<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 33-19598-D
NANOPIERCE TECHNOLOGIES, INC.
-----------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 84-0992908
------ ----------
(State or other jurisdiction of (I.R.S employer
incorporation or organization ) identification number)
370 Seventeenth Street Suite 3290
Denver Colorado 80202
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (303) 592-1010
Not Applicable
(Former name, former address or former fiscal year, if changed since last
report)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
---
As of May 15, 1998 there were 12,175,000 shares of the registrant's sole class
of common shares outstanding.
Traditional Small Business Disclosure Format Yes X No ___
---
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheet
March 31, 1998 1
Statements of Operations
For the Quarters and Nine Months Ended March 31, 1998 and 1997 2
Statement of Changes in Stockholders' Equity
For the Nine Months Ended March 31, 1998 3
Statements of Cash Flows
For the Nine Months Ended March 31, 1998 and 1997 4
Notes to Financial Statements
March 31, 1998 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 10
ITEM 2. CHANGES IN SECURITIES 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NANOPIERCE TECHNOLOGIES, INC.
BALANCE SHEET
AS OF MARCH 31, 1998
(Unaudited)
Current Assets:
Cash $ 146
Current portion of notes receivable 12,363
-----------
Total current assets 12,509
-----------
Other assets:
Intellectual property rights, net of
accumulated amortization of $9,315 990,685
Marketable securities at market value 2,126
Notes receivable, discounted for imputed
interest at 10%, net of current portion 30,362
Deposits 4,090
-----------
Total other assets 1,027,263
-----------
Total assets $ 1,039,772
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued interest $ 1,414
Accounts payable-related party 134,000
Notes payable current portion 35,000
-----------
Total current liabilities 170,414
-----------
Stockholders' equity:
Preferred stock, $.0001 par value
5,000,000 shares authorized, 100 shares
issued and outstanding (liquidation preference
value of $22,656.25 per share) 500,000
Common stock, $.0003 par value
45,000,000 shares authorized, 11,903,407 shares
issued and outstanding 3,571
Additional paid-in capital 1,656,128
Unrealized gain on securities available for sale 2,126
Accumulated deficit (1,292,467)
-----------
Total stockholders' equity 869,358
-----------
Total liabilities and stockholders' equity $ 1,039,772
===========
See accompanying notes to financial statements.
1
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31 Nine Months Ended March 31
------------------------ --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 353 $ 1,847 $ 36,679 $ 3,053
General and administrative 758,740 61,142 842,054 159,051
---------- ---------- ---------- ----------
Loss from continuing operations (758,387) (59,295) (805,375) (155,998)
Discontinued Operations:
Loss from operations of
discontinued segment (175,365)
Loss on sale of
discontinued segment (134,947)
---------- ---------- ---------- ----------
Net loss ($758,387) ($59,295) ($805,375) ($466,310)
========== ========== ========== ==========
Net loss per common share:
Loss from continuing operations ($0.11) ($0.01) ($0.17) ($0.05)
Discontinued operations (0.09)
---------- ---------- ---------- ----------
Net loss ($0.11) ($0.01) ($0.17) ($0.14)
========== ========== ========== ==========
Weighted average number of common shares 6,788,577 3,833,355 4,804,048 3,405,131
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Unrealized
---------------- ------------------ Paid-in Gain On Accumulated
Shares Amount Shares Amount Capital Securities Deficit
------ -------- ---------- ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1997 3,833,407 $1,150 $ 686,229 $ 38,283 ($487,092)
Stock issued for services 820,000 246 472,074
Stock issued for intellectual property 100 $500,000 7,250,000 2,175 497,825
Change in unrealized gain on securities (36,157)
Net loss (805,375)
------ -------- ---------- ------ ---------- ----------- -----------
Balance, March 31, 1998 100 $500,000 11,903,407 $3,571 $1,656,128 $ 2,126 ($1,292,467)
====== ======== ========== ====== ========== =========== ===========
</TABLE>
All share amounts are post split as described in note 1.
See accompanying notes to financial statements.
