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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1998
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number 33-19598-D
NANOPIERCE TECHNOLOGIES, INC.
-----------------------------
(Exact name of small business issuer as specified in its charter)
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<CAPTION>
<S> <C>
Nevada 84-0992908
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(State or other jurisdiction of incorporation or organization ) (I.R.S. employer identification number)
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370 Seventeenth Street Suite 3580
Denver Colorado 80202
(Address of principal executive offices)
Issuer's telephone number: (303) 592-1010
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
-
As of November 13, 1998, there were 12,500,476 shares of the registrant's
sole class of common stock outstanding.
Traditional Small Business Disclosure Format Yes No X
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NANOPIERCE TECHNOLOGIES, INC.
INDEX
Page
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PART I - FINANCIAL INFORMATION..........................................F-1
Item 1 - Financial Statements......................................F-1
Item 2 - Management's Plan Of Operation..............................1
PART II - OTHER INFORMATION...............................................3
Item 1 - Legal Proceedings...........................................3
Item 2 - Changes In Securities.......................................3
Item 5 - Other Information...........................................6
Item 6 - Exhibits And Reports On Form 8-K............................6
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
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Page
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Balance Sheet September 30, 1998 F-2
Statements of Operations three months ended September 30, 1998 and 1997 F-3
Statements of Stockholders' Equity three months ended September 30, 1998 and 1997 F-4
Statements of Cash Flows three months ended September 30, 1998 and 1997 F-5
Notes to Financial Statements F-6 to F-9
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F-1
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NANOPIERCE TECHNOLOGIES, INC
BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
<S> <C>
Current Assets:
Cash $ 227,251
Current portion of notes receivable 11,650
------------------------
Total current assets 238,901
Other assets:
Intellectual property rights net of
Accumulated amortization of $59,315 940,685
Marketable securities 1,491
Notes receivable, net of current portion 26,184
Deposits 32,925
------------------------
Total other assets 1,001,285
Total assets $ 1,240,186
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable Related party 88,528
Accounts payable and accrued expenses 50,162
Notes payable current portion 68,513
------------------------
Total current liabilities 207,203
Stockholders' equity:
Preferred stock, $.0001 par value 5,000,000 shares authorized:
Series A; 100 shares issued and outstanding; 500,000
liquidation preference of $2,265,625; plus unpaid
dividends, 8% dividend rate; cumulative
unpaid dividends of $105,730
Series B; maximum of 150,000 shares issuable; 589,600
67,000 shares issued and outstanding; $0.70 per
year per share cumulative dividend;
Series C; maximum of 700,000 shares issuable;
no shares issued and outstanding
Common stock, $.0001 par value
45,000,000 shares authorized, 12,500,476 shares 1,251
issued and outstanding
Additional paid in capital 2,119,052
Unrealized gain on securities available for sale 1,491
Deficit (2,178,411)
------------------------
Total stockholders' equity 1,032,983
Total liabilities and stockholders' equity $ 1,240,186
========================
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See notes to the financial statements.
F-2
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NANOPIERCE TECHNOLOGIES, INC
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
<S> <C> <C>
Revenues $ 0 $ 1,169
General and administrative:
Related parties 47,000
Other 502,739 33,971
-------------------------------------
Loss from operations (549,739) (32,802)
Other income:
Interest income 346
Interest expense:
Related party (3,331)
Other (1,261)
-------------------------------------
Net loss (553,985) (32,802)
Series A preferred stock dividend (45,313)
-------------------------------------
Net loss applicable ot common shareholders ($599,298) ($32,802)
=====================================
Net loss per common share: ($0.05) ($0.01)
============ ===========
Weighted average number of common shares 12,385,392 3,833,355
============ ===========
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See notes to the financial statements.
F-3
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NANOPIERCE TECHNOLOGIES, INC
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THREE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Additional Unrealized
Preferred Stock Common Stock Paid-in Gain On Accumulated
Shares Amount Shares Amount Capital Securities Deficit
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1998 100 $ 500,000 12,125,100 $1,213 $1,736,690 $1,491 ($1,624,426)
Stock issued for services 223,500 23 311,977
Issuance of Series B preferred,
net of issuance costs 75,000 660,000
Series B preferred converted to
common stock (8,000) 70,400 151,876 15 70,385
Net loss (553,985)
-------------------------------------------------------------------------------------
Balance, September 30, 1998 67,100 $1,230,400 12,500,476 $1,251 $2,119,052 $1,491 ($2,178,411)
=====================================================================================
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See notes to the financial statements.
