<PAGE>
As filed with the Securities and Exchange Commission on December 11, 1998
Registration No. 333-___
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________
NANOPIERCE TECHNOLOGIES, INC.
(Name of small business issuer as specified in its charter)
NEVADA 3672 84-0992908
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
370 SEVENTEENTH STREET, SUITE 3580
Denver, Colorado 80202
(303) 592-1010
(Address and telephone number of principal executive offices
and principal place of business)
PAUL H. METZINGER
President and Chief Executive Officer
NANOPIERCE TECHNOLOGIES, INC.
370 SEVENTEENTH STREET, SUITE 3580
DENVER, COLORADO
(303) 592-1010
(Name, address and telephone number of agent for service)
With copies sent to:
ROBERT J. AHRENHOLZ, ESQ.
KATHRYN K. HEET, ESQ.
KUTAK ROCK
717 SEVENTEENTH STREET, SUITE 2900
DENVER, COLORADO 80202
(303) 297-2400
Approximate date of commencement of the proposed sale to the public: From
time to time after this Registration Statement becomes effective.
_______________
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Title of each class Amount Proposed Maximum Proposed Maximum Amount of
of securities to to be Offering Price aggregate offering registration
be registered registered Per share(1) price(1) fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 7,719,588 $0.23 $1,775,505 $493.59
$.0001 per share(2)
- ------------------------------------------------------------------------------------------------------
Series B Preferred Stock(3) 61,000 $ 10 $ 610,000 $169.58
- ------------------------------------------------------------------------------------------------------
Common Stock underlying 3,050,000 N/A N/A N/A
Series B Preferred Stock(4)
- ------------------------------------------------------------------------------------------------------
Common Stock Purchase 470,000 $0.23 $ 108,100 $ 30.05
Warrants(5)
- ------------------------------------------------------------------------------------------------------
Common Stock underlying 470,000 N/A N/A N/A
Warrants(5)
- ------------------------------------------------------------------------------------------------------
Total Registration Fee $2,493,605 $693.22
======================================================================================================
</TABLE>
____________
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Common Stock to be sold by certain shareholders of the registrant.
Registration fee calculated pursuant to Rule 457(c) based on a share price of
$0.23 per share the last sale price of the Common Stock on December 8, 1998, as
reported on the OTC Bulletin Board.
(3) Registration fee calculated pursuant to Rule 457(i) based on the sale price
of the Series B Preferred Stock.
(4) Pursuant to Rule 457(i), no separate registration fee is payable with
respect to the Common Stock underlying the convertible preferred stock.
Pursuant to Rule 416, this Registration Statement also covers such shares of
Common Stock as may be issuable pursuant to the anti-dilution provisions of the
Series B Preferred Stock.
(5) Registration fee calculated pursuant to Rule 457(g) based on the last sale
price of the Common Stock on December 8, 1998. Pursuant to Rule 416, this
Registration Statement also covers such shares of Common Stock as may be
issuable pursuant to the anti-dilution provisions of the warrants. Pursuant to
Rule 457(g), no separate registration fee is payable with respect to the Common
Stock underlying the warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
PROSPECTUS Subject to Completion-Dated December 11, 1998
NANOPIERCE TECHNOLOGIES, INC.
-----------------------------
370 Seventeenth Street, Suite 3580
Denver, Colorado 80202
THE OFFERING: Nanopierce Technologies, Inc. is a company recently engaged in
developing a technology to connect electronic components for
computers and other electronic and electrical products. Selling
securityholders identified in this Prospectus are offering all
of the securities being offered, including 11,239,588 shares of
Common Stock, 61,000 shares of Series B Preferred Stock and
Warrants to purchase 470,000 shares of Common Stock.
TRADING SYMBOL: The Common Stock is traded on the over-the-counter market and is
quoted on the OTC Bulletin Board under the symbol "NPCT." The
Common Stock is also traded on the Third Market Segment of the
Berlin Stock Exchange under the symbol "NPI."
INVESTING IN THE COMMON STOCK, PREFERRED SHARES OR WARRANTS DESCRIBED IN
THIS PROSPECTUS INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 11.
The 11,239,588 shares of Common Stock offered by this Prospectus represent
about 40.98% of the Company's issued and outstanding Common Stock on a fully
diluted basis as of December 8, 1998. On December 8, 1998, the last reported
sale price of the Common Stock was $0.23 per share. See "PRICE RANGE OF COMMON
STOCK." There currently is no market for the Preferred Stock or the Warrants.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED ANY OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION MADE TO YOU TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _________, 1999
<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY...................... .....................................1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.............................4
DIVIDEND POLICY...............................................................5
PRICE RANGE OF COMMON STOCK...................................................5
USE OF PROCEEDS...............................................................6
SELECTED FINANCIAL DATA.......................................................7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS................................................................7
RISK FACTORS.................................................................11
THE COMPANY..................................................................18
MANAGEMENT...................................................................29
EXECUTIVE COMPENSATION.......................................................30
OPTION GRANTS TABLE..........................................................32
AGGREGATED OPTION EXERCISE AND FISCAL YEAR-END OPTION TABLE..................32
CERTAIN TRANSACTIONS.........................................................34
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS.................................36
DESCRIPTION OF SECURITIES....................................................38
SHARES ELIGIBLE FOR FUTURE SALE..............................................42
SELLING HOLDERS..............................................................43
PLAN OF DISTRIBUTION.........................................................45
EXPERTS......................................................................46
AVAILABLE INFORMATION........................................................47
ADDITIONAL INFORMATION.......................................................47
INDEX TO FINANCIAL STATEMENTS...............................................F-1
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights certain information contained throughout
this Prospectus. It is not complete and may not contain all of the information
that you should consider before investing in the securities offered by this
Prospectus. To understand this offering fully, you should read the entire
Prospectus carefully, including the risk factors and financial statements.
THE COMPANY
The Technology
Since February 1998, the Company has been pursuing a new line of business
designing electronic interconnect products. Interconnect products are used
to connect electrical and electronic components together, such as
connecting computer chips to subsystems. The recently acquired patented
particle interconnect technology (the "PI Technology") and electroplating
process (the "PE Process") are the foundation for this new line of
business. See "THE COMPANY - History of the Company," " The PI
Technology" and " Integrated Circuit Industry Background The Company's
Solution to Limits in Current Technology."
. The PI Technology is based on ten patents and seven patent
applications which the Company owns.
. In its simplest configuration, the PI Technology uses ultra fine
diamond particles which are coated with a conductive material and
applied to one of two surfaces of an electrical contact. The coated
diamond is an electrical medium with favorable thermal characteristics
and reliability. The PE Process is used to apply the coated diamond
particles to a metallic surface. The other, opposing connector surface
is mated against the diamond particles and, through light, firm
pressure, a precise electrical connection is made.
. Using the PI Technology, sockets, connectors, switches and similar
mechanisms for electronic devices or components can be connected to a
substrate without soldering. A substrate is a base material to which
electronic components are attached. Using the PE Process, the base
substrate is coated with diamond particle chips treated with a
conductive material. This base or substrate material can be flexible,
rigid, metallic or non-metallic. The finished product looks and
functions like conductive sandpaper. The PI Technology reduces the
amount of force that must be placed on the connector contact to make a
reliable electrical connection. As a result, connections can be made
with smaller components made out of more fragile, lighter weight
materials. The Company believes that the PI Technology can be applied
to form a variety of highly efficient connectors.
. The Company also believes that the PI Technology can significantly
improve the electrical, thermal and mechanical characteristics of
electronic products while reducing cost and increasing reliability.
1
<PAGE>
BENEFITS OF THE TECHNOLOGY
The Company believes that market trends in integrated circuits will
increase the demand for "high density substrates," which are printed integrated
circuits manufactured on thin, bendable structures that look like tape or film.
As integrated circuits become more powerful, they require more input/output
electrical connections and produce more heat. The increased number of
connections and resulting increased heat causes the integrated circuits to place
greater physical stress on the "integrated circuit packaging materials," the
materials in which the integrated circuits are packaged. The Company believes
that its PI Technology may provide a cost effective solution to these increased
demands on integrated circuit packaging materials. Research and development and
the experiences of current licensees of the PI Technology have lead the Company
to believe that reliable connections between electronic devices can be
established without applying as much force to the connector contact that must be
applied under current technology. By reducing the force required for
connections, the Company believes that manufacturers will be able to connect
complex integrated circuits to products for several generations of electronics.
See "THE COMPANY Integrated Circuit Industry Background."
In summary, the Company believes that the PI Technology offers the
following significant benefits:
. Penetrates oxide (i.e., rust) formations on metal and electrical
surfaces and contacts
. Can be applied to all metal surfaces
. Enhances electrical, high-speed performance for advanced electronics
by reducing the length of the connector pathway and thereby reducing
electrical resistance
. Improves thermal dissipation, thereby increasing product reliability
. Readily available sources of raw (diamond) materials
. Significant size and weight reduction of bulky connectors for
shrinking electronics
. Improves long-term favorable costs to consumers
. Employs existing, well-known plating process techniques and equipment
. Particularly suited for Internet equipment that supports wider
bandwidth
Business Plan
Initially, the Company intended to develop full production capacity to
produce products which utilized the PI Technology. However, because of the
large capital investment required to develop commercial production capacity, the
Company has developed a two step production, sales and marketing strategy.
. The Company will enter into joint ventures, strategic relationships or
licensing agreements with established leading manufacturers of
interconnect products. The Company will then assist these
manufacturers in developing, testing and qualifying applications of
the PI Technology for their specific product lines. See "THE COMPANY
The PI Technology Sales and Marketing Strategy."
. The Company will enter into joint ventures with small volume users of
the technology who will either sell products that use the PI
Technology, or will
2
<PAGE>
incorporate the PI Technology into other products. See "THE
COMPANY The PI Technology Sales and Marketing Strategy."
RISK FACTORS
The Common Stock, the Preferred Shares, and the Warrants offered in this
Prospectus involve a high degree of risk. See "RISK FACTORS."
