next two years. At this time, the Company does not intend to raise additional capital through the sale of additional capital stock or through the issuance of debt. In the 1997 fiscal year, the Company expects to make capital expenditures of approximately $1,700,000. These expenditures will be made on CTL's new manufacturing facility in Watsonville, California, establishing PI Corp.'s initial full production line and facility in Colorado Springs, Colorado and purchasing new equipment for the Company's manufacturing plants in Arizona City, Arizona and Sonora, Mexico in connection with the manufacture of the Antenna Systems. TRENDS AND UNCERTAINTIES As a result of its activities in 1996, the Company believes that it has positioned itself for long term success through the acquisition of M.C. Davis and by obtaining the rights to the Antenna Technology, the PI Technology and the Proprietary Electroplating Process. The Company's activities in fiscal 1997 will focus on bringing these new technologies to market and on expanding the existing markets for its electron tube products and the electronic assemblies 9 previously manufactured by M.C. Davis. However, the future operating results of the Company are subject to certain trends and uncertainties within the industries in which the Company is operating and within the Company itself. OVERVIEW In general, due to the Company's change of business purpose, the Company has a limited operating history that is relevant to its current business. The Company does not anticipate producing significant operating revenues until such time, if ever, as products developed using the Antenna Technology and PI Technology are completely developed, manufactured in commercial quantities and available for commercial delivery, and accepted in the marketplace. There can be no assurance that the Company's technology and products, if developed and manufactured, will be able to compete successfully in the marketplace and/or generate significant revenue. The Company anticipates incurring significant costs in connection with the development of its technologies and proposed products and there is no assurance that the Company will achieve significant revenues to offset anticipated operating costs. Included in such costs are research and development expenses, marketing costs, increased capital expenditures for the expansion of its manufacturing facilities and the research and development of its products, and general and administrative expenses. Inasmuch as the Company will continue to have high levels of operating expenses and will be required to make significant expenditures in connection with its continued research and development activities, the Company anticipates that such losses will continue until such time, if ever, as the Company is able to generate sufficient revenues to exceed its total costs of operation. SPECIFIC TRENDS AND/OR UNCERTAINTIES The Company is currently attempting to expand its customer base for its electron tube business by and through the development of new products and increased marketing activities. At this time, it is uncertain whether the Company will be able to create new markets for its products. In addition, the response of larger competitors in the electron tube markets to the Company's increased marketing activities is not determinable. The Company also faces uncertainty over the effects of business slowdowns relating to the move to its new electron tube manufacturing facilities. While the Company believes that the impact of this move will be minimal, unanticipated difficulties may arise, which could result in a negative impact on the Company's operations. The acceptance of the Antenna Technology and Antenna Systems by cellular phone users and OEMs has not yet been tested. While the Company has received significant expressions of interest from third parties for the Antenna Technology, the existence and extent of market opportunities for its Antenna Systems is unknown. In addition, the response of competitors to the marketing of the Antenna Systems is unknown at this time. 10 The Company's PI Technology is currently in the development stage and the marketability of the PI products has not yet been tested. The PI Technology is currently being utilized by third parties in limited applications under licenses granted from Louis DiFrancesco, the developer of the PI Technology or from companies he previously controlled such as Particle California. The wide spread acceptance of the PI Technology and the Particle Interconnect Products by the market has yet to be tested by the Company. In addition, no prediction can be made as to competitive responses in the market place should the PI Technology and the Particle Interconnect Products prove successful. Moreover, the licensees of the PI Technology could compete directly with the Company in the markets it intends to enter. If such licensees desire to do so, Mr. Louis DiFrancesco, and not the Company, would receive any increase in royalty payments due to such success. The Company is operating in three diverse businesses with different operating and management requirements. As the operations of the Company expand there will be a requirement for increased management expertise. The Company is currently seeking to expand its management complement, particularly in the marketing field, to cope with the anticipated growth in the Company's operations. PENDING ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of," ("SFAS No. 121") which establishes methods for determining when an impairment of long-lived assets has occurred and for measuring the impairment of long-lived assets. The implementation of SFAS No. 121 in the Company's 1997 fiscal year is not expected to have a material effect on the Company's consolidated results of operations or financial condition. The FASB also issued SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123") which encourages, but does not require, employers to adopt a fair value method of accounting for employee stock-based compensation, and which requires increased stock-based compensation disclosures in lieu of expense recognition. The Company expects to continue to use the intrinsic value-based method of Accounting as allowed under SFAS No. 123. The implementation of SFAS No. 123 in the Company's 1997 fiscal year is not expected to have a material effect on the Company's reported consolidated results of operations or financial position. 11 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and related financial information required to be filed are indexed on page F-2 and are incorporated herein. 12 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this Report. 1. FINANCIAL STATEMENTS. See Index to Financial Statements on page F-2 of this Report. 2. FINANCIAL STATEMENT SCHEDULES. See Index to Financial Statements on page F-2 of this Report. All other schedules are omitted since they are not required, are inapplicable, or the required information is included in the financial statements or notes thereto. 3. EXHIBITS. The following is a complete list of exhibits filed as part of this Form 10-K. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.
EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.1(5) 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. 3.1(5) Articles of Incorporation of the Company, and all amendments thereto, as amended. 3.2(5) Bylaws of the Company. 4.1(5) Form of Common Stock Certificate. 4.2 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.
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EXHIBIT NO. DESCRIPTION - ----------- ----------- 4.4 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(5) Form of Warrant attached to Series C Preferred Stock. 4.6(5) Specimen of Registration Rights Agreement for Series B Preferred Stock. 4.7(5) Specimen of Registration Rights Agreement for Series C Preferred Stock. 4.8(5) Plan of Liquidating Dissolution of Energy Corporation dated July 8, 1996. 10.1(2) 1995 Compensatory Stock Option Plan. 10.2(5) 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(5) 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(5) Employment and Non-Disclosure Non-Competition Agreement, dated September 1, 1996, between Gordon J. Sales and the Company. 10.5(5) Employment and Non-Disclosure Non-Competition Agreement, dated September 1, 1996, between Alan M. Smith and the Company. 10.6(5) Employment and Non-Disclosure Non-Competition Agreement, dated September 1, 1996 between Terry W. Neild and the Company. 10.7(5) Employment and Non-Disclosure Non-Competition Agreement, dated October 22, 1996 between Steven D. Clark and PI Corp. 10.8(5) Employment and Non-Disclosure Non-Competition Agreement, dated September 1, 1996 between Lawrence DiFrancesco and PI Corp. 10.9(5) Employment and Non-Disclosure Non-Competition Agreement, dated September 1, 1996 between Patricia H. Grihalva and PI Corp.