F-4
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NANOPIERCE TECHNOLOGIES, INC
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net loss ($553,985) ($32,802)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 25,000
Amortized discount on notes receivable (346) (1,169)
Expenses incurred in exchange for common stock 312,000
Change in assets and liabilities:
(Increase) decrease in:
Deposits (32,925)
Accounts payable and accrued expenses (86,254) 22,174
-----------------------------------
Net cash used in operating activities (336,510) (11,797)
-----------------------------------
Cash flows from investing activities:
Payments received on notes receivable 1,250 1,250
-----------------------------------
Net cash provided by investing activities 1,250 1,250
-----------------------------------
Cash flows from financing activities:
Proceeds from sale of preferred series B stock 660,000
Proceeds from notes payable 4,500
Payments on notes payable (97,500)
-----------------------------------
Net cash flows provided by financing 562,500 4,500
activities
-----------------------------------
Net increase (decrease) in cash 227,240 (6,047)
Cash, beginning 11 8,127
-----------------------------------
Cash, ending $ 227,251 $ 2,080
===================================
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See notes to the financial statements.
F-5
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NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1. Business, organization and summary of significant accounting policies:
Presentation of Interim Information:
In the opinion of the management of Nanopierce Technologies, Inc. (the
Company), the accompanying unaudited financial statements include all
material adjustments including all normal recurring adjustments, considered
necessary to present fairly the financial position as of September 30, 1998
and 1997 and the results of operations for the quarters ended September 30,
1998 and 1997 and cash flows for the quarters ended September 30, 1998 and
1997. Interim results are not necessarily indicative of results for a full
year.
The financial statements and notes are presented as permitted by Form 10-
QSB, and do not contain certain information included in the Company's last
Annual Report on Form 10-KSB for the fiscal year ended June 30, 1998. It is
the Company's opinion that, when the interim statements are read in
conjunction with the June 30, 1998 Annual Report on Form 10-KSB, the
disclosures are adequate to make the information presented not misleading.
The results of operations for the three months ended September 30, 1998 and
1997 are not necessarily indicative of the operating results for the year.
Business:
Nanopierce Technologies, Inc. (the Company) is engaged in the design,
development and licensing of products using its electronic connection
technology intellectual property. The intellectual property, called
Particle Interconnect, consists of patents, pending patent applications,
patent applications in preparation, trade secrets, trade names and
trademarks. The Particle Interconnect technology improves electrical,
thermal and mechanical characteristics of electronic products. The Company
markets Particle Interconnect to technology companies in various industries
for a wide range of applications. The Company has not recognized any
royalty revenue through September 30, 1998, pending the resolution of
litigation regarding a license agreement.
Organization:
The Company was originally formed in July 1985 under the name of Mendell-
Denver Corporation (Mendell). At July 1, 1996, Mendell was essentially a
shell company with no significant business operations. In July 1996,
Mendell acquired all of the outstanding common stock of Sunlight Systems,
Ltd. (Sunlight) and Mendell was merged into Sunlight. For accounting
purposes, the transactions have been treated as an acquisition of Mendell
by Sunlight and as a re-capitalization of Sunlight.
Sunlight was a dealer in Colorado and Nevada and a distributor in Illinois,
Ohio, Michigan and Indiana of skylights. In November 1996, Sunlight sold
its dealerships and distributorships (Note 8).
F-6
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In February 1998, Sunlight acquired the Particle Interconnect technology
from Particle Interconnect Corporation, a wholly owned subsidiary of
Intercell Corporation (Intercell). In exchange for Particle Interconnect,
Sunlight issued to Intercell 7,250,000 shares of its common stock, and 100
shares of its Series A voting preferred stock. In connection with this
transaction, Sunlight changed its name to Nanopierce Technologies, Inc.
After the transaction, Intercell owns approximately 60% of the outstanding
common stock of the Company and approximately 74% of the common stock on a
diluted basis, considering the voting and conversion rights of the Series A
preferred stock.
Reverse stock split:
In February 1998, the Company effected a one-for-three reverse stock split
of its common stock. All references in the financial statements to number
of shares and per share amounts have been restated to reflect the reverse
stock split.
Use of estimates in the financial statements:
The preparation of 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
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Loss per Share:
Loss per share of common stock is computed based on the weighted average
number of common shares outstanding during the year. Stock options,
warrants and convertible preferred stock are not considered in the
calculation as the impact of the potential common shares would be to
decrease loss per share. Therefore, diluted loss per share is equivalent to
basic loss per share.