THE OFFERING AND PROCEEDS
The following chart summarizes the securities that will be available in the
offering and the proceeds that the Company expects to receive from the sale
thereof. There will be 27,427,188 issued and outstanding shares of Common Stock
if all of the Warrants are exercised and all of the Preferred Shares are
converted into Common Stock.(1) See "USE OF PROCEEDS."
<TABLE>
<CAPTION> Proceeds to
Seller Title of Securities Amount Company
------ ------------------- ------ -----------
<S> <C> <C> <C>
Y.L. Hirsch (2) Common Stock 408,588 shares none
Y.L. Hirsch Series B Preferred Stock 61,000 shares none
Y.L. Hirsch Common Stock issuable upon 3,050,000 shares none
conversion of Series B Preferred
Stock
Y.L. Hirsch Warrants to purchase Common Stock 50,000 warrants none
Y.L. Hirsch Common Stock issuable upon exercise 50,000 shares none(3)
of Hirsch warrants
Intercell Corporation Common Stock 5,250,000 shares none
Other Selling Holders Common Stock 2,061,000 shares none
Other Selling Holders Warrants to purchase Common Stock 420,000 warrants none(4)
Other Selling Holders Common Stock issuable upon exercise 420,000 shares none
of Selling Holders Warrants
_______
(1) This includes 3,900,000 shares of Common Stock currently issuable upon the
exercise of stock options outstanding on the date of this Prospectus and
7,250,000 shares of Common Stock currently issuable upon conversion of the
Company's outstanding Series A Preferred Stock. This also assumes that no
shares of Common Stock are issued as dividends on the Preferred Shares.
(2) The Company sold 75,000 shares of Series B Preferred Stock (including the
Common Stock issuable upon conversion of such preferred shares) and warrants
to purchase 50,000 shares of Common Stock (including the Common Stock issuable
upon exercise of such warrants) to Y.L. Hirsch. Mr. Hirsch has converted
14,000 shares of Series B Preferred Stock into 408,588 shares of Common Stock.
Mr. Hirsch may resell such shares and warrants pursuant to this Prospectus.
(3) If all of the Hirsch warrants are exercised, the Company will receive
$175,781 in proceeds. However, the Company cannot assure that any warrants will
be exercised.
(4) If all of the other warrants that are offered in this Prospectus are
exercised, the Company will receive $296,875 in proceeds. However, the Company
cannot assure that any warrants will be exercised.
</TABLE>
3
<PAGE>
USE OF PROCEEDS
The Company has used the proceeds from the sale of the Preferred Shares and
intends to use the proceeds from the exercise of the Hirsch Warrants to begin
implementing a two step production, sales and marketing strategy to
commercialize the PI Technology over the next twelve months. See "THE COMPANY -
Overview of Business Activities." The Company expects to use the proceeds from
the exercise of the other warrants for general working capital purposes. See
"USE OF PROCEEDS."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Prospectus discuss future
expectations, contain projections of results of operation or financial condition
or state other "forward-looking" information. These statements are subject to
known and unknown risks, uncertainties and other factors that could cause the
actual results to differ materially from those contemplated by the statements.
The forward-looking information is based on various factors and is derived using
numerous assumptions.
Important factors that may cause actual results to differ from projections
include, for example,
. the success or failure of management's efforts to implement their new
business strategy;
. the Company's ability to enter into joint ventures or partnerships with
established industry participants;
. the Company's ability to raise sufficient capital to meet operating
requirements;
. the uncertainty of consumer demand for the Company's products and
alternative technology;
. the Company's ability to protect its intellectual property rights;
. the Company's ability to compete with major established companies;
. the effect of changing economic conditions;
. the Company's ability to attract and retain quality employees; and
. other risks which may be described in future filings with the Securities
and Exchange Commission. The Company does not promise to update forward-
looking information to reflect actual results or changes in assumptions
or other factors that could affect those statements.
4
<PAGE>
DIVIDEND POLICY
While there currently are no restrictions prohibiting the Company from
paying dividends to its shareholders, the Company has not paid any cash
dividends on its common stock, par value $0.0001 per share (the "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 the Common Stock is subject
to prior payment of accrued dividends with respect to the Preferred Stock. See
"DESCRIPTION OF SECURITIES Preferred Stock." There can be no assurance that
the Company will pay dividends at any time in the future.
PRICE RANGE OF COMMON STOCK
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 three 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. The average of the closing bid and
asked prices for the Common Stock was $0.21 on December 8, 1998.
<TABLE>
<CAPTION>
1998 Fiscal Year High Low
- ---------------- ---- ---
<S> <C> <C>
March 31, 1998 $ 1.65 $ 1.60
June 30, 1998 $2.437 $2.187
1999 Fiscal Year
- ----------------
September 30, 1998 $0.781 $0.718
</TABLE>
While a limited market did exist for the Common Stock under the Company's
former names of Mendell-Denver Corporation and Sunlight Systems, Ltd. (see "THE
COMPANY"), 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 December 8, 1998, there were 85 holders of record of the Company's
outstanding 12,757,188 shares of Common Stock. Based upon information provided
to the Company by persons holding securities for the benefit of others, it is
estimated that the Company has in excess of 300 beneficial owners of its Common
Stock as of December 8, 1998.
5
<PAGE>
Currently there exists no public market for any preferred stock or warrants
issued by the Company and no assurances can be given that a public market will
develop in the future. See "RISK FACTORS No Market Exists for Preferred Shares
or Warrants."
USE OF PROCEEDS
Pursuant to the terms of a Securities Purchase Agreement dated as of July
23, 1998, as amended as of September 29, 1998 (the "Amended Securities Purchase
Agreement"), the Company sold 75,000 shares of Series B Preferred Stock and
warrants to purchase 50,000 shares of Common Stock (the "Hirsch Warrants") to
Y.L. Hirsch for an aggregate purchase price of $750,000 ($10/ share) and net
proceeds of approximately $660,000. If all of the Hirsch Warrants are
exercised, the Company will receive $175,781 (50,000 shares at $3.515625/
share).
The Company has used the proceeds from the sale of the 75,000 shares of
Series B Preferred Stock and intends to use the proceeds from the exercise of
the Hirsch Warrants to fund operations, to expand production, marketing and
sales and possibly to acquire other technologies. However, no assurance can be
given that any Hirsch Warrants will be exercised. See "RISK FACTORS Additional
Capital Requirements."
The Company will not receive any proceeds from the conversion of the
remaining 61,000 shares of Series B Preferred Stock (the "Preferred Shares")
into Common Stock. To the extent sold by Mr. Hirsch, the Company will not
receive any proceeds from the resale of the Common Stock, the Preferred Shares,
the Common Stock issuable upon conversion of the Preferred Shares, the Hirsch
Warrants, or the Common Stock issuable upon exercise of the Hirsch Warrants.
In exchange for arranging the sale of the Preferred Shares and Hirsch
Warrants, the Company issued The Hamilton Fund, L.L.C. warrants to purchase
300,000 shares of Common Stock (the "Hamilton Warrants") and Portfolio
Investment Strategies Corporation warrants to purchase 70,000 shares of Common
Stock (the "Portfolio Warrants"). In exchange for getting the Common Stock
listed on the Berlin Stock Exchange, the Company issued Berliner Freiverkehr
(Aktien) AG warrants to purchase 50,000 shares of Common Stock (the "Berliner
Warrants").
The Company will not receive any proceeds from the sales, if any, of any
shares of Common Stock, the Hamilton Warrants, Portfolio Warrants or Berliner
Warrants by the Selling Holders. However, assuming that all of the Hamilton
Warrants, Portfolio Warrants and Berliner Warrants (collectively the "Agent
Warrants" and together with the Hirsch Warrants, the "Warrants") offered hereby
are exercised, the proceeds to the Company from such exercise are estimated to
be $296,875 based on an exercise price of $0.25 per share with respect to the
Hamilton Warrants, $2.8125 per share with respect to the Portfolio Warrants, and
$0.50 per share with respect to the Berliner Warrants. See "DESCRIPTION OF
SECURITIES Warrants."
The Company expects to use substantially all of the net proceeds received
from the exercise of the Agent Warrants for general working capital purposes. No
assurance can be given, however, that any Agent Warrants will be exercised.
6
<PAGE>
SELECTED FINANCIAL DATA
The selected financial information set forth below has been derived from
the Company's audited financial statements. The Company's financial statements
for the years ended June 30, 1994, 1995, 1996 and 1997 have been audited by
Larry O'Donnell, CPA, P.C., independent public accountant. The Company's
financial statements for the year ended June 30, 1998 have been audited by
Gelfond Hochstad Pangburn & Co., independent public accountants. The financial
data for the three month interim periods, which have not been examined by
Gelfond Hochstad Pangburn & Co. reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the data for such periods. The results of operations for the
three months ended September 30, 1998 are not necessarily indicative of a full
year's operating results. The selected financial data set forth below do not
purport to be complete and should be read in conjunction with "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
the Company's financial statements and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Three Months Ended
------------------
September 30, Year Ended June 30,
------------- ---------------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
---- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 0 $ 1,169 $ 1,519 $ 0 $ 0 $ 6,872 $ 2,759
Loss from continuing
operations $ (553,985) $(32,802) $(1,137,334) $(178,234) $ (3,577) $ (13,429) $ (40,435)
Net loss $ (553,985) $(32,802) $(1,197,751) $(487,092) $ (3,577) $ (12,316) $ (33,320)
Net loss applicable to
common shareholders $ (599,298) $(32,802) $(1,197,751) $(487,092) $ (3,577) $ (12,316) $ (33,320)
Loss from continuing
operations per share $ (0.05) $ (0.01) $ (0.17) $ (0.05) $ (0.00) $ (0.01) $ (0.01)
Net loss per share $ (0.05) $ (0.01) $ (0.18) $ (0.14) $ (0.00) $ (0.01) $ (0.01)
Total assets $1,240,186 $257,186 $ 1,006,250 $ 270,070 $1,431,605 $ 6,229 $ 28,450
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 in Note 2 of
the audited annual financial statements contained herein.
