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FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended June 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.
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(Exact name of small business issuer as specified in its charter)
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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
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Securities registered pursuant to Section 12(b) or 12(g) of the Act: None
Securities registered pursuant to Section 15(d) of the Act: Common $0.0001
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
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Revenues for the fiscal year ended June 30, 1998: $1,519.
As of September 30, 1998, there were 12,500,476 shares of the registrant's sole
class of common stock outstanding, of which 3,518,644 were held by non-
affiliates. The market as of that date for the issuer's common stock was $0.718
bid, $0.781 asked. Therefore, the aggregate market value of the non-affiliated
common shares as of that date was approximately $2,737,766.
Documents incorporated by reference.
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) of the Securities Act of 1933. The listed documents should be clearly
described for identification purposes.
Transitional Small Business Disclosure Format Yes No X
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NANOPIERCE TECHNOLOGIES, INC.
INDEX
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Page
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PART I.......................................................................... 2
Item 1 - Business.......................................................... 2
Item 2 Property........................................................... 10
Item 3 Legal Proceedings.................................................. 10
Item 4 Submission of Matters to Vote of Security Holders.................. 11
PART II......................................................................... 11
Item 5 Market for Issuer's Common Equity and Related Stockholder Matters.. 11
Item 6 Management's Plan of Operation..................................... 12
Item 7 Financial Statements............................................... F-1
Item 8 Changes in Accountants............................................. 15
PART III........................................................................ 15
Item 9 Directors, Executive Officers, Promoters and Control Persons....... 15
Item 10 Executive Compensation............................................ 17
Item 11 Security Ownership of Certain Beneficial Owners and Management.... 20
Item 12 Certain Relationships and Related Transactions.................... 23
Item 13 Exhibits and Reports on Form 8-K.................................. 25
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PART I
ITEM 1 - BUSINESS
(a) General Development of Business
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Nanopierce Technologies, Inc. (the "Company") is a Nevada corporation that
was incorporated on June 22, 1996, as Sunlight Systems, Ltd., a Nevada
corporation ("Sunlight"), and shortly thereafter merged with Mendell-Denver
Corporation, a Colorado corporation ("Mendell"), with Sunlight being the
surviving corporation. Prior to the merger, Mendell had been involved in the oil
and gas business but had ceased operations in 1992. After the merger, Sunlight
became a dealer and distributor of sun tunnels, which business was discontinued
and substantially all remaining assets of Sunlight were sold in November 1996.
From that time until February 1998, Sunlight was generally inactive and reported
no significant operating revenues.
BECAUSE NEITHER THE FORMER SUNLIGHT NOR THE FORMER MENDELL HAS BEEN ENGAGED
IN ANY SIGNIFICANT, OPERATIONAL ACTIVITIES FOR THE PAST TWO YEARS PRECEDING JUNE
30, 1998, AND BECAUSE THE PRINCIPAL BUSINESS ACTIVITIES OF THE COMPANY, AS
DESCRIBED IN THIS ITEM, ARE MATERIALLY DIFFERENT FROM ITS PRIOR ACTIVITIES, ANY
DISCLOSURE RELATING TO THE PRIOR HISTORICAL ACTIVITIES OF MENDELL OR SUNLIGHT
WOULD BE IMMATERIAL AND IRRELEVANT TO AN INFORMED UNDERSTANDING OF THE COMPANY
AND THEREFORE IS OMITTED. PERSONS INTERESTED IN SUCH PRIOR HISTORICAL
INFORMATION SHOULD CONSULT PRIOR FILINGS MADE BY MENDELL AND SUNLIGHT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
On February 26, 1998, Sunlight acquired all of the assets, including all of
the intellectual property rights related to the Company's patented particle
interconnect technology (the "PI Technology") and its electroplating process
(the "PE Process") from Particle Interconnect Corporation, a Colorado
corporation ("PI Corp.") and a wholly owned subsidiary of Intercell Corporation
("Intercell"). In exchange for the assets of PI Corp., Intercell received
7,250,000 shares of the Company's common stock, par value $0.0001 per share (the
"Common Stock") and 100 shares of the Company's Series A Preferred Stock
(convertible into 7,250,000 shares of Common Stock), making Intercell the
Company's majority shareholder on the basis of issued and outstanding stock and
on a fully diluted basis. In connection with this acquisition, Sunlight changed
its name to Nanopierce Technologies, Inc., selected a new management team and
appointed a new board of directors. See Item 10.
(b) Description of Business
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The Company is pursuing a new line of business involving the development
and licensing of the PI Technology and the PE Process. The PI Technology
utilizes ten patents and seven patent applications owned by the Company to
bond and join metal surfaces to enhance electrical conductivity. The Company's
core product is the application of the PI Technology in the formation of a wide
and varied range of highly efficient connectors. The PI Technology utilizes a
processed diamond particle treated with a conductive material (such as copper)
which is affixed to a foundation in the final product as a socket, connector or
conductor. The PE Process
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broadens the application of the PI Technology by making it possible to apply the
diamond particles to many different bases, whether flexible, rigid, metallic or
non-metallic.
The Company plans to market the PI Technology and products using the PI
Technology through two different but concurrent marketing efforts. The first
part of its marketing strategy involves the generation of revenues through
forming joint ventures or strategic relationships with, or by licensing the PI
Technology to, established leading manufacturers. The second part of the
strategy involves the sales of products utilizing or incorporating the PI
Technology through joint ventures with small volume users of the technology.
Eventually, if warranted, the Company may undertake direct marketing of products
utilizing the PI Technology. The development of applications utilizing the PI
Technology presents a long-range opportunity for the Company to maximize the
commercialization of its technology.
ELECTRONICS INDUSTRY TRENDS
Over the past decade, consumers and original equipment manufacturers
("OEMs") have demanded electronic products that provide a significant increase
in performance accompanied by reduced size, weight and cost. These factors have
forced manufacturers to produce smaller, lighter and higher performing
components while reducing their production costs in order to remain competitive.
New developments in printed circuit boards (including flexible circuitry),
integrated circuits, integrated circuit packaging techniques, and new forms of
interconnect assemblies for connecting the various electronic components have
contributed to the ability of electronic system manufacturers to accomplish
these objectives.
As these products have decreased in size and increased in complexity,
conventional techniques of connecting their components together have become
inadequate. The conventional methods of interconnecting electronic components
in a rematable (socket-able) fashion are limited by the miniaturization that the
electronic components can tolerate. The interconnect industry that serves the
personal computer, automotive, communication and select consumer industries is
aggressively pursuing technologies that will allow it to move to the next level
of performance and size.
INTEGRATED CIRCUITS
The Company believes that market trends in integrated circuit packaging
will lead to increased demand for emerging high density bases. Integrated
circuits historically have been packaged by bonding the silicon die to an
interconnect base and connecting the silicon die to a lead frame using very fine
wires. As integrated circuits become increasingly powerful, they require a
significantly greater number of input/output ("I/O") electrical connections to
attach the silicon die, thus producing more heat and placing substantially
greater challenges on the integrated circuit interconnect methods. For
instance, a typical integrated circuit six years ago required up to
approximately 80 I/O connections to the silicon die, whereas today typical
integrated circuits require up to approximately 300 I/O connections. The number
of high density integrated circuit packages requiring more than the typical 300
I/O connections to the silicon die increased from an estimated 240 million in
1990 to greater than 1,500 million in 1997, based on published industry
information. Market demands are currently forcing certain integrated circuits
toward 1,000 I/O connections. Further, integrated circuit interconnect
challenges arise when
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multiple silicon dies are placed into one package, known as a "Multi Chip
Module." The Company believes, based on interviews and contact with industry
leaders and experts, that the PI Technology has the potential to solve this
miniaturization problem.
CURRENT TECHNOLOGY
"Wiping action technology" is still the prevailing means for
interconnecting electronic components. Wiping action interconnect technology
(for example, sockets, plugs and needle pins) forms a temporary electrical
interconnect and thus readily allows the remating of various components and
assemblies (for example, when replacing or upgrading a memory module in a
personal computer). One problem with using such technology is that it is
subject to the persistent formation of oxidation, a non-conductive material (for
example, rust), along the contacting surfaces, which increases contact
resistance and poor or intermittent connections. In time, the oxidation builds
up, hastening connection failure and thus equipment failure.
Wiping action technology is only available in the form of certain
connectors and sockets. These devices usually provide a contact surface formed
from a limited range of special metals, alloys and other expensive materials
suitable for maintaining a sliding connection. The devices themselves often
have interfering and dissimilar electrical properties due to their size and
orientation on a circuit board, among others, and this tends to degrade signal
propagation (the time it takes a signal to traverse a given distance) through
the interconnect by introducing resistive components into the signal path. This
becomes especially critical at very high frequency operation levels.
Wiping action technology provides connections that produce excessive and
unwanted wear and heat, and therefore contribute to equipment failure while
wasting energy. The wiper mechanism, as in the case of a socket, requires
significant space on a circuit board. Consequently, potential circuit operating
speeds are degraded due to propagation delays. The evolution of electronic
technology is constrained by the limitations wiper interconnects impose upon a
designer.
Additionally, wiper interconnects are unreliable in punishing environments
such as those in which a laptop computer is used and those to which engines and
other applications are subjected in the automotive industry. Wiper connections
that are subject to shock, intense vibration, temperature extremes, and/or high
levels of contamination tend to induce disruption in the continuity of
connections made at a wiper interconnect. Wiper interconnects are mechanical
devices, and as such they corrode and are subject to wear. Thus, they have a
limited useful and reliable life.
LIMITATIONS OF CURRENT TECHNOLOGY
Because interconnect technology has not kept pace with micro-
miniaturization in the electronics industry, component packages and the
connectors used to form an electrical and/or mechanical interface between
various components and assemblies in electronic products have become one of the
most expensive portions of such products. Component packages, connectors,
sockets, plugs and the like are also the bulkiest and heaviest portion of these
products. Conventional interconnect technology complicates the electronic
equipment design and
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manufacturing processes by introducing special considerations into such
processes with regard to component placement, heat generation, power loss, and
signal propagation delay. These considerations have an adverse impact on the
potential gains in performance being realized by new and emerging technologies.
The Company and others in the industry are aware of the physical
constraints imposed upon the development of new products using existing
technologies. The problem is simple to identify and define, but difficult to
solve. As integrated circuits packages increase in I/O count and complexity
while maintaining a constant or decreased physical size, a problem arises in
accommodating this complexity in a reliable, technically efficient fashion.
Whether the package is connected to the device via solder, adhesive or socket,
the connection process as I/O counts increase becomes difficult to achieve.
Designers of rematable connections, however, find this issue especially
troubling. As I/O counts rise, the amount of force or pressure-to-interface
also increases. A conventional contact technology like a gold-to-gold wiping
connection uses approximately 40 grams of force per contact. When integrated
circuit packages had I/O counts of 100, this force was easy to accommodate, but
as I/O counts move toward 1,000 and beyond, current contact technologies are
inadequate. For example, at 40 grams per contact, a 1,000 I/O Ball Grid Array
socket must effectively accommodate 40 kg of force, equivalent to half the
weight of an average man.
Requiring a printed circuit board, barely 3.5 cm on each side, to support
half the weight of a man is unreasonable, even with today's excellent materials
technology. Such pressure, concentrated in a small space which is almost always
re-heated, is very likely to fail because of printed circuit board warp, package
warp or outright physical failure. This difficulty, when coupled with
increasing intolerance from the market to pay premium prices, presents today's
socket manufacturer with the challenging task of creating a socket that can: (i)
accommodate very high I/O count devices; (ii) receive high speed devices without
degrading their performance (i.e., a short versus long circuit path); and (iii)
be produced for a relatively low cost.
THE COMPANY'S SOLUTION
The Company believes that its PI Technology has the potential to provide a
cost effective solution to solving this industry-wide problem. As discussed
below, the Company believes the PI Technology can establish reliable, rematable
connections at only 10 grams of force. This means that only 10 kg versus 40 to
80 kg of force is required to interconnect a 1,000 I/O integrated circuit socket
with the underlying printed circuit board base. The Company believes this
reduction in force may enable manufacturers to connect complex integrated
circuits to products through the next several generations of electronics without
the high cost of associated mechanical solutions.
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/(1)/ A "Ball Grid Array" is an advanced integrated circuit package in which the
silicon die is attached to a high density base, which in turn is placed on an
array of small solder balls forming the interconnect base of the package. The
Ball Grid Array can be soldered directly to an electronic circuit, without using
pins or wire leads coming out of the perimeter of the package.
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Additionally, the connection pathway provided using the PI Technology is
exceptionally short and has very low resistance. These features will allow the
connection of very high speed integrated circuits more reliably than
conventional techniques and without degrading their performance as conventional
techniques sometimes do. Moreover, the Company believes that the PI Technology
can be applied using its PE Process at a low cost.
THE PI TECHNOLOGY
The PI Technology begins with metallized, treated diamond particles which
have been closely screened to a specified size. The particles are tightly
classified in sizes ranging from 10 microns to 125 microns, depending upon the
end-product application. These electrically conductive diamond particles are
attached onto contact sites using standard electroplating processes. The
embedded particles create a surface with many points that provide numerous
parallel electrical paths by penetrating through an oxide without requiring the
wiping action of conventional contacts. The Company believes that its non-
wiping action, oxide penetrating PI Technology is capable of penetrating surface
contamination and oils to create an effective and reliable electrical contact.
The diamond particles concentrate the otherwise "wiping" insertion force
required by a conventional contact into a very small area or point. This gives
the diamond particle the force per square inch required to pierce oxides and
other contaminants on most surfaces without requiring large amounts of force on
the connector contact. Reliable, hermetic connections can be made with PI
Technology with as little as 10 grams of force per contact. This low-level of
force is sufficient to drive the particles into the mating surface (for example
an I/O pad on a silicon die) and provide low contact resistance. Moreover, the
diamond particles do insignificant damage to the mating surface. This provides
very long remate life with very little degradation of the connection. Because
there is no wiping action, contact coatings stay substantially intact.
Through the PE Process, these particles can be applied to many different
bases - flexible, rigid, metallic and non-metallic. This wide range of bases,
coupled with the low contact force, gives the PI Technology the capability to
make reliable connectors out of materials that could collapse if subjected to
the normally required contact forces.
SALES AND MARKETING STRATEGY
The Company intends to adopt and implement a two-part approach to the
commercial exploitation of its PI Technology. The first part of its strategy
involves the generation of royalty revenues through forming strategic
relationships with, or licensing the PI Technology to, established leaders in
the industries in which the Company plans to compete. The Company believes that
the licensing of its technology to major industry partners will provide for
faster implementation and adoption of the PI Technology and will help establish
"brand" recognition for the PI Technology.
In each industry in which the Company decides to compete, the Company will
attempt to select market leaders that exhibit several key characteristics such
as: (i) significant market share and strong distribution channels; (ii)
manufacturing competencies that compliment those of the Company; (iii) a
corporate culture that allows them to quickly respond to new technologies; and
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(iv) sufficient capital and sales strength. Although the Company has entered
into preliminary discussions with two industry leaders whom the Company believes
satisfy all of the above criteria, the Company can provide no assurances that
any agreements will be consummated or, if consummated, that such agreements will
prove beneficial to the Company.
The second part of the Company's strategy involves the sale of products
utilizing or incorporating the PI Technology ("PI Products") by developing joint
ventures with small volume users of the technology. These sales are anticipated
to generate the earliest revenues for the Company. In connection with the sale
of the PI Products, the Company plans to assist smaller-volume users and limited
licensees in the development of applications for the PI Technology for third
parties for whom such users and licensees act as agents, independent contractors
or otherwise.
The PI Technology has applications in several different industries where
electrical connections and interconnections are made. Initially, the Company has
selected the electronic interconnect industry as the primary industry in which
to license the PI Technology and the PE Process. The PI Technology has been in
use in the connector industry for several years, mainly in test and burn-in
socket applications by licensees of the PI Technology. There is a current demand
in the connector industry for reliable Ball Grid Array and Land Grid Array/(2)/
production sockets as well as other forms of Z-axis interconnect/(3)/, such as
direct chip attachment and Multi-Chip Modules. The Company believes the PI
Technology answers these demands and offers immediate advantages for these
products.
The Company believes that approximately 60% of the potential market for Z-
axis interconnects exists outside the United States. The Company believes that
entering into a joint venture relationship with a leading connector manufacturer
or a leading electronic technology OEM is the only practicable method of
bringing the PI Technology to market, particularly the international market,
given its current capital position. The Company contemplates that a licensee or
joint venture partner will provide the Company access to the licensee's or
partner's existing distribution channels and will assume a majority of the
marketing and engineering costs for the relevant Z-axis package. The Company
will attempt to establish long-term strategic alliances with many of these
industry leaders to continue developing and manufacturing new products
incorporating the PI Technology. The Company also intends to expand applications
of PI Technology into the communications, computer, consumer electronics,
commercial and transportation industries.