Recently issued accounting pronouncements:
The Financial Accounting Standards Board recently issued SFAS No. 130,
Reporting Comprehensive Income. This statement is effective for fiscal
years beginning after December 15, 1997. SFAS No. 130 establishes
requirements for disclosure of comprehensive income and its components,
which includes, among other items, unrealized gains or losses from
marketable securities that previously were only reported as a component of
shareholders' equity. Reclassification of earlier financial statements for
comprehensive purposes is required. Management believes that
implementation of SFAS No. 130 will not materially impact the Company's
financial statements.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information and in February 1998, the FASB issued
SFAS No. 132, Employer's Disclosures about Pensions and Other
Postretirement Benefits. Both of these statements require disclosure only
and therefore will not impact the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging activities. Currently, the Company does not have
any derivative financial instruments and does not participate in hedging
activities, therefore management believes SFAS No. 133 will not impact the
Company's financial statements.
F-7
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Reclassifications:
Certain amounts reported in the 1997 financial statements have been
reclassified to conform with the 1998 presentation.
2. Particle Interconnect and Series A preferred stock:
In February 1998, the Company acquired the Particle Interconnect technology
from Particle Interconnect Corporation (a wholly-owned subsidiary of
Intercell) in exchange for 7,250,000 shares of common stock and 100 shares
of Series A preferred stock. Prior to the acquisition of the technology,
Particle Interconnect Corporation primarily incurred expenses related to
the research and development of Particle Interconnect, but had no revenue
producing activities or any other significant ongoing business activities.
The Series A preferred stock has voting rights equal to 7,250,000 shares of
common stock and an aggregate liquidation preference of $2,265,625. Each
share of Series A preferred stock is convertible into 72,500 shares of
common stock. Dividends accumulate on the Series A preferred stock at 8% of
the liquidation preference amount. Any dividends not declared and paid are
at the option of the holder, also convertible to common stock of the
Company at the same conversion rate as the Series A preferred stock. At
September 30, 1998, cumulative unpaid dividends were $105,730. The Company
may redeem the Series A preferred stock, with six months notice, for the
liquidation preference amount.
3. Common stock, stock options and warrants issued for services:
During the quarter ended September 30, 1998, the Company issued 223,500
shares of common stock in exchange for services valued at $311,977 based on
the quoted market price of the Company's common stock at the date the
services were performed. The shares were issued to third parties for
investment related services.
4. License agreements:
The Company has several license agreements with third parties which allows
the third parties to utilize defined aspects of the intellectual property
rights in return for royalty fees. All but one license agreement has been
idle since the Company acquired the property rights and therefore these
agreements have not produced any royalty fees for the Company. With regard
to all current licensees, the Company is involved in pending litigation
with a third party who is asserting ownership of the rights to the related
royalty revenues. Royalties under this agreement through June 30, 1998
total approximately $24,000. These monies are being held in an escrow
account, outside of the Company's control, until the litigation is
resolved. Although management believes that the Company will be ultimately
successful in defending this matter, the Company has not recognized any
royalty revenue until it can determine the ultimate outcome. In the
opinion of management, the ultimate disposition of this matter will not
have a material impact on the
F-8
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Company's operations or the further development of the Particle
Interconnect technology.
5. Preferred stock Series B:
On July 23, 1998, the Company executed a Securities Purchase Agreement (the
"Agreement") with a third party (Buyer). The Buyer agreed to acquire
Series B convertible preferred stock (Series B Shares) and Series C
convertible preferred stock (Series C Shares) at specified closing dates.
The Agreement is for a two-year period and will allow the Company to issue
to the Buyer up to $8,500,000 of preferred stock. In addition, at each
closing date, the Company agreed to issue to the Buyer, as additional
consideration a warrant (Warrant). Terms of the Agreement are as follows:
a. At the first closing, on July 23, 1998, the Company issued 50,000
Series B Shares at $10 per share resulting in net proceeds of $440,000
net of $60,000 of issuance costs. The second closing scheduled for
August was executed in part on September 29, 1998 for 25,000 Series B
shares at $10 per share resulting in net proceeds of $220,000 net of
$30,000 of issuance costs. The balance due on the second and third
closings has been cancelled by mutual consent of the Company and the
Buyer. The Company is no longer looking for additional investment
in the Series B or Series C preferred shares. Management is in the
process of negotiating new agreement terms with additional investors.
The Company has yet to identify a qualified investor to fulfill the
immediate cash requirements of the Company.
The Series B Shares are non-voting with cumulative dividends of $0.70
per share per year and are redeemable by the Company at $12 per share
plus any accumulated and unpaid dividends. The Series B Shares are
convertible into shares of the Company's common stock at a conversion
rate of $10 per share plus accumulated and unpaid dividends, divided
by the lesser of 110% of the average closing bid price of the
Company's common stock for the five days prior to the purchase of the
Series B Shares or 80% of the average closing bid price of the
Company's common stock for the five days prior to the conversion date.
F-9
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ITEM 2 MANAGEMENT'S PLAN OF OPERATION
The statements contained in this Form 10-QSB, if not historical, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, and involve risks and uncertainties that could
cause actual results to differ materially from the results, financial or
otherwise, or other expectations described in such forward-looking statements.