Company's Efforts to Obtain Financing
- -------------------------------------
On July 23, 1998, the Company executed a securities purchase agreement with
Y.L. Hirsch, in which Mr. Hirsch agreed to buy 150,000 shares of Series B
Preferred Stock and 700,000 shares of Series C Preferred Stock, for an aggregate
purchase price of $8,500,000, on specified closing dates. At the first closing,
on July 23, 1998, the Company sold Mr. Hirsch 50,000 shares of Series B
Preferred Stock for $10 per share, resulting in net proceeds of $440,000
($60,000 of issuance costs). At the second closing, scheduled for August 23,
1998, Mr. Hirsch was supposed to purchase an additional 50,000 shares of Series
B Preferred Stock for
7
<PAGE>
$500,000. Instead, on September 29, 1998, the agreement was amended (the Amended
Securities Purchase Agreement) to provide for the sale to Mr. Hirsch of a total
of 75,000 shares of Series B Preferred Stock and to allow the Company to sell
the remaining shares of Series B and Series C Preferred Stock to other
investors. On September 29, 1998, the Company sold Mr. Hirsch 25,000 shares of
Series B Preferred Stock at $10 per share, resulting in net proceeds of $220,000
($30,000 of issuance costs). The Company is no longer looking for other
investors to purchase the remaining shares of Series B and Series C Preferred
Stock pursuant to the Amended Securities Purchase Agreement. The Company's
management is in the process of negotiating new investments with other
investors. The Company has not yet identified any qualified investors to fulfill
the immediate cash requirements of the Company.
1st Quarter 1998 Compare to 1st Quarter 1997
- --------------------------------------------
The Company's revenues were $0 and $1,169 for the quarters ended September
30, 1998, and 1997, respectively. The revenue for the first quarter in 1997 was
derived from oil and gas leases, which the Company has subsequently written off
during the year. General and administrative expenses increased to $549,739 for
the quarter ended September 30, 1998, from $33,971 for the quarter ended
September 30, 1997. This increase is due in part to the issuance of stock for
investment management fees totaling approximately $312,000. The Company also
incurred approximately $84,500 in professional fees and $25,000 in amortization
during the quarter ended September 30, 1998. Salaries and wages increased to
approximately $80,000 for the quarter ended September 30, 1998, from $0 for the
quarter ended September 30, 1997.
The Company issued preferred stock in July of 1998, resulting in an
accumulated and unpaid preferred stock dividend of $45,313 for the quarter ended
September 30, 1998 compared to $0 for the first quarter of 1997.
The Company experienced net losses of $553,985 and $32,802 for the quarters
ended September 30, 1998 and 1997, respectively.
Fiscal Year 1998 Compared to Fiscal Year 1997
- ---------------------------------------------
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 has subsequently written off during the year.
General and administrative expenses increased to $1,174,999 in 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 Corporation ("Intercell"), the Company's majority shareholder, to
Intercell employees and billed to the Company and $173,858 in Common Stock paid
to related parties as compensation.
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
8
<PAGE>
resulting in an accumulated and unpaid 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.
Fiscal Year 1997 Compared to Fiscal Year 1996
- ---------------------------------------------
The Company had sales of $37,894 during the period July 1, 1996 until
November 1, 1996, when the Company discontinued its operations as a dealer and
distributor of skylights. Revenues since November 1, 1996 were $4,274 from
amortizing the discount of the notes receivable and $31,781 from the sales of
securities held as investments.
The Company discontinued its operations as a dealer and distributor of
skylights on November 1, 1996. The Company recognized a loss of $173,911 from
operating this business segment and recognized a loss of $134,947 from the sale
of its assets.
General and administrative expenses of $214,289 for the year ended June 30,
1997 were due to initiating the Company's business activities as a dealer and
distributor of skylights and seeking other acquisition or merger opportunities.
Depreciation and amortization expenses in 1997 were $4,104 and $5,600,
respectively. Depreciation and amortization were entirely related to the
discontinued business segment.
The Company had no revenues from the sale of oil and gas for the fiscal
year ended June 30, 1996. As mentioned above, revenues were derived from option
revenues, interest income and a tax refund. The funds realized from such
revenues were used to pay general administrative costs and to fund the buy-out
of an option. Total expenses were $12,570 resulting in a net loss for the
fiscal year ended June 30, 1996 of $3,577.
Further Management Discussion and Analysis
- ------------------------------------------
At June 30, 1996, the Company had substantially finished the
discontinuation of its oil and gas activities. There were no production costs in
1996. There were no depreciation, depletion or amortization expenses in 1996
because the Company owned no oil and gas properties, real estate, furniture or
equipment.
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. At September 30, 1998, the Company had
working capital of approximately $32,000 compared to a working capital deficit
of approximately $44,000 in 1997. This increase is due primarily to the
proceeds from the sale of $750,000 of the Company's Series B Preferred Stock.
The Company is continuing to look for additional financing through the
marketing of its intellectual property, through the pursuit of licensing, joint
venture, co-manufacturing or other similar arrangement with connector
manufacturers. The failure to secure such a relationship will result in the
Company requiring substantial additional capital and resources to bring its
products to market. To the extent the Company's operations are not sufficient
to fund the Company's capital requirements, the Company may enter into a
revolving loan agreement with a financial
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institution or attempt to raise capital through the sale of additional capital
stock or through the issuance of debt. At the present time, the Company does not
have a revolving loan agreement with any financial institution nor can the
Company provide any assurance that it will be able to enter into any such
agreement in the future or be able to raise funds through the further issuance
of debt or equity in the Company. The Company continues to evaluate additional
merger and acquisition opportunities.
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.
On July 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income. This standard 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. Items of comprehensive income relate to
unrealized gains on securities available for sale. Reclassification of earlier
financial statements for comprehensive purposes is required. The financial
statements for the three months ended September 30, 1997, have been reclassified
to disclose items of comprehensive income. There are no significant tax effects
related to these items.
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 dates on or after
the year 2000 are a known risk. The Company is addressing this risk to the
integrity of its financial systems and the reliability of its operational
systems. The Company has established processes for evaluating and managing the
risks and costs associated with this problem, including communicating with
suppliers, dealers and other
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with whom it does business to coordinate its 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.
RISK FACTORS
The following factors and other information located through this Prospectus
should be carefully considered before deciding to invest in the securities being
offered.
LIMITED OPERATING HISTORY
The Company recently changed its business plan from being a dealer and
distributor of sun tunnels to developing and licensing the PI Technology and the
PE Process. The Company has a limited operating history that is relevant to
this new business plan, and has no experience or business history marketing the
PI Technology or licensing any products that use the PI Technology or the PE
Process. The Company cannot guarantee that products using the PI Technology or
the PE Process will ever be brought to the market, even if management hires
experienced personnel and goes through the product testing process. See "THE
COMPANY History of the Company."
REVENUES DEPEND ON BRINGING THE PI TECHNOLOGY TO THE MARKETPLACE
The Company does not anticipate generating revenues until products
utilizing the PI Technology are developed, marketed, manufactured, and brought
to the marketplace. The Company anticipates that developing its interconnect
technology and products will be expensive. These costs include application
engineering expenses, marketing costs, and other general and administrative
expenses. Development of the PI Technology does not guarantee that the Company
will be able to compete successfully in the marketplace, or that it will
generate significant revenue to offset projected operating costs.
HISTORY OF LOSSES DUE TO OPERATING EXPENSES
Since it changed its business purpose, the Company has incurred increased
operating expenses. The Company reported a net loss of $487,092 for the fiscal
year ended June 30, 1997, and reported a net loss of $1,137,334 for the fiscal
year ended June 30, 1998. Of the net loss, approximately $550,000 was
attributable to non-cash transactions involving the issuance of stock for
services or in lieu of interest payments. As of June 30, 1998, total
indebtedness of the Company was $391,282. The Company anticipates operating
losses will continue until the Company is able to generate sufficient revenues
to exceed its total costs of operation. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "SELECTED
FINANCIAL DATA."
NO JOINT VENTURES OR PARTNERSHIPS
The Company believes that its long-term profitability and growth depends on
entering into licensing or joint venture relationships with various
manufacturers to develop and market products using the PI Technology and the PE
Process. Although the Company has discussed
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licensing and joint ventures with manufacturers, no formal or informal
agreements have been concluded to date. The Company cannot assure that any such
agreements will ever be entered into, or that such agreements will be
profitable. Failure to enter into such arrangements could negatively affect the
Company's business. See "THE COMPANY The PI Technology - Sales and Marketing
Strategy."
ADDITIONAL CAPITAL REQUIREMENTS
The Company cannot accurately predict how much money it will need to
continue operations. Future capital requirements will be influenced by several
different factors, including the revenues earned, the status of competing
products in the marketplace, and the progress achieved in researching,
developing, marketing, and selling the PI Technology and the PE Process.
. FACTORS EFFECTING HOW MUCH MONEY THE COMPANY CAN BORROW. Several
factors influence the terms on which the Company can borrow money, or
whether the Company can borrow money at all. These factors include
the performance of the Company to date, its financial condition, and
its business prospects. Another factor is how the market views the
Company's present business and its potential for growth in the
industries in which it intends to conduct business.
. INABILITY TO OBTAIN FINANCING. Pursuant to the terms of a securities
purchase agreement dated as of July 23, 1998, the Company agreed to
sell, and Y.L. Hirsch agreed to buy, 150,000 shares of Series B
Preferred Stock and 700,000 shares of Series C Preferred Stock for an
aggregate purchase price of $8,500,000. On September 29, 1998, the
agreement was amended (the Amended Securities Purchase Agreement) to
provide for the sale to Mr. Hirsch of 75,000 shares of Series B
Preferred Stock and to allow the Company to sell the remaining shares
of Series B and Series C Preferred Stock to other investors. To date,
the Company has been unable to find substitute investors for the
unpurchased shares. Because the Hirsch financing was not completed,
the Company will need to obtain other financing. The Company may be
unable to enter into any future financing, or if the Company is able
to enter into financing, the terms on which funds are borrowed may not
be favorable. If the Company cannot obtain adequate financing, it
could negatively effect the Company's business and financial
condition.