Eventually, if warranted, the Company may undertake direct marketing of PI
Products. The development of applications utilizing the PI Technology presents a
long-range opportunity for the Company to maximize the commercialization of its
technology.
/(2)/ A "Land Grid Array" is an array of conducting pads on the package base.
/(3)/ "Z-axis" means an electronic interconnect method that uses a vertical butt
contact to connect two electronic components or paths as opposed to a horizontal
connection.
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RESEARCH AND DEVELOPMENT
To date, the Company has not spent any amount on research and development
and does not intend to incur any material research and development costs during
the fiscal year ending June 30, 1999. The Company hopes to avoid incurring
substantial research and development cash requirements by entering into joint
ventures for the development of future PI Products.
COMPETITION
Competition in the electronic connector market is fierce. The principal
competitive factors are product quality, performance, price and service. While
the Company is unaware of any competitors using diamond as an interconnect
material, the Company and its licensees face competition from well-established
firms with other interconnect technologies such as Shinetsu, Ferro Corporation,
Deguyssa Corporation, Rockwell International and Lucent Technologies. However,
most of these competitors apply their technologies to very narrow markets or
applications and most have had only limited success in mass commercialization of
their technologies.
The Company will face competition from the development of existing and
future competing technologies. There currently exists approximately 28
different technologies that can be used to create similar interconnect
solutions, including dendrite crystals, gold dot technology, anisotropic
technology (technologies using materials that exhibit unequal responses to
external stimuli), elastomerics (rubber-like synthetic materials) and Z-axis
conductive adhesives. These technologies currently are produced by materials
and chemical suppliers, flexible and rigid printed circuit board manufacturers,
as well as electronics manufacturers who produce their own materials and
interconnect systems. Many of these competitors have substantially greater
financial and other resources than the Company. The Company believes that each
existing technology currently has unacceptable limitations with regard to
electrical/mechanical performance, manufacturability or cost as compared to the
PI Technology. However, there are no assurances that the Company or the PI
Technology can successfully compete with current or future technologies.
INTELLECTUAL PROPERTY
The Company will rely on a combination of patents, patent applications,
trademarks, copyrights and trade secrets to establish and protect its
proprietary rights in the PI Technology and the PE Process. The Company
currently owns ten U.S. patents (which expire from February 14, 2006, to
October 15, 2013) and seven patent applications relating to the PI Technology.
Prior to the Company's acquisition of the PI Technology, the inventor of
the PI Technology or companies controlled by him granted the following
exclusive and nonexclusive licenses to use the patents and patent applications
relating to the PI Technology: (i) an exclusive license to Exatron Automatic
Test Equipment Inc. ("Exatron") for use in the field of sockets in the automated
handling and testing of integrated circuits; (ii) an exclusive license to Micro
Module Systems, Inc. for use in the field of certain Multi-Chip Module thin film
bases, except attached or associated products including integrated circuits,
sockets, lids, heat sinks, housings
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and printed circuit boards; (iii) a non-exclusive license to Exatron in the
field of electrically conductive components; (iv) a non-exclusive license to
Johnson-Matthey Semiconductor Packagings, Inc. for use in the field of laminate-
based base products; (v) a non-exclusive license to Multiflex Inc. for use in
the field of laminate-based bases and metal bases; and (vi) a non-exclusive
license to Myers Consulting Inc. for use in the field of laminate-based bases,
metal bases, and wafer or semi-conductor products. These licenses have
indefinite terms and, provided certain conditions are met, can be terminated by
either party by written notice. The Company retains the right to exclude all
other companies from using its patented technology without a license.
Consequently, the Company may license such other companies as it chooses,
provided the licenses are consistent with the exclusive licenses previously
granted and other licensing restrictions that may appear in the prior licenses.
All but one of the foregoing license agreements have been idle since their
acquisition by the Company and therefore these agreements have not produced any
royalty fees for the Company. See also Note 10 to Notes to Financial
Statements. Royalties under the one active agreement are being held in an
escrow account, outside of the Company's control, until certain legal issues are
resolved, which may affect royalty payments payable on the remaining licenses,
if any. See Item 3.
There can be no assurance that patents will be issued from any of the
pending applications, or that any claims allowed from existing or pending
patents will be sufficiently broad enough to protect the Company's PI
Technology. While the Company intends to vigorously protect its intellectual
property rights, there can be no assurance that any patents held by the Company
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide competitive advantages to the Company. Litigation may
be necessary to enforce the Company's patents, patent applications, trade
secrets, licenses and other intellectual property rights, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement. Such litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on the Company's
business and results of operations regardless of the final outcome of the
litigation. Despite the Company's efforts to maintain and safeguard its
proprietary rights, there can be no assurances that the Company will be
successful in doing so or that the Company's competitors will not independently
develop or patent technologies that are substantially equivalent or superior to
the Company's technologies.
The semiconductor and interconnect industries are characterized by
uncertain and conflicting intellectual property claims. The Company has in the
past and may in the future become aware of the intellectual property rights of
others that it may be infringing, although it does not believe that it is
infringing any third party proprietary rights at this time. To the extent that
it deems necessary, the Company may license the right to use certain technology
patented by others in certain products that it manufactures. There can be no
assurance that the Company will not in the future be notified that it is
infringing other patent and/or intellectual property rights of third parties.
In the event of such infringement, there can be no assurance that a license to
the technology in question could be obtained on commercially reasonable terms,
if at all, that litigation will not occur or that the outcome of such litigation
will not be adverse to the Company. The failure to obtain necessary licenses or
other rights, the occurrence of litigation arising out of such claims or an
adverse outcome from such litigation could have a material
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adverse effect on the Company's business. In any event, patent litigation is
expensive, and the Company's operating results could be materially adversely
affected by any such litigation, regardless of its outcome.
The Company intends to protect its trade secrets and proprietary
technology, in part, through confidentiality and non-competition agreements.
There can be no assurance that these agreements will not be breached, that the
Company will have adequate remedies for any breach, or that the Company's trade
secrets, such as the PE Process, will not otherwise become known to or
independently developed by others. In addition, the laws of some foreign
countries do not offer protection of the Company's proprietary rights to the
same extent as do the laws of the United States.
GOVERNMENT REGULATION
The Company believes that it is in substantial compliance with all material
federal and state laws and regulations governing its limited operations.
Compliance with federal and state environmental laws and regulations did not
have a material effect on the Company's capital expenditures, earnings or
competitive position during fiscal year ended June 30, 1998.
Licensees of the PI Technology are subject to numerous federal, state and
local laws and regulations, including those relating to the use and disposal of
hazardous substances. The Company believes that its PE Process will be subject
to less environmental regulation because it does not use a lead based
interconnect technology and it generates less hazardous waste compared to
current industry practices.
EMPLOYEES
The Company currently has no employees other than Gilbert Olachea, its
President and Chief Executive Officer, and Thomas Vander Stel, its Chief
Financial Officer and Vice President. The Company has two officers in addition
to Messrs. Olachea and Vander Stel.
ITEM 2 - PROPERTY
The Company currently maintains its executive and administrative office in
space provided by Intercell, its majority shareholder, at an expense of $5,850
for the year. Also, subsequent to the year end, the Company began conducting
operations in space provided by Gilbert Olachea, the Company's President and
Chief Executive Officer, at no charge. The Company owns no real property.
ITEM 3 - LEGAL PROCEEDINGS
The Company has been served with multiple copies of a summons and
complaint naming one of its licensees and identifying others (but not naming the
Company), by Mr. Louis DiFrancesco on March 10, 1998 with the Superior Court of
California, County of Santa Clara, case number CV772523 (the "DiFrancesco
Lawsuit"). Mr. DiFrancesco has asserted that copies of the complaint served in
Colorado were served on certain affiliated companies and employees, directors
and officers of the Company and its affiliated companies. Mr. DiFrancesco, the
inventor of the PI Technology, alleges that one of the Company's licensees has
not paid him the royalties he is due and seeks monetary damages. Pursuant to a
stipulation among the parties, none of the defendants is required to file any
responsive pleadings until Mr. DiFrancesco's complaint is amended or re-filed.
Since the date of the stipulation, no further actions or developments have
occurred in this litigation. The Company believes that this action is without
merit and intends to vigorously defend itself with respect to the matters
alleged, if the lawsuit is prosecuted.
The Company filed suit against Mr. DiFrancesco on October 5, 1998 with
the U.S. District Court for the District of Colorado, to enjoin him from certain
further specified actions against the Company and its licensees.
Other than the DiFrancesco lawsuits, to the knowledge of the management
of the Company there are no material legal proceedings pending or threatened
(other than routine litigation incidental to the business) to which the Company
(or any officer, director, affiliate or beneficial owner of more than 5% of the
Company's voting securities) is party or to which property of the Company is
subject.
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ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the period April 1, 1998, to June 30, 1998.
PART II
ITEM 5 - MARKET FOR ISSUER'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock presently is traded on the over-the-counter market on
the OTC Bulletin Board maintained by the National Association of Securities
Dealers, Inc. ("NASD"). The NASDAQ symbol for the Common Stock is "NPCT." The
Common Stock is also traded on the Third Market Segment of the Berlin Stock
Exchange under the symbol "NPI."
The following table sets forth the range of high and low bid quotations for
the Common Stock of each full quarterly period during the last two fiscal
quarters. The quotations were obtained from information published by the NASD
and reflect interdealer prices, without retail mark-up, mark-down or commissions
and may not represent actual transactions.
1998 Fiscal Year High Low
- ---------------- ---- ---
March 31, 1998 $ 1.65 $ 1.60
June 30, 1998 2.437 2.187
While a limited market did exist for the Common Stock under the Company's former
names of Mendell and Sunlight (See Item 1), it was so insignificant in volume
that it was not representative of a true market or a realistic market valuation
of the Common Stock. Accordingly, any information relating to former market
activity is deemed immaterial and has not been included herein. Such
information can be obtained from the NASD by anyone interested in such
historical data. As of June 30, 1998, there were 78 holders of record of the
Company's outstanding 12,125,100 shares of Common Stock.
The Company has not paid any cash dividends on its Common Stock in the past
and does not anticipate paying any dividends in the foreseeable future.
Earnings, if any, are expected to be retained to fund future operations of the
Company. Payment of dividends to holders of its
11
<PAGE>
Common Stock is subject to prior payment of accrued dividends with respect to
the Company's outstanding preferred stock.
All unregistered sales of the Company's securities from July 1, 1997,
through March 31, 1998, have been reported on the Company's quarterly reports.
The Company made the following unregistered sales of its securities from March
31, 1998, through June 30, 1998.
<TABLE>
<CAPTION>
Title of Amount of
Date of Sale Securities Securities Consideration Purchaser
- ------------ ---------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
1) 6/11/98 Common Stock 100 cash Edward Burrell
2) 4/14/98 Common Stock 100,000 investment banking John Messina
services
3) 4/14/98 Common Stock 30,000 services Kevin B. Waide
4) 4/14/98 Common Stock 16,593 services Kristi J. Kampmann
5) 4/14/98 Common Stock 50,000 consulting services Lumenaria, LLC
6) 4/23/98 Common Stock 25,000 investment banking Joel Dnistrian
services
</TABLE>
All of the sales by the Company of its unregistered securities were made by
the Company in reliance upon Section 4(2) of the Securities Act of 1933, as
amended. All of the individuals and/or entities listed above that purchased the
unregistered securities were all known to the Company and its management,
through pre-existing business relationships, as long standing business
associates, friends, 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.
ITEM 6 - MANAGEMENT'S PLAN OF OPERATION
The statements contained herein, 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.
12
<PAGE>
The independent auditor's report on the Company's financial statements for
the year ended June 30, 1998 included a "going concern" explanatory paragraph,
meaning the auditors have expressed substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to the
factors prompting the explanatory paragraph are discussed below and also in Note
2 to Notes to Financial Statements.
The Company's revenues were $1,519 and $0 for the fiscal years ended June
30, 1998 and 1997, respectively. The revenue in 1998 was derived from oil and
gas leases, which the Company expensed as an impairment loss.
General and administrative expenses increased to $1,174,999 for the year
ended June 30, 1998 from $214,289 for the year ended June 30, 1997. This
increase is due in part to the impairment of the Company's oil and gas leases of
approximately $171,000 and to the incurrence of public relations and other
consulting fees totaling approximately $502,000. Salaries and wages increased
to approximately $270,000 for the year ended June 30, 1998 from $0 for the year
ended June 30, 1997. The salaries and wages consist of $96,307 in wages paid by
Intercell to Intercell employees and billed to the Company and $173,858 in
Common Stock paid to related parties as compensation. See Notes 6 and 7 to
Notes to Financial Statements.
Loss from discontinued operations decreased from $308,858 for the year
ended June 30, 1997 to $0 for the year ended June 30, 1998. The Company issued
preferred stock in 1998 resulting in an accrued preferred stock dividend of
$60,417 in 1998 compared to $0 for 1997.
The Company experienced net losses of $1,197,751 and $487,092 for the
fiscal years ended June 30, 1998 and 1997 respectively.
During the fiscal year ended June 30, 1998, the Company changed its
corporate strategy and focus to building a company based on the PI Technology
and discontinued all operations related to the sale and installation of sun
tunnels. The Company acquired the intellectual property rights to the PI
Technology on February 26, 1998.
The Company'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. To address its cash flow concerns, the
Company entered into a securities purchase agreement with a third party on July
23, 1998.
This agreement was supposed to provide the Company with $1,500,000 in
capital during the next twelve months with up to a total of $8,500,000 over a
24-month period. As of September 30, 1998, the Company has received $750,000
under the original agreement. The agreement has been amended to allow the
Company to assign the remaining commitment to another party. The Company is
currently seeking a substitute investor to fulfill the terms of the agreement.
If this agreement is performed in full, it will provide the Company with enough
capital to meet its plan of operation for the next year. There is no assurance,
however, that the Company will be able to find a substitute investor and
therefore meet its ongoing capital requirements. This transaction is described
in detail in Note 12 to Notes to Financial Statements.
The Company intends to adopt and implement a two-part sales and marketing
strategy to commercialize the PI Technology over the next 12 months. The first
part of its strategy involves
13
<PAGE>
the generation of royalty revenues through forming strategic relationships with,
or licensing the PI Technology to, established leaders in industries in which
the Company believes the PI Technology will have competitive advantages. The
second part of its strategy involves the sale of products developed by the
Company or through joint venture agreements utilizing the PI Technology for
small volume users of the technology. For a more complete discussion of the
Company's sales and marketing strategy, see Item 1(b).
To date, the Company has not spent any funds on research and development
and does not intend to incur any material direct research and development costs
during the fiscal year ending June 30, 1999. The Company will incur some
expense in setting up joint ventures to develop future PI Products but plans to
avoid incurring research and development cash requirements.
The Company does not currently have any plans to add or sell significant
capital plant and equipment during the fiscal year ending on June 30, 1999.
However, the Company intends to add six to eight employee positions during the
year, including positions in applications and development, engineering, sales
and administration.
Recently issued accounting pronouncements:
During the year ended June 30, 1998, the Company adopted SFAS No. 128,
Earnings Per Share. This statement replaces the presentation of primary
earnings or loss per share ("EPS") with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS for all entities with
complex capital structures and requires reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity. The
adoption of SFAS 128 did not result in a changed into the previously presented
EPS for the year ended June 30, 1997.
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.
Year 2000 Conversion:
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 a known risk. The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of the operational systems.
The Company has established processes for evaluating and managing the risks and
cost associated with this problem, including communicating with suppliers,
dealers and others with which it does business to coordinate Year 2000
conversion. The total cost of compliance and its effect on the Company's future
results of operations is being determined as part of the detailed conversion
planning process.
14
<PAGE>
Item 7 - Financial Statements
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors (Gelfond Hochstadt Pangburn & Co.) F-2
Report of Prior Independent Auditor (Larry O'Donnell, CPA, P.C.) F-3
Financial statements:
Balance Sheet - June 30, 1998 F-4, F-5
Statements of Operations - years ended June 30, 1998 and 1997 F-6
Statements of Shareholders' Equity - years ended June 30, 1998 and 1997 F-7
Statements of Cash Flows - years ended June 30, 1998 and 1997 F-8, F-9
Notes to Financial Statements F-10 to F-20
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Nanopierce Technologies, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of Nanopierce Technologies, Inc.
(the Company) as of June 30, 1998, and the related statements of operations,
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of June 30,
1998, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company reported a net loss of $1,137,334 for the year
ended June 30, 1998, and a deficit of $1,624,426 as of June 30, 1998. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
July 23, 1998, except for Note 12 to
which the date is September 28, 1998
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors
Nanopierce Technologies, Inc.
Denver, Colorado
I have audited the accompanying statements of operations, changes in
shareholders' equity and cash flows for the year ended June 30, 1997 of
Nanopierce Technologies, Inc. (formerly Sunlight Systems, Ltd.). These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I 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 their 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 financial statements referred to above present fairly, in all
material respects, the results of operations and cash flows of Nanopierce
Technologies, Inc. (formerly Sunlight Systems, Ltd.) for the year ended June 30,
1997 in conformity with generally accepted accounting principles.