14
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.10(5) Employment and Non-Disclosure Non-Competition Agreement, dated October 8, 1996 between Jerry W. Tooley and Cellular Magnetics. 10.11(5) Employment and Non-Disclosure Non-Competition Agreement, dated October 8, 1996 between David Putnam and Cellular Magnetics. 11* Statement regarding Computation of Per Share Earnings. 21(5) Subsidiaries of the Company. 23.1* Consent of KPMG Peat Marwick LLP 23.2* Consent of Mark Shelley, CPA 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's Current Report on Form 8-K dated September 3, 1996. (4) Incorporated by reference to the Company's Current Report on Form 8-K dated October 14, 1996. (5) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended September 30, 1996. (b) Reports on Form 8-K: 1. Form 8-K dated July 10, 1996 regarding the sale of the Company's Series B Preferred Stock pursuant to Regulation S. 2. Form 8-K dated September 3, 1996 regarding the acquisition of Particle Interconnect, Inc. 3. Form 8-K dated October 14, 1996 regarding the acquisition of AC Magnetics, Inc. which was effective September 30, 1996. 4. Form 8-K/A filed December 13, 1996 containing pro forma financial information on the acquisition of AC Magnetics, Inc. 5. Form 8-K dated December 16, 1996 regarding the sale of 525 shares of Series C Preferred Stock. 15 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: February 20, 1997 By /s/ Alan M. Smith ------------------- Alan M. Smith, Chief Financial Officer, Secretary and Treasurer 16 INTERCELL CORPORATION AND SUBSIDIARIES Consolidated Financial Statements September 30, 1996 and 1995 and October 31, 1994 (With Independent Auditors' Reports Thereon) F-1 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INTERCELL CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page ---- Independent Auditors' Reports.............................................................................................. F-3, F-4 Consolidated Balance Sheets - September 30, 1996 and September 30, 1995.................................................... F-5 Consolidated Statements of Operations - Year ended September 30, 1996, Eleven-month period ended September 30, 1995 and the Year ended October 31, 1994........................................................................................... F-6 Consolidated Statements of Stockholders' Equity (Deficit) - Year ended September 30, 1996, Eleven-month period ended September 30, 1995 and the Year ended October 31, 1994.................................................................... F-7 Consolidated Statements of Cash Flows - Year ended September 30, 1996, Eleven-month period ended September 30, 1995 and the Year ended October 31, 1994........................................................................................... F-8 Notes to Consolidated Financial Statements................................................................................. F-9 Schedule II - Valuation and Qualifying Accounts............................................................................ F-24
The remaining schedules for which provision is made in Regulation S-X are not required under the instructions contained therein, are inapplicable, or the information required is included in the financial statements or footnotes. F-2 INDEPENDENT AUDITORS' REPORT The Stockholders and Board of Directors Intercell Corporation: We have audited the accompanying consolidated balance sheets of Intercell Corporation and subsidiaries (the Company), formerly Modern Industries, Inc. and subsidiaries, as of September 30, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended September 30, 1996, and for the eleven-month period ended September 30, 1995. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the financial statement schedule as listed in Item 14(a)2 of this Form 10-K. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audit 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, 1996 and 1995, and the results of their operations and their cash flows for the year ended September 30, 1996, and for the eleven-month period ended September 30, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP San Jose, California December 6, 1996 F-3 MARK SHELLEY, CPA 110 S. Mesa Drive #31 Mesa, Arizona 85210 (602) 833-4054 INDEPENDENT AUDITOR'S REPORT The Shareholders and Board of Directors Intercell Corporation: I have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows for the year ended October 31, 1994 of Intercell Corporation and subsidiary, formerly Modern Industries, Inc. and subsidiaries, (the Company). These consolidated financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these consolidated financial statements based on my audit. I have conducted my audit in accordance with generally accepted auditing standards. Those standards require that I 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. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows for the year ended October 31, 1994 of Intercell Corporation and subsidiary in conformity with generally accepted accounting principles. This updated report above and corresponding financial statements do not include the balance sheet of the Company as of October 31, 1994. This balance sheet is not required to be included in the current 1996 filings. This balance sheet was included in previous filings of the Company. At those times an unqualified opinion was given for the October 31, 1994 balance sheet. /s/ Mark Shelley CPA March 14, 1995 Updated December 31, 1996 F-4 INTERCELL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets
September 30, ------------------------ Assets 1996 1995 - ------ ------------ ---------- Current assets: Cash and cash equivalents $ 4,224,000 57,000 Short-term investments 3,063,000 - Accounts receivable, less allowance for returns and doubtful accounts of $255,000 and $81,000 in 1996 and 1995, respectively 746,000 637,000 Inventories 1,066,000 773,000 Prepaid expenses and other current assets 102,000 79,000 Investment land held for sale 1,424,000 - Equipment held for sale - 250,000 ----------- ---------- Total current assets 10,625,000 1,796,000 Property, plant, and equipment, net 1,418,000 885,000 Goodwill and other intangible assets, net 1,583,000 388,000 Other assets 200,000 - ----------- ---------- $13,826,000 3,069,000 =========== ========== Liabilities and Stockholders' Equity - ------------------------------------ Current liabilities: Loan payable to bank $ - 190,000 Note payable 266,000 71,000 Notes payable to related parties 932,000 495,000 Current portion of long-term debt 120,000 2,000 Accounts payable and accrued liabilities 742,000 829,000 Accounts payable to related parties - 212,000 ----------- ---------- Total current liabilities 2,060,000 1,799,000 Long-term debt, less current portion 86,000 48,000 Commitments Stockholders' equity: Convertible preferred stock; 10,000,000 shares authorized: Series A; 210,000 shares issued and outstanding as of September 30, 1995 - 250,000 Series B; 787 shares issued and outstanding as of September 30, 1996 (liquidation preference of $10,225 per share) 5,533,000 - Warrants to acquire common stock 1,870,000 - Common stock; no par value; 100,000,000 shares authorized; 15,734,229 and 10,409,244 shares outstanding, respectively 12,187,000 3,109,000 Deferred compensation (331,000) - Accumulated deficit (7,579,000) (2,137,000) ----------- ---------- Total stockholders' equity 11,680,000 1,222,000 ----------- ---------- $13,826,000 3,069,000 =========== ==========