. INABILITY TO FIND JOINT VENTURERS OR LICENSEES MAY REQUIRE ADDITIONAL
BORROWING OR MAY PREVENT INTRODUCTION OF PRODUCTS USING THE PI
TECHNOLOGY TO THE MARKETPLACE. To achieve market presence, the
Company intends to enter into joint venture or licensing relationships
with leading established national and international connector
manufacturers and/or electronic technology equipment manufacturers.
The Company also plans to enter into joint ventures with small volume
users of its technology. If the Company is unable to enter into these
relationships, it may not have enough resources to compete in its
primary markets. The Company would have to borrow a substantial
amount of
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additional funds to bring the PI Technology to the marketplace, which
may not be possible.
. CONSEQUENCES OF INABILITY TO OBTAIN FINANCING. If the Company cannot
raise capital on its own, it may have to delay, scale back or
eliminate its development and manufacturing programs, if any. The
Company also may have to go to third parties to seek financing, and in
exchange, it may have to give up rights to some of its technologies,
patents, potential products or other assets.
. DILUTION OF EXISTING SHAREHOLDERS' INTEREST WITH ANY ADDITIONAL
FINANCING. If the Company raises any additional funds, the interests
of existing stockholders will be further diluted.
PRODUCT QUALITY, PERFORMANCE AND RELIABILITY CANNOT BE ASSURED
The Company has no prior experience taking technology from the conceptual
stage to the manufacturing or production stage. Therefore, the Company plans to
have licensees or co-joint venturers do the manufacturing of products using the
PI Technology and the PE Process. The Company expects that the customers of
these products will demand quality, performance and reliability. The Company
cannot assure that its future licensees or co-joint venturers will be able to
meet the quality control standards that may be established by equipment
manufacturers and other customers of products utilizing the PI Technology and
the PE Process.
UNCERTAIN CONSUMER DEMAND FOR PI TECHNOLOGY
The Company must convince its potential customers that the PI Technology
and the PE Process are technologically sound and can be manufactured efficiently
and cost effectively before connector manufacturers and electronic equipment
manufacturers will be willing to use the Company's technology. To create this
consumer demand, the Company has to market and sell its new technology. Even
after these efforts, its technology may not be viewed by consumers as an
improvement over existing technologies, and the PI Technology may not achieve
commercial acceptance. See "THE COMPANY The PI Technology Sales and
Marketing."
DELAY IN ADOPTING THE PI TECHNOLOGY MAY LEAD CONSUMERS TO ALTERNATIVE
TECHNOLOGIES
The Company believes that it is important to establish a market presence
within the next two years. Any delay in adopting the PI Technology could lead
prospective customers to use alternative technologies. To achieve such a
presence, management intends to enter into joint ventures, licensing, or other
similar arrangements with one or more manufacturers. However, management cannot
assure such attempts will be successful, and any loss of potential customers to
alternative technologies could adversely effect the Company's business and
financial condition. See "THE COMPANY The PI Technology Sales and Marketing
Strategy."
INABILITY TO HIRE AND RETAIN KEY PERSONNEL
Future success depends in part on the continued contributions of the
Company's key technical and senior management personnel. The success of the
Company also depends on its
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ability to attract and retain additional qualified technical personnel with
experience in manufacturing, as well as personnel with experience in marketing.
The Company may be unable to attract or retain such necessary personnel,
including a qualified replacement for Mr. Gilbert Olachea who resigned as the
Company's President and Chief Executive Officer on December 1, 1998. If the
Company fails to attract or retain skilled employees, or a key employee fails to
perform in his or her current position, the Company may be adversely effected.
See "THE COMPANY - Employees" and "MANAGEMENT."
PI TECHNOLOGY COULD BE RENDERED OBSOLETE BY TECHNOLOGY CHANGES
The interconnect market is subject to rapid technology changes. New
products are introduced, old products are enhanced, and others become obsolete.
The entire interconnect market may be replaced by a newer form of technology.
To be competitive in this quickly evolving market, the Company must develop,
market and sell its products on a timely and cost-effective basis. The Company
also must respond to the ever changing requirements and demands of its
customers. The Company's success in developing new or enhanced technologies
depends on successful new product selection and integration of its complex PI
Technology into products. Success also will depend on how quickly competitors
can design and develop competing products and technologies. No assurance can be
given that the Company will be successful in selecting, developing, and
marketing new technologies or that errors or flaws in the new technologies will
not prevent or delay market acceptance. If the Company cannot introduce
technologies and products that satisfy market demands in a timely manner, it may
be negatively affected. See "THE COMPANY The PI Technology Competition."
COMPETITION
The interconnect market is highly competitive. Through licenses and co-
joint ventures, the Company will compete with multinational connector
manufacturers such as Berg Electronics, AMP, 3M, Molex and Yamaichie and major
electronic technology manufacturing leaders such as Intel, Dupont, Siemens and
IBM. The Company will be disadvantaged competing against these competitors in
several different areas, including:
. Financial Resources . Technological Resources
. Manufacturing Capabilities . Diversity of Revenue Sources and
Business Opportunities
. Personnel and Human Resources . Research and Development
The Company's larger competitors have long-term advantages over the Company
in research and new product development and have a greater ability to withstand
periodic downturns in the interconnect market because they have diverse product
lines that provide revenue even when there is a downturn in the interconnect
market.
The Company also must compete with new technologies and products that have
not yet been developed. Its ability to compete successfully will depend in
large measure on its capability to upgrade its products and quality control
procedures and to adapt to technological
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<PAGE>
changes and advances in the electronics industry. Such capability includes
making sure that products that are introduced remain compatible with evolving
generations of electronic components and manufacturing equipment. The Company
cannot guarantee that it will be successful in such endeavors.
UNCERTAINTY PROTECTING INTELLECTUAL PROPERTY RIGHTS
The Company protects its intellectual property rights through patents,
trademarks, trade names, trade secrets and a variety of other measures.
However, these measures may be inadequate to protect the Company's trade secrets
or other proprietary information. See "THE COMPANY--Intellectual Property
Protection."
. TRADE SECRETS MAY BECOME KNOWN BY THIRD PARTIES. The Company's trade
secrets or proprietary technology may become known or be independently
developed by competitors.
. RIGHTS TO PATENTS AND TRADE SECRETS MAY BE INVALIDATED. Disputes may
arise with third parties over the ownership of the Company's
intellectual property rights. Patents owned by the Company may be
invalidated, circumvented or challenged, and the rights granted under
those patents that provide competitive advantages to the Company may
be nullified.
. PROBLEMS WITH FUTURE PATENT APPLICATIONS. Pending or future patent
applications may not be approved, or the scope of the granted patent
may be less than the coverage sought by the Company.
. INFRINGEMENT CLAIMS BY THIRD PARTIES. Infringement, invalidity, right
to use or ownership claims by third parties or claims for
indemnification may be asserted by third parties in the future. If
any claims or actions are asserted against the Company, the Company
can attempt to obtain a license for that third party's intellectual
property rights. However, the third party may not provide a license
under reasonable terms, or may not provide a license at all.
. THIRD PARTIES MAY DEVELOP SIMILAR PRODUCTS. Competitors may develop
similar products, duplicate the Company's products or may design
around the patents that are owned by the Company.
. LAWS IN OTHER COUNTRIES MAY INSUFFICIENTLY PROTECT INTELLECTUAL
PROPERTY RIGHTS ABROAD. Foreign intellectual property laws may not
adequately protect the Company's intellectual property rights abroad.
The Company's failure to protect these rights could adversely effect
its business and financial condition.
. LITIGATION MAY BE REQUIRED TO PROTECT INTELLECTUAL PROPERTY RIGHTS.
Litigation may be necessary to protect the Company's intellectual
property rights and trade secrets, to determine the validity of and
scope of the rights of third parties or to defend against claims of
infringement or invalidity by third parties. Such litigation could be
expensive, would divert resources and management's
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<PAGE>
time from the Company's sales and marketing efforts, and could have a
materially adverse effect on the Company's business, financial
condition and results of operations and on its ability to enter into
joint ventures or partnerships with others.
LICENSE RIGHTS TO PI TECHNOLOGY
Before the Company acquired the patents, patent applications and licenses
from the original owners of the PI Technology and the PE Process, the inventor
of the PI Technology granted five companies exclusive and non-exclusive licenses
to use the patents and patent applications relating to the PI Technology. See
"THE COMPANY History."
. EXCLUSIVE LICENSES. The Company cannot compete in the fields in which
exclusive licenses have been granted. An exclusive license was
granted in the field of sockets for use in the automated handling and
testing of integrated circuits. Another exclusive license was granted
to use the PI Technology in a limited number of high performance
integrated circuit packages. See "THE COMPANY Intellectual Property
Protection."
. NON-EXCLUSIVE LICENSES. The non-exclusive licenses do not prohibit
licensees from competing directly with the Company or the Company's
other future licensees. The licenses apply to the use of the PI
Technology for electrically conductive components, laminate-based and
metal based products, and semi-conductor products. If the present
licensees decide to compete with the Company or its future licensees,
this competition could adversely effect the Company's business. See
"THE COMPANY Intellectual Property Protection."
NO MARKET EXISTS FOR PREFERRED SHARES OR WARRANTS
No public market exists to trade the Preferred Shares or the Warrants and
the Company does not intend to have the Preferred Shares or the Warrants listed
on any national securities exchange or quoted through the NASDAQ automated
quotation system. The Company cannot guarantee that there will be a market to
sell the Preferred Shares or Warrants, or the price at which holders would be
able to sell their Preferred Shares or Warrants. The price that holders would
be able to obtain depends on many factors, including the Company's operating
results and the market for similar securities. See "DESCRIPTION OF SECURITIES
Preferred Stock Series B Preferred Stock and Series C Preferred Stock" and "
Warrants."