Any forward-looking statement or statements speak only as of the date on which
such statements were made, and the Company undertakes no obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which such statements are made or reflect the occurrence of unanticipated
events. Therefore, forward-looking statements should not be relied upon as a
prediction of actual future results.
The independent auditor's report on Nanopierce Technologies, Inc.'s
financial statements for the year ended June 30, 1998 included a "going concern"
explanatory paragraph, meaning the auditors have expressed substantial doubt
about Nanopierce's ability to continue as a going concern. Management's plans
in regard to the factors prompting the explanatory paragraph are discussed below
and also in Note 2 of the audited financial statements contained in the
Company's Annual Report.
On July 23, 1998, the Company executed a Securities Purchase Agreement (the
"Agreement") with a third party (Buyer). The Buyer agreed to acquire Series B
convertible preferred stock (Series B Shares) and Series C convertible preferred
stock (Series C Shares) at specified closing dates. The Agreement is for a two-
year period and will allow the Company to issue to the Buyer up to $8,500,000 of
preferred stock. In addition, at each closing date, the Company agreed to issue
to the Buyer, as additional consideration a warrant (Warrant). Terms of the
Agreement are as follows:
At the first closing, on July 23, 1998 the Company issued 50,000 Series B
Shares at $10 per share resulting in net proceeds of $440,000 net of $60,000 of
issuance costs. The second closing scheduled for August was executed in part on
September 29, 1998 for 25,000 Series B shares at $10 per share resulting in net
proceeds of $220,000 net of $30,000 of issuance costs. The balance due on the
second and third closings of the Series B Shares has been cancelled by mutual
consent of the Company and the Buyer. The Company is no longer looking for
additional investment in the Series B or Series C preferred shares. Management
is in the process of negotiating new agreement terms with additional investors.
The Company has yet to identify a qualified investor to fulfill the immediate
cash requirements of the Company.
The Series B shares are non-voting with cumulative dividends of $0.70 per
share per year and are redeemable by the Company at $12 per share plus any
accumulated and unpaid dividends. The Series B Shares are convertible into
shares of the Company's common stock at a conversion rate of $10 per share plus
accumulated and unpaid dividends, divided by the lesser of 110% of the average
closing bid price of the Company's common stock for the five days prior to the
purchase of the Series B Shares or 80% of the average closing bid price of the
Company's common stock for the five days prior to the conversion date.
1
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RESULTS OF OPERATIONS
- ---------------------
Nanopierce's revenues were $0 and $1,169 for the quarters ended September
30, 1998 and 1997, respectively.
General and Administrative expenses increased to $549,739 for the quarter
ended September 30, 1998 from $33,971 for the quarter ended September 30, 1997.
This increase is due in part to the issuance of stock for investment management
fees totaling approximately $312,000. Salaries and wages increased to
approximately $80,000 for the quarter ended September 30, 1998 from $0 for the
quarter ended September 30, 1997.
The Company issued preferred stock in July of 1998 resulting in an accrued
preferred stock dividend of $45,313 for the quarter ended September 30, 1998
compared to $0 for the first quarter of 1997.
Nanopierce experienced net losses of $553,985 and $32,802 for the quarters
years ended September 30, 1998 and 1997 respectively.
LIQUIDITY AND FINANCIAL CONDITION
- ---------------------------------
Nanopierce Technologies, Inc.'s current operations are not generating
positive cash flow and the current cash reserves are not sufficient to fund the
Company's plan of operation for the ensuing twelve months.
At September 30, 1998 the Company had working capital of approximately
$32,000 compared to a working capital deficit of approximately $43,000 in 1997.
This increase is due primarily to the proceeds from the sale of $750,000 of the
Company's Series B preferred shares.
The Company is continuing to look for additional financing through the
marketing of its intellectual property, through the pursuit of licensing, joint
venture, co-manufacturing or other similar arrangement with connector
manufacturers. The failure to secure such a relationship will result in the
Company requiring substantial additional capital and resources to bring its
products to market. To the extent the Company's operations are not sufficient
to fund the Company's capital requirements, the Company may enter into a
revolving loan agreement with a financial institution or attempt to raise
capital through the sale of additional capital stock or through the issuance of
debt. At the present time the Company does not have a revolving loan agreement
with any financial institution nor can the Company provide any assurance that it
will be able to enter into any such agreement in the future or be able to raise
funds through the further issuance of debt or equity in the Company. The
Company continues to evaluate additional merger and acquisition opportunities.