3
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss ($805,375) ($466,310)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss on sale of long term assets 52,118
Impairment of oil and gas properties 171,970
Gain on sale of investments (32,535)
Depreciation and amortization 9,315 9,704
Amortized discount on notes receivable (2,626) (3,053)
Services paid in stock 472,320
Change in assets and liabilities:
(Increase) in:
Deposits (4,090)
Accounts payable 102,500 24,500
Accrued interest 1,414
---------- ----------
Net cash used in operating activities ( 83,017) (387,131)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (71,172)
Purchase of distribution and dealerships (42,546)
Increase in start-up costs (30,627)
Proceeds from sale of assets 18,700
Proceeds from sale of investments $ 32,535
Payments received on notes receivable 7,500 1,073
---------- ----------
Net cash provided by (used in) investing activities 40,035 (124,572)
---------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock 0 515,000
Notes payable 35,000 0
---------- ----------
Net cash flows provided by financing activities 35,000 515,000
---------- ----------
Net increase (decrease) in cash ($7,982) $ 3,297
Cash, beginning 8,128 407
---------- ----------
Cash, ending $ 146 $ 3,704
========== ==========
Noncash investing and financing activities:
Assets acquired by issuance of stock:
Investment in oil and gas property $ 171,970
Marketable equity securities of Energy Corporation 0
Marketable equity securities of Intercell Corporation 0
Intellectual property $1,000,000
Note receivable acquired for sale of assets $ 72,053
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Notes to Financial Statements
1. Organization of business: Mendell-Denver Corporation (Mendell) was formed
on July 22, 1985 for the purpose of acquiring, exploring and developing oil
and gas properties. On May 1, 1992, Mendell sold all of its interests in
oil and gas properties and has since had no business operations.
Sunlight Systems, Ltd. (Sunlight) was formed on June 22, 1996. On July 17,
1996 it became a wholly owned subsidiary of Mendell. Mendell was merged
with and into Sunlight with Sunlight being the surviving corporation.
Shareholders of Mendell received one common share of Sunlight for five
shares of Mendell.
Sunlight was a dealer in Colorado and Nevada and a distributor in Illinois,
Ohio, Michigan and Indiana of skylights manufactured or imported by Sun
Tunnel Systems, Inc. As discussed in Note 3, on November 1, 1997 the
Company sold its dealerships and distributorships.
Sunlight entered into an agreement dated February 26, 1998 to acquire all
or substantially all of the assets, including the intellectual properties,
consisting of patents, patents applications pending, patent applications in
preparation, tradesecrets, tradenames and trademarks relating to the
particle interconnect technology from Particle Interconnect Corporation, a
Colorado corporation ("PI. Corp."), a wholly owned subsidiary of Intercell
Corporation.
In exchange for the acquisition of such intellectual property, the Company
issued to Intercell Corporation, Seven Million, Two Hundred and Fifty
Thousand (7,250,000) of its post-split restricted common shares, and in
addition, One Hundred (100) Series A, 8%, Voting, Convertible, Cumulative,
Participating, Preferred Shares, liquidation preference of $22,656.25 per
share, convertible at $0.3257 per share into Seven Million, Two Hundred and
Fifty Thousand (7,250,000) post-split restricted common shares of the
Company. The intellectual property has been valued at $1,000,000 based on
a written cash offer for the intellectual property from an outside third
party that is a leading manufacturer in a field of use of 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.
On February 23, 1998 the Company changed its name to Nanopierce
Technologies, Inc. In addition, it caused a reverse stock split on a One
for Three (1:3) basis of the Twelve Million, Seven Hundred and Sixty
Thousand, Sixty-Four shares issued and outstanding of the Company on
February 27, 1998. All references in the unaudited interim financial
statements to the number of shares of common stock and per share amounts
have been restated to reflect the reverse stock split.
5
<PAGE>
NANOPIERCE TECHNOLOGIES, INC
Notes to Financial Statements (continued)
2. Presentation of Interim information: In the opinion of the management of
Nanopierce Technologies, Inc. (the Company), the accompanying unaudited
financial statements include all normal adjustments considered necessary to
present fairly the financial position as of March 31, 1998 and the results
of operations for the quarters and nine months ended March 31, 1998 and
1997, and cash flows for the nine months ended March 31, 1998 and 1997.
Interim results are not necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form 10-
QSB, and do not contain certain information included in the Company's
audited financial statements and notes for the fiscal year ended June 30,
1997.
3. Discontinued operations: On November 1, 1996, the Company sold its
dealerships and distributorships in skylights manufactured and imported by
Sun Tunnel Systems, Inc. including all of its assets. In separate
transactions, the Company received 1)$18,000 in cash 2) a note receivable
for $60,000 and 3) a note receivable for $30,000. The notes receivable are
collaterialized by the assets sold and require payments of $1,250 and
$1,000, respectively. The notes receivable are discounted to recognize and
interest rate of 10%. The Company recognized a loss on the sale of
$134,947.
4. Notes Payable: During the quarter ended March 31, 1998, the Company
borrowed $35,000 under notes payable from an unrelated party due in 1998
with interest at 8%. The notes are not collaterialized.
5. Common stock issued for services: During the quarter ended March 31, 1998,
the Company issued 400,000 shares of common stock to third parties in
exchange for public relation and other consulting services. The Company
also issued 420,000 shares of common stock to entities affiliated with
certain minority shareholders of the Company for general management and
consulting services. The Company recognized $472,320 of general and
administrative expense related to these transactions, based upon the market
value of the common stock issued.