STATE BLUE SKY LAWS MAY PREVENT SALES OF SECURITIES
Before the Company can issue any securities to a purchaser, state
securities laws require that such securities be registered or qualified for sale
in the state where the purchaser resides, or else fall within an exemption from
registration. The Company will not issue Common Stock to persons who want to
convert their Preferred Shares into common shares, or allow persons to exercise
their Warrants, unless the Preferred Shares, the Warrants, and underlying Common
Stock are registered or fall under an exemption from registration. The Company
will not knowingly sell Preferred Shares or Warrants to purchasers in
jurisdictions in which the Preferred Shares and Warrants are not registered or
otherwise qualified for sale or exempt. However, there
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<PAGE>
is a risk that purchasers may buy the Preferred Shares or Warrants in the after-
market or may move to jurisdictions in which the Preferred Shares, Warrants and
Common Stock underlying the Preferred Shares and Warrants are not registered,
qualified, or exempt. The Company cannot guarantee that it will be able to
effect any required registration or qualification. See "DESCRIPTION OF
SECURITIES Preferred Stock Series B Preferred Stock and Series C Preferred
Stock" and " -Warrants."
FEDERAL LAWS MAY PREVENT CONVERSION OF PREFERRED SHARES AND EXERCISE OF WARRANTS
For the Preferred Shares and Warrants offered in this Prospectus to be
convertible into Common Stock, the Company must maintain a current registration
statement on file with the Securities and Exchange Commission (the "SEC"). This
can be done by filing post-effective amendments to the Registration Statement or
by filing a new registration statement to reflect the exercise of Preferred
Shares and Warrants. The Company has agreed to use its best efforts to file and
maintain a current registration statement with the SEC relating to the Preferred
Shares, the Warrants and underlying shares of Common Stock included in this
Prospectus. However, the Company cannot assure that the securities covered by
this Prospectus will continue to be registered. The value of the Preferred
Shares and Warrants could be adversely affected if there is no effective
registration statement to cover the Preferred Shares or the Warrants. See
"DESCRIPTION OF SECURITIES Preferred Stock Series B Preferred Stock and Series
C Preferred Stock" and " - Warrants."
THE PRICE OF THE COMMON STOCK COULD CHANGE BASED ON THIS OFFERING
The market price of the Common Stock could be adversely affected by sales
of substantial amounts of Common Stock in the public market after this offering,
by the perception that such sales could occur or by the fact or perception of
events which would have a dilutive effect on the Company, such as the conversion
of outstanding preferred stock. After this offering, the Company could have up
to 27,427,188 shares of Common Stock outstanding, assuming that: (a) all of the
Preferred Shares are converted into 3,050,000 shares of Common Stock; (b) all of
the Warrants are converted into 470,000 shares of Common Stock; (c) all of the
Company's issued and outstanding shares of Series A Preferred Stock are
converted into 7,250,000 shares of Common Stock; and (d) all of the 3,900,000
outstanding Common Stock options are exercised. See "DESCRIPTION OF
SECURITIES."
The market price of the 12,757,188 shares of Common Stock currently
outstanding also will be influenced by the ability of Common Stock holders to
sell their stock.
. FREELY TRANSFERABLE SHARES. Of the 12,757,188 shares of Common Stock
currently outstanding, approximately 9,401,958 shares are freely
transferable and constitute the "float" in the public market for the
Common Stock. Of the 27,427,188 shares of Common Stock that could be
outstanding after this offering, up to 15,321,958 shares could be
freely transferable and would constitute the "float" in the public
market for the Common Stock.
. RESTRICTED SHARES. Of the 12,757,188 shares of Common Stock currently
outstanding, 3,355,230 shares of Common Stock are "restricted" or
"control"
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securities within the meaning of Rule 144 under the Securities Act of
1933, as amended (the "Securities Act"). Of the 27,427,188 shares of
Common Stock that could be outstanding after this offering, up to
12,105,230 shares could be "restricted" or "control" securities. These
restricted securities may not be sold in the absence of registration
under the Securities Act, unless an exemption from registration is
otherwise available, including the exemption contained in Rule 144.
Shares of Common Stock issued from time to time upon the exercise of
stock options will be available for sale in the public market, subject
to Rule 144 volume limitations applicable to affiliates. See "SHARES
ELIGIBLE FOR FUTURE SALE" and "PLAN OF DISTRIBUTION."
RISK OF LOW-PRICED SECURITIES
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. Regulations enacted by the SEC
generally define a penny stock as an equity security that has a market price of
less than $5.00 per share, subject to certain exceptions. Unless an exception
applies, a disclosure schedule explaining the penny stock market and the risks
associated with investing in penny stocks must be delivered before any
transaction in penny stock can occur.
In addition, if the Company's securities are not quoted on NASDAQ or if
they do not meet an exception to the penny stock regulations cited above,
trading in the Company's securities would be covered by Rule 15g-9 which was
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Under this rule, broker/dealers who recommend penny stocks to persons
that are not established customers or accredited investors must make a special
determination in writing for the purchaser that the investment is suitable, and
must also obtain the purchaser's written agreement to a transaction before the
sale.
The regulations could limit the ability of broker/dealers to sell the
Company's securities and thus the ability of purchasers of the Company's
securities to sell their securities in the secondary market.
THE COMPANY
The Company, a Nevada corporation, was incorporated on June 22, 1996. Its
corporate offices are located at 370 17th Street, Suite 3580, Denver, Colorado
80202, and its telephone number is (303) 592-1010. The Company's Common Stock is
traded on the over-the-counter market and is quoted on the OTC Bulletin Board
under the symbol "NPCT." It is also traded on the Third Market Segment of the
Berlin Stock Exchange under the symbol "NPI."
HISTORY OF THE COMPANY
The Company was organized in June 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
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was discontinued and substantially all of the remaining assets of Sunlight were
liquidated 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 current principal business activities
of the Company 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
SEC.
On February 26, 1998, Sunlight acquired all of the assets, including all of
the intellectual property rights related to the PI Technology and the PE Process
from Particle Interconnect Corporation, a Colorado corporation ("PI Corp.") and
a wholly-owned subsidiary of Intercell. In exchange for the assets of PI Corp.,
Intercell received 7,250,000 shares of 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 shares and on a fully diluted basis. See "DESCRIPTION OF
SECURITIES Preferred Stock Series A Preferred Stock" and "CERTAIN
TRANSACTIONS." The Company subsequently determined that the acquisition of all
or substantially all of the assets relating to the PI Technology from PI. Corp.
was not the acquisition of a business because PI Corp. is and was not an ongoing
business and had no revenue producing activities. Therefore, no separate
financial statements are included in this Prospectus.
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 "MANAGEMENT." The new management team has
implemented a revised business strategy as discussed below.
OVERVIEW OF BUSINESS ACTIVITIES
The Company is pursuing a new line of business involving interconnect
technology, the electrical connection between electronic components and systems.
The Company is working on developing, licensing, and marketing 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 substrate/1/ in the
final product as a socket, connector or conductor. The PE Process broadens the
application of the PI Technology by making it possible to apply the diamond
particles to many different substrates, whether flexible, rigid, metallic or
non-metallic.
- ---------------------------------
/1/ A "substrate" is a foundation that provides a supporting surface.
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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 sale 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.
INTEGRATED CIRCUIT INDUSTRY BACKGROUND
Trends in the Electronics Industry
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, integrated circuits/1/ ("ICs"), IC
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 higher performance and decreased size.
INTEGRATED CIRCUITS
The Company believes that market trends in IC packaging will lead to
increased demand for emerging high density substrates./2/ ICs historically have
been packaged by bonding the silicon die/3/ to an interconnect base and
connecting the silicon die to a lead frame using very fine wires. As ICs become
increasingly powerful, they require a significantly greater number of
input/output electrical connections to attach the silicon die, thus producing
more heat and placing
- ---------------------
/1/ An "integrated circuit" is a type of semiconductor in which a number of
transistors and other elements are combined to form a more complicated circuit.
These elements typically are fabricated in silicon. An individual IC is called
a "chip" or "silicon die," which is attached to a substrate and then encased in
plastic, ceramic or other advanced forms of packaging to prevent damage to the
chip and facilitate handling. This enclosure is known as an IC Package.
/2/ "High Density Substrates" are electronic circuits manufactured from a thin,
pliable structure resembling tape or film with very thin circuit traces down to
1 milli-inch (.001 inches).
/3/ "Silicon Die" is an individual integrated circuit which is attached to a
substrate.
20
<PAGE>
substantially greater challenges on the IC interconnect methods. For instance,
typical ICs six years ago required up to approximately 80 input/output
connections to the silicon die, whereas today typical ICs require up to
approximately 300 input/output connections. The number of high density IC
packages requiring more than the typical 300 input/output 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 ICs toward 1,000 input/output connections.
Further, IC interconnect challenges arise when multiple silicon dies are placed
into one package, known as a "Multi Chip Module" or "MCM."/1/ 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). A 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 levels.
Wiping action technology provides connections that produce excessive and
unwanted wear and heat, and therefore contribute to equipment failure while also
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 imposed by wiper interconnects.
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
- ---------------------
/1/ "Multi-Chip Module" or "MCM" is a high performance IC Package containing
more than one silicon die on a single high density substrate.
21
<PAGE>
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 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 IC Packages increase in input/output count and complexity while
maintaining 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 input/output counts increase becomes difficult to
achieve.
Designers of rematable connections, however, find this issue especially
troubling. As input/output 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 IC
Packages had input/output counts of 100, this force was easy to accommodate, but
as input/output counts move toward 1,000 and beyond, current contact
technologies are inadequate. For example, at 40 grams per contact, a 1,000
input/output Ball Grid Array/1/ 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 input/output 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.
- ------------------------
/1/ A "Ball Grid Array" is an advanced integrated circuit package in which the
silicon die is attached to a high density substrate which, in turn, is placed on
an array of small solder balls forming the interconnect base of the package.
The Ball Grid Array is soldered directly to an electronic circuit, without using
pins or wire leads coming out of the perimeter of the package.
22
<PAGE>
THE COMPANY'S SOLUTION TO LIMITS IN CURRENT TECHNOLOGY
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 input/output IC socket with
the underlying printed circuit board base. The Company believes this reduction
in force may enable manufacturers to connect complex ICs to products through the
next several generations of electronics without the high cost of associated
mechanical solutions.