The Company recognizes the need to ensure its operations will not be
adversely impacted by year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are known risks. The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of the operational
2
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systems. Management believes the total cost of compliance and its effect on the
Company's future results of operations will be insignificant.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information and in February 1998, the FASB issued SFAS
No. 132; Employer's Disclosures about Pensions and Other Postretirement
Benefits. Both of these statements require disclosure only and therefore will
not impact the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging activities. Currently, the company does not have any
derivative financial instruments and does not participate in hedging activities;
therefore management believes SFAS No.133 will not impact the Company's
financial statements.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company filed suit against Mr. Louis DiFrancesco (the inventor of the
Company's particle interconnect technology) on October 5, 1998, with the
District Court for the City and County of Denver, Colorado, to enjoin him from
certain further specified actions against the Company and its licensees and to
confirm the Company's ownership of its intellectual property rights. On October
19, 1998, the District Court for the City and County of Denver, Colorado issued
a temporary restraining order prohibiting Mr. DiFrancesco from, among other
things, claiming any ownership of the Company's patents and claiming any right
to royalty payments under the Company's licenses. On November 5, 1998, the
District Court for the City and County of Denver, Colorado issued a preliminary
injunction prohibiting Mr. DiFrancesco from: (i) contacting any actual or
potential customer, licensee or investor of the Company or its related entities
using the name "Particle Interconnect Research & Development" or any other name
confusingly similar to the Company's trade name and trade mark "Particle
Interconnect;" (ii) contacting any actual or potential customer, licensee or
investor of the Company or its related entities under the auspices that he
represents, works for, or is associated with the Company; and (iii) making any
statement to any actual or potential customer, licensee or investor of the
Company or its related entities which directly or by implication asserts that
(a) he owns all or any portion of the patents or patent applications which he
previously has assigned to the Company or (b) his consulting agreement with
Particle Interconnect Corporation (a predecessor of the Company) has not
expired.
ITEM 2 - CHANGES IN SECURITIES
The Company made the following unregistered sales of its securities from
July 1, 1998, through September 30, 1998.
3
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<CAPTION>
Title of Amount of
Date of Sale Securities Securities Consideration Purchaser
- ------------ ---------- ---------- ------------- ---------
<C> <S> <C> <C> <C>
1) 7/1/98 Common Stock 186,500 Market support Putter Consulting
services
2) 7/1/98 Common Stock 24,500 Services Kathy Knight-McConnell
3) 7/1/98 Common Stock 6,250 Services Hans Kast
4) 7/15/98 Common Stock 6,250 Services Roger L. Smothers
5) 7/23/98 Series B Preferred 50,000 $500,000 Y. L. Hirsch
Stock
6) 7/23/98 Warrant to acquire 50,000 Purchase of Series Y. L. Hirsch
Common Stock at B Shares
$3.515625
7) 7/23/98 Warrant to acquire 70,000 Placement services Portfolio Investment
Common Stock at Strategies Corporation
$2.8125
8) 8/19/98 Common Stock 17,730 Conversion of Y. L. Hirsch
shares of Series B
Preferred Stock
9) 9/2/98 Common Stock 134,146 Conversion of Y. L. Hirsch
shares of Series B
Preferred Stock
10)9/9/98 Warrant to acquire 50,000 Berlin listing Berliner Freiverkehr
Common Stock at agent fee (Aktien) AG
$0.50
11)9/29/98 Series B Preferred 25,000 $250,000 Y.L. Hirsch
Stock
</TABLE>
UNDERWRITERS
With the exception of the sale of shares of Series B Preferred Stock and
warrants to Mr. Y.L. Hirsch, no underwriter or selling or placement agent was
involved in any of the transactions described above. Portfolio Investment
Strategies Corporation was engaged by The Global Funding Group, L.L.C. (the
Company's placement agent) and the Company as the investment banker in
connection with the offer and sale of shares of the Company's Series B Preferred
Stock and Series C Preferred Stock. As payment for such services, it received a
warrant to purchase 70,000 shares of Common Stock.
EXEMPTIONS FROM REGISTRATION CLAIMED
All of the sales by the Company of its unregistered securities (except for
the sales described in Items 5, 6, 8, 9 and 11 which were made pursuant to Rule
506 of Regulation D adopted under the Securities Act of 1933, as amended (the
"Securities Act")) were made by the Company in reliance upon Section 4(2) of the
Securities Act. All of the individuals and/or
4
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entities listed above that purchased the unregistered securities were all known
to the Company and its management, through pre-existing business relationships,
as long standing business associates, friends, employees, relatives or members
of the immediate family of management. All purchasers were provided access to
all material information which they requested and all information necessary to
verify such information and were afforded access to management of the Company in
connection with their purchases. All purchasers of the unregistered securities
acquired such securities for investment and not with a view toward distribution,
acknowledging such intent to the Company. All certificates or agreements
representing such securities that were issued contained restrictive legends
prohibiting further transfer of the certificates or agreements representing such
securities, without such securities either being first registered or otherwise
exempt from registration in any further resale or disposition.