See accompanying notes to consolidated financial statements. F-5 INTERCELL CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations
Eleven-month Year ended period ended Year ended September 30, September 30, October 31, 1996 1995 1994 -------------- -------------- ------------ Net sales $ 3,405,000 3,768,000 2,066,000 Cost of goods sold 2,830,000 2,884,000 1,208,000 ----------- ---------- --------- Gross profit 575,000 884,000 858,000 Selling, general, and administrative expenses 5,683,000 1,317,000 1,182,000 Research and development 88,000 - - ----------- ---------- --------- Operating loss (5,196,000) (433,000) (324,000) Other income (expense): Interest income 36,000 - - Interest expense (90,000) (88,000) (3,000) Loss on investments - (795,000) - Other (33,000) (3,000) (16,000) ----------- ---------- --------- (87,000) (886,000) (19,000) ----------- ---------- --------- Loss before income taxes (5,283,000) (1,319,000) (343,000) Income taxes - 2,000 19,000 ----------- ---------- --------- Net loss $(5,283,000) (1,321,000) (362,000) Deemed Preferred Stock Dividend relating to in-the-money conversion terms 1,624,648 -- -- ----------- ---------- --------- Net loss applicable to common stockholders (6,907,648) (1,321,000) (362,000) =========== ========== ========= Net loss per common share $(.54) (.18) (.08) =========== ========== ========= Weighted average number of shares of common stock outstanding 13,072,683 7,391,275 4,828,007 =========== ========== =========
See accompanying notes to consolidated financial statements. F-6 INTERCELL CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Deficit) Year ended September 30, 1996, eleven-month period ended September 30, 1995, and year ended October 31, 1994
Convertible preferred stock Warrants Common stock Additional ----------------------- to acquire ----------------------- paid-in Deferred Accumulated Shares Amount common stock Shares Amount capital compensation deficit --------- ------------ ------------- ---------- ----------- ----------- ------------- ---------- Balances as of October 31, 1993 - $ - - 2,352,081 $ 7,000 242,000 - (454,000) Conversion of debt to equity - - - 676,777 2,000 473,000 - - Shares issued in exchange for prepaid promotion - - - 35,637 - 50,000 - - Shares issued in exchange for consulting services - - - 14,255 - 20,000 - - Acquisition of California Tube Laboratory, Inc. - - - 762,031 2,000 1,067,000 - - Employment contract buy out - - - 222,572 1,000 311,000 - - Shares issued in exchange for microwave technology - - - 178,188 500 250,000 - - Shares issued in exchange for services - - - 178,188 500 69,000 - - Purchase of treasury stock - - - - - (206,000) - - Net loss - - - - - - - (362,000) -------- ----------- --------- ---------- ----------- ---------- ------------ --------- Balances as of October 31, 1994 - - - 4,419,729 13,000 2,276,000 - (816,000) Shares issued in lieu of interest payment to related party - - - 17,819 - 13,000 - - Shares issued in exchange for investment in American Microcell - - - 712,751 2,000 498,000 - - Shares issued in private placement - - - 85,530 - 60,000 - - Contribution to ESOP - - - 176,362 1,000 246,000 - - Conversion of additional paid-in capital to common stock - - - - 3,093,000 (3,093,000) - - Acquisition of Intercell 210,000 250,000 - 4,997,053 - - - - Net loss - - - - - - - (1,321,000) -------- ----------- --------- ---------- ----------- ---------- ------------ ----------- Balances as of September 30, 1995 210,000 250,000 - 10,409,244 3,109,000 - - (2,137,000) Repurchase of shares of Series A preferred stock (210,000) (250,000) - - - - - - Shares of Series B preferred stock and warrants issued in private placement, net of issuance costs of $1,100,000 1,000 7,030,000 1,870,000 - - - - - Shares issued in exchange for land - - - 400,000 1,000,000 - - - Contribution to ESOP - - - 126,761 158,000 - - - Shares issued to effect business combination with Particle Interconnect, Inc. treated as an immaterial pooling - - - 1,400,000 8,000 - - (159,000) Deferred compensation related to stock option grants - - - - 4,017,000 - (4,017,000) - Amortization of deferred compensation - - - - - - 3,686,000 - Exercise of stock options - - - 2,295,180 1,342,000 - - - Conversion of Series B preferred stock to common stock (213) (1,497,000) - 588,880 1,497,000 - - - Shares issued in exchange for services - - - 236,386 56,000 - - - Shares to be issued for acquisition of M.C. Davis - - - 277,778 1,000,000 - - - Net loss - - - - - - - (5,283,000) -------- ----------- --------- ---------- ----------- ---------- ------------ ----------- Balances as of September 30, 1996 787 $ 5,533,000 1,870,000 15,734,229 $12,187,000 - (331,000) (7,579,000) ======== =========== ========= ========== =========== ========== ============ =========== Total stockholders' equity (deficit) -------------- Balances as of October 31, 1993 (205,000) Conversion of debt to equity 475,000 Shares issued in exchange for prepaid promotion 50,000 Shares issued in exchange for consulting services 20,000 Acquisition of California Tube Laboratory, Inc. 1,069,000 Employment contract buy out 312,000 Shares issued in exchange for microwave technology 250,500 Shares issued in exchange for services 69,500 Purchase of treasury stock (206,000) Net loss (362,000) --------- Balances as of October 31, 1994 1,473,000 Shares issued in lieu of interest payment to related party 13,000 Shares issued in exchange for investment in American Microcell 500,000 Shares issued in private placement 60,000 Contribution to ESOP 247,000 Conversion of additional paid-in capital to common stock - Acquisition of Intercell 250,000 Net loss (1,321,000) ----------- Balances as of September 30, 1995 1,222,000 Repurchase of shares of Series A preferred stock (250,000) Shares of Series B preferred stock and warrants issued in private placement, net of issuance costs of $1,100,000 8,900,000 Shares issued in exchange for land 1,000,000 Contribution to ESOP 158,000 Shares issued to effect business combination with Particle Interconnect, Inc. treated as an immaterial pooling (151,000) Deferred compensation related to stock option grants - Amortization of deferred compensation 3,686,000 Exercise of stock options 1,342,000 Conversion of Series B preferred stock to common stock - Shares issued in exchange for services 56,000 Shares to be issued for acquisition of M.C. Davis 1,000,000 Net loss (5,283,000) ---------- Balances as of September 30, 1996 11,680,000 ==========