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 ICs 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 coating 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 input/output 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
substrates - flexible, rigid, metallic and non-metallic. This wide range of
substrates, 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
23
<PAGE>
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
(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
using 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 (BGA) and
Land Grid Array (LGA) production sockets/1/ as well as other forms of Z-axis
interconnect,/2/ such as direct chip attachment and MCMs. 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
- ------------------------------
/1/ A "Land Grid Array" is an array of conducting pads on the package base.
/2/ "Z-axis" means an electronic interconnect method that uses a vertical
contact to connect two electronic components or paths as opposed to a horizontal
connection.
24
<PAGE>
the 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.
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 expenses 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. See
"RISK FACTORS Competition" and "- PI Technology Could Be Rendered Obsolete by
Technology Changes."
INTELLECTUAL PROPERTY PROTECTION
The Company will rely on a combination of patents, patent applications,
trademarks, trade names, 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.
25
<PAGE>
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 MCM thin film substrates,
except attached or associated products including integrated circuits, sockets,
lids, heat sinks, housings 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 substrate products; (v) a non-exclusive license
to Multiflex Inc. for use in the field of laminate-based substrates and metal
substrates; and (vi) a non-exclusive license to Myers Consulting Inc. for use in
the field of laminate-based substrates, metal substrates, 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 four of these license agreements have
not produced any royalty fees for the Company. Royalties under the one active
agreement are being held in an escrow account, and royalties under one inactive
agreement are being held in reserve, 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 "- Legal Proceedings."
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. See "RISK FACTORS Uncertainty Protecting
Intellectual Property Rights."
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
26
<PAGE>
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 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 Paul Metzinger, its
President and Chief Executive Officer, and Thomas Vander Stel, its Chief
Financial Officer and Vice President. The Company has one officer in addition
to Messrs. Metzinger and Vander Stel. See "MANAGEMENT."
PROPERTIES
The Company currently maintains its executive and administrative offices in
space provided by Intercell, its majority shareholder, at an expense of $5,850
per year. The Company owns no real property.
27
<PAGE>
LEGAL PROCEEDINGS
The Company has received multiple copies of a summons and complaint naming
one of its licensees and identifying others (but not naming the Company) by Mr.
Louis DiFrancesco in a lawsuit filed on March 10, 1998 with the Superior Court
of California, County of Santa Clara, case number CV772523. Mr. DiFrancesco
asserts that copies of the complaint delivered 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 are 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. Louis DiFrancesco on October 5, 1998,
with the District Court for the City and County of Denver, Colorado, to enjoin
him from certain specified actions against the Company and its licensees and to
confirm the Company's ownership of its intellectual property rights. On October
19, 1998, the District Court for the City and County of Denver, Colorado issued
a temporary restraining order prohibiting Mr. DiFrancesco from, among other
things, claiming any ownership of the Company's patents and claiming any right
to royalty payments under the Company's licenses. On November 5, 1998, the
District Court for the City and County of Denver, Colorado issued a preliminary
injunction prohibiting Mr. DiFrancesco from: (i) contacting any actual or
potential customer, licensee or investor of the Company or its related entities
using the name "Particle Interconnect Research & Development" or any other name
confusingly similar to the Company's trade name and trade mark "Particle
Interconnect;" (ii) contacting any actual or potential customer, licensee or
investor of the Company or its related entities under the auspices that he
represents, works for, or is associated with the Company; and (iii) making any
statement to any actual or potential customer, licensee or investor of the
Company or its related entities which directly or by implication asserts that
(a) he owns all or any portion of the patents or patent applications which he
previously has assigned to the Company or (b) his consulting agreement with
Particle Interconnect Corporation (a predecessor of the Company) has not
expired.
On November 24, 1998, Mr. DiFrancesco filed an answer in the District Court
for the City and County of Denver, Colorado, generally denying the allegations
contained in the Company's complaint and asserting certain affirmative defenses.
The answer also asserts counterclaims against the Company, Intercell and Paul
Metzinger, individually, for breach of contract, fraud in the inducement and
legal malpractice and seeks rescission of the merger pursuant to which PI Corp.
(a subsidiary of Intercell) acquired the PI Technology and certain declaratory
relief. The Company, Intercell and Mr. Metzinger intend to vigorously defend
themselves against such counterclaims and are in the process of preparing
answers and defenses to such counterclaims.
Other than the lawsuits involving Mr. DiFrancesco, 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
28
<PAGE>
beneficial owner of more than 5% of the Company's voting securities) is party or
to which property of the Company is subject.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
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>
Paul H. Metzinger (59) Director, President and Chief Director from February 1998 to
Executive Officer present, Executive Vice President
from May 1998 to December 2, 1998,
and President and Chief Executive
Officer from February 1998 to May
1998 and December 2, 1998, to
present
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. The Company has not
established an executive committee of the Board of Directors or any committee
that would serve similar functions such as an audit, incentive compensation or
nominating committee.
BIOGRAPHICAL INFORMATION ON DIRECTORS, OFFICERS AND SIGNIFICANT EMPLOYEES
Paul H. Metzinger. Mr. Metzinger has been President and Chief Executive
Officer of the Company since December 2, 1998, and a director since February
1998. He served as President and Chief Executive Officer of the Company from
February 1998, to May 1998 and as Executive Vice President of the Company from
May 1998, to December 2, 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,
29
<PAGE>
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.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning compensation
paid by the Company to persons serving as its Chief Executive Officer ("CEO")
for the fiscal year ended June 30, 1998, and to any other executive officer
whose total annual salary and bonus exceeded $100,000 for the fiscal year ended
June 30, 1998 (the "Named Executive Officers"):
30
<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- -----------------------------------------------
SECURITIES ALL OTHER
NAME AND PRINCIPAL FISCAL UNDERLYING COMPENSATION
POSITION(1) YEAR SALARY($) BONUS($) OPTIONS (#) ($)
<S> <C> <C> <C> <C> <C>
Gilbert Olachea, former 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, President and
CEO(7)
</TABLE>
________________
(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. He
resigned from both positions on December 1, 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. On July 1, 1998, Messrs. Olachea and Vander Stel began
receiving annual salaries of $130,000 and $85,000, respectively, from the
Company.
(4) Options to purchase 1,500,000 shares of Common Stock were granted to Mr.
Olachea on February 26, 1998, which options were immediately exercisable at a
price of $0.3250 and expired on February 26, 2008. These options were cancelled
upon his resignation from the Company on December 1, 1998.
(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 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, and was reappointed President and CEO on December 2,
1998. Mr. Metzinger served as Executive Vice President of the Company from
May 6, 1998, to December 2, 1998.
(8) Mr. Metzinger did not become an employee of the Company until December 2,
1998, and therefore did not receive a salary from the Company before then.
Prior to December 1998, the salary that he received from Intercell was in
partial compensation of the services that he performed on behalf of the
Company. Commencing January 1, 1999, Mr. Metzinger will receive an annual
salary of $150,000 from the Company, pursuant to a written employment agreement
that will be executed on such date. Any salary otherwise payable to him by
Intercell will be reduced by the amount of salary paid him by 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
"CERTAIN TRANSACTIONS."
(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 and expire on February 26, 2008. See "CERTAIN TRANSACTIONS." 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
$0.3250 and expire on February 27, 2008.
The foregoing compensation table does not include certain fringe benefits
made available on a nondiscriminatory basis to all Company employees such as
group health insurance, dental insurance, long-term disability insurance,
vacation and sick leave. In addition, the Company makes available certain non-
monetary benefits to its executive officers with a view to acquiring
31
<PAGE>
and retaining qualified personnel and facilitating job performance. The Company
considers such benefits to be ordinary and incidental business costs and
expenses. The aggregate value of such benefits in the case of each executive
officer listed in the above table, which cannot be precisely ascertained but
which is less than 10% of the cash compensation paid to each such executive
officer, is not included in such table.
OPTION GRANTS TABLE
The following table provides information relating to the grant of stock
options to the Named Executive Officers during the fiscal year ended June 30,
1998.
<TABLE>
<CAPTION>
OPTION GRANTS IN THE LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS PRICE APPRECIATION FOR OPTION TERM(1)
- ------------------------------------------------------------------------------------------ -----------------------------------------
PERCENT OF
TOTAL(2)
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES IN FAIR MARKET
OPTIONS FISCAL EXERCISE VALUE ON EXPIRATION
GRANTED(#) YEAR(3) PRICE($/SH) GRANT DATE(4) DATE 5% ($) 10% ($)
---------- ------- ----------- ------------- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Gilbert 1,500,000(5) 43.5% $0.3250 $0.3250 2/26/08 $306,586 $776,949
Olachea
Thomas 400,000 11.6% $0.3250 $0.3250 2/26/08 $ 81,756 $207,186
Vander Stel
Paul 1,000,000 29% $0.3250 $0.3250 2/26/08 $204,391 $517,966
Metzinger 500,000 14.5% $0.3250 $0.3250 2/27/08 $102,195 $258,983
</TABLE>
_______________
(1) Potential realizable value is based on an assumption that the stock price of
the Common Stock appreciates at the annual rate shown (compounded annually) from
the date of grant until the end of the ten-year option term. Numbers in
parenthesis are negative numbers. These numbers are calculated based on the
requirements promulgated by the SEC and do not reflect the Company's estimate of
future stock price growth which may or may not occur.
(2) Based on a total of 3,450,000 options granted to employees in the fiscal
year ended June 30, 1998.
(3) All options granted were immediately exercisable on the date of grant.
(4) Computed based on the average closing bid and asked prices on the date the
options were granted.
(5) Mr. Olachea's options were cancelled upon his resignation from the Company
on December 1, 1998.
AGGREGATED OPTION EXERCISE AND FISCAL YEAR-END OPTION TABLE
The following table provides information relating to the exercise of stock
options during the fiscal year ended June 30, 1998, by the Named Executive
Officers and the 1998 fiscal year-end value of unexercised options.
32
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FY-END(1) FY-END($)(1)
---------------------- ------------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Gilbert Olachea -0- -0- 1,500,000(2) / -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.
(2) Mr. Olachea's options were cancelled upon his resignation from the Company
on December 1, 1998.