The sale of shares of Series B Preferred Stock and Common Stock warrants to
Y.L. Hirsch, and the conversion by Mr. Hirsch of preferred shares into shares of
Common Stock, were made pursuant to and in compliance with Rule 506 of
Regulation D. The offering was restricted to and entirely purchased by an
accredited investor. Appropriate documentation was prepared and utilized to
insure compliance with the terms, conditions and provisions of Regulation D.
The purchaser and the Company each were represented by their own independent
counsel, tax advisors, accounting firms and other advisors. The Company and its
transfer agent undertook and implemented control procedures to assure compliance
with the terms and conditions of Regulation D.
TERMS OF CONVERTIBLE STOCK AND WARRANTS
Each issued share of Series B Preferred Stock is convertible into the
number of shares of Common Stock that equals $10.00 per share tendered for
conversion, plus accumulated and unpaid dividends thereon, divided by the lesser
of either (i) 110% of the average of the closing bid prices per share of the
Common Stock on the market on which the Common Stock is listed for trading for
the five (5) trading days preceding the date of purchase of such share of Series
B Preferred Stock or (ii) 80% of the average of the closing bid prices per share
similarly determined for the five (5) trading days preceding the date such
conversion is deemed to have been made. Appropriate adjustments will be made to
the conversion formula in the event that the outstanding shares of Common Stock
are changed into the same or a different number of the same or another class or
classes of stock.
The 50,000 warrants sold to Y.L. Hirsch entitle the holder to purchase one
share of Common Stock at an exercise price of $3.515625 per share at any time
commencing on July 23, 1998, and ending on July 22, 2001.
As payment for certain investment banking services, Portfolio Investment
Strategies Corporation received a warrant to purchase 70,000 shares of Common
Stock at a price of $2.8125 per share, which warrant expires on July 22, 2003.
In exchange for getting the Common Stock listed on the Berlin Stock
Exchange, the Company issued Berliner Freiverkehr (Aktien) AG warrants to
purchase 50,000 shares of
5
<PAGE>
Common Stock at an exercise price of $0.50 per share at any time commencing on
September 9, 1998, and ending on September 9, 2000.
ITEM 5 - OTHER INFORMATION
Pursuant to the terms of a securities purchase agreement dated as of July
23, 1998, the Company agreed to sell, and Y.L. Hirsch agreed to buy, over a two
year period, 150,000 shares of Series B Preferred Stock and 700,000 shares of
Series C Preferred Stock for an aggregate purchase price of $8,500,000. In
connection with each sale of preferred stock, the Company was obligated to issue
to Mr. Hirsch a warrant to purchase the number of shares of Common Stock equal
to the number of preferred shares purchased in such sale.
On September 29, 1998, the agreement was amended to provide for the sale to
Mr. Hirsch of a total of 75,000 shares of Series B Preferred Stock (gross
proceeds $750,000) and one warrant to purchase 50,000 shares of Common Stock
and to release Mr. Hirsch from any further purchase obligations. The amended
agreement allows the Company to sell the remaining shares of Series B and Series
C Preferred Stock to other investors. The Company has been unable to find
substitute investors for the unpurchased shares and has decided to discontinue
its efforts to sell the remaining 75,000 shares of Series B Preferred Stock and
700,000 shares of Series C Preferred Stock. See Item 2 above.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBIT DESCRIPTION
NO.
10.01 Amendment to the Securities Purchase Agreement between the registrant
and Y.L. Hirsch, dated September 29, 1998
10.02 Amendment to the Registration Rights Agreement between the registrant
and Y.L. Hirsch, dated September 29, 1998
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
(B) REPORTS:
1) Form 8-K, dated July 23, 1998, disclosed the agreement with Y.L.
Hirsch to sell 150,000 shares of Series B Preferred Stock, up to 700,000
shares of Series C Preferred Stock and warrants.
6
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, as
amended, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NANOPIERCE TECHNOLOGIES, INC.
November __, 1998 /s/ Paul H. Metzinger
-----------------------------------------------
Paul H. Metzinger, Executive Vice President
November __, 1998 /s/ Thomas Vander Stel
-----------------------------------------------
Thomas Vander Stel, Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
LIST OF EXHIBITS
EXHIBIT DESCRIPTION
NO.