6. Impairment of oil and gas properties: The Company assesses the carrying
value of its long-lived assets when circumstances indicate that impairment
may have occurred. During the quarter ended March 31, 1998, the Company
recognized an impairment loss of $171,970 related to its investment in oil
and gas properties not currently producing any revenue. The impairment
loss is included in general and administrative expense on the accompanying
statements of operations.
6
<PAGE>
7. Stock options: During the quarter ended March 31, 1998, the Company
granted to employees options to purchase 5,300,000 shares of common stock
at an exercise price of $0.325 per share. The exercise price equals the
quoted market value of the Company's common stock on the date of grant.
The options expire on February 25, 2008. As the Company accounts for
options granted to employees under APB No. 25, no compensation expense has
been recorded in the accompanying financial statements.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the attached
financial statements and notes thereto, and with the Company's audited financial
statements and notes thereto for the year ended June 30, 1997 previously filed
with the Securities and Exchange Commission. This report contains forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 31E of the Securities Exchange Act of 1934, as
amended. Actual results could differ materially from those anticipated in
forward-looking statements.
RESULTS OF OPERATION
Revenues decreased from $1,847 for the quarter ended March 31, 1997 to $353 for
the quarter ended March 31, 1998. Revenues are related to non-cash amortization
of the recorded discount on the Company's note receivable. The decrease relates
to the lower outstanding balance due the Company and the number of payments
received. The Company does not currently have any revenue producing activities.
Revenues increased from $3,053 for the nine months ended March 31, 1997 to
$36,679 for the nine months ended March 31, 1998. During the nine months ended
March 31, 1998, revenues include a gain of $32,535 related to the sale of
investments and $4,144 related to the amortization of the recorded discount on
notes receivable. All revenue recorded for the nine months ended March 31, 1997
was related to the discount on notes receivable.
General and administrative expenses increased from $61,142 for the quarter ended
March 31, 1997 to $758,740 for the quarter ended March 31, 1998 and increased
from $159,051 for the nine months ended March 31, 1997 to $842,054 for the nine
months ended March 31, 1998. General and administrative expenses for the three
and nine month ended March 31, 1997 relate to initiating and start-up costs as a
dealer and distributor of skylights as well as costs associated with seeking
acquisition and merger opportunities. General and administrative expenses for
the three and nine months ended March 31, 1998 include an impairment loss of
$171,970 related to the Company's investment in oil and gas properties not
currently producing any revenue and $472,320 of public relations, management and
consulting service expense recognized upon the issuance of 820,000 shares of
common stock to the service providers. The remaining general and administrative
expense for the three and nine months ended March 31, 1998 related primarily to
costs associated with the pursuit of acquisition and merger opportunities.
LIQUIDITY AND FINANCIAL CONDITION
At March 31, 1998 the company had a working capital deficit of $157,905 due
primarily to an increase in accounts and notes payable. At March 31, 1997 the
Company had a working capital balance of $4,438 due primarily to the cash
proceeds for the sale of stock less operating losses.
8
<PAGE>
During the three and nine months ended March 31, 1998 the Company has received
operating funding through accounts payable from related parties as well as
through $35,000 of short term notes receivable.
The Company is looking for additional financing through the marketing of its
intellectual property either by private placement, joint venture arrangements or
through royalty and license fees. There is no assurance that the Company will
be successful in its attempt to obtain additional financing for ongoing
operations. The Company continues to evaluate additional merger and acquisition
opportunities.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
The Company made the following unregistered sales of its securities from January
1, 1998 through March 31, 1998.
<TABLE>
<CAPTION>
TITLE OF
DATE OF SALE SECURITIES AMOUNT CONSIDERATION PURCHASER
- ------------ ---------- ------ ------------- ---------
<S> <C> <C> <C> <C>
(1) 2/24/98 Common Stock 960,000 Services Zenith Petroleum
prior to 3:1 Corporation
stock split
(2) 2/24/98 Common Stock 300,000 Services Barbara J. Drew,
prior to 3:1 TTEE, Barbara J. Drew
stock split Rev. Liv. Trust
(3) 2/24/98 Warrant to acquire 300,000 Services Hamilton Fund, LP
Common Stock at
$0.25
(4) 2/26/98 Option to acquire 1,000,000 Services Paul H. Metzinger
Common Stock at
$0.325
(5) 2/26/98 Option to acquire 1,000,000 Services Zenith Petroleum
Common Stock at Corporation
$0.325
(6) 2/26/98 Option to acquire 430,000 Services Bert Roosen
Common Stock at
$0.325
(7) 2/26/98 Option to acquire 400,000 Services Tom Vander Stel
Common Stock at
$0.325
(8) 2/26/98 Option to acquire 50,000 Services Kristi Kampmann
Common Stock at
$0.325
(9) 2/26/98 Option to acquire 120,000 Services Kevin Waide
Common Stock at
$0.325
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
TITLE OF
DATE OF SALE SECURITIES AMOUNT CONSIDERATION PURCHASER
- ------------ ---------- ------ ------------- ---------
<S> <C> <C> <C> <C>
(10) 2/26/98 Option to acquire 300,000 Services Barbara J. Drew
Common Stock at
$0.325
(11) 2/26/98 Option to acquire 1,500,000 Services Gilbert Olachea
Common Stock at
$0.325
(12) 2/27/98 Option to acquire 500,000 Services Paul H. Metzinger
Common Stock at
$0.325
(13) 2/27/98 Common Stock 7,250,000 Transfer of Intercell Corporation
Intellectual Property
from Particle
Interconnect Corp.