LARRY O'DONNELL, CPA, PC
Denver, Colorado
September 24, 1997
F-3
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
BALANCE SHEET
JUNE 30, 1998
ASSETS
<TABLE>
<CAPTION>
Unaudited
pro forma Historical
------------- --------------
(Note 12)
<S> <C> <C>
Current assets:
Cash $ 440,011 $ 11
Current portion of note
receivable (Note 4) 11,650 11,650
Other 324 324
---------- ----------
Total current assets 451,985 11,985
Note receivable, net of
current portion (Note 4) 27,089 27,089
Marketable securities 1,491 1,491
Intellectual property rights, net
of accumulated amortization
of $34,315 (Note 3) 965,685 965,685
---------- ----------
$1,446,250 $1,006,250
========== ==========
</TABLE>
(Continued)
F-4
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
BALANCE SHEET (CONTINUED)
JUNE 30, 1998
LIABILITIES AND SHAREHOLDERS' EQUITY
Unaudited
pro forma Historical
----------- ------------
(Note 12)
Current liabilities:
Notes payable (Note 5):
Related party $ 144,000 $ 144,000
Other 93,513 93,513
Accounts payable and accrued expenses:
Related parties (Note 6) 146,747 146,747
Other 7,022 7,022
----------- -----------
Total liabilities (all current) 391,282 391,282
----------- -----------
Commitments and contingencies (Notes 10 and 12)
Shareholders' equity (Notes 3, 7, 10 and 12):
Preferred stock, $0.0001 par value; 5,000,000
shares authorized:
Series A; 100 shares issued and outstanding;
liquidation preference of $2,265,625; 8% dividend
rate; cumulative unpaid dividends of $60,417 500,000 500,000
Series B; maximum of 150,000 shares issuable;
50,000 shares issued and outstanding; $0.70 per
year per share cumulative dividend; 440,000
Series C; maximum of 700,000 share issuable;
no shares issued and outstanding;
Common stock, $0.0001 par value; 45,000,000
shares authorized; 12,125,100 shares issued
and outstanding 1,213 1,213
Additional paid-in capital 1,736,690 1,736,690
Unrealized gain on securities available-for-sale 1,491 1,491
Deficit (1,624,426) (1,624,426)
----------- -----------
1,054,968 614,968
----------- -----------
$ 1,446,250 $ 1,006,250
=========== ===========
See notes to financial statements.
F-5
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
------------ ------------
Revenues from oil and gas
properties (Note 9) $ 1,519
------------ ------------
General and administrative
expenses:
Related parties (Note 6) 354,642 $ 91,000
Other 820,357 123,289
----------- -----------
1,174,999 214,289
----------- -----------
Loss from operations (1,173,480) (214,289)
----------- -----------
Other income (expense):
Interest income 3,964 4,274
Gain on sale of
marketable securities 37,528 31,781
Interest expense:
Related party (4,720)
Other (626)
----------- -----------
36,146 36,055
----------- -----------
Loss from continuing
operations (1,137,334) (178,234)
----------- -----------
Discontinued operations (Note 8):
Loss from operations (173,911)
Loss on sale of
discontinued segment (134,947)
----------- -----------
(308,858)
----------- -----------
Net loss (1,137,334) (487,092)
Series A preferred
stock dividends (Note 3) (60,417)
----------- -----------
Net loss applicable to
common shareholders $(1,197,751) $ (487,092)
=========== ===========
Loss per common share:
Continuing operations $ (0.18) $ (0.05)
Discontinued operations (0.09)
----------- -----------
Net loss $ (0.18) $ (0.14)
=========== ===========
Weighted average number of
common shares outstanding 6,621,757 3,518,286
=========== ===========
See notes to financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
NANOPIERCE TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998 AND 1997
Nanopierce Technologies, Inc.
----------------------------------------------------------------------------------------------------
Series A Unrealized
Preferred stock Common stock Additional gain on
--------------------------------------------- paid-in securities
Shares Amount Shares Amount capital available-for-sale Deficit
------ ------ ------ ------ ------- ------------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, July 1, 1996
Exchange of Mendell-Denver
Corporation stock for
common stock of the
Company 699,437 $ 210 $ 197
Stock issued for cash and
other property 3,133,970 940 686,032
Unrealized gain on securities
available-for-sale $ 38,283
Net loss $ (487,092)
------ --------- ---------- ------ ---------- -------- ----------
Balances, June 30, 1997 3,833,407 1,150 686,229 38,283 (487,092)
1 for 3 reverse stock split (768) 768
Stock issued for services 1,041,593 105 550,219
Stock issued for purchase of
intellectual property rights 100 $ 500,000 7,250,000 725 499,275
Stock issued for cash 100 1 199
Change in unrealized gain on
securities available-for-sale (36,792)
Net loss (1,137,334)
------ --------- ---------- ------ ---------- -------- ----------
Balances, June 30, 1998 100 $ 500,000 12,125,000 $1,213 $1,736,690 $ 1,491 $(1,624,426)
====== ========= ========== ====== ========== ======== ===========
Mendell-Denver Corporation
---------------------------------------
Common Stock Total
--------------------------- Shareholders'
Shares Amount Deficit Equity
------ ------ ------- ------
<S> <C> <C> <C> <C>
Balances, July 1, 1996 10,491,558 $ 5,592 $(10,085) $(4,493)
Exchange of Mendell-Denver
Corporation stock for
common stock of the
Company (10,491,558) (5,592) 10,085 4,900
Stock issued for cash and
other property 686,972
Unrealized gain on securities
available-for-sale 38,283
Net loss (487,092)
------ ------ ------- -------
Balances, June 30, 1997 238,570
1 for 3 reverse stock split
Stock issued for services 550,324
Stock issued for purchase of
intellectual property rights 1,000,000
Stock issued for cash 200
Change in unrealized gain on
securities available-for-sale (36,792)
Net loss (1,137,334)
------ ------ ------- -----------
Balances, June 30, 1998 $ $ $ $ 614,968
====== ====== ======= ===========
</TABLE>
See notes to financial statements.
F-7
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,1998 AND 1997
1998 1997
------------ ----------
Cash flows from operating activities:
Net loss $(1,137,334) $(487,092)
----------- ---------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization expense 34,315 9,704
Amortization of discount on note receivable (3,640) (4,274)
Gain on sale of marketable securities (37,528)
Impairment of oil and gas properties 171,970
Expenses incurred in exchange for common stock 550,324
Loss on sale of long-term assets 52,118
Changes in operating assets and liabilities:
Increase in accounts payable and accrued
expenses:
Related parties 115,247
Other 7,022 31,500
(Increase) decrease in other assets 3,766 (4,090)
----------- ---------
Total adjustments 841,476 84,958
----------- ---------
Net cash used in operating activities (295,858) (402,134)
----------- ---------
Cash flows from investing activities:
Proceeds from sale of marketable securities 37,528
Payments received on note receivable 12,500 20,500
Capital expenditures (71,172)
Proceeds from sale of assets 18,700
Increase in start-up costs (30,627)
Purchase of distributorships and dealerships (42,546)
----------- ---------
Net cash provided by (used in) investing activities 50,028 (105,145)
----------- ---------
(Continued)
F-8
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
---------- ----------
Cash flows from financing activities:
Proceeds from notes payable:
Related party 144,000
Other 93,513
Proceeds from issuance of common stock 200 515,000
---------- ----------
Net cash provided by financing activities 237,713 515,000
---------- ----------
Net increase (decrease) in cash (8,117) 7,721
Cash, beginning 8,128 407
---------- ----------
Cash, ending $ 11 $ 8,128
========== ==========
The Company incurred no interest expense or income tax expense for fiscal years
ended June 30, 1998 and 1997.
Supplemental schedule of non-cash investing and financing activities:
Intellectual property rights acquired by
issuance of:
Common stock, 7,250,000 shares $ 500,000
Series A preferred stock, 100 shares 500,000
==========
$1,000,000
==========
Oil and gas property acquired by issuance of
common stock $ 171,970
==========
Notes receivable acquired for sale of assets
related to discontinued operations $ 72,053
==========
See notes to financial statements.
F-9
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998 AND 1997
1. Business, organization and summary of significant accounting policies:
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 for use in various
industries for a wide range of applications. The Company has not recognized
any royalty revenue through June 30, 1998, pending the resolution of
litigation regarding a license agreement (Note 10).
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 recapitalization 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).
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 (Note 3). 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.
F-10
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
1. Business, organization and summary of significant accounting policies
(continued):
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.
Fair value of financial instruments:
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires the Company to disclose estimated
fair values for its financial instruments, for which it is practicable to
estimate fair value. The fair value of the Company's payables to related
parties are not practicable to estimate due to the related party nature of
the underlying transactions. Management believes that the carrying amounts
of the Company's other financial instruments approximates their fair values
primarily because of the short-term maturity of these instruments.
Intellectual property:
The intellectual property (Particle Interconnect), was acquired upon the
issuance of common and preferred stock of the Company (Note 3) and is
valued at estimated fair value at the date of acquisition based on a
written cash offer for Particle Interconnect from an outside third party
that is a manufacturer in a field which uses the intellectual property. The
intellectual property is being amortized using the straight-line method
over 10 years. The 10 year period is based on the estimated useful life
limited by the remaining average patent protection period. At each balance
sheet date, management assesses whether there has been an impairment in the
carrying value of long-lived assets. In performing this assessment,
management compares current and projected sales, operating income, and
annual cash flows on an undiscounted basis, with the related annual
amortization expense.
Marketable securities:
Marketable securities consist of approximately 23,700 shares of common stock
of Intercell. These securities are classified as available-for-sale and are
carried at fair value based upon market quotes. Unrealized gains and losses
are computed on the basis of specific identification and are reported as a
separate component of shareholders' equity. Realized gains, realized
losses, and declines in value, judged to be other-than-temporary, are
included in other income (expense).
F-11
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
1. Business, organization and summary of significant accounting policies
(continued):
Stock-based compensation:
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, allows companies to choose whether to account for
employee stock-based compensation on a fair value method, or to continue
accounting for such compensation under the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25). The Company has chosen to continue to
account for employee stock-based compensation using APB 25.
Income taxes:
Deferred tax assets and liabilities are recognized for the future
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities and measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to reverse. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
statement of operations in the period that includes the enactment date.
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.
During the year ended June 30, 1998, the Company adopted SFAS No. 128,
Earnings Per Share. This statement replaces the presentation of primary
earnings or loss per share (EPS) with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS for all entities with
complex capital structures and requires reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator
of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. The adoption of SFAS 128 did not result in a
changed into the previously presented EPS for the year ended June 30, 1997.
F-12
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
1. Business, organization and summary of significant accounting policies
(continued):
Recently issued accounting pronouncements:
The Financial Accounting Standards Board (FASB) 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.
Reclassifications:
Certain amounts reported in the 1997 financial statements have been
reclassified to conform with the 1998 presentation.
2. Going concern, results of operations, and management's plans:
The Company's financial statements for the year ended June 30, 1998 have
been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal
course of business. For the year ended June 30, 1998, the Company reported
a net loss of $1,137,334 and a deficit of $1,624,426. The Company has
experienced difficulty and uncertainty in meeting its liquidity needs.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of assets or
the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
Management has implemented an operating plan to address these concerns. In
July 1998, the Company received significant financing through an equity
agreement to sell shares of Series B convertible preferred stock to a third
party (Note 12). The agreement is for a two-year period and will allow the
Company to sell the third party up to $8,500,000 of preferred stock. The
Company received $500,000 on July 23, 1998.
Along with the subsequent funding, the Company's operating plan includes
achieving sales and royalty revenue through licensing of its Particle
Interconnect technology, and maintaining cost reduction efforts through
continued supervision of labor and general and administrative expenses.
Actions presently being taken under the operating plan and the subsequent
financing have been planned in order to meet cash needs for the year ending
June 30, 1999. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
F-13
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
3. 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 to 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 June 30,
1998, cumulative unpaid dividends were $60,417. The Company may redeem the
Series A preferred stock, with six months notice, for the liquidation
preference amount.
4. Note receivable:
In connection with the sale of the Sunlight dealerships and distributorships
in November 1996 (Note 8), the Company received a $60,000 non-interest
bearing note receivable. Interest was imputed on the note at 10%. At June
30, 1998, the outstanding balance of the note and the unamortized balance
of the discount were $45,000 and $6,261, respectively. Monthly payments
under the note are $1,250 through June 2001. The note is collateralized by
the property and equipment related to the dealerships and distributorships.
5. Notes payable:
Related party:
Notes payable, related party, consist of two notes payable to an affiliate
of certain minority shareholders of the Company. The notes have outstanding
balances of $100,000 and $44,000 at June 30, 1998, are unsecured and bear
interest at 10% and 8%, respectively.
Other:
Notes payable, other, consist of two unsecured notes with payable
outstanding balances of $68,513 and $25,000 at June 30, 1998, and bear
interest at 8% and 9%, respectively.
F-14
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
6. Related party transactions:
Accounts payable and accrued expenses, related parties, consist of $4,720 of
accrued interest expense and $142,027 owed to Intercell for certain general
and administrative expenses paid by Intercell on behalf of the Company.
Related party general and administrative expenses incurred during the years
ended June 30, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Expenses paid by Intercell:
Salaries and benefits $ 96,307
Legal 80,917
Travel 24,733
Other 13,587
--------
215,544
Management services, to affiliates of
certain minority shareholders:
In exchange for common stock (Note 7) 81,858
In exchange for cash 57,240 $ 91,000
-------- ---------
$354,642 $ 91,000
======== =========
</TABLE>
7. Common stock, stock options and warrants issued for services:
Common stock:
During the year ended June 30, 1998, the Company issued 1,041,593 shares of
common stock in exchange for services valued at $550,324 based on the quoted
market price of the Company's common stock at the date the services were
performed. The shares were issued for the following services:
<TABLE>
<CAPTION>
Shares Amount
--------- ---------
<S> <C> <C>
Affiliates, management services 420,000 $ 81,858
Employees, compensation 96,593 173,858
Third parties, investment related services 525,000 294,608
--------- ---------
1,041,593 $ 550,324
========= =========
</TABLE>
F-15
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
7. Common stock, stock options and warrant issued for services (continued):
Stock options and warrants:
In exchange for services received, the Company granted stock options and
warrants to employees and third parties for the purchase of 5,700,000
shares of common stock (5,000,000 relating to employees and 700,000
relating to third parties). The options and warrants have a weighted-
average exercise price of $0.34 per share and expire between April 2002 and
February 2008. The fair value of the options and warrants granted to third
parties was not significant based on the Black-Scholes option pricing model
using the assumptions outlined below.
The Company applies APB No. 25 "Accounting for Stock Issued to Employees" in
accounting for stock options granted to employees. As the exercise prices
of the options granted to employees was equal to or greater than the market
price of the Company's stock at the date of grant, no compensation expense
was recorded. The Company has determined the pro forma impact of the
options granted as if the Company had accounted for stock options granted
under the fair value method of SFAS No. 123. The Black-Scholes option-
pricing model was used with the following weighted-average assumptions: no
dividend yield; expected volatility of 15%; risk free interest rate of
5.85%; and expected lives of approximately 9.6 years. The weighted average
fair value of options granted during the year ended June 30, 1998 was
approximately $0.006 per share. The pro forma effect of these options for
the year ended June 30, 1998 was approximately $30,000 and the impact on
net loss and net loss per share is as follows:
Pro forma net loss $ (1,167,334)
Pro forma net loss applicable to
common shareholders $ (1,227,751)
Pro forma loss per common share $ (0.19)
These pro forma calculations only include the effects of the grants for the
year ended June 30, 1998. As such, the impacts are not necessarily
indicative of the effects on reported net income of future years.
F-16
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
8. Discontinued operations:
On November 1, 1996, the Company sold its dealerships, distributorships and
assets related to its Sunlight skylight business operations. The Company
received cash of $18,000 and non-interest bearing notes of $90,000
(discounted at 10% to $72,053) and recognized a loss on this sale of
$134,947. The loss from operations consisted of the following:
Revenues $ 37,894
General and administrative expenses (211,805)
---------
$(173,911)
=========
9. Impairment of oil and gas properties:
The Company was originally formed in 1985 to invest in and develop oil and
gas properties. The Company's remaining investment in an oil and gas
property produced only minimal revenues during the year ended June 30,
1998, and management determined that the investment was probably not
recoverable. Therefore, the Company recognized an impairment loss of
$171,970. The impairment loss is included in general and administrative
expense in the accompanying statement of operations.
10. License agreements:
The Company has several license agreements with third parties which allow
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 ultimately be
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 Company's operations or the further development of
the Particle Interconnect technology.