See accompanying notes to consolidated financial statements. F-7 INTERCELL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows
Eleven-month Year ended period ended Year ended September 30, September 30, October 31, 1996 1995 1994 -------------- -------------- ------------ Cash flows from operating activities: Net loss $(5,283,000) (1,321,000) (362,000) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 59,000 97,000 136,000 Loss on investments - 795,000 102,000 Loss on sale of property 36,000 - - Common stock issued for interest, services 56,000 13,000 - Accrual of ESOP contributions - 158,000 247,000 Amortization of deferred compensation 3,686,000 - - Changes in operating assets and liabilities: Accounts receivable 47,000 (167,000) 119,000 Inventories (28,000) (275,000) (208,000) Prepaid expenses and other current assets 21,000 32,000 - Accounts payable and accrued liabilities (79,000) 344,000 326,000 Accounts payable to related parties (212,000) 123,000 - ----------- ---------- -------- Net cash (used in) provided by operating activities (1,697,000) (201,000) 360,000 ----------- ---------- -------- Cash flows from investing activities: Acquisition of property, plant, and equipment (273,000) (31,000) (19,000) Acquisition of land (57,000) - - Other assets (142,000) 9,000 (8,000) Cash acquired in connection with acquisitions 167,000 - 262,000 Purchase of short-term investments (3,063,000) - - Proceeds from sale of property 174,000 - - ----------- ---------- -------- Net cash (used in) provided by investing activities (3,194,000) (22,000) 235,000 ----------- ---------- -------- Cash flows from financing activities: Proceeds from (payments on) loan payable to bank (190,000) 190,000 - Payments on notes payable to related parties (495,000) (460,000) - Proceeds from notes payable - 110,000 - Payments on note payable (71,000) (40,000) - Proceeds from issuance of Series B preferred stock and warrants 8,900,000 - - Stockholders' repayment - - (175,000) Proceeds from sale of common stock 1,342,000 60,000 - Repayments of long-term debt (428,000) - - ----------- ---------- -------- Net cash provided by (used in) financing activities 9,058,000 (140,000) (175,000) ----------- ---------- -------- Net increase (decrease) in cash and cash equivalents 4,167,000 (363,000) 420,000 Cash and cash equivalents beginning of year/period 57,000 420,000 - ----------- ---------- -------- Cash and cash equivalents end of year/period $ 4,224,000 57,000 420,000 =========== ========== ========
See accompanying notes to consolidated financial statements. F-8 INTERCELL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements September 30, 1996 and 1995 and October 31, 1994 (1) DESCRIPTION OF BUSINESS General Intercell Corporation (the Company or Intercell), is a Colorado corporation that invests in companies in the technology industries. Acquisition of Modern Industries, Inc. In July 1995, Intercell entered into an Agreement and Plan of Reorganization with Modern Industries, Inc. (Modern) a Delaware Corporation. The Company issued 5,412,191 shares of common stock to Modern in exchange for all of the assets and liabilities of Modern and its wholly owned subsidiary, California Tube Laboratory, Inc. (CTL). The 5,412,191 shares issued to Modern represented approximately 52% of the Company's outstanding common stock upon completion of the transaction. As such, the transaction was treated for financial reporting purposes as a purchase of Intercell by Modern. The assets of Intercell have been recorded at their estimated fair value at the date of acquisition and Intercell's results of operations have been included in the consolidated statements of operations subsequent to the date of the acquisition. Modern's historical share amounts have been adjusted on a retroactive basis in a manner similar to a reverse stock split. Acquisition of California Tube Laboratory, Inc. In May 1994, Modern acquired all of the issued and outstanding shares of CTL for 762,031 shares of its common stock (valued at $1,069,000) and notes payable to two major stockholders of CTL for $956,000. Modern also bought out an employment contract with a former owner of CTL for 222,572 shares of Modern common stock (valued at $311,000). CTL is an electronic parts manufacturer located in Northern California. CTL manufactures, rebuilds, and repairs magnetrons, klystrons, high power triodes and tetrodes, electron guns, and linear accelerators for customers located primarily in the United States. Acquisition of Particle Interconnect, Inc. In September 1996, Intercell formed a wholly owned subsidiary, Particle Interconnect Corp. (PI Corp.), a Colorado corporation, which merged with Particle Interconnect, Inc. (Particle), a California corporation. Particle is engaged in the development and manufacturing of particle-coated substrates for integrated circuits and is located in Colorado Springs, Colorado. The Company exchanged 1,400,000 shares of Intercell common stock for all of the outstanding stock F-9 INTERCELL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements of Particle. The transaction was accounted for by the pooling-of-interest method of accounting. The results of operations of Particle are not material to the Company's consolidated financial position, results of operations, and cash flows. Accordingly, the consolidated financial statements for periods prior to the date of acquisition have not been restated, except for loss per common share information. The weighted average number of shares of common stock outstanding and loss per common share has been restated for all periods presented to reflect the 1,400,000 shares of common stock issued in the transaction. Acquisition of A.C. Magnetics, Inc. On September 30, 1996, Intercell formed a wholly owned subsidiary, Cellular Magnetics Inc., an Arizona corporation, which acquired all the assets and liabilities of A.C. Magnetics, Inc. dba M.C. Davis, Co. Inc. (M.C. Davis) in exchange for 277,778 shares of Intercell common stock (valued at $1,000,000) and $800,000 in cash. M.C. Davis is a manufacturer and distributor of electrical devices and equipment with manufacturing facilities near Phoenix, Arizona, and in the province of Sonora, Mexico. The transaction was accounted for by the purchase method of accounting. The results of operations for M.C. Davis have not been included in the Company's consolidated results of operations as the transaction occurred on the last day of Intercell's fiscal year. The total purchase price of $1,800,000 has been allocated to the net assets acquired based on their relative fair values as follows:
Current assets $ 544,000 Property, plant, and equipment 383,000 Goodwill and other intangibles 1,223,000 Current liabilities (293,000) Other liabilities assumed (57,000) ---------- Total purchase price $1,800,000 ==========
The following table presents unaudited pro forma results of operations as if the acquisition had occurred on November 1, 1994. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made at the beginning of 1995, or indicative of results which may occur in the future.