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 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.
Metzinger and Vander Stel and currently has no other employees. The Company has
one officer in addition to Messrs. Metzinger 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 were exercisable.
On December 1, 1998, options granted to Gilbert Olachea to purchase 1,500,000
shares of Common Stock were cancelled in connection with his resignation from
the Company.
33
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Company does not have a compensation committee and therefore all
decisions regarding the compensation of executive officers and directors of the
Company are made by the full Board of Directors. In the preceding fiscal year,
the following members of the Board of Directors participated in discussions
involving the compensation of executive officers of the Company: Patricia E.
Johnson prior to February 23, 1998, and Messrs. Olachea and Metzinger after
February 23, 1998.
CERTAIN TRANSACTIONS
On July 22, 1996, Mendell merged into its wholly-owned subsidiary Sunlight
(now Nanopierce Technologies, Inc.), with Sunlight being the surviving
corporation. See "THE COMPANY." 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 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
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 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 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 by the Royal Bank of Scotland 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 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./1/
- -----------------------
/1/ None of the foregoing numbers of shares of Common Stock have been restated
to reflect the one-for-three reverse stock split that occurred on February 27,
1998.
34
<PAGE>
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 4, 1997, and August 18, 1997.
On September 3, 1996, PI Corp. merged with 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 $1,500,000 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 "THE COMPANY History of
the Company." 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 46% of the outstanding shares of Common
Stock on a fully diluted basis.
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 "SECURITY OWNERSHIP OF
PRINCIPAL STOCKHOLDERS." 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. Upon Mr. Olachea's resignation from the Company on
December 1, 1998, Mr. Metzinger was appointed the Company's President and Chief
Executive Officer and became the Company's sole director. See "MANAGEMENT."
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.
The Company has agreed that, to the extent proceeds from the sale of any of
the shares offered by Intercell are used directly or indirectly for the benefit
of the Company, the Company will issue shares to Intercell, upon demand from
Intercell, in an amount equal to the number of such shares sold. The agreement
is designed to allow Intercell to raise capital for the Company while also
preserving for Intercell the opportunity for prospective appreciation in the
value of the Company.
35
<PAGE>
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.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's voting securities, as of December 8, 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>
AMOUNT AND NATURE OF PERCENTAGE OF CLASS
STOCKHOLDER NAME AND ADDRESS TITLE OF CLASS OWNERSHIP BENEFICIALLY OWNED(1)
<S> <C> <C> <C>
Intercell Corporation Series A Preferred Stock 100 100%
370 17th St., Ste. 3580 Common Stock 12,650,000(2) 46.12%
Denver, CO 80202
Zenith Petroleum Corporation Common Stock 2,115,273(3) 7.71
9101 E. Kenyon Ave., Ste. 1000
Denver CO 80237
Bert Roosen Common Stock 1,376,856(4) 5.02
#4 14909 32nd Ave.
Surrey BC
Canada V4P 1A4
Paul Metzinger(5) Common Stock 2,843,624(6) 10.37
c/o Nanopierce Technologies, Inc.
370 17th St., Ste. 3580
Denver, CO 80202
Gilbert Olachea(7) -- 0(8) 0
1023 East Derby Drive
Tempe, Arizona 85284
Thomas Vander Stel(9) Common Stock 400,000(10) 1.46
c/o Nanopierce Technologies, Inc.
370 17th St., Ste. 3580
Denver, CO 80202
Officers and directors as a group (3 Common Stock 3,313,204(11) 12.08
persons)
</TABLE>
(1) Based upon 27,427,188 shares of Common Stock issued and outstanding on a
fully diluted basis as of December 8, 1998. Consists of: (i) 12,757,188
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) 3,050,000 shares issuable upon
conversion of 61,000 shares of Series B Preferred Stock issued, outstanding
and convertible within 60 days (assuming an average conversion price of $0.20
per share); (iv) 3,900,000 shares issuable
36
<PAGE>
upon the exercise of outstanding options exercisable within 60 days; and (v)
470,000 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.
(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, President and CEO 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, with respect to 500,000
shares. Also includes 990,251 shares of Common Stock owned by his wife, Cheri
L. Metzinger, and 44,750 shares of Common Stock owned by Lumenaria, LLC, a
company wholly-owned by Mr. Metzinger.
(7) Mr. Olachea was a Director and the President and CEO of the Company from
May 1998 to December 1, 1998.
(8) Mr. Olachea was granted options to purchase 1,500,000 shares of Common
Stock, which options were cancelled upon his resignation from the Company on
December 1, 1998.
(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 1,900,000 shares issuable upon presently exercisable options, as
set forth in footnotes 6 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 December 8, 1998, certain information
regarding beneficial ownership of the common stock 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 common stock listed below have sole investment
and voting power with respect to such shares.
<TABLE>
<CAPTION>
TITLE OF CLASS, AMOUNT AND PERCENTAGE OF CLASS
STOCKHOLDER NAME AND ADDRESS NATURE OF OWNERSHIP BENEFICIALLY 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)
1023 East Derby Drive common stock
Tempe, Arizona 85284
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 (3 4,192,541 shares(6) 11.03%
persons) common stock
</TABLE>
(1) Based upon 38,004,128 shares of Intercell's common stock issued and
outstanding as of December 8, 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 which are exercisable at
$.3750 per share and expire September 2007, all owned by his wife, Cheri L.
Metzinger.
37
<PAGE>
(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. Mr. Olachea was a Director and the President and CEO of the Company from
May 1998 to December 1, 1998.
(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 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.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 45,000,000 shares
of Common Stock, $.0001 par value per share, and 5,000,000 shares of the
Company's preferred stock, $.0001 par value per share (the "Preferred Stock").
Of the Preferred Stock, 100 shares have been designated as Series A Preferred
Stock (the "Series A Shares"), 150,000 shares have been designated as Series B
Preferred Stock (the "Series B Shares") and 700,000 shares have been designated
as Series C Preferred Stock (the "Series C Shares"). The Company has
outstanding warrants to purchase 470,000 shares of Common Stock and options to
purchase 3,900,000 shares of Common Stock.
The Company is authorized to issue an additional 4,149,900 shares of
Preferred Stock which will be designated as and when the Board of Directors
determines the preferences, limitations and relative rights of such shares. The
Board of Directors has the authority to issue the Preferred Stock in one or more
series and to fix the number of shares constituting any such series, the voting
powers, designations, preferences, relative participating, optional or other
special rights and qualifications, limitations or restrictions thereof,
including dividend rights, dividend rates, terms of redemption, redemption
prices, conversion rights, voting rights and liquidation preferences, all
without any further vote or action by the holders of the Common Stock.
Although the Board of Directors currently has no intention of doing so, its
authority to issue Preferred Stock, without further vote or action by the
holders of the Common Stock, could be used to discourage attempts by others to
obtain control of the Company through a merger, tender offer, proxy or consent
solicitation, or otherwise, by making such attempts more difficult to achieve
and more costly. The Board of Directors also may issue Preferred Stock with
voting rights that could adversely affect the voting power of the then-existing
holders of Common Stock. There currently are no agreements or understandings for
the issuance of additional Preferred Stock and the Board of Directors has no
present intention of issuing any additional shares of Preferred Stock.
COMMON STOCK
As of December 8, 1998, there were 12,757,188 shares of Common Stock issued
and outstanding. Each share of Common Stock is entitled to one vote on each
matter submitted to a vote of the shareholders and is equal to each other share
with respect to voting, liquidation and dividend rights. Holders of the Common
Stock are entitled to receive such dividends, if any, as may be declared by the
Board of Directors out of assets legally available therefor and to receive net
assets in liquidation after payment of all amounts due to creditors and any
liquidation
38
<PAGE>
preference due to preferred stockholders. Holders of the Common Stock have no
conversion rights and are not entitled to any preemptive or subscription rights.
The Common Stock is not subject to redemption or any further calls or
assessments. The Common Stock does not have cumulative voting rights in the
election of directors.
The transfer agent for the Common Stock is Corporate Stock Transfer, Inc.,
370 Seventeenth Street, Suite 2350, Denver, Colorado 80202.
PREFERRED STOCK
Reference is made to the Company's Certificates of Designation of Rights
and Preferences of the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock (which are filed as exhibits to the Registration
Statement) for a complete description of the terms and conditions of the
designated Preferred Stock and the descriptions of such stock contained herein
are qualified in their entirety by reference thereto. No shares of Preferred
Stock have cumulative voting rights in the election of directors.
SERIES A PREFERRED STOCK
As of December 8, 1998, there were 100 Series A Shares issued and
outstanding, all of which were owned by Intercell. See "CERTAIN TRANSACTIONS."
The Series A Shares have a liquidation preference of $22,656.25 per share (the
"Series A Deemed Liquidation Price").
The holders of the Series A Shares are entitled to receive a dividend equal
to 8% of the Series A Deemed Liquidation Price. If such dividend is not paid,
the holders of the Series A Shares may elect to have the Series A Deemed
Liquidation Price increased by the amount of the accrued dividend or to have the
accrued dividend converted into shares of Common Stock on the basis of the price
of the Common Stock on the date of such conversion.
Each Series A Share is convertible at the option of the holder into shares
of Common Stock at a conversion price of $.3257 per share (72,500 shares of
Common Stock each, 7,250,000 shares of Common Stock total). The conversion
price shall be proportionately changed to reflect stock splits, stock dividends,
mergers, consolidations, recapitalizations, reorganizations, or other similar
events as a result of which shares of Common Stock of the Company are changed
into the same or a different number of the same or another class or classes of
stock.
The holder of each outstanding Series A Share is entitled to notice of any
stockholders' meeting in accordance with the Company's bylaws and shall vote
with the holders of the Preferred Stock and Common Stock, voting together as a
single class, upon all matters submitted to a vote of stockholders. The holder
of each Series A Share is entitled to the number of votes equal to the largest
number of full shares of Common Stock into which each Series A Share could then
be converted. In addition, the holders of the outstanding Series A Shares are
entitled to vote separately as a class with respect to those matters required by
Nevada law to be submitted to a class or series vote.