F-17
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
11. Income taxes:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the deferred tax assets as of June 30, 1998 are
as follows:
Noncurrent deferred tax assets:
Net operating loss carryforwards $ 550,000
Intellectual property rights 4,000
Valuation allowance (554,000)
---------
Net deferred tax assets $
=========
The reconciliation between taxes computed at the statutory federal tax rate and
the effective tax rate for the years ended June 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Expected income tax benefit $(383,000) $(165,000)
Increase in valuation allowance 383,000 165,000
--------- ---------
Actual income tax benefit $ $
========= =========
</TABLE>
At June 30, 1998, the Company has net operating loss carryforwards available
to reduce future taxable income of approximately $1,618,000, expiring
between 2010 through 2013 as follows:
<TABLE>
<CAPTION>
Net
Year operating loss
------ --------------
<S> <C>
2010 $ 2,000
2011 3,000
2012 487,000
2013 1,126,000
--------------
$ 1,618,000
==============
</TABLE>
F-18
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
12. Subsequent event:
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. At the second and third closings,
scheduled to be executed in August and September, 1998, the Buyer was
to acquire 50,000 Series B Shares at $10 per share at each closing. As
of September 28, 1998, the second and third closings have not been
executed. Management is in the process of negotiating new agreement
terms and believes that the financing will continue on a delayed
schedule.
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.
b. Under the Agreement, through July 2000, the Buyer is to acquire a
minimum of 250,000 Series C Shares and a maximum of 700,000 Series C
Shares, in defined tranches, at the Company's option. The first Series
C tranche may not occur until at least 30 days after the effective date
of a registration statement. Certain defined conditions must be met
before a sale of Series C Shares can occur, including a requirement
that the average daily share price for the Company's common stock must
equal or exceed $1.75 per share for the 10 trading days prior to the
closing.
The Series C Shares are non-voting with cumulative dividends of $0.70
per share per year and are redeemable by the Company at $11.75 per
share plus any accumulated and unpaid dividends. The Series C 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 82.5% of the average closing bid price of the Company's
common stock for the five days prior to the conversion date.
F-19
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
12. Subsequent event (continued):
c. At each closing date of the Series B Shares and the Series C Shares, the
Buyer is to receive a Warrant to purchase common stock of the Company.
The number of shares into which each Warrant is exercisable is equal to
the number of preferred shares acquired at that closing date. The
exercise price of each Warrant is equal to 125% of the closing bid price
of the Company's common stock on the closing date. These warrants expire
3 years after the date of issuance.
d. The Company has agreed to register the common shares underlying the
Series B Shares, the Series C Shares, the Warrant shares, and any shares
related to accumulated and unpaid dividends under the Securities Act of
1933 and to keep the registration effective pursuant to Rule 415 of the
1933 Act. If the registration obligations are not met, the Company is
required to pay the Buyer monthly damages equal to 1.5% of the
cumulative purchase price of the Series B Shares and Series C Shares
acquired by the Buyer.
e. If the Company does not sell the Buyer at least the minimum number of
Series C Shares, the Company is required to issue the Buyer a warrant to
purchase a number of shares of common stock equal to the difference
between the minimum number of Series C Shares and the actual number
sold. This warrant has an exercise price of $2.88 and shall be
exercisable for 3 years.
If the Buyer does not purchase Series B Shares or Series C Shares when
offered for sale by the Company in accordance with the agreement, all
Warrants previously issued to the Buyer shall be canceled.
The accompanying balance sheet includes an unaudited pro forma balance
sheet as of June 30, 1998, that gives effect to the July 23, 1998 issuance
of 50,000 shares of Series B Shares under the Agreement as if the
transaction had been consummated on June 30, 1998. The unaudited pro forma
balance sheet should be read in conjunction with the historical financial
statements of the Company. The unaudited pro forma balance sheet does not
purport to be indicative of the financial position of the Company had the
sale occurred on June 30, 1998 or to project the Company's financial
position for any future period. The unaudited pro forma balance sheet
includes pro forma adjustments to record the receipt of the $500,000 of
cash upon the sale of shares, net of $60,000 of issuance costs.
F-20
<PAGE>
ITEM 8 - CHANGES IN ACCOUNTANTS
On April 8, 1998 the Company dismissed Larry O'Donnell, CPA, P.C. and
engaged Gelfond Hochstadt Pangburn & Co., as its new principal independent
accountant, effective April 8, 1998. There is no adverse opinion of disclaimer
of opinion, or qualification or modification as to uncertainty, audit scope, or
accounting principles for either of the Company's past two years. There were no
disagreements within the meaning of Item 304(a)(1)(iv) of Regulation S-K during
the Company's two most recent fiscal years and the subsequent period up to the
date of the engagement of the new principal independent account.
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth certain information with respect to the
directors, executive officers and significant employees of the Company:
<TABLE>
<CAPTION>
Name and (Age) Position Period of Service
- --------------------------- ------------------------------- -----------------------------------
<S> <C> <C>
Gilbert Olachea (42) Director, President and Chief May 1998 to present
Executive Officer
Paul H. Metzinger (59) Director and Executive Vice Director from February 1998 to
President present, Executive Vice President
from May 1998 to present, and
President and Chief Executive
Officer from February 1998 to May
1998
Thomas Vander Stel (38) Chief Financial Officer and February 1998 to present
Vice President
Kristi J. Kampmann (25) Secretary February 1998 to present
</TABLE>
The directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. The officers are
elected by the Board of Directors at its annual meeting immediately following
the shareholders' annual meeting and hold office until they resign or are
removed from office. There are no family relationships that exist between any
director, executive officer, significant employee or person nominated or chosen
by the Company to become a director or executive officer.
Biographical Information Regarding Officers, Directors and Significant Employees
- --------------------------------------------------------------------------------
Gilbert Olachea. Mr. Olachea has been President, Chief Executive Officer
and a director of the Company since May 1998. In addition, he has been
President, Chief Executive Officer and a director of Sigma 7 Corporation (a
subsidiary of Intercell) since December 1997 . From July 1993, to September
1997, Mr. Olachea served as Vice President of Corporate Marketing and
Communications of Amkor Electronics, the world's largest service and product
integrated circuit package provider in the semiconductor industry. At Amkor,
Mr. Olachea had management responsibility for company market positioning, new
product implementation and training, public relations and authoring technical
articles. Mr. Olachea coordinated sales, customer service and technical teams
to effect a successful promotion and communication of products, service and
15
<PAGE>
value to customers. From August 1988, to July 1993, Mr. Olachea served as
Regional Account Manager for Amkor.
Paul H. Metzinger. Mr. Metzinger has been Executive Vice President of the
Company since May 1998, and a director since February 1998. He served as
President and Chief Executive Officer of the Company from February 1998, to May
1998. Mr. Metzinger currently serves as Chief Executive Officer, President and
a director of Intercell and is President and a director of PI Corp. Prior to
becoming a director and officer of Intercell, Mr. Metzinger served as
Intercell's General Counsel and practiced securities law for over 30 years,
representing both large and small public companies.
Thomas W. Vander Stel. Mr. Vander Stel has been Chief Financial Officer
and Vice President of the Company since February 1998, and has served as Chief
Financial Officer, Treasurer and Secretary of Intercell since February 1998.
From October 1992 until January 1998, Mr. Vander Stel served as Chief Financial
Officer and Vice President for TVX, Inc., a high technology manufacturer of
security systems. At TVX, Inc., Mr. Vander Stel managed the start up operations
in the United States and integrated the United Kingdom facilities including
finance, purchasing, shipping receiving, manufacturing and quality assurance.
From February 1990 to June 1992, Mr. Vander Stel served as Controller of
Ultratech Knowledge Systems, Inc., where he set up all automated accounting
systems for the publicly held corporation throughout its startup and operational
phases. From November 1987 to January 1990, Mr. Vander Stel served as General
Manger and Controller for Grand Summit Hotel in New Jersey, a national historic
landmark. At Grand Summit Hotel, Mr. Vander Stel managed 220 employees in
sales, public relations, food and beverage, security, front office, finance and
maintenance. Mr. Vander Stel received a B.A. in Business Administration with
a major in Accounting from Hope College, Holland, Michigan in 1981. Mr. Vander
Stel studied at the London School of Economics in 1981.
Kristi J. Kampmann. Ms. Kampmann has been Secretary of the Company since
February 1998. Since June 1997, she has been the administrative assistant to
the Chief Financial Officer and Chief Executive Officer and paralegal for
Intercell. From April 1996 to June 1997, she served as a paralegal and
administrative assistant for Paul H. Metzinger, P.C. Ms. Kampmann graduated
from the Denver Paralegal Institute in 1996. Ms. Kampmann received a B.A. from
the University of Minnesota in Morris in 1995, majoring in Political Science
with a minor in Business Management. She currently is attending the University
of Colorado at Denver, where she is completing work on an M.B.A.
Prior Management
- ----------------
Prior to the change in control of the Company that occurred on February 26,
1998, management of the Company consisted of the following individuals in the
capacities indicated.
Patricia E. Johnston. Ms. Johnston was President, CEO, Chief Financial
Officer, Treasurer and a Director of the Company from June 26, 1996, to February
26, 1998.
16
<PAGE>
Cheri L. (Perry) Metzinger. Mrs. Metzinger was Secretary of the Company
from June 26, 1996, to February 26, 1998.
No compensation was paid to either Ms. Johnston or Mrs. Metzinger for her
services to the Company. However, as compensation for consulting services
provided to the Company, Zenith Petroleum Corporation (controlled by Ms.
Johnston) received options to purchase 1,000,000 shares of Common Stock at an
exercise price per share of $0.3250, which options expire February 2008.
ITEM 10 EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning compensation
paid by the Company to its Chief Executive Officer ("CEO") and any other
executive officer whose total annual salary and bonus exceeded $100,000 for the
fiscal year ended June 30, 1998 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------ ------------------------------------------
SECURITIES ALL OTHER
Name and Principal Fiscal UNDERLYING COMPENSATION
Position(1) YEAR Salary($) Bonus($) OPTIONS (#) ($)
<S> <C> <C> <C> <C> <C>
Gilbert Olachea, 1998 -0-/3/ -0- 1,500,000/4/ -0-
Director, President
and CEO/2/
Thomas Vander Stel, 1998 -0-/3/ -0- 400,000/6/ -0-
Chief Financial
Officer and Vice
President/5/
Paul Metzinger, 1998 -0-/8/ -0- 1,500,000/9/ -0-
Director and
Executive Vice
President/7/
</TABLE>
17
<PAGE>
________________
/1/ The sole officer and director of the Company prior to the acquisition of the
PI Technology resigned as such on February 23, 1998.
/2/ Mr. Olachea was elected President and CEO of the Company on May 6, 1998.
/3/ Messrs. Olachea and Vander Stel did not become employees of the Company
until July 1, 1998, and therefore did not receive a salary from the Company
before then. Prior to July 1, 1998, Mr. Olachea received a salary from Sigma 7
Corporation (an Intercell subsidiary) and Mr. Vander Stel received a salary
from Intercell.
/4/ Options to purchase 1,500,000 shares of Common Stock were granted to Mr.
Olachea on February 26, 1998, which options are immediately exercisable at a
price of $0.3250 per share and expire on February 26, 2008.
/5/ Mr. Vander Stel was elected Chief Financial Officer of the Company on
February 26, 1998.
/6/ Options to purchase 400,000 shares of Common Stock were granted to Mr.
Vander Stel on February 26, 1998, which options are immediately exercisable at a
price of $0.3250 per share and expire on February 26, 2008.
/7/ Mr. Metzinger was the President and CEO of the Company from February 23,
1998 to May 6, 1998.
/8/ Mr. Metzinger did not receive a salary from the Company. The salary that he
receives from Intercell is in partial compensation of the services that he
performs on behalf of the Company. A company owned by Mr. Metzinger (Lumenaria,
LLC) received Common Stock valued at $90,000 as payment for consulting services
rendered to the Company. See Item 12.
/9/ In connection with the Company's acquisition of the PI Technology, options
to purchase 1,000,000 shares of Common Stock were granted to Mr. Metzinger on
February 26, 1998, which options are immediately exercisable at a price of
$0.3250 per share and expire on February 26, 2008. See Item 12. Options to
purchase 500,000 shares of Common Stock were granted to Mr. Metzinger on
February 27, 1998, which options are immediately exercisable at a price of
$0.3250 per share and expire on February 27, 2008.
The foregoing compensation table does not include certain fringe benefits
made available on a nondiscriminatory basis to all Company employees such as
group health insurance, dental insurance, long-term disability insurance,
vacation and sick leave. In addition, the Company makes available certain non-
monetary benefits to its executive officers (other than Mr. Metzinger) with a
view to acquiring and retaining qualified personnel and facilitating job
performance. The Company considers such benefits to be ordinary and incidental
business costs and expenses. The aggregate value of such benefits in the case of
each executive officer listed in the above table, which cannot be precisely
ascertained but which is less than 10% of the cash compensation paid to each
such executive officer, is not included in such table.
OPTION GRANTS TABLE
The following table provides information relating to the grant of stock options
to the Named Executive Officers during the fiscal year ended June 30, 1998.
OPTION GRANTS IN THE LAST FISCAL YEAR
Indvidual Grants
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
SECURITIES % OF TOTAL/1/
UNDERLYING OPTIONS GRANTED TO Fair Market
OPTIONS EMPLOYEES IN FISCAL Exercise VALUE ON Expiration
Name Granted(#) YEAR/2/ Price($/sh) Grant Date/3/ Date
- ---------- ----------------- -------------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Gilbert 1,500,000 43.5% $0.3250 $0.3250 2/26/08
Olachea
Thomas 400,000 11.6% $0.3250 $0.3250 2/26/08
Vander Stel
Paul 1,000,000 29% $0.3250 $0.3250 2/26/08
Metzinger 500,000 14.5% $0.3250 $0.3250 2/27/08
</TABLE>
_______________
/1/ Based on a total of 3,450,000 options granted to employees in the fiscal
year ended June 30, 1998.
/2/ All options granted were immediately exercisable on the date of grant.
/3/ Computed based on the average closing bid and asked prices on the date the
options were granted.
AGGREGATED OPTION EXERCISE AND FISCAL YEAR-END OPTION TABLE
The following table provides information relating to the exercise of stock
options during the fiscal year ended June 30, 1998, by the Named Executive
Officers and the 1998 fiscal year-end value of unexercised options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FY-END/1/ FY-END($)/1/
-------------------- ------------
SHARES
ACQUIRED ON VALUE Exercisable/ Exercisable/
Name EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
Gilbert Olachea -0- -0- 1,500,000 / -0- $2,980,500 / -0-
Thomas Vander Stel -0- -0- 400,000 / -0- $ 794,800 / -0-
Paul Metzinger -0- -0- 1,500,000 / -0- $2,980,500 / -0-
</TABLE>
______________
/1/ The average of the closing bid and asked price of the Common Stock on June
30, 1998 ($2.312) was used to calculate the option value.
Director Compensation
Currently there are no non-employee directors on the Company's Board of
Directors. If, in the future, there are non-employee directors on the Company's
Board of Directors, the Company may compensate such directors through an annual
directors' fee and/or through grants of options to purchase shares of Common
Stock. The basis for determining the amount of the fee and the number of
options to award future non-employee directors of the Company will be based on a
variety of factors including the following: the experience of the director in
the industries
19
<PAGE>
the Company competes; his previous management experience; the size of the entity
the director is or formerly was associated with; and the overall value the Board
of Directors believes that such non-employee director will provide to the
Company.
EMPLOYMENT AGREEMENTS
The Company has no written or oral employment agreements with Messrs.
Olachea and Vander Stel and currently has no other employees. The Company has
two officers in addition to Messrs. Olachea and Vander Stel.
COMPENSATION PURSUANT TO PLANS
The Company has one stock option plan titled the Nanopierce Technologies,
Inc. 1998 Stock Option Plan. The Company has reserved 5,400,000 shares of Common
Stock for issuance under the plan.
During the fiscal year ended June 30, 1998, the Company granted options to
purchase 5,400,000 shares of Common Stock to directors, officers, employees and
consultants of the Company. As of June 30, 1998, all options are exercisable.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's voting securities, as of September 26, 1998. The
table includes (a) each stockholder known by the Company to be the beneficial
owner of more than 5% of its outstanding voting securities, (b) the Company's
directors, CEO and Named Executive Officers, and (c) all directors and officers
as a group. Except as otherwise indicated and based on information furnished by
such owners, the Company believes that the beneficial owners of the voting
securities listed below have sole investment and voting power with respect to
such shares.
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT AND CLASS
NATURE OF BENEFICIALLY
STOCKHOLDER NAME AND ADDRESS TITLE OF CLASS OWNERSHIP OWNED(1)
<S> <C> <C> <C>
Intercell Corporation Series A Preferred Stock 100 100%
370 17th St., Ste. 3580 Common Stock 14,500,000/2/ 54.66%
Denver, CO 80202
Zenith Petroleum Corporation Common Stock 2,115,273/3/ 7.97
9101 E. Kenyon Ave., Ste. 1000
Denver CO 80237
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT AND CLASS
NATURE OF BENEFICIALLY
STOCKHOLDER NAME AND ADDRESS TITLE OF CLASS OWNERSHIP OWNED/1/
<S> <C> <C> <C>
Bert Roosen Common Stock 1,376,856/4/ 5.19
#4 14909 32nd Ave.