1996 1995 ---------- --------- Net sales $5,164,000 5,471,000 Operating loss 5,323,000 531,000 Net loss 5,427,000 1,451,000 Net loss per common share .53 .20
F-10 INTERCELL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Change in Fiscal Year During the eleven-month period ended September 30, 1995, Intercell changed its fiscal year-end to September 30. Previously, Intercell had an October 31 year-end. The accompanying consolidated financial statements include the results of operations and cash flows of Intercell for the year ended September 30, 1996, the eleven-month period ended September 30, 1995, and the year ended October 31, 1994. (2) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. 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 period. Actual results could differ from those estimates. Cash Equivalents and Short-Term Investments Cash equivalents are highly liquid investments with a maturity of less than three months at the date of purchase. Short-term investments consist of certificates of deposit and short-term debt securities with maturities greater than three months and less than one year. As of September 30, 1996, the Company's investments consisted of U.S. government treasury bills of $3,925,000 and certificates of deposit of $126,000. As of September 30, 1996, investment securities of $988,000 and $3,063,000 are classified as cash equivalents and short-term investment, respectively. Investments in debt securities are classified as "available for sale." Such investments are recorded at fair value, as determined from quoted market prices, and the cost of securities sold is determined based on the specific identification method. Unrealized gains and losses, if any, are reported as a component of stockholders' equity. Unrealized gains and losses were not significant for any period presented. Revenue Recognition Revenues are recognized when earned, generally upon product shipment. Provision is made for estimated customer returns and warranty costs at the time of sale. F-11 INTERCELL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Inventories Inventories generally are stated at the lower of cost (first in, first out) or market. Costs incurred in the manufacture of new tubes is recorded on a standard cost basis, which approximates the first-in, first-out method, with the costs of raw materials, labor, and overheads adjusted periodically when actual costs change. Each tube repair is unique and is costed out on a specific item basis with costs accumulated as incurred. Tubes rebuilt for the U.S. government follow governmental cost allocation guidelines. Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Depreciation expense is provided by use of the accelerated and straight-line methods over the estimated useful lives of the assets, generally 5 to 12 years for furniture, equipment, and vehicles and 31 years for buildings. Goodwill and Other Intangibles Goodwill and other intangibles, which include costs in excess of fair value of net assets of businesses acquired, proprietary technology, and trade names are being amortized over 3 to 15 years using the straight-line method. The Company periodically evaluates the carrying amount of its intangibles to determine whether any impairment of the assets has occurred based on estimated undiscounted future cash flows. This evaluation necessarily involves significant management judgment and actual results could differ from the estimates and forecasts used. There were no adjustments to the carrying value of intangible assets resulting from these evaluations in 1996, 1995, and 1994. Accumulated amortization amounted to $61,000 and $28,000 as of September 30, 1996 and 1995, respectively. 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 the amounts expected to be realized. F-12 INTERCELL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Net Loss Per Common Share Net loss per common share is computed by dividing the sum of net loss and deemed preferred stock dividend by the weighted average number of common shares and dilutive common equivalent shares outstanding during each period presented. Net loss per common share in the accompanying 1996 consolidated statement of operations has been increased by nine cents per share from amounts previously reported to reflect a deemed dividend on Series B Preferred Stock in accordance with recently published views of the Staff of the Securities and Exchange Commission (Note 7). Common equivalent shares consist of stock options that are computed using the treasury stock method. Recent Accounting Pronouncements The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards (SFAS) No. 121, Accounting, for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121 will be effective for fiscal years beginning after December 15, 1995, and requires long-lived assets to be evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company will adopt SFAS No. 121 in fiscal 1997 and does not expect its provisions to have a material effect on the Company's consolidated results of operations. FASB also has issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 will be effective for fiscal years beginning after December 15, 1995, and will require that the Company either recognize in its consolidated financial statements costs related to its employee stock-based compensation plans, such as stock option and stock purchase plans, or make pro forma disclosures of such costs in a footnote to the consolidated financial statements. The Company expects to continue to use the intrinsic value-based method of Accounting Principles Board Opinion No. 25, as allowed under SFAS No. 123, to account for all of its employee stock-based compensation plans. Therefore, in its consolidated financial statements for fiscal 1997, the Company will make the required pro forma disclosures in a footnote to the consolidated financial statements. SFAS No. 123 is not expected to have a material effect on the Company's consolidated results of operations or financial position. F-13 INTERCELL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (3) BALANCE SHEET COMPONENTS Inventories A summary of inventories follows:
September 30, ------------------- 1996 1995 ---------- ------- Raw materials $ 422,000 296,000 Work in process 453,000 477,000 Finished goods 191,000 - ---------- ------- $1,066,000 773,000 ========== =======
Property, Plant, and Equipment A summary of property, plant, and equipment follows:
Furniture and fixtures $ 339,000 76,000 Equipment and machinery 845,000 690,000 Land and buildings 282,000 230,000 Leasehold improvements 71,000 - Vehicles 23,000 - ---------- ------- 1,560,000 996,000 Less accumulated depreciation 142,000 111,000 ---------- ------- $1,418,000 885,000 ========== =======
F-14 INTERCELL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Accounts Payable and Accrued Liabilities A summary of accounts payable and accrued liabilities follows:
September 30, ------------------- 1996 1995 ---------- ------- Accounts payable $ 376,000 208,000 Warranty reserves 130,000 130,000 Accrued employee compensation 191,000 153,000 Accrued ESOP contribution - 158,000 Other liabilities 45,000 180,000 ---------- ------- $ 742,000 829,000 ========== =======
(4) SUPPLEMENTAL CASH FLOW INFORMATION For the year ended September 30, 1996, and the eleven-month period ended September 30, 1995, cash paid by the Company for interest was $87,000 and $15,000, respectively. Cash paid by the Company for interest in 1994 was not significant. F-15 INTERCELL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements A summary of noncash investing and financing activities follows:
Eleven-month Year ended period ended Year ended September 30, September 30, October 31, 1996 1995 1994 ------------- ------------- ----------- Shares issued in acquisition of Intercell - $250,000 - Shares issued in exchange for investment in American Microcell - 500,000 - Shares issued in exchange for microwave technology - 250,000 - Contribution to ESOP 158,000 247,000 - Shares issued in lieu of interest payment to related party - 13,000 - Shares issued in acquisition of CTL - - 2,025,000 Conversion of debt to equity - - 475,000 Shares issued in exchange for prepaid promotion - - 140,000 Employment contract buy out - - 311,000 Shares issued in exchange for microwave technology - - 250,000 Shares issued in exchange for services 56,000 - - Net assets acquired in business combinations 1,649,000 - - Shares issued in exchange for land 1,000,000 - - Debt assumed in land acquisition 367,000 - - Shares to be issued for acquisition of M.C. Davis 1,000,000 - - Debt incurred in acquisition of M.C. Davis 800,000 - - Deferred compensation related to stock option grants 4,017,000 - - Repurchase of shares of Series A preferred stock 250,000 - - Conversion of Series B preferred stock to common stock 1,497,000 - -
(5) EQUIPMENT HELD FOR SALE On December 29, 1994, Intercell executed an Asset Purchase Agreement with Asia Skylink Corp. to acquire microwave transmission and associated support equipment in exchange for 210,000 shares of Series A redeemable convertible preferred stock. In August 1996, the shares were returned to the Company, and the equipment was returned to Asia Skylink, Corp. No gain or loss was recognized by the Company in connection with the reversal of this transaction. (6) BANK BORROWINGS Loan Payable to Bank In June 1995, the Company obtained a revolving loan for up to $500,000 based on a percentage of eligible assets. This loan expires on December 31, 1996, bears interest at the bank's base rate (8.25% as of September 30, 1996) plus 1/2% for administration fees and an additional 6%, and is secured by all assets of the Company. F-16 INTERCELL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Long-Term Debt Long-term debt is summarized as follows:
September 30, ---------------- 1996 1995 -------- ------ Note payable to bank; interest at prime plus 2%; due April 4, 1997; collateralized by various assets; repaid in October 1996 $100,000 - Note payable; noninterest bearing; due June 1998; collateralized by building 47,000 - Note payable to bank; interest at 9.75%; due in 36 monthly payments of $481; collateralized by a vehicle; repaid in October 1996 15,000 - Note payable to bank; interest at 9.75%; due May 2008; secured by real property; repaid in April 1996 - 50,000 Other 44,000 - -------- ------ 206,000 50,000 Less current portion 120,000 2,000 -------- ------ Long-term debt, net $ 86,000 48,000 ======== ======
Future maturities of long-term debt as of September 30, 1996, are as follows:
Year ending September 30, ---------------- 1997 $120,000 1998 86,000 -------- Total $206,000 ========
F-17 INTERCELL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (7) STOCKHOLDERS' EQUITY Preferred Stock As of September 30, 1996 and 1995, the Company is authorized to issue 10,000,000 shares of preferred stock. In December 1994, the Company issued 210,000 shares of Series A redeemable convertible preferred stock (Series A preferred) in exchange for microwave transmission equipment. During 1996, the Series A preferred shares were surrendered to and canceled by the Company in exchange for the return of the microwave transmission equipment (see Note 5). In July 1996, the Company issued 1,000 shares of Series B redeemable convertible preferred stock (Series B preferred) and detachable warrants for proceeds of $8,900,000 (net of issuance costs of $1,100,000). Each share of Series B 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. Conversion of the Series B preferred is automatic upon the expiration of three years from the original date of issuance. At the date of issuance, the exchange rate was equal to 85% of the then prevailing market rate, resulting in a deemed dividend of $1,764,704. The Company recognized $1,624,648 of the dividend in its fiscal 1996 net loss per common share calculation. The amount recognized was calculated on a pro rata basis over the period beginning with the issuance of the security to the first date conversion could occur. The Series B preferred contain a liquidation preference equal to the original issue price plus 10% of the original issue price per annum to the date of liquidation. Series B preferred shares are not entitled to voting rights. Each share of Series B preferred is accompanied by a detachable warrant to purchase a number of shares of common stock of the Company equal to 30% of the original aggregate purchase price of the shares of Series B preferred divided by a fixed conversion rate of $3.9375 per share, exercisable 105 days after original issuance. As of September 30, 1996, warrants to acquire 1,092,063 shares of common stock were outstanding. The warrants will expire if not exercised by July 1, 2001. Stock Options In July 1995, Intercell established a Compensatory Stock Option Plan (the Plan) and reserved 5,000,000 shares of common stock for issuance under the Plan. In June 1996, an additional 2,000,000 shares were reserved for issuance under the Plan. Incentive stock options can be granted under the 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 F-18 INTERCELL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements market value at the date of grant or the date the exercise price of any such option is modified. All stock options expire 10 years from the date of grant. A summary of stock option activity under the Plan follows:
Options outstanding Shares ------------------------- available Price for grant Shares per share ----------- ----------- ------------ Balances as of July 1995 5,000,000 - $ Options granted (1,600,000) 1,600,000 0.50 ---------- ---------- ------------ Balances as of September 30, 1995 3,400,000 1,600,000 0.50 Additional shares authorized 2,000,000 - - Options granted (4,841,000) 4,841,000 0.50 - 4.00 Options canceled 150,000 (150,000) 0.50 Options exercised - (2,295,000) 0.50 - 2.00 ---------- ---------- ------------ Balances as of September 30, 1996 709,000 3,996,000 0.50 - 4.00 ========== ==========