The approval of 75% of the holders of the outstanding Series A Shares is
required before the Company can (i) adversely alter or change the rights,
preferences or privileges of the Series
39
<PAGE>
A Shares, (ii) create any new class or series of stock having preference over
the Series A Shares with respect to liquidating preferences or distributions, or
(iii) increase the number of authorized Series A Shares. The holders of the
Series A Shares do not have preemptive rights.
Upon six months' written notice, the Company may redeem all or a portion of
the Series A Shares. Upon redemption, the holders of the Series A Shares are
entitled to receive the Series A Deemed Liquidation Price plus accrued but
unpaid dividends.
The Series A Shares are senior to all other classes of Preferred Stock with
respect to any liquidating preference or distribution. In the event of any
liquidation, dissolution or winding up of the Company (a "Liquidation Event"),
the holders of the Series A Shares are entitled to receive, after any
distribution to the holders of senior securities, if any, and prior to any
distribution to any junior securities (including holders of the Common Stock),
the sum of (i) the Series A Deemed Liquidation Price plus (ii) 8% of the Series
A Deemed Liquidation Price for each year that the Series A Shares are
outstanding after March 1, 1998, and until the Liquidation Event (the "Series A
Liquidation Amount"). If the assets available to be distributed among the
holders of the Series A Shares are insufficient to permit the payment in full of
the Series A Liquidation Amount, then all of the Company's assets legally
available for distribution shall be distributed pro rata among the holders of
the Series A Shares.
SERIES B PREFERRED STOCK AND SERIES C PREFERRED STOCK
As of December 8, 1998, there were 61,000 Series B Shares issued and
outstanding and no Series C Shares outstanding. The Series B Shares and Series
C Shares each have a liquidation preference of $10.00 per share.
The holders of the Series B Shares and Series C Shares are entitled to
receive cumulative dividends from the date of issuance at the rate of $.70 per
year per share, payable quarterly in cash, or, at the option of the Company, in
unrestricted shares of Common Stock. The Series B Shares and Series C Shares
are junior to the Series A Shares, but senior to the Common Stock, with respect
to dividends. No dividends (other than those payable solely in Common Stock)
will be paid with respect to the Common Stock unless all accumulated and unpaid
dividends and the current quarterly dividends on the Series B Shares and Series
C Shares have been declared and sufficient sums for the payment thereof set
apart.
Holders of Series B Shares can convert their shares into Common Stock at
any time after 20 days from the date of issuance. Each Series B Share is
convertible into the number of shares of Common Stock that equals $10.00 per
share tendered for conversion, plus accumulated and unpaid dividends thereon,
divided by the lesser of either (i) 110% of the average of the closing bid
prices per share of the Common Stock on the market on which the Common Stock is
listed for trading for the five (5) trading days preceding the date of purchase
of such Series B Share or (ii) 80% of the average of the closing bid prices per
share similarly determined for the five (5) trading days preceding the date such
conversion is deemed to have been made (the "Series B Conversion Formula").
Appropriate adjustments will be made to the Series B Conversion Formula in the
event that the outstanding shares of Common Stock are changed into the same or a
different number of the same or another class or classes of stock. If any
Series B Shares
40
<PAGE>
remain outstanding on or after December 31, 1999, the Company may convert such
shares into Common Stock based on the Series B Conversion Formula.
Holders of Series C Shares can convert their shares into Common Stock at
any time after five (5) days from the date of issuance. Each Series C Share is
convertible into the number of shares of Common Stock that equals $10.00 per
share tendered for conversion, plus accumulated and unpaid dividends thereon,
divided by 82.5% of the average of the closing bid prices per share of the
Common Stock on the market on which the Common Stock is listed for trading for
the five (5) trading days preceding the date such conversion is deemed to have
been made (the "Series C Conversion Formula"). Appropriate adjustments will be
made to the Series C Conversion Formula in the event that the outstanding shares
of Common Stock are changed into the same or a different number of the same or
another class or classes of stock. If any Series C Shares remain outstanding on
or after December 31, 2000, the Company may convert such shares into Common
Stock based on the Series C Conversion Formula.
Except as required by Nevada law, the holders of the Series B Shares and
Series C Shares have no voting rights and are not entitled to notice of any
stockholders' meeting. The holders of the outstanding Series B Shares and Series
C Shares are entitled to vote separately as a class with respect to those
matters required by Nevada law to be submitted to a class or series vote and are
entitled to vote with the holders of the Preferred Stock and Common Stock,
voting together as a single class, upon all other matters required by Nevada
law. The holder of each Series B Share and Series C Share is entitled to the
number of votes equal to the largest number of full shares of Common Stock into
which each such share could then be converted. The holders of the Series B
Shares and Series C Shares do not have preemptive rights.
On or after September 30, 1998, upon 30 to 60 days' written notice, the
Company may redeem all or a portion of the Series B Shares. Upon redemption,
the holders of the Series B Shares are entitled to receive $12 per share plus
accrued but unpaid dividends.
On or after November 30, 1998, upon 30 to 60 days' written notice, the
Company may redeem all or a portion of the Series C Shares. Upon redemption,
the holders of the Series C Shares are entitled to receive $11.75 per share plus
accrued but unpaid dividends.
Upon a Liquidation Event, the holders of the Series B Shares and Series C
Shares are entitled to receive, after any distribution to the holders of senior
securities (including the Series A Shares) and prior to any distribution to the
holders of any junior securities (including the Common Stock), an amount equal
to $10.00 per share plus any accumulated but unpaid dividends (the "Liquidation
Amount"). If the assets available to be distributed to the holders of the
Series B Shares and Series C Shares are insufficient to permit the payment in
full of the Liquidation Amount, such assets shall be distributed ratably among
the holders of the Series B Shares and Series C Shares.
WARRANTS
As of December 8, 1998, four persons held warrants to purchase an aggregate
of 470,000 shares of Common Stock. Reference is made to the Warrants (which are
filed as exhibits to the Registration Statement) for a complete description of
the terms and conditions of the offered
41
<PAGE>
Warrants and the descriptions of such Warrants contained herein are qualified in
their entirety by reference thereto.
AGENT WARRANTS
Each of the 300,000 warrants offered by The Hamilton Fund, L.L.C. (the
Hamilton Warrants) entitles the holder to purchase one share of Common Stock at
an exercise price of $0.25 per share at any time commencing on February 24,
1998, and ending at 5:00 p.m. Eastern Time on February 24, 2003. Each of the
70,000 warrants offered by Portfolio Investment Strategies Corporation (the
Portfolio Warrants) entitles the holder to purchase one share of Common Stock at
an exercise price of $2.8125 per share at any time commencing on July 23, 1998,
and ending at 5:00 p.m. Eastern Time on July 22, 2003. Each of the 50,000
warrants offered by Berliner Freiverkehr (Aktien) AG (the Berliner Warrants)
entitles the holder to purchase one share of Common Share at an exercise price
of $0.50 per share at any time commencing on September 9, 1998, and ending on
September 9, 2000.
The Agent Warrants also may be exercised pursuant to a cashless exercise
procedure. The Company has registered all of the shares of Common Stock
issuable upon exercise of the Agent Warrants for sale pursuant to the
Registration Statement of which this Prospectus is a part.
The exercise price and number of shares of Common Stock or other securities
issuable upon exercise of the Agent Warrants are subject to adjustment in
certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation or the Company's
distribution to the holders of Common Stock of cash, evidences of indebtedness
or other securities or assets (other than cash dividends or distributions
payable out of earned surplus or net profits for the current or preceding year)
of the Company.
The Company will not issue fractional shares or scrip representing
fractional shares of Common Stock upon exercise of the Agent Warrants. If, on
exercise of an Agent Warrant, the holder would be entitled to a fractional share
of Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be rounded up to the next whole number of shares.
HIRSCH WARRANTS
Each of the 50,000 warrants offered by Y.L. Hirsch (the Hirsch Warrants)
entitles the holder to purchase one share of Common Stock at an exercise price
of $3.515625 per share at any time commencing on July 23, 1998, and ending at
5:00 p.m. Eastern Time on July 22, 2001.
SHARES ELIGIBLE FOR FUTURE SALE
The Company currently has 12,757,188 shares of Common Stock outstanding, of
which 9,401,958 are freely transferable by persons other than "affiliates" of
the Company, without restriction or further registration under the Securities
Act. Upon completion of this offering, the Company could have up to 27,427,188
shares of Common Stock outstanding, assuming the conversion of all Preferred
Shares and Series A Shares and the exercise of all Warrants and outstanding
stock options. Of these shares, up to 15,321,958 could be freely transferable.
42
<PAGE>
Of the 12,757,188 shares of Common Stock currently outstanding, 3,355,230
shares are "restricted" or "control" securities within the meaning of Rule 144
under the Securities Act and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available,
including the exemption contained in Rule 144. Of the 27,427,188 shares of
Common Stock that could be outstanding upon the completion of this offering, up
to 12,105,230 shares could be "restricted" or "control" securities within the
meaning of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned his or her shares for at
least one year, including an "affiliate" of the Company (as that term is defined
under the Securities Act), is entitled to sell, within any three-month period,
the number of shares that does not exceed the greater of (a) 1% of the then
outstanding shares of Common Stock or (b) the average weekly trading volume of
the then outstanding shares during the four calendar weeks preceding each such
sale. A person (or persons whose shares are aggregated) who is not deemed an
"affiliate" of the Company and who has beneficially owned shares for at least
two years is entitled to sell such shares under Rule 144 without regard to the
volume limitations described above. Affiliates, including members of the Board
of Directors and senior management, continue to be subject to such limitations.
The Company has 61,000 Series B Shares outstanding, which are convertible
into 3,050,000 freely tradable shares of Common Stock. The Company also has
warrants outstanding which are exercisable for 470,000 freely tradable shares of
Common Stock.
The Company has reserved 5,400,000 shares of Common Stock for issuance
under its 1998 Stock Option Plan. As of the date hereof, 3,900,000 options were
exercisable.
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could have an adverse impact on the
market price of the Common Stock. See "RISK FACTORS The Price of Common