Surrey BC
Canada V4P 1A4
Paul Metzinger/5/ Common Stock 2,856,456/6/ 10.77
c/o Nanopierce Technologies, Inc.
370 17th St., Ste. 3580
Denver, CO 80202
Gilbert Olachea/7/ Common Stock 1,500,000/8/ 5.65
c/o Nanopierce Technologies, Inc.
370 17th St., Ste. 3580
Denver, CO 80202
Thomas Vander Stel/9/ Common Stock 400,000/10/ 1.51
c/o Nanopierce Technologies, Inc.
370 17th St., Ste. 3580
Denver, CO 80202
Officers and directors as a group Common Stock 4,898,536/11/ 18.47
(4 persons)
</TABLE>
/1/ Based upon 26,527,618 shares of Common Stock issued and outstanding on a
fully diluted basis as of September 26, 1998. Includes: (i) 12,500,476 shares
of Common Stock issued and outstanding; (ii) 7,250,000 shares issuable upon
conversion of 100 shares of Series A Preferred Stock issued, outstanding and
convertible within 60 days; (iii) 957,142 shares issuable upon conversion of
67,000 shares of Series B Preferred Stock issued, outstanding and convertible
within 60 days (assuming an average conversion price of $.70 per share); (iv)
5,400,000 shares issuable upon the exercise of outstanding options
exercisable within 60 days; and (v) 420,000 shares issuable upon the exercise
of outstanding warrants exercisable within 60 days.
/2/ Includes 7,250,000 shares issuable upon conversion of 100 shares of
Series A Preferred Stock issued, outstanding and convertible within 60 days,
and 1,000,000 shares registered in the name of the Augustine Fund, L.P.,
which holds such shares as collateral security for the repayment of funds
owed to it by Intercell.
/3/ Includes 1,000,000 shares issuable upon presently exercisable options.
The options are exercisable at $0.3250 per share and expire February 26,
2008.
/4/ Includes 430,000 shares issuable upon presently exercisable options. The
options are exercisable at $0.3250 per share and expire February 26, 2008.
/5/ Director and Executive Vice President of the Company.
/6/ Includes 1,500,000 shares issuable upon presently exercisable options.
The options are exercisable at $0.3250 per share and expire February 26,
2008, with respect to 1,000,000 shares and February 27, 2008,
21
<PAGE>
with respect to 500,000 shares. Also includes 1,003,083 shares of Common Stock
owned by his wife, Cheri L. Metzinger.
/7/ Director, President and CEO of the Company.
/8/ Includes 1,500,000 shares issuable upon presently exercisable options. The
options are exercisable at $0.3250 per share and expire February 26, 2008.
/9/ Chief Financial Officer and Vice President of the Company.
/10/ Includes 400,000 shares issuable upon presently exercisable options. The
options are exercisable at $0.3250 per share and expire February 26, 2008.
/11/ Includes 3,400,000 shares issuable upon presently exercisable options, as
set forth in footnotes 6, 8 and 10 above, plus 50,000 shares issuable upon
options presently exercisable at $0.3250 per share which expire February 26,
2008.
The following table sets forth, as of September 28, 1998, certain
information regarding beneficial ownership of the equity securities of
Intercell, the Company's parent corporation, by the Company's directors, CEO,
Named Executive Officers and all directors and officers as a group. Except as
otherwise indicated and based on information furnished by such owners, the
Company believes that the beneficial owners of Intercell's equity securities
listed below have sole investment and voting power with respect to such shares.
<TABLE>
<CAPTION>
PERCENTAGE OF
TITLE OF CLASS, AMOUNT CLASS
AND NATURE OF BENEFICIALLY
STOCKHOLDER NAME AND ADDRESS OWNERSHIP OWNED/1/
<S> <C> <C>
Paul Metzinger 3,852,541 shares 10.35%
c/o Nanopierce Technologies, Inc. common stock/2/
370 17th St., Ste. 3580
Denver, CO 80202
Gilbert Olachea 100,000 shares/3/ -- /4/
c/o Nanopierce Technologies, Inc. common stock
370 17th St., Ste. 3580
Denver, CO 80202
Thomas Vander Stel 150,000 shares/5/ -- /4/
c/o Nanopierce Technologies, Inc. common stock
370 17th St., Ste. 3580
Denver, CO 80202
Officers and directors as a group (4 4,292,541 shares/6/ 11.57%
persons) common stock
</TABLE>
/1/ Based upon 37,110,239 shares of Intercell's common stock issued and
outstanding on a fully diluted basis as of September 16, 1998.
/2/ Includes 1,419,340 shares and presently exercisable options to purchase
2,350,000 shares of common stock, 650,000 of which are exercisable at $.50 per
share and expire September 2007, and 1,700,000 of
22
<PAGE>
which are exercisable at $.3750 per share and expire September 2007, all owned
by his wife, Cheri L. Metzinger.
/3/ Consists of presently exercisable options to purchase 100,000 shares of
common stock at an exercise price of $.3750 per share which expire September 30,
2007.
/4/ Less than 1%.
/5/ Consists of presently exercisable options to purchase 150,000 shares of
common stock at an exercise price of $.10 per share which expire February 9,
2008.
/6/ Includes 2,600,000 shares issuable upon presently exercisable options, as
set forth in footnotes 2, 3 and 5 above, plus 50,000 shares issuable upon
options presently exercisable at $.3750 per share which expire September 30,
2007, and 150,000 shares issuable upon options presently exercisable at $.05 per
share which expire June 1, 2008.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 22, 1996, Mendell merged into its wholly-owned subsidiary Sunlight
(now Nanopierce Technologies, Inc.), with Sunlight being the surviving
corporation. See Item 1. As part of the merger, the Mendell shareholders
received one share of Common Stock for every five shares of Mendell common
stock, for a total of 2,098,312 post-split shares.
After the merger, to complete its corporate reorganization and fund its
proposed new business activities, the Company issued a total of 6,901,752 shares
of Common Stock to six persons. Cheri L. Metzinger, the wife of Paul H.
Metzinger, received 2,083,960 shares in exchange for $300,000 consideration
(effective per share price of $0.1439) consisting of $130,400, services valued
at $52,223 and 166,667 unrestricted shares of Energy Corporation (f/k/a Modern
Industries, Inc.), a now-dissolved subsidiary of Intercell ("Energy"). Mrs.
Metzinger was an officer of the Company from June 26, 1996, to February 26,
1998. Zenith Petroleum Corporation, a shareholder of Intercell, received
2,083,896 shares in exchange for $300,000 consideration (effective per share
price of $0.1439) consisting of an assignment of certain oil and gas properties.
The sole shareholder and officer of Zenith Petroleum Corporation, Patricia E.
Johnson, was an officer and director of the Company from June 26, 1996, to
February 26, 1998. Bert Roosen received 1,083,896 shares in exchange for
$300,000 consideration (effective per share price of $0.2768) consisting of
66,667 restricted shares of Energy.
Gordon J. Sales and Alan M. Smith, former executive officers of Intercell,
each received 550,000 shares in exchange for consideration consisting of $30,000
and 25,000 restricted shares of Energy each. Paul H. Metzinger subsequently
purchased all of the shares owned by Messrs. Sales and Smith. The Royal Bank of
Scotland (Nassau) received 550,000 shares in exchange for consideration
consisting of $30,000 and 50,000 restricted shares of Energy. These shares
subsequently were sold to other nonaffiliated persons.
The valuation of the property conveyed and the number of shares received in
consideration thereof were arbitrarily determined by the Company's Board of
Directors. Cheri Metzinger subsequently gifted 283,690 restricted shares to
seven persons (the children, godchildren and an employee of her husband, Paul
Metzinger) and purchased 179,222 shares from non-affiliates of the Company.
Bert Roosen and Zenith Petroleum Corporation
23
<PAGE>
subsequently purchased 179,157 and 146,659 shares, respectively, from non-
affiliates. All shares purchased from non-affiliates were purchased at $0.20 per
share./4/
As a result of the sale of its assets to Intercell on July 8, 1995, Energy
received 5,412,355 restricted shares of Intercell stock. Pursuant to Energy's
plan of liquidation, all of its shareholders, including the Company, were
entitled to receive shares of Intercell stock over a three year period beginning
in 1997 and ending in 1999. The Company received all of its shares in two
distributions on May 14, 1997, and August 18, 1997.
On September 3, 1996, PI Corp. merged into Particle Interconnect Inc., a
California corporation, with PI Corp. as the surviving corporation and the owner
of the intellectual property rights related to the PI Technology. As part of
the merger, the former shareholders of Particle Interconnect Inc. received
1,400,000 shares of Intercell common stock valued at $5,600,000 and Intercell
contributed $1,5000,000 in capital to PI Corp. On February 26, 1998, Intercell
transferred all of the assets of PI Corp. (valued at $1,000,000) to the Company
in exchange for 7,250,000 shares of Common Stock and 100 shares of Series A
Preferred Stock. See Item 1. As a result of such transaction, Intercell
acquired approximately 75% of then-outstanding shares of Common Stock on a fully
diluted basis. Intercell currently owns approximately 55% of the outstanding
shares of Common Stock on a fully diluted basis. See Item 11.
Paul H. Metzinger, the President and Chief Executive Officer of Intercell
and PI Corp., and his wife, Cheri L. Metzinger, abstained from voting, as
shareholders of the Company, on the transaction. See Item 11. As part of the
transaction, Mr. Metzinger received a ten-year option to purchase 1,000,000
shares of Common Stock at an exercise price of $0.3250 per share. Mr. Metzinger
subsequently received an additional ten-year option to purchase 500,000 shares
of Common Stock at an exercise price of $0.3250 per share.
After the sale, Paul Metzinger was appointed the sole Director of the
Company until additional directors could be appointed. In addition, he was
nominated and elected President and Chief Executive Officer of the Company. He
subsequently appointed Gilbert Olachea as a director of the Company and the
Board of Directors appointed Mr. Olachea the President and Chief Executive
Officer of the Company. Mr. Metzinger currently serves as the Company's
Executive Vice President. See Item 9.
On April 14, 1998, 50,000 shares of Common Stock were issued to Lumenaria,
LLC for consulting services rendered to the Company and valued at $90,000.
Lumenaria, LLC is wholly-owned by Paul H. Metzinger. See Item 10.
Except as disclosed herein, to the best of the Company's management's
knowledge, there are no other arrangements or transactions from which related
parties may receive a benefit. See also Notes to Financial Statements.
- -----------------
/4/ None of the foregoing numbers of shares of Common Stock or per share amounts
have been restated to reflect the one-for-three reverse stock split that
occurred on February 27, 1998.
24
<PAGE>
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT Description
NO.
<C> <S>
2 Agreement dated February 26, 1998, by and among the registrant, Particle Interconnect
Corporation and Intercell Corporation /2/
4.01 The Articles of Incorporation of the Company /1/
4.02 Amendment to the Articles of Incorporation of the Company /1/
4.03 Certificate of Designation of Rights and Preferences of the Series A Preferred Stock /3/
4.04 Certificate of Designation of Rights and Preferences of the Series B Preferred Stock /4/
4.05 Certificate of Designation of Rights and Preferences of the Series C Preferred Stock /5/
4.06 Form of Common Stock Certificate /1/
4.07 The Bylaws of the Company /1/
11 Statement Regarding Computation of Per Share Earnings /1/
27 Financial Data Schedule /1/
</TABLE>
________________
/1/ Filed herewith.
/2/ Filed with the Securities and Exchange Commission as Exhibit 2.01 to the
registrant's Current Report on Form 8-K, dated February 26, 1998, filed on March
12, 1998, and incorporated herein by reference.
/3/ Filed with the Securities and Exchange Commission as Exhibit 4.01 to the
registrant's Current Report on Form 8-K, dated February 26, 1998, filed on March
12, 1998, and incorporated herein by reference.
/4/ Filed with the Securities and Exchange Commission as Exhibit 4.1 to the
registrant's Current Report on Form 8-K, dated July 23, 1998, filed on August 7,
1998, and incorporated herein by reference.
/5/ Filed with the Securities and Exchange Commission as Exhibit 4.2 to the
registrant's Current Report on Form 8-K, dated July 23, 1998, filed on August 7,
1998, and incorporated herein by reference.
/6/ Filed with the Securities and Exchange Commission as Exhibit 4.3 to the
registrant's Current Report on Form 8-K, dated July 23, 1998, filed on August 7,
1998, and incorporated herein by reference.
/7/ Filed with the Securities and Exchange Commission as Exhibit 4.4 to the
registrant's Current Report on Form 8-K, dated July 23, 1998, filed on August 7,
1998, and incorporated herein by reference.
(B) REPORTS:
1) Form 8-K, dated April 8, 1998, disclosed a change in certifying
accountant.
25
<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.
By /s/ Gilbert Olachea
------------------------------------
Gilbert Olachea, President and Chief
Executive Officer
In accordance with the Exchange Act of 1934, as amended, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Gilbert Olachea President, Chief Executive October 7, 1998
- -------------------------------------------- Officer and Director
Gilbert Olachea (Principal Executive Officer)
/s/ Paul H. Metzinger Director October 7, 1998
- --------------------------------------------
Paul H. Metzinger
/s/ Thomas Vander Stel Chief Financial Officer October 7, 1998
- -------------------------------------------- (Principal Financial and
Thomas Vander Stel Accounting Officer)
</TABLE>
26
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT Description
NO.
<C> <S>
2 Agreement dated February 26, 1998, by and among the registrant, Particle Interconnect
Corporation and Intercell Corporation /2/
4.01 The Articles of Incorporation of the Company /1/
4.02 Amendment to the Articles of Incorporation of the Company /1/
4.03 Certificate of Designation of Rights and Preferences of the Series A Preferred Stock /3/
4.04 Certificate of Designation of Rights and Preferences of the Series B Preferred Stock /4/
4.05 Certificate of Designation of Rights and Preferences of the Series C Preferred Stock /5/
4.06 Form of Common Stock Certificate /1/
4.07 The Bylaws of the Company /1/
11 Statement Regarding Computation of Per Share Earnings /1/
27 Financial Data Schedule /1/
</TABLE>
________________
/1/ Filed herewith.
/2/ Filed with the Securities and Exchange Commission as Exhibit 2.01 to the
registrant's Current Report on Form 8-K, dated February 26, 1998, filed on March
12, 1998, and incorporated herein by reference.
/3/ Filed with the Securities and Exchange Commission as Exhibit 4.01 to the
registrant's Current Report on Form 8-K, dated February 26, 1998, filed on March
12, 1998, and incorporated herein by reference.
/4/ Filed with the Securities and Exchange Commission as Exhibit 4.1 to the
registrant's Current Report on Form 8-K, dated July 23, 1998, filed on August 7,
1998, and incorporated herein by reference.
/5/ Filed with the Securities and Exchange Commission as Exhibit 4.2 to the
registrant's Current Report on Form 8-K, dated July 23, 1998, filed on August 7,
1998, and incorporated herein by reference.
/6/ Filed with the Securities and Exchange Commission as Exhibit 4.3 to the
registrant's Current Report on Form 8-K, dated July 23, 1998, filed on August 7,
1998, and incorporated herein by reference.
/7/ Filed with the Securities and Exchange Commission as Exhibit 4.4 to the
registrant's Current Report on Form 8-K, dated July 23, 1998, filed on August 7,
1998, and incorporated herein by reference.
<PAGE>
EXHIBIT 4.01
ARTICLES OF INCORPORATION
OF
SUNLIGHT SYSTEMS, LTD.
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned incorporator, being a natural person of the age of eighteen
years or more and desiring to form a body corporate under the laws of the State
of Nevada, does hereby sign, verify and deliver in duplicate to the Secretary of
State of the State of Nevada these Articles of Incorporation:
ARTICLE I
NAME
The name of the corporation shall be: Sunlight Systems, Ltd.
ARTICLE II
PERIOD OF DURATION
This corporation shall exist in perpetuity, from and after the date of filing
these Articles of Incorporation with the Secretary of State of the Sate of
Nevada unless dissolved according to law.
ARTICLE III
PURPOSES AND POWERS
1. Purposes.
Except as restricted by these Articles of Incorporation, the corporation is
organized for the purpose of transacting all lawful business for which
corporations may be incorporated pursuant to the Nevada General Corporation Law.
<PAGE>
2. General Powers.
Except as restricted by these Articles of Incorporation, the corporation shall
have and may exercise all powers and rights which a corporation may exercise
legally pursuant to the Nevada General Corporation Law.
3. Issuance of Shares.
The board of directors of the corporation may divide and issue any class of
stock of the corporation in series pursuant to a resolution properly filed with
the Secretary of State of the Sate of Nevada.