10.01 Amendment to the Securities Purchase Agreement between the registrant
and Y.L. Hirsch, dated September 29, 1998
10.02 Amendment to the Registration Rights Agreement between the registrant
and Y.L. Hirsch, dated September 29, 1998
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
<PAGE>
EXHIBIT 10.01
AMENDMENT TO SECURITIES PURCHASE AGREEMENT
THIS AMENDMENT (this "Amendment") is made as of the 29th of September,
1998, to that SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of July
23, 1998, by and between Nanopierce Technologies, Inc., a corporation organized
under the laws of the State of Nevada, U.S.A, with headquarters located at 370
Seventeenth Street, Suite 3580, Denver, Colorado (the "Company") and Mr. Y.L.
Hirsch, a citizen and resident of Jerusalem, Israel (the "Buyer"). All
capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed to them in the Agreement.
WITNESSETH:
WHEREAS, pursuant to the Agreement the Buyer agreed to purchase, at three
(3) separate closings, each to occur prior to September 23, 1998, as described
in the Agreement, 150,000 Series B Shares; and
WHEREAS, as of the date of this Amendment, the, Company has tendered
150,000 Series B Shares in accordance with the Agreement, and Buyer has
purchased 50,000 Series B Shares of the 150,000, all 50,000 of which were
purchased at the First Closing; and
WHEREAS, the parties have agreed to modify the Agreement as stated
hereinafter.
NOW THEREFORE, for a valuable consideration, the receipt and sufficiency of
which are acknowledged, the parties hereto agree as follows:
1. On or before September 29, 1998, the Buyer shall purchase an additional
25,000 Series B Shares (the "Final Series B Shares"), for an aggregate
purchase price of US$250,000.00. The Buyer shall make payment for the
Final Series B Shares by wire transfer or certified or cashier's check
(or otherwise representing immediately available good funds) delivered
to the Escrow Agent on behalf of the Company, and the Company shall
deliver a certificate or certificates representing the Final Series B
Shares to the Escrow agent on behalf of the Buyer, in each case on or
before September 29, 1998.
<PAGE>
The Buyer shall not be entitled to and shall not receive Warrants (as
described in Recital B(iii)) with respect to the purchase of the Final
Series B Shares.
2. After Buyer's purchase of the Final Series B Shares, Buyer's obligation
to purchase further Series B Shares under the Agreement shall cease, and
Buyer shall thereafter not be required or permitted to purchase further
Series B Shares unless the Agreement is further amended by the parties.
The Company shall have no obligation to sell to the Buyer, and the Buyer
shall have no obligation to purchase from the Company, any Series C
Shares.
3. Each of the parties, by its execution of this Amendment, effective as of
the date (the "Waiver Date") which is the later of (i) the date of
actual receipt by the Company of immediately available funds
representing the full purchase price for the Final Series B Shares, or
(ii) actual receipt by the Buyer (or the Escrow Agent on behalf of the
Buyer, if the Buyer elects for the Escrow Agent to hold them in
accordance with the Escrow Agreement) of a certificate or certificates
representing the final Series B Shares that as of the Waiver Date, any
prior breach of the Agreement or any of the other written agreements
executed by the parties with respect to the transactions contemplated by
the Agreement (the "Additional Agreements") shall be irrevocably waived
in their entirety, including without limitation those breaches of the
Buyer mentioned in that letter from the Company to Mr. Glenn Bagwell,
Jr., dated September 24, 1998. On and after the Waiver Date, neither
party shall ever have the right to assert any penalty or allege or
attempt to prosecute a claim for breach of the Agreement or the
Additional Agreements. Neither party by its execution of this Amendment
shall be deemed to have admitted that it is in breach under the
Agreement or the Additional Agreements.
4. The Buyer by its execution of this Amendment irrevocably agrees that the
Company shall have the right, on and after the date hereof, in the
Company's sole discretion, to assign all (or such portion as the Company
determines) of the Buyer's rights under the Agreement and the Additional
Agreements (other than the Stock Escrow and Security Agreement) to any
third party or parties, each of which the Company in its sole discretion
may select. The Buyer by its execution of this Amendment irrevocably
consents to any such assignment by the Company, whenever effected. No
such assignment shall operate to affect the rights of the Buyer as
described in the Agreement and the Additional Agreements (as such rights
have been or may be amended from time to time).
5. Section 4(m) of the Agreement, regarding the restriction from issuance
by the Company of "below market" securities, is hereby rescinded in its
entirety.
2
<PAGE>
6. The Company shall have the continuing right to rely upon the truth and
accuracy of the covenants, representations and warranties of the Buyer
contained in the Agreement and the Additional Agreements.
Except as modified by this Amendment, the parties acknowledge and reaffirm
each of the terms and conditions of the Agreement as contained therein, each of
which is incorporated herein by this reference.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
COMPANY:
NANOPIERCE TECHNOLOGIES, INC.