valued at $1,000,000
(14) 2/27/98 Series A Preferred 100 Transfer of Intercell Corporation
Intellectual Property
from Particle
Interconnect Corp. at
$1,000,000
(15) 3/3/98 Common Stock 100,000 Retainer for Billington
Independent Corporate Publications,
Publication Contractor Inc.
Services
(16) 3/3/98 Common Stock 150,000 Retainer for Omni Capital
Independent Corporate Corporation
Publication Contractor
Services
(17) 3/3/98 Common Stock 150,000 Retainer for Lance Fortt
Independent Corporate
Publication Contractor
Services
</TABLE>
UNDERWRITERS
No underwriter or selling or placement agent was involved in any of the
transactions described above.
EXEMPTION FROM REGISTRATION CLAIMED
All of the sales by the Company of its unregistered securities were made by
the Company in reliance upon Section 4(2) of the Act. All of the individuals
and/or entities listed above that
11
<PAGE>
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.
TERMS OF CONVERSION OR EXERCISE
The Series A preferred stock (the "Series A Preferred") may be converted at
any time after March 1, 1998 into common stock of the Company, at a conversion
rate of $0.3257 per share. Each share of the Series A Preferred is convertible
into Seventy-Two Thousand, Five Hundred (72,500) shares of common stock of the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
Exhibit 2 Agreement dated February 26, 1998 by and between the
Company, Particle Interconnect Corporation and Intercell
Corporation*
Exhibit 4 Certificate of designation of Rights and Preferences of
the Series A Preferred Stock*
Exhibit 11 Statement of computation of earnings per share
Exhibit 27 Financial Data Schedule
* Filed with the current report on Form 8-K, dated February 26, 1998, filed on
March 12, 1998 and incorporated herein by reference.
(b) REPORTS:
1) Form 8-K, dated February 26, 1998 disclosed the acquisition of
all or substantially all of the particle interconnect technology
from PI. Corp.
2) Form 8-K/A-1, dated February 26, 1998 provided pro forma
information regarding the acquisition of all or substantially all
of the particle interconnect technology from PI. Corp.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NANOPIERCE TECHNOLOGIES, INC.
(Registrant)
Date: May 20, 1998 By /s/ Paul Metzinger
------------------------------------------------
Paul Metzinger, Executive Vice President
Date: May 20, 1998 By /s/ Thomas Vander Stel
------------------------------------------------
Thomas Vander Stel, Chief Financial Officer
13
<PAGE>
LIST OF EXHIBITS
Exhibit 2 Agreement dated February 26, 1998 by and between the
Company, Particle Interconnect Corporation and Intercell
Corporation*
Exhibit 4 Certificate of designation of Rights and Preferences of
the Series A Preferred Stock*
Exhibit 11 Statement of computation of earnings per share
Exhibit 27 Financial Data Schedule
* Filed with the current report on Form 8-K, dated February 26, 1998, filed on
March 12, 1998 and incorporated herein by reference.
14
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Nine Months Ended
March 31
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net loss $ (805,375) $ (466,310)
Net loss per common share $ (0.17) $ (0.14)
========== ==========
Weighted average number of shares 4,804,048 3,405,131
of common stock outstanding ========== ==========
</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.
11-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NANOPIERCE
TECHNOLOGIES, INC.'S FINANCIAL STATEMENTS AS OF MARCH 31, 1998 AND FOR THE NINE
MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 146
<SECURITIES> 2,126
<RECEIVABLES> 12,363
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,509
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,039,772
<CURRENT-LIABILITIES> 170,414
<BONDS> 0
0
500,000
<COMMON> 3,571
<OTHER-SE> 365,787
<TOTAL-LIABILITY-AND-EQUITY> 1,039,772
<SALES> 0
<TOTAL-REVENUES> 36,679
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 842,054
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (805,375)
<INCOME-TAX> 0
<INCOME-CONTINUING> (805,375)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (805,375)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