ARTICLE IV
CAPITAL STOCK
The authorized capital of this Corporation shall be 50,000,000 shares allocated
as follows: (A) The aggregate number of common shares which this corporation
shall have authority to issue is: 45,000,000 $0.0001 par value shares, which
shares shall be designated "Common Stock"; and (B) The aggregate number of
preferred shares which this corporation shall have authority to issue is
5,000,000 $0.0001 par value shares, which shares shall be designated "Preferred
Stock".
1. Dividends.
Dividends in cash, property, common stock or other securities of the
corporation may be paid upon the Common or Preferred Stock, as and when
declared by the board of directors, out of funds of the corporation to
the extent and in the manner permitted by law.
2. Distribution in Liquidation.
Upon any liquidation, dissolution of winding up of the corporation, and
after payment or adequately providing for the payment of all its
2
<PAGE>
obligations, the remainder of the assets of the corporation shall be
distributed, either in cash or in kind, pro rata to the holders of the
Common Stock.
3. Voting Rights; Cumulative Voting.
Each outstanding share of Common Stock shall be entitled to one vote and
each fractional share of the Common Stock shall be entitled to a
corresponding fractional vote on each matter submitted to a vote of
shareholders. One-third (1/3) of the Common Stock entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting
of shareholders. Cumulative voting shall not be allowed in the election of
directors of the corporation. When, with respect to any action to be taken
by shareholders of this corporation, the laws of Nevada require the vote or
concurrence of the holders of two-thirds of the outstanding Common Stock,
of the Common Stock entitled to vote thereon, or of any class or series,
such action may be taken by the vote or concurrence of a majority of such
Common Stock or class or series thereof. Except as otherwise provided by
these Articles of Incorporation or the Nevada General Corporation Law, if a
quorum is present, the affirmative vote of a majority of the Common Stock
or Common Stock equivalent represented at the meeting and entitled to vote
on the subject matter shall be the act of the shareholders.
4. Denial of Preemptive Rights.
No holder of any securities of the corporation, whether now or hereafter
authorized, shall have any preemptive or preferential right to acquire any
3
<PAGE>
securities of the corporation, including securities held in the treasury of
the corporation.
5. Preferred Stock.
I. Shares of Preferred Stock may be issued from time to time in one or
more series, each such series to have distinctive serial designations, as
shall hereafter be determined in the resolution or resolutions providing
for the issue of such Preferred Stock from time to time adopted by the
Board of Directors pursuant to authority so to do which is hereby vested in
the Board of Directors, which resolutions shall be filed with the Secretary
of State of the State of Nevada as required by law.
II. Each series of Preferred Stock
A. may have such number of shares;
B. may have such voting powers, full or limited, or may be without
voting powers;
C. may be subject to redemption at such time or times and at such
prices;
D. may be entitled to receive dividends (which may be cumulative or
non-cumulative) at such rate or rates, on such conditions, from such
date or dates, and at such times, and payable in preference to, or in
such relation to, the dividends payable on any other class or classes
or series of stock;
E. may have such rights upon the dissolution of, or upon any
distribution of the assets of, the corporation;
F. may be made convertible into, or exchangeable for, shares of any
other class or
4
<PAGE>
classes or of any other series of the same or any other
class or classes of stock of the corporation at such price or prices
or at such rates of exchange, and with such adjustments;
G. may be entitled to the benefit of a sinking fund or purchase fund
to be applied to the purchase or redemption of shares of such series
in such amount or amounts;
H. may be entitled to the benefit of conditions and restrictions
upon the creation of indebtedness of this corporation or any
subsidiary, upon the issue of any additional stock (including
additional shares of such series or of any other series), and upon the
payment of dividends or the making of other distributions on, and the
purchase, redemption or other acquisition by this corporation or any
subsidiary of any outstanding stock of this corporation; and
I. may have such other relative, participating, optional or other
special rights, and qualifications, limitations or restrictions
thereof;
all as shall be stated in said resolution or resolutions providing for the
issue of such Preferred Stock. Except where otherwise set forth in the
resolution or resolutions adopted by the Board of Directors providing for
the issue of any series of Preferred Stock, the number of shares comprising
such series may be increased or decreased (but not below the number of
shares then outstanding) from time to time by like action of the Board of
Directors.
III. Shares of any series of Preferred Stock which have been redeemed
(whether through the operation of a sinking fund or otherwise) or
5
<PAGE>
purchased by the corporation, or which, if convertible or exchangeable,
have been converted into or exchanged for shares of stock of any other
class or classes shall have the status of authorized and unissued shares of
Preferred Stock and may be reissued as a part of the series of which they
were subject to the conditions or restrictions on issuance set forth in the
resolution or resolutions adopted by the Board of Directors providing for
the issue of any series of Preferred Stock and subject to any filing
required by law.
ARTICLE V
TRANSACTIONS WITH INTERESTED DIRECTORS
No contract or other transaction between the corporation and one or more of its
directors or any other corporation, firm, association, or entity in which one or
more of its directors are directors or officers or are financially interested
shall be either void or voidable solely because of such relationship or interest
or solely because such directors are present at the meeting of the Board of
Directors or a committee thereof which authorizes, approves, or ratifies such
contract or transaction or solely because their votes are counted for such
purpose if:
I. The fact of such relationship or interest is disclosed or known to the
Board of Directors or committee which authorizes, approves, or ratifies the
contract or transaction by a vote or consent sufficient for the purpose
without counting the votes or consents of such interested directors; or
II. The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote and they authorize, approve, or ratify
such
6
<PAGE>
contract or transaction by vote or written consent; or
III. The contract or transaction is fair and reasonable to the
corporation.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or a committee thereof which
authorizes, approves or ratifies such contract or transaction.
ARTICLE VI
CORPORATE OPPORTUNITY
The officers, directors and other members of management of this corporation
shall be subject to the doctrine of "corporate opportunities" only insofar as it
applies to business opportunities in which this corporation has expressed an
interest as determined from time to time by this corporation's Board of
Directors as evidenced by resolutions appearing in the corporation's minutes.
Once such areas of interest are delineated, all such business opportunities
within such areas of interest which come to the attention of the officer,
directors and other members of management of this corporation shall be disclosed
promptly to this corporation and made available to it. The Board of Directors
may reject any business opportunity presented to it and thereafter any officer,
director or other member of management may avail himself of such opportunity.
Until such time as this corporation, through its Board of Directors, has
designated an area of interest, the officers, directors and other members of
management of this corporation shall be free to engage in such areas of interest
on their own and this doctrine shall not limit the rights of any officer,
director or other member of management of this corporation to continue a
business existing prior to the time that such area of interest is designated by
the corporation. This provision shall not be construed to release any employee
of this
7
<PAGE>
corporation (other than an officer, director or member of management)
from any duties, which he may have to this corporation.
ARTICLE VII
INDEMNIFICATION
The corporation shall indemnify its directors, officers, employees and agents to
the maximum extent and in accordance with the provisions of the Nevada General
Corporation Law, now existing or as hereinafter amended.
A unanimous vote of each class of securities of this corporation entitled to
vote shall be required to amend this article.
ARTICLE VIII
ELIMINATION AND LIMITATION OF PERSONAL LIABILITY
No director of the corporation shall have any personal liability to the
corporation or its shareholders for monetary damages, for breach of fiduciary
duty as a director except for:
I. Any breach of the director's duty of loyalty to the corporation or to
its shareholders;
II. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
III. acts specified in the Nevada General Corporation Law;
IV. or any transaction from which the director derived an improper
personal benefit.
ARTICLE IX
AMENDMENTS
The corporation reserves the right to amend its Articles of Incorporation from
time to time in accordance with the Nevada General Corporation Law.
8
<PAGE>
ARTICLE X
ADOPTION AND AMENDMENT OF BYLAWS
The initial Bylaws of the corporation shall be adopted by its Board of
Directors. The power to alter or amend or repeal the Bylaws or adopt new Bylaws
shall be vested in the Board of Directors, but the holders of Common Stock may
also alter, amend or repeal the Bylaws or adopt new Bylaws. The Bylaws may
contain any provisions for the regulation and management of the affairs of the
corporation not inconsistent with law or these Articles of Incorporation.
ARTICLE XI
REGISTERED OFFICE AND REGISTERED AGENT
The address of the initial registered office of the corporation is 55 South
Center Street, Reno, Nevada, 89501, and the name of the initial registered agent
at such address is Alfred Osborne. Either the registered office or the
registered agent may be changed in the manner permitted by law.
ARTICLE XII
INITIAL BOARD OF DIRECTORS
The number of directors of the corporation shall be fixed by the Bylaws of the
corporation, except the initial Board of Directors shall consist of one
director. The name and address of the person who shall serve as directors until
the first annual meeting of shareholders or until his, her or their successors
are elected and shall qualify are as follows:
9
<PAGE>
Name Address
---- -------
Patricia E. Johnston 5222 South Holly
Greenwood Village, Colorado 80111
ARTICLE XIII
INCORPORATOR
The name and address of the incorporator is as follows:
Name Address
---- -------
Paul H. Metzinger 3236 Jellison Street
Wheat Ridge, Colorado 80202
10
<PAGE>
IN WITNESS WHEREOF, the above named incorporator has signed these Articles of
Incorporation this 21st day of June, 1996.
/s/ Paul H. Metzinger
---------------------
Paul H. Metzinger
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
I, Kristi J. Kampmann, a Notary Public, hereby certify that on the 21st day of
June, 1996, personally appeared before me, Paul H. Metzinger, who being by me
first duly sworn declared that she is the person who signed the foregoing
document as incorporator, and that the statements therein contained are true.
IN WITNESS WHEREOF, I have hereunto set may hand and seal on the date herein
before mentioned.
My commission expires: April 18, 2000
(S E A L)
/s/ Kristi J. Kampmann
----------------------
Kristi J. Kampmann
11
<PAGE>
EXHIBIT 4.02
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Nevada General Corporation Law, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is Sunlight Systems, Ltd.
------
SECOND: The following amendment was adopted by the shareholders
-------
of the corporation in the manner prescribed by the Nevada General
Corporation Law on February 23, 1998.
The Articles of Incorporation shall be amended by amending Article 1 to
read as follows:
THE NAME OF THIS CORPORATION SHALL BE
Nanopierce Technologies, Inc.
THIRD: The number of outstanding shares of the corporation at
------
the time of such adoption was 11,500,064 and the number of shares entitled
to vote thereon was 11,500,064.
FOURTH: The designation and number of outstanding shares of
-------
each class entitled to vote thereon as a class were as follows:
CLASS NUMBER OF SHARES
----- ----------------
Common 11,500,064
FIFTH: The Stockholders who consented, in writing, to the adoption of the
------
Amendment owned 9,665,594 shares which constitutes more than 50% of the
shares entitled to vote in accordance with the requirements of Section
78.320 of the Nevada General Corporation Law.
1 of 3
<PAGE>
SIXTH: The number of shares of each class entitled to vote
------
thereon as a class voted for and against such amendment, respectively, was:
NONE
SEVENTH: The manner, if not set forth in such amendment, in
--------
which the issued shares provided for in the amendment, shall be effected,
is as follows:
EACH COMMON SHARE ISSUED AND OUTSTANDING ON FEBRUARY 27, 1998 SHALL BE
REVERSE SPLIT 1 FOR 3.
THE EFFECTIVE DATE OF THE REVERSE STOCK SPLIT SHALL BE FEBRUARY 27, 1998.
EIGHTH: The manner in which such amendment effects a change in
-------
the amount of stated capital, and the amount of stated capital as changed
by such amendment, are as follows:
No Change.
The undersigned officers hereby verify that these Articles of Amendment have
been properly adopted by the undersigned corporation; that the statements
contained herein are true; that they signed these Articles of Amendment for and
on behalf of the Corporation as President and Assistant Secretary of the
corporation, respectively; and they hereby acknowledge that it was their free
and voluntary act and deed.
2 of 3
<PAGE>
DATED: February 23, 1998
SUNLIGHT SYSTEMS, LTD.
By:/s/ Patricia E. Johnston
-------------------------------------------
Patricia E. Johnston, President
By:/s/ Kristi J. Kampmann
-------------------------------------------
Kristi J. Kampmann, Assistant Secretary
STATE OF COLORADO }
} ss.
COUNTY OF DENVER }
I, Paul H. Metzinger, a Notary Public, hereby certify that on the day of
February 23, 1998, personally appeared before me, both Patricia E. Johnston and
Kristi J. Kampmann, being the President and the Assistant Secretary of Sunlight
Systems, Ltd. respectively, and who being by me first duly sworn declared that
they are the persons who signed the foregoing and that the statements therein
contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal on the date
hereinbefore mentioned,
My commission expires: January 13, 2001
(S E A L)
/s/ Paul H. Metzinger
-------------------------------------------
Notary Public
Paul H. Metzinger
370 17th Street, Suite 3290
Denver, CO 80202
3 of 3
<PAGE>
EXHIBIT 4.06
Number Shares
NANOPIERCE TECHNOLOGIES, INC.
Incorporated Under the Laws of the State of Nevada
$0.0001 Par Value
------------------------
CUSIP 630080 10 9
------------------------
See Reverse for
Certain Definitions
This Certifies That
is the owner of
Fully Paid and Non-Assessable $0.0001 Par Value Shares of Common Stock of
NANOPIERCE TECHNOLOGIES, INC.
Transferable only on the books of this Corporation in person or by attorney upon
surrender of this Certificate properly endorsed. This Certificate is not valid
unless countersigned by the transfer agent and registrar.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
endorsed by the facsimile signatures of its duly authorized officers and to be
sealed with the facsimile seal of the Corporation.
Dated:
NANOPIERCE TECHNOLOGIES, INC.
SEAL
NEVADA
/s/ Kristi J. Kampmann /s/ Paul H. Metzinger
KRISTI J. KAMPMANN, SECRETARY PAUL H. METZINGER, PRESIDENT
Countersigned:
CORPORATE STOCK TRANSFER, INC.
370 17TH STREET, SUITE 2350
DENVER, CO 80202-4614
By ____________________________________
Transfer Agent Authorized Signature
1
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Transfer Fee $15.00 Per New Certificate Issued
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TEN COM- as tenants in common UNIF GIFT MIN ACT- Custodian
TEN ENT- as tenants by the entireties --------------------------------------
JT TEN- as joint tenants with right (Cust) (Minor)
of survivorship and not as under Uniform Gifts to Minors
tenants in common
Act --------------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
- --------------------------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------
| |
- ------------------------------------
FOR VALUE RECEIVED, __________________________________ hereby sell,
assign and transfer unto
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------- Shares
of the Common Stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------- Attorney to transfer
the said stock on the books of the within-named Corporation, with full power of
substitution in the premises.
Dated:_______________ 19___.
Signature: X ____________________________________
Signature: X ____________________________________
NOTICE: The signature(s) to this assignment must
correspond with the name(s) as written upon the
face of the Certificate in every particular,
without alteration or enlargement or any change
whatever.
Signature(s) Guaranteed:
By
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION,
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17AD-15.
The Corporation will furnish to any shareholder upon request and without charge
a full statement of the designations, preferences, limitations, and relative
rights of the shares of each class authorized to be issued, and the variations
in the relative rights and preferences between the shares of each series of
preferred class, so far as the same have been fixed and determined, and the
authority of the board of directors to fix and determine the relative rights and
preferences of subsequent series.
2
<PAGE>
EXHIBIT 4.07
================================================================================
BYLAWS
OF
SUNLIGHT SYSTEMS, LTD.