By: /s/ Paul H. Metzinger
-----------------------------------------------
Mr. Paul H. Metzinger, Executive Vice President
BUYER:
/s/ Y.L. Hirsch
-----------------------------------------------
Mr. Y.L. Hirsch
3
<PAGE>
EXHIBIT 10.02
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT (this "Amendment") is made as of the 29th of September,
1998, to that REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of July
23, 1998, by and between Nanopierce Technologies, Inc., a corporation organized
under the laws of the State of Nevada, U.S.A., with headquarters located at 370
Seventeenth Street, Suite 3580, Denver, Colorado (the "Company") and Mr. Y.L.
Hirsch, a citizen and resident of Jerusalem, Israel (the "Buyer"). All
capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed to them in the Agreement.
WITNESSETH:
WHEREAS, pursuant to the Securities Purchase Agreement the Buyer agreed to
purchase, at three (3) separate closings, each to occur prior to September 23,
1998, as described in the Securities Purchase Agreement, 150,000 Series B
Shares; and
WHEREAS, as of the date of this Amendment, the Company has tendered 150,000
Series B Shares in accordance with the Agreement, and Buyer has purchased 50,000
Series B Shares of the 150,000, all of which were purchased at the First
Closing; and
WHEREAS, the Company agreed to register all of the Series B Shares in
accordance with the terms of the Agreement, and in addition granted to the Buyer
certain other rights under the Agreement; and
WHEREAS, pursuant to that Amendment to the Securities Purchase Agreement
dated of even date herewith, the Buyer agreed to purchase an additional 25,000
Series B Shares, for a total of 75,000 Series B Shares purchased by the Buyer,
and the Company agreed to release the Buyer from any further obligation under,
and the Buyer agreed to relinquish any rights it had under, the Securities
Purchase Agreement to purchase Series B Shares or Series C Shares; and
WHEREAS, the parties have agreed to modify the Agreement as stated
hereinafter.
NOW THEREFORE, for a valuable consideration, the receipt and sufficiency of
which are acknowledged, the parties hereto agree as follows:
1. The Company shall file with the SEC, on or before November 15, 1998, a
registration statement on Form S-1 covering the Common Stock underlying
(i) all 75,000 Series B Shares purchased by the Buyer prior to that
date, and (ii) the Warrant to purchase 50,000 shares of Common Stock
which was issued by the Company to the Buyer on July 23, 1998, pursuant
to the Securities Purchase Agreement.
2. The Buyer has and does hereby waive its right to assert any claims,
penalties or liquidated damages against the Company with respect to the
late filing or late
1
<PAGE>
registration of the Common Stock under the terms of the Agreement which
may have occurred prior to the date hereof.
3. The Company may in its sole discretion register any of its securities
on the registration statement referred to in Section 1 above (or on any
other registration statement that may be filed by the Company on or
after the date hereof). The Buyer by its execution of this Amendment
irrevocably agrees that the Company shall have the right, on and after
the date hereof, in the Company's sole discretion, to assign all (or
such portion as the Company determines) of the Buyer's rights under the
Agreement to any third party or parties, each of which the Company in
its sole discretion may select. The Buyer by its execution of this
Amendment irrevocably consents to any such assignment by the Company,
whenever effected.
Except as otherwise stated herein, the parties' respective rights and
obligations under the Agreement shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of day and year first above written.
COMPANY:
NANOPIERCE TECHNOLOGIES, INC.
By: /s/ Paul H. Metzinger
-----------------------------------------------
Mr. Paul H. Metzinger, Executive Vice President
BUYER:
/s/ Y.L. Hirsch
-----------------------------------------------
Mr. Y.L. Hirsch, an individual
2
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
Nanopierce Technologies, Inc
Computation of Net Loss Per Share
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
1998 1997
<S> <C> <C>
Net loss ($553,985) ($32,802)
Series A preferred stock dividend (45,313)
---------- ---------
Net loss applicable to common shareholders ($599,298) ($32,802)
========== =========
Weighted average number
of common shares 12,385,392 3,833,355
========== =========
Net loss per share ($0.06) ($0.01)
========== =========
</TABLE>
Diluted loss per share is not presented as the effect of the potential
conversion of preferred stock to common stock would decrease loss per share.
See notes to the financial statements.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NANOPIERCE
TECHNOLOGIES, INC.'S FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 227,251
<SECURITIES> 1,491
<RECEIVABLES> 11,650
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 238,901
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,240,186
<CURRENT-LIABILITIES> 207,203
<BONDS> 0
0
1,089,600
<COMMON> 1,251
<OTHER-SE> (57,868)
<TOTAL-LIABILITY-AND-EQUITY> 1,240,186
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 549,739
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,592
<INCOME-PRETAX> (553,985)
<INCOME-TAX> 0
<INCOME-CONTINUING> (553,985)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (599,298)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