As of September 30, 1996, options to purchase approximately 3,366,000 shares of common stock were exercisable. The Company recorded deferred compensation of $4,017,000 for the difference between the exercise price and the fair value of the common stock related to stock options granted in 1996. Certain of the options vested immediately and, therefore, the related compensation expense of $3,686,000 was recorded at the grant date. The remaining deferred compensation will be amortized over the vesting period of the options, generally four years. (8) EMPLOYEE STOCK OWNERSHIP PLAN CTL has established an Employee Stock Ownership Plan (the Employee Plan) and a related trust for substantially all of its eligible employees. To participate in the Employee Plan, employees must have worked at least 1,000 hours during the year and must be employed at the end of the plan year. Participants do not vest until their third year of employment and then vest 20% per year through year seven. Employer contributions are voluntary and generally are based on a percentage of eligible payroll, limited to 15%. In 1995, the Company elected to contribute 126,761 shares of the Company's common stock valued at $158,000 to the Employee Plan. The Employee Plan was terminated in 1996, and, as such, the Company has not made any additional contributions. F-19 INTERCELL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (9) PURCHASE OF AMERICAN MICROCELL During fiscal 1995, the Company acquired approximately 15% of the outstanding stock of American Microcell in exchange for 712,751 shares of common stock at a deemed value of approximately $0.70 per share. American Microcell was engaged in the research and development of improved technologies for cellular phones. However, American Microcell proved unsuccessful in its efforts to finance continuing development of technologies acquired, and the rights to these technologies reverted to the original developers. Accordingly, the Company's investment in American Microcell has been written off as a charge to income in the accompanying 1995 consolidated statement of operations. (10) ADVANCES TO INTERPRETEL, INC. In anticipation of a merger, the Company advanced $100,000 to Interpretel, Inc. in January 1995. The proposed merger was not completed and Interpretel, Inc. repaid $45,000 of the advance and will issue 100,000 shares of Wavetech, Inc. common stock to the Company in fiscal 1997. (11) RELATED PARTY TRANSACTIONS Notes Payable As of September 30, 1995, the Company had an outstanding promissory note due to a former owner of CTL in the amount of $495,000, bearing interest at 8%. The note was repaid during fiscal 1996. As of September 30, 1996, the Company had an outstanding promissory note due to a former owner and current president of M.C. Davis in the amount of $80,000, bearing interest at 8%, due December 15, 1996. The note was repaid in October 1996. As of September 30, 1996, the Company had an outstanding promissory note due to a former owner of Particle in the amount of $52,000, bearing interest at 8%, due on demand. The Company has noninterest bearing notes payable totaling $800,000 due to the former owners of M.C. Davis in consideration for the purchase of M.C. Davis consummated on September 30, 1996 (see Note 1). The notes were paid in full in October 1996. Purchase of Land During April 1996, the Company entered into an agreement with a related party whereby in exchange for 400,000 shares of the Company's common stock (valued at $1,000,000) and assumption of mortgages of $367,000, the Company acquired development land located in Arizona. In connection with the exchange, the Company incurred acquisition costs of $57,000. F-20 INTERCELL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The land, including acquisition costs, is recorded on the accompanying 1996 consolidated balance sheet as investment land held for sale. Purchase and Sale of Microwave Technology In June 1994, the Company purchased one half of the rights to a technology that utilizes microwaves to enhance the production of oil wells for 178,188 shares of its common stock. The Company already owned the one half interest in the technology. In January 1995, the Company sold these rights to Reland International, Inc. (Reland) for certain royalty payouts and a note receivable with a face amount of $1,250,000, bearing interest at 6%, with accrued interest payable annually on or before January 15 of each year, and principal payable on or before January 16, 2000. Due to concerns about collectibility, this note and related accrued interest was written off as a charge to income in the accompanying 1995 consolidated statement of operations. Operating Leases CTL leases its principal facility on a month-to-month basis from a significant stockholder. Monthly rental payments for the facility lease are $10,000, and the lease expires in August 1999. The Company paid rent related to this lease of $118,000, $106,000, and $29,000, during 1996, 1995, and 1994, respectively. The Company leases a facility in Vancouver, Canada, from a executive and director of the Company with monthly rental payments of $3,000. The lease expires in August 2001. (12) COMMITMENTS Operating Leases The Company leases office space, manufacturing facilities, and certain equipment under various operating lease agreements. Future minimum lease payments under noncancelable leases as of September 30, 1996, are as follows:
Year ending September 30, ------------- 1997 $ 513,000 1998 475,000 1999 262,000 2000 254,000 Thereafter 2,048,000 ---------- Total $3,552,000 ==========
F-21 INTERCELL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Rent expense under operating leases was approximately $277,000, $145,000, and $116,000 during 1996, 1995, and 1994, respectively. Litigation The Company is subject to various legal proceedings and claims. In the opinion of management, the ultimate liability with respect to these actions will not materially affect the Company's consolidated financial position or results of operations. (13) INCOME TAXES Income tax expense in 1996 was not significant. In 1995 and 1994, income tax expense was $2,000 and $19,000, respectively. Income tax expense differed from amounts computed by applying the federal statutory income tax rate of 34% to pretax loss as a result of the following:
Eleven-month Year ended period ended Year ended September 30, September 30, October 31, 1996 1995 1994 --------------- -------------- ------------ Computed "expected" tax benefit $(1,616,000) (448,000) (117,000) State income taxes (442,000) 2,000 19,000 Change in valuation allowance 1,912,000 249,000 117,000 Net operating loss carryforwards for state purposes not available for future utilization 146,000 142,000 - Other - 57,000 - ----------- ---------- ----------- $ - 2,000 19,000 =========== ========== ===========
F-22 INTERCELL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The tax effects of temporary differences that give rise to significant portions of deferred tax assets are as follows:
1996 1995 ---------- ----------- Deferred tax assets: Stock options $ 688,000 - Net operating loss carryovers 1,610,000 398,000 Allowance for returns and doubtful accounts 47,000 35,000 ---------- ----------- 2,345,000 433,000 Less valuation allowance 2,345,000 433,000 ---------- ----------- Net deferred tax assets $ - - ========== ===========
The change in the valuation allowance was an increase of $1,912,000 and $164,000 in fiscal 1996 and 1995, respectively. The valuation allowance applies primarily to those temporary differences that are expected to be deductible at a point in the future when taxable income is uncertain. Since the Company is entitled to a deduction for federal and state tax purposes resulting from the exercise of nonqualified stock options and employees' early dispositions of stock acquired through incentive stock options, a portion of the deferred tax asset, when recognized by a reduction of the valuation allowance, will be credited to additional paid- in capital. As of September 30, 1996, approximately $1,262,000 of the deferred asset will be credited to additional paid-in capital when recognized. As of September 30, 1996, the Company had a net operating loss carryover for federal and California income tax purpose of approximately $7,376,000 and 3,463,000, respectively. The federal net operating losses expire from 2007 to 2011. The California net operating losses expire from 2000 to 2001. The difference between the federal and California loss carryforwards results primarily from a 50% limitation on California net operating losses. The Tax Reform Act of 1986 and the California Conformity Act of 1987 impose substantial restrictions on the utilization of net operating loss carryforwards in the event of an ownership change, as defined by Internal Revenue Code, Section 382. Federal loss carryforwards of approximately $439,000 are subject to an annual limitation of approximately $176,000. Any unused annual limitation can be carried forward and added to the succeeding years annual limitation, subject to the expiration dates discussed above. F-23 INTERCELL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (14) SIGNIFICANT CUSTOMER AND INDUSTRY SEGMENT INFORMATION Two customers individually accounted for 10% or more of the Company's net sales in 1996, 1995, and 1994. Sales and the related receivable percentages to these customers as of September 30, 1996 and 1995, and October 31, 1994 are summarized as follows:
Percentage of Percentage of net sales accounts receivables ---------------------------- ----------------------------- 1996 1995 1994 1996 1995 1994 ----- -------------- ----- ----------- --------- ----- Customer A 14% 15% 22% 6% 9% 15% Customer B 12% 12% 35% 11% 12% 17%
As of and through September 30, 1996, substantially all of the Company's net sales and gross profits from operations have been generated by CTL. As of September 30, 1996 and 1995, identifiable assets of CTL and M.C. Davis, a business purchased by Intercell in September 1996, were as follows:
1996 1995 ---------- --------- CTL $3,371,000 3,950,000 M.C. Davis 2,150,000 -
(15) SUBSEQUENT EVENT (UNAUDITED) In December 1996, the Company issued 525 shares of no par value Series C preferred stock (Series C preferred) and detachable warrants in a private placement for $4,672,500 (net of issuance costs of $577,500). Each share of Series C preferred is convertible into common stock at the exchange rate in effect at the time of the conversion, as described in the preferred stock agreements, and is subject to appropriate adjustment for common stock splits, stock dividends, and other similar transactions. Conversion of the Series C preferred is automatic upon the expiration of three years from the original date of issuance. The Series C preferred is convertible into common stock at the exchange rate in effect at the date of conversion, as described in the preferred stock agreements. At the date of issuance, the exchange rate was less then the prevailing market rate, which will result in a deemed dividend that will be recognized by the Company in fiscal 1997. The Series C preferred are junior to the Company's Series B preferred shares and contain a liquidation preference equal to the original issue price plus 8% of the original issue price per annum to the date of liquidation. Series C preferred shares are not entitled to voting rights. F-24 Shares of Series C preferred purchased in excess of certain quantities as described in the preferred stock agreements, or purchased in addition to previous purchases of Series B preferred shares are accompanied by detachable warrants to purchase a number of shares of common stock of the Company equal to between 25% and 50% of the original aggregate purchase price of the Series C preferred shares divided by a fixed conversion rate of $3.25 per share, exercisable 105 days after original issuance. F-25 INTERCELL CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
Balance at Charged to Beginning Costs and Balance at Classification of Year Expenses Deductions End of Year - --------------------------- ------------- ---------- ----------- ----------- Allowance for returns and doubtful accounts Year ended October 31, 1994 $-- $ 15 $ -- $ 15 ============= ==== ========== ==== Eleven months ended $15 $ 81 $(15) $ 81 September 30, 1995 ============= ==== ========== ==== Year ended September 30, $81 $174 $ -- $255 1996 ============= ==== ========== ====
F-26 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.1(5) 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. 3.1(5) Articles of Incorporation of the Company, and all amendments thereto, as amended. 3.2(5) Bylaws of the Company. 4.1(5) Form of Common Stock Certificate. 4.2 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 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(5) Form of Warrant attached to Series C Preferred Stock. 4.6(5) Specimen of Registration Rights Agreement for Series B Preferred Stock. 4.7(5) Specimen of Registration Rights Agreement for Series C Preferred Stock. 4.8(5) Plan of Liquidating Dissolution of Energy Corporation dated July 8, 1996. 10.1(2) 1995 Compensatory Stock Option Plan. 10.2(5) 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.
EX-11 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS Exhibit 11 ---------- INTERCELL CORPORATION STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Year ended September 30, ----------------------------------------------------------------------- Statement of operations data: 1996 1995 1994 --------------------- ---------------------- ---------------------- Net (loss) (5,283,000) (1,321,000) (362,000) Deemed preferred stock dividend relating to in-the-money conversion 1,624,648 -- -- terms/(2)/ ---------- ---------- --------- (6,907,648) (1,321,000) (362,000) ========== ========== ========= Weighted average shares outstanding 13,072,683 7,391,275 4,828,007 Common equivalent shares from stock options Average common and equivalent shares -- -- -- outstanding/(1)/ ---------- ---------- --------- 13,072,683 7,391,275 4,828,007 ========== ========== ========= Net (loss) per common share/(2)/ (.54) (.18) (.08) ========== ========== ========= ________________
/(1)/ The difference between primary and fully diluted earnings per share is not material. /(2)/ Net (loss) per common share has been increased by $.09 per share from amounts previously reported to reflect a deemed dividend on Series B preferred stock in accordance with recently published views of the Staff of the Securities and Exchange Commission. See Note 7 to the Consolidated Financial Statements. EX-23.1 3 CONSENT OF KPMG PEAT MARWICK LLP Exhibit 23.1 Consent of Independent Auditors The Board of Directors Intercell Corporation: We consent to incorporation by reference in the registration statement (No. 333-604) on Form S-8 of Intercell Corporation of our report dated December 6, 1996, relating to the consolidated balance sheets of Intercell Corporation and subsidiaries as of September 30, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year ended September 30, 1996, and for the eleven-month period ended September 30, 1995, and the related schedule, which report appears in the September 30, 1996, annual report on Form 10-K/A-1 of Intercell Corporation. /s/ KPMG Peat Marwick LLP San Jose, California February 20, 1997 EX-23.2 4 CONSENT OF MARK SHELLEY, CPA Exhibit 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As an independent public accountant, I hereby consent to the incorporation of my report included in this Form 10-K/A-1 into Intercell Corporation's previously filed Registration Statement on Form S-8, No. 333-604. /s/ Mark Shelley, CPA February 20, 1997 EX-27 5 FINANCIAL DATA SCHEDULE
5 YEAR SEP-30-1996 OCT-01-1995 SEP-30-1996 4,224,000 3,063,000 746,000 255,000 1,066,000 10,625,000 1,418,000 142,000 13,826,000 2,060,000 86,000 0 5,533,000 12,187,000 (6,040,000) 13,826,000 3,405,000 3,441,000 2,830,000 8,601,000 33,000 47,000 54,000 (5,283,000) 0 (5,283,000) 0 0 0 (5,283,000) (.54) (.54)
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