(A NEVADA CORPORATION)
================================================================================
<PAGE>
TABLE OF CONTENTS
BYLAWS....................................................................1
ARTICLE I............................................................1
OFFICES.........................................................1
1.1 Business Office........................................1
--- -------- -------
1.2 Registered Office......................................1
--- ---------- -------
ARTICLE II...........................................................1
SHARES AND TRANSFER THEREOF.....................................1
2.1 Regulation.............................................1
--- -----------
2.2 Certificates for Shares................................1
--- ------------ --- -------
2.3 Cancellation of Certificates...........................2
--- ------------ -- -------------
2.4 Lost, Stolen or Destroyed Certificates.................2
--- ----- ------ -- --------- -------------
2.5 Transfer of Shares.....................................3
--- -------- -- -------
2.6 Transfer Agent.........................................3
--- -------- ------
2.7 Close of Transfer Book and Record Date.................4
--- ----- -- -------- ---- --- ------ -----
ARTICLE III..........................................................5
SHAREHOLDERS AND MEETINGS THEREOF...............................5
3.1 Shareholders of Record.................................5
--- ------------ -- -------
3.2 Meetings...............................................5
--- ---------
3.3 Annual Meeting.........................................5
--- ------ --------
3.4 Special Meetings.......................................6
--- ------- ---------
3.5 Notice.................................................6
--- -------
3.6 Meeting of All Shareholders............................7
--- ------- -- --- -------------
3.7 Voting Record..........................................7
--- ------ -------
3.8 Quorum.................................................7
--- -------
3.9 Manner of Acting.......................................8
--- ------ -- -------
3.10 Proxies...............................................8
---- --------
3.11 Voting of Shares......................................8
---- ------ -- -------
3.12 Voting of Shares by Certain Holders...................9
---- ------ -- ------ -- ------- --------
3.13 Informal Action by Shareholder.......................10
---- -------- ------ -- ------------
3.14 Voting by Ballot.....................................10
---- ------ -- -------
3.15 Cumulative Voting....................................10
---- ---------- -------
i
<PAGE>
ARTICLE IV..........................................................10
DIRECTORS, POWERS AND MEETINGS.................................10
4.1 Board of Directors....................................10
--- ----- -- ----------
4.2 Regular Meetings......................................11
--- ------- ---------
4.3 Special Meetings......................................11
--- ------- ---------
4.4 Notice................................................11
--- -------
4.5 Participation by Electronic Means.....................12
--- ------------- -- ---------- ------
4.6 Quorum and Manner of Acting...........................12
--- ------ --- ------ -- -------
4.7 Organization..........................................12
--- -------------
4.8 Presumption of Assent.................................13
--- ----------- -- -------
4.9 Informal Action By Directors..........................13
--- -------- ------ -- ----------
4.10 Vacancies............................................13
---- ----------
4.11 Compensation.........................................14
---- -------------
4.12 Removal of Directors.................................14
---- ------- -- ----------
4.13 Resignations........................................14
---- -------------
4.14 General Powers.......................................14
---- ------- -------
ARTICLE V...........................................................15
OFFICERS.......................................................15
5.1 Term and Compensation.................................15
--- ---- --- -------------
5.2 Powers................................................16
--- -------
5.3 Compensation..........................................17
--- -------------
5.4 Delegation of Duties..................................17
--- ---------- -- -------
5.5 Bonds.................................................17
--- ------
5.6 Removal...............................................17
--- --------
ARTICLE VI..........................................................18
FINANCE........................................................18
6.1 Reserve Funds.........................................18
--- ------- ------
6.2 Banking...............................................18
--- --------
ARTICLE VII.........................................................18
DIVIDENDS......................................................18
ARTICLE VIII........................................................18
CONTRACTS, LOANS AND CHECKS....................................18
8.1 Execution of Contracts................................18
--- --------- -- ----------
ii
<PAGE>
8.2 Loans.................................................19
--- ------
8.3 Checks................................................19
--- -------
8.4 Deposits..............................................19
--- ---------
ARTICLE IX..........................................................19
FISCAL YEAR....................................................19
ARTICLE X...........................................................20
CORPORATE SEAL.................................................20
ARTICLE XI..........................................................20
AMENDMENTS.....................................................20
ARTICLE XII.........................................................20
EXECUTIVE COMMITTEE............................................20
12.1 Appointment..........................................20
---- ------------
12.2 Authority............................................20
---- ----------
12.3 Tenure and Qualifications............................21
---- ------ --- ---------------
12.4 Meetings.............................................21
---- ---------
12.5 Quorum...............................................21
---- -------
12.6 Informal Action by Executive Committee...............21
---- -------- ------ -- --------- ----------
12.7 Vacancies............................................22
---- ----------
12.8 Resignation and Removal..............................22
---- ----------- --- --------
12.9 Procedure............................................22
---- ----------
Article XIII........................................................22
EMERGENCY BYLAWS...............................................22
CERTIFICATE.........................................................24
iii
<PAGE>
ARTICLE I
OFFICES
1.1 Business Office.
The principal office and place of business of the Corporation in the State
of Colorado shall be at 370 17th Street, Suite 3290., Denver, Colorado 80202.
Other offices and places of business may be established from time to time by
resolution of the Board of Directors or as the business of the Corporation may
require.
1.2 Registered Office.
The initial registered office of the Corporation, required by the Nevada
General Corporation Law to be maintained in the State of Nevada, shall be set
forth in the Articles of Incorporation. The address of the registered office
may be changed from time to time by the Board of Directors.
ARTICLE II
SHARES AND TRANSFER THEREOF
2.1 Regulation.
The Board of Directors may make such rules and regulations as it may deem
appropriate concerning the issuance, transfer and registration of certificates
for shares of the Corporation, including the appointment of transfer agents and
registrars.
2.2 Certificates for Shares.
Certificates representing shares of the Corporation shall be respectively
numbered serially for each class of shares, or series thereof, as they are
issued, shall be impressed with the corporate seal or a facsimile thereof, and
shall be signed by the Chairman or Vice-Chairman of the Board of Directors or by
the President or a Vice-President and by the Treasurer or an Assistant Treasurer
or by the Secretary or an Assistant Secretary; provided that such signatures may
be a facsimile if the certificate is countersigned by a transfer agent, or
registered by a
1
<PAGE>
registrar other than the Corporation itself or its employee. Each certificate
shall state the name of the Corporation, the fact that the Corporation is
organized or incorporated under the laws of the State of Nevada, the name of the
person to whom issued, the date of issue, the class (or series of any class),
the number of shares represented thereby and the par value of the shares
represented thereby or a statement that such shares are without par value. A
statement of the designations, preferences, qualifications, limitations,
restrictions and special or relative rights of the shares of each class shall be
set forth in full or summarized on the face or back of the certificates which
the Corporation shall issue, or in lieu thereof, the certificate may set forth
that such a statement or summary will be furnished to any shareholder upon
request without charge. Each certificate shall be otherwise in such form as may
be prescribed by the Board of Directors and as shall conform to the rules of any
stock exchange on which the shares may be listed.
The Corporation shall not issue certificates representing fractional shares
and shall not be obligated to make any transfers creating a fractional interest
in a share of stock. The Corporation may, but shall not be obligated to, issue
script in lieu of any fractional shares, such script to have terms and
conditions specified by the Board of Directors.
2.3 Cancellation of Certificates.
All certificates surrendered to the Corporation for transfer shall be
canceled and no new certificates shall be issued in lieu thereof until the
former certificate for a like number of shares shall have been surrendered and
canceled, except as herein provided with respect to lost, stolen or destroyed
certificates.
2.4 Lost, Stolen or Destroyed Certificates.
Any shareholder claiming that his certificate for shares is lost, stolen or
destroyed may make an affidavit or affirmation of the fact and lodge the same
with the Secretary of the Corporation, accompanied by a signed application for a
new certificate. Thereupon, and upon the giving of a satisfactory bond of
indemnity to the Corporation and the Transfer Agent, if any,
2
<PAGE>
not exceeding an amount double the value of the shares as represented by such
certificate (the necessity for such bond and the amount required to be
determined by the President and Treasurer of the Corporation and the Transfer
Agent, if any), a new certificate may be issued of the same tenor and
representing the same number, class and series of shares as were represented by
the certificate alleged to be lost, stolen or destroyed.
2.5 Transfer of Shares.
Subject to the terms of any shareholder agreement relating to the transfer
of shares or other transfer restrictions contained in the Articles of
Incorporation or authorized therein, shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney, upon the surrender and cancellation of a
certificate or certificates for a like number of shares. Upon presentation and
surrender of a certificate for shares properly endorsed and payment of all taxes
therefor, the transferee shall be entitled to a new certificate or certificates
in lieu thereof. As against the Corporation, a transfer of shares can be made
only on the books of the Corporation and in the manner hereinabove provided, and
the Corporation shall be entitled to treat the holder of record of any share as
the owner thereof and shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person, whether or
not it shall have express or other notice thereof, save as expressly provided by
the statutes of the State of Nevada.
2.6 Transfer Agent.
Unless otherwise specified by the Board of Directors by resolution, the
Secretary of the Corporation shall act as transfer agent of the certificates
representing the shares of stock of the Corporation. He shall maintain a stock
transfer book, the stubs in which shall set forth among other things, the names
and addresses of the holders of all issued shares of the Corporation, the number
of shares held by each, the certificate numbers representing such shares, the
date of issue of the certificates representing such shares, and whether or not
such shares originate from
3
<PAGE>
original issue or from transfer. Subject to Section 3.7, the names and addresses
of the shareholders as they appear on the stubs of the stock transfer book shall
be conclusive evidence as to who are the shareholders of record and as such
entitled to receive notice of the meetings of shareholders; to vote at such
meetings; to examine the list of the shareholders entitled to receive notice of
the meetings of shareholders; to vote at such meetings; to examine the list of
the shareholders entitled to vote at meetings; to receive dividends; and to own,
enjoy and exercise any other property or rights deriving from such shares
against the Corporation. Each shareholder shall be responsible for notifying the
Secretary in writing of any change in his name or address and failure so to do
will relieve the Corporation, its directors, officers and agents, from liability
for failure to direct notices or other documents, or pay over or transfer
dividends or other property or rights, to a name or address other than the name
and address appearing on the stub of the stock transfer book.
2.7 Close of Transfer Book and Record Date.
For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders, or any adjournment thereof, or entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period, but not to
exceed, in any case, seventy (70) days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of, or to
vote at a meeting of shareholders, such books shall be closed for not less than
ten (10) days immediately preceding such meeting. In lieu of closing the stock
transfer books, the Board of Directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more than seventy (70) days and, in case of a meeting of shareholders, not less
than ten (10) days immediately preceding the date on which the particular action
requiring such determination of shareholders is to be taken. If the stock
transfer books are not closed and no record date is fixed for the determination
of shareholders entitled to notice of or to vote at a
4
<PAGE>
meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the day before the first notice of the meeting given to shareholders,
shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall apply to any
adjournment thereof unless required or permitted otherwise by the Nevada General
Corporation Law.
ARTICLE III
SHAREHOLDERS AND MEETINGS THEREOF
3.1 Shareholders of Record.
Only shareholders of record on the books of the Corporation shall be
entitled to be treated by the Corporation as holders in fact of the shares
standing in their respective names, and the Corporation shall not be bound to
recognize any equitable or other claim to or interest in, any shares on the part
of any other person, firm or Corporation, whether or not it shall have express
or other notice thereof, except as expressly provided by the laws of the State
of Nevada.
3.2 Meetings.
Meetings of shareholders shall be held at the principal office of the
Corporation, or at such other place as specified from time to time by the Board
of Directors. If the Board of Directors shall specify another location such
change in location shall be recorded on the notice calling such meeting.
3.3 Annual Meeting.
In the absence of a resolution of the Board of Directors providing
otherwise, the annual meeting of shareholders of the Corporation for the
election of directors, and for the transaction of such other business as may
properly come before the meeting, shall be held on the second Friday of December
in each fiscal year, if the same be not a legal holiday, and if a legal holiday
in the State of Nevada, then on the next succeeding business day, at 10:00 a.m.
If the election of
5
<PAGE>
Directors shall not be held on the day designated herein for any annual meeting
of the shareholders, the Board of Directors shall cause the election to be held
at a special meeting of the shareholders as soon thereafter as may be
convenient. If the annual meeting is not held within the time period required by
Nevada General Corporation Law, any court of competent jurisdiction in the State
of Nevada, may, on the application of any shareholder, summarily order a meeting
to be held.
3.4 Special Meetings.
Special meetings of shareholders, for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the President, the Board of
Directors or the holders of not less than ten percent (10%) of all the shares
entitled to vote at the meeting.
3.5 Notice.
Written notice stating the place, day and hour of the meeting and, in case
of a special meeting, the purpose or purposes for which the meeting is called,
shall be delivered unless otherwise prescribed by statute not less than ten (10)
days nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the officer or person calling the meeting to each shareholder of record
entitled to vote at such meeting; except that, if the authorized shares are to
be increased at least thirty (30) days' notice shall be given. Any shareholder
may waive notice of any meeting.
Notice to shareholders of record, if mailed, shall be deemed given as to
any shareholder of record, when deposited in the United States mail, addressed
to the shareholder at his address as it appears on the stock transfer books of
the Corporation, with postage thereon prepaid, but if three successive letters
mailed to the last-known address of any shareholder of record are returned as
undeliverable, no further notices to such shareholder shall be necessary, until
another address for such shareholder is made known to the Corporation.
6
<PAGE>
3.6 Meeting of All Shareholders.
If all of the shareholders shall meet at any time and place, either within
or without the State of Nevada, and consent to the holding of a meeting at such
time and place, such meeting shall be valid without call or notice, and at such
meeting any corporate action may be taken.
3.7 Voting Record.
The officer or agent having charge of the stock transfer books for shares
of the Corporation shall make, at least ten (10) days before such meeting of
shareholders, a complete record of the shareholders entitled to vote at each
meeting of shareholders or any adjournment thereof, arranged in alphabetical
order, with the address of and the number of shares held by each. The record,
for a period of ten (10) days prior to such meeting, shall be kept on file at
the principal office of the Corporation, whether within or without the State of
Nevada, and shall be subject to inspection by any shareholder for any purpose
germane to the meeting at any time during usual business hours. Such record
shall be produced and kept open at the time and place of the meeting and shall
be subject to the inspection of any shareholder during the whole time of the
meeting for the purposes thereof.
The original stock transfer books shall be the prima facie evidence as to
who are the shareholders entitled to examine the record or transfer books or to
vote at any meeting of shareholders.
3.8 Quorum.
One-Third (1/3) of the votes entitled to be cast on the matter by the
voting group, represented in person or by proxy, shall constitute a quorum at
any meeting of shareholders, except as otherwise provided by the Nevada General
Corporation Law and the Articles of Incorporation. In the absence of a quorum
at any such meeting, a majority of the shares so represented may adjourn the
meeting from time to time for a period not to exceed sixty (60) days without
further notice. At such adjourned meeting at which a quorum shall be present or
7
<PAGE>
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. The shareholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
3.9 Manner of Acting.
If a quorum is present, action on a matter other than the election of
directors by a voting group is approved if the votes cast within the voting
group favoring the action exceeds the votes cast within the voting group
opposing the action, unless the vote of a different proportion or number or
voting by classes is otherwise required or permitted by statute or by the
Articles of Incorporation or these Bylaws. The election of directors shall be
governed by the Nevada General Corporation Law. Unless cumulative voting is
specifically permitted, in an election of directors, that number of candidates
equaling the number of directors to be elected, having the highest number of
votes cast in favor of their election, are elected to the Board of Directors.
3.10 Proxies.
At all meetings of shareholders a shareholder may vote in person or by
proxy executed in writing by the shareholder or by his duly authorized attorney-
in-fact. Such proxy shall be filed with the Secretary of the Corporation before
or at the time of the meeting. No proxy shall be valid after eleven (11) months
from the date of its execution, unless otherwise provided in the proxy.
3.11 Voting of Shares.
Unless otherwise provided by these Bylaws or the Articles of Incorporation,
each outstanding share entitled to vote shall be entitled to one (1) vote upon
each matter submitted to a vote at a meeting of shareholders, and each
fractional share shall be entitled to a corresponding fractional vote on each
such matter.
8
<PAGE>
3.12 Voting of Shares by Certain Holders.
Shares standing in the name of another Corporation may be voted by such
officer, agent or proxy as the Bylaws of such Corporation may prescribe, or, in
the absence of such provision, as the Board of Directors of such other
Corporation may determine.
Shares standing in the name of a deceased person, a minor ward or an
incompetent person may be voted by his administrator, executor, court appointed
guardian or conservator, either in person or by proxy without a transfer of such
shares into the name of such administrator, executor, court appointed guardian
or conservator. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority to do so is
contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither shares of its own stock belonging to this Corporation, nor shares
of its own stock held by it in a fiduciary capacity, nor shares of its own stock
held by another Corporation if the majority of shares entitled to vote for the
election of directors of such Corporation is held by this Corporation may be
voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding shares at any given time.
Redeemable shares which have been called for redemption shall not be
entitled to vote on any matter and shall not be deemed outstanding shares on and
after the date on which written notice of redemption has been mailed to
shareholders and a sum sufficient to redeem such shares
9
<PAGE>
has been deposited with a bank or trust company with irrevocable instruction and
authority to pay the redemption price to the holders of the shares upon
surrender of certificates therefor.
3.13 Informal Action by Shareholder.
Any action required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by shareholders owning at least fifty
percent (50%) of the shares required and entitled to vote with respect to the
subject matter thereof in accordance with the Nevada General Corporation Law.
3.14 Voting by Ballot.
Voting on any question or in any election may be by voice vote unless the
presiding officer shall order or any shareholder shall demand that voting be by
ballot.
3.15 Cumulative Voting.
There will not be cumulative voting.
ARTICLE IV
DIRECTORS, POWERS AND MEETINGS
4.1 Board of Directors.
The business and affairs of the Corporation shall be managed by a board of
One (1) Director who need not be shareholders of the Corporation or residents of
the State of Nevada and who shall be elected at the annual meeting of
shareholders or some adjournment thereof. The Director shall hold office until
the next succeeding annual meeting of shareholders and until their successors
shall have been elected and shall qualify. The Board of Directors may increase
or decrease, to not less than one (1), the number of directors by resolution;
except that there need only be as many directors as there are shareholders in
the event that the outstanding shares are held of record by fewer than three (3)
shareholders.
10
<PAGE>
4.2 Regular Meetings.
A regular, annual meeting of the Board of Directors shall be held at the
same place as, and immediately after, the annual meeting of shareholders, and no
notice shall be required in connection therewith. The annual meeting of the
Board of Directors shall be for the purpose of electing officers and the
transaction of such other business as may come before the meeting. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of Nevada, for the holding of additional regular meetings
without other notice than such resolution.
4.3 Special Meetings.
Special meetings of the Board of Directors may be called by or at the
request of the President or any two (2) directors. The person or persons
authorized to call special meetings of the Board of Directors may fix any place,
either within or without the State of Nevada, as the place for holding any
special meeting of the State of Nevada, as the place for holding any special
meeting of the Board of Directors called by them.
4.4 Notice.
Written notice of any special meeting of directors shall be given as
follows:
(a) By mail to each director at his business address at least three (3)
days prior to the meeting; or
(b) By personal delivery or telegram at least twenty-four (24) hours prior
to the meeting to the business address of each director, or in the
event such notice is given on a Saturday, Sunday or holiday, to the
residence address of each director. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail, so
addressed, with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the
telegram is delivered to the telegraph
11
<PAGE>
company. Any director may waive notice of any meeting. The attendance
of a director at any meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
(c) By any other means authorized by the Nevada General Corporation Law.
4.5 Participation by Electronic Means.
Except as may be otherwise provided by the Articles of Incorporation or
Bylaws, members of the Board of Directors or any committee designated by such
may participate in a meeting of the Board or committee by means of conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other at the same time. Such participation shall
constitute presence in person at the meeting.
4.6 Quorum and Manner of Acting.
A quorum at all meetings of the Board of Directors shall consist of a
majority of the number of directors then holding office, but a smaller number
may adjourn from time to time without further notice, until a quorum is secured.
The act of the majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors, unless the act of a
greater number is required by the laws of the State of Nevada, the Articles of
Incorporation, these Bylaws or any written agreement to which the corporation is
a party.
4.7 Organization.
The Board of Directors shall elect a chairman to preside at each meeting of
the Board of Directors. The Board of Directors shall elect a Secretary to
record the discussions and resolutions of each meeting.
12
<PAGE>
4.8 Presumption of Assent.
A director of the Corporation who is present at a meeting of the Board of
Directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken, unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
4.9 Informal Action By Directors.
Any action required or permitted to be taken by the Board of Directors, or
a committee thereof, at a meeting may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all the directors
or all the committee members entitled to vote with respect to the subject matter
thereof.
4.10 Vacancies.
Any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors. A Director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office, and shall hold such
office until his successor is duly elected and shall qualify. Any directorship
to be filled by reason of an increase in the number of directors shall be filled
by the affirmative vote of a majority of the directors then in office or by an
election at an annual meeting, or at a special meeting of shareholders called
for that purpose. A Director chosen to fill a position resulting from an
increase in the number of directors shall hold office only until the next
election of directors by the shareholders.
13
<PAGE>
4.11 Compensation.
By resolution of the Board of Directors and irrespective of any personal
interest of any of the members, each director may be paid his expenses, if any,
of attendance at each meeting of the Board of Directors, and may be paid a
stated salary as director or a fixed sum for attendance at each meeting of the
Board of Directors or both. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
4.12 Removal of Directors.
Any director or directors of the Corporation may be removed at any time,
with or without cause, in the manner provided in the Nevada General Corporation
Law.
4.13 Resignations.
A Director of the Corporation may resign at any time by giving written
notice to the Board of Directors, President or Secretary of the Corporation.
The resignation shall take effect upon the date of receipt of such notice, or at
any later period of time specified therein. The acceptance of such resignation
shall not be necessary to make it effective, unless the resignation requires it
to be effective as such.
4.14 General Powers.
The business and affairs of the Corporation shall be managed by the Board
of Directors which may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the Articles of
Incorporation or by these Bylaws directed or required to be exercised or done by
the shareholders. The Directors shall pass upon any and all bills or claims of
officers for salaries or other compensation and, if deemed advisable, shall
contract with officers, employees, directors, attorneys, accountants and other
persons to render services to the Corporation.
14
<PAGE>
ARTICLE V
OFFICERS
5.1 Term and Compensation.
The elective officers of the Corporation shall consist of at least a
President and a Secretary each of whom shall be eighteen years or older and who
shall be elected by the Board of Directors at its annual meeting. Unless
removed in accordance with procedures established by law and these Bylaws, the
said officers shall serve until the next succeeding annual meeting of the Board
of Directors and until their respective successors are elected and shall qualify
or until their earlier resignation. Any number of offices may be held by the
same person at the same time. The Board may elect or appoint such other
officers and agents as it may deem advisable, who shall hold office during the
pleasure of the Board.
15
<PAGE>
5.2 Powers.
The officers of the Corporation shall exercise and perform the respective
powers, duties and functions as are stated below, and as may be assigned to them
by the Board of Directors.
(a) The President shall be the chief executive officer of the corporation
and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and
officers of the Corporation. He shall preside, when present, at all
meetings of the shareholders and of the Board of Directors unless a
different chairman of such meetings is elected by the Board of
Directors.
(b) In the absence or disability of the President, the Vice President or
Vice Presidents, if any, in order of their rank as fixed by the Board
of Directors, and if not ranked, the Vice Presidents in the order
designated by the Board of Directors, shall perform all the duties of
the President, and when so acting shall have all the powers of, and be
subject to all the restrictions on the President. Each Vice President
shall have such other powers and perform such other duties as may from
time to time be assigned to him by the President or the Board of
Directors.
(c) The Secretary shall keep accurate minutes of all meetings of the
shareholders and the Board of Directors unless a different Secretary
of such meetings is elected by the Board of Directors. He shall keep,
or cause to be kept a record of the shareholders of the Corporation
and shall be responsible for the giving of notice of meetings of the
shareholders or the Board of Directors. The Secretary shall be
custodian of the records and of the seal of the corporation and shall
attest the affixing of the seal of the Corporation when so authorized.
The Secretary or Assistant Secretary shall sign all stock
certificates. The Secretary shall perform all duties commonly
incident to his office and such other duties as may from time to time
be assigned to him by the President or the Board of Directors.
(d) An Assistant Secretary may, at the request of the Secretary, or in the
absence or disability of the Secretary, perform all of the duties of
the Secretary. He shall perform such other duties as may be assigned
to him by the President or by the Secretary.
(e) The Treasurer, subject to the order of the Board of Directors, shall
have the care and custody of the money, funds, valuable papers and
documents of the Corporation. He shall keep accurate books of
accounts of the Corporation's transactions, which shall be the
property of the Corporation, and shall render financial reports and
statements of condition of the Corporation when so requested by the
Board of Directors or President. The Treasurer shall perform all
duties commonly incident to his office and
16
<PAGE>
such other duties as may from time to time be assigned to him by the
President or the Board of Directors. In the absence or disability of
the President and Vice President or Vice Presidents, the Treasurer
shall perform the duties of the President.
(f) An Assistant Treasurer may, at the request of the Treasurer, or in the
absence or disability of the Treasurer, perform all of the duties of
the Treasurer. He shall perform such other duties as may be assigned
to him by the President or by the Treasurer.
5.3 Compensation.
All officers of the Corporation may receive salaries or other compensation
if so ordered and fixed by the Board of Directors. The board shall have
authority to fix salaries in advance for stated periods or render the same
retroactive as the Board may deem advisable.
5.4 Delegation of Duties.
In the event of absence or inability of any officer to act, the Board of
Directors may delegate the powers or duties of such officer to any other
officer, director or person whom it may select.
5.5 Bonds.
If the Board of Directors by resolution shall so require, any officer or
agent of the Corporation shall give bond to the Corporation in such amount and
with such surety as the Board of Directors may deem sufficient, conditioned upon
the faithful performance of their respective duties and offices.
5.6 Removal.
Any officer or agent may be removed by the Board of Directors or by the
executive committee, if any, whenever in its judgment the best interest of the
Corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not, of itself, create contract rights.
17
<PAGE>
ARTICLE VI
FINANCE
6.1 Reserve Funds.
The Board of Directors, in its uncontrolled discretion, may set aside from
time to time, out of the net profits or earned surplus of the Corporation, such
sum or sums as it deems expedient as a Reserve Fund to meet contingencies, for
equalizing dividends, for maintaining any property of the Corporation, and for
any other purpose.
6.2 Banking.
The moneys of the Corporation shall be deposited in the name of the
Corporation in such bank or banks or trust company or trust companies, as the
Board of Directors shall designate, and may be drawn out only on checks signed
in the name of the Corporation by such person or persons as the Board of
Directors, by appropriate resolution, may direct. Notes and commercial paper,
when authorized by the Board, shall be signed in the name of the Corporation by
such officer or officers or agent or agents as shall be thereunto be authorized
from time to time.
ARTICLE VII
DIVIDENDS
Subject to the provisions of the Articles of Incorporation and the laws of
the State of Nevada, the Board of Directors may declare dividends whenever, and
in such amounts, as in the Board's opinion the condition of the affairs of the
Corporation shall render such advisable.
ARTICLE VIII
CONTRACTS, LOANS AND CHECKS
8.1 Execution of Contracts.
Except as otherwise provided by statute or by these Bylaws, the Board of
Directors may authorize any officer or agent of the Corporation to enter into
any contract, or execute and deliver any instrument in the name of, and on
behalf of the Corporation. Such authority may be
18
<PAGE>
general or confined to specific instances and, unless so authorized, no officer,
agent or employee shall have any power to bind the Corporation for any purpose,
except as may be necessary to enable the Corporation to carry on its normal and
ordinary course of business.
8.2 Loans.
No loans shall be contracted on behalf of the Corporation and no negotiable
paper shall be issued in its name unless authorized by the Board of Directors.
When so authorized, any officer or agent of the Corporation may effect loans and
advances at any time for the Corporation from any bank trust company or
institution, firm, Corporation or individual. An agent so authorized may make
and deliver promissory notes or other evidence of indebtedness of the
corporation and may mortgage, pledge, hypothecate or transfer any real or
personal property held by the Corporation as security for the payment of such
loans. Such authority, in the Board of Directors discretion, may be general or
confined to specific instances.
8.3 Checks.
Checks, notes, drafts and demands for money or other evidence of
indebtedness issued in the name of the Corporation shall be signed by such
person or persons as designated by the Board of Directors and in the manner the
Board of Directors prescribes.
8.4 Deposits.
All funds of the Corporation not otherwise employed shall be deposited from
time to time to the credit of the Corporation in such banks, trust companies or
other depositories as the Board of Directors may select.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be the year adopted by resolution
of the Board of Directors.
19
<PAGE>
ARTICLE X
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the Corporation
and the state of incorporation and the words "CORPORATE SEAL".
ARTICLE XI
AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by a majority of the Directors present at any meeting of the Board of
Directors of the Corporation at which a quorum is present.
ARTICLE XII
EXECUTIVE COMMITTEE
12.1 Appointment.
The Board of Directors by resolution adopted by a majority of the full
Board, may designate from among its members an executive committee. The
designation of such committee and the delegation thereto of authority shall not
operate to relieve the Board of Directors, or any member thereof, of any
responsibility imposed by law.
12.2 Authority.
The executive committee, when the Board of Directors is not in session
shall have and may exercise all of the authority of the Board of Directors
except to the extent, if any, that such authority shall be limited by the
resolution appointing the executive, committee and except also that the
executive committee shall not have the authority of the Board of Directors in
reference to declaring dividends and distributions, amending the Articles of
Incorporation, adopting a plan of merger or consolidation, filling vacancies on
the Board of Directors or any committee thereof, recommending to the
shareholders the sale, lease or other disposition of all or substantially all of
the property and assets of the Corporation otherwise than in the usual and
regular course of its
20
<PAGE>
business, recommending to the shareholders a voluntary dissolution of the
Corporation or a revocation thereof, authorize or approve the issuance or
reacquisition of shares, or amending the Bylaws of the Corporation.
12.3 Tenure and Qualifications.
Each member of the executive committee shall hold office until the next
regular annual meeting of the Board of Directors following his designation.
12.4 Meetings.
Regular meetings of the executive committee may be held without notice at
such time and places as the executive committee may fix from time to time by
resolution. Special meeting of the executive committee may be called by any
member thereof upon not less than one day's notice stating the place, date and
hour of the meeting, which notice may be written or oral, and if mailed, shall
be deemed to be delivered when deposited in the United States mail addressed to
the member of the executive committee at his business address. Any member of
the executive committee may waive notice of any meeting and no notice of any
meeting need be given to any member thereof who attends in person. The notice
of a meeting of the executive committee need not state the business proposed to
be transacted at the meeting.
12.5 Quorum.
A majority of the members of the executive committee shall constitute a
quorum for the transaction of business at any meeting thereof, and action of the
executive committee must be authorized by the affirmative vote of a majority of
the members present at a meeting at which a quorum is present.
12.6 Informal Action by Executive Committee.
Any action required or permitted to be taken by the executive committee at
a meeting may be taken without a meeting if a consent in writing, setting forth
the action so taken, shall be
21
<PAGE>
signed by all of the members of the committee entitled to vote with respect to
the subject matter thereof.
12.7 Vacancies.
Any vacancy in the executive committee may be filled by a resolution
adopted by a majority of the full Board of Directors.
12.8 Resignation and Removal.
Any member of the executive committee may be removed at any time with or
without cause by resolution adopted by a majority of the full Board of
Directors. Any member of the executive committee may resign from the executive
committee at any time by giving Written Notice to the President or Secretary of
the Corporation, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
12.9 Procedure.
The executive committee shall elect a presiding officer from its members
and may fix its own rules of procedure which shall not be inconsistent with
these Bylaws. It shall keep regular minutes of its proceedings and report the
same to the Board of Directors for its information at the meeting thereof held
next after the proceedings shall have been taken.
ARTICLE XIII
EMERGENCY BYLAWS
The Emergency Bylaws provided in this Article shall be operative during any
emergency in the conduct of the business of the Corporation resulting from an
attack on the United States or any nuclear or atomic disaster, notwithstanding
any different provision in the preceding articles of the Bylaws or in the
Articles of Incorporation of the Corporation or in the Nevada General
Corporation Law. To the extent not inconsistent with the provisions of these
Articles, the Bylaws provided in the preceding articles shall remain in effect
during such emergency and upon its termination the Emergency Bylaws shall cease
to be operative.
22
<PAGE>
During any such emergency:
(a) A meeting of the Board of Directors may be called by any Officer or
Director of the Corporation. Notice of the time and place of the
meeting shall be given by the person calling the meeting to such of
the directors as it may be feasible to reach by any available means of
communication. Such notice shall be given at such time in advance of
the meeting as circumstances permit in the judgment of the person
calling the meeting.
(b) At any such meeting of the Board of Directors, a quorum shall consist
of the number of directors in attendance at such meeting.
(c) The Board of Directors, either before or during any such emergency,
may provide, and from time to time modify, lines of succession in the
event that during such an emergency any or all officers or agents of
the Corporation shall for any reason be rendered incapable of
discharging their duties.
(e) No Officer, Director or Employee acting in accordance with these
Emergency Bylaws shall be liable except for willful misconduct.
(f) These Emergency Bylaws shall be subject to repeal or change by further
action of the Board of Directors or by action of the shareholders, but
no such repeal or change shall modify the provisions of the next
preceding paragraph with regard to action taken prior to the time of
such repeal or change. Any amendment of these Emergency Bylaws may
make any further or different provision that may be practical and
necessary for the circumstances of the emergency.
23
<PAGE>
CERTIFICATE
I hereby certify that the foregoing Bylaws, consisting of Twenty-Three (23)
pages, including this page, Twenty-Three (23), constitute the Bylaws and were
duly adopted by the Board of Directors of the Corporation as of June 21, 1996.
SUNLIGHT SYSTEMS, LTD.
/s/ Patricia E. Johnston
---------------------------------------
Patricia E. Johnston, Sole Director
24
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
Nanopierce Technologies, Inc
Computation of Net Loss Per Share
<TABLE>
<CAPTION>
Year ended June 30
1998 1997
<S> <C> <C>
Loss from continuing operations ($1,137,334) ($178,234)
Loss from discontinued operations ($308,858)
--------------------------------
Net loss ($1,137,334) ($487,092)
Series A preferred stock dividend ($60,417)
--------------------------------
Net loss applicable to common shareholders ($1,197,751) ($487,092)
================================
Weighted average number
of common shares 6,621,757 3,518,286
================================
Net loss per common share:
Continuing operations $(0.18) $(0.05)
Discontinued operations $(0.09)
--------------------------------
Net loss $(0.18) $(0.14)
================================
</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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 11
<SECURITIES> 1,491
<RECEIVABLES> 38,739
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,985
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,006,250
<CURRENT-LIABILITIES> 391,282
<BONDS> 0
0
500,000
<COMMON> 1,213
<OTHER-SE> 113,755
<TOTAL-LIABILITY-AND-EQUITY> 1,006,250
<SALES> 1,519
<TOTAL-REVENUES> 1,519
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,174,999
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,346
<INCOME-PRETAX> (1,137,334)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,137,334)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,137,334)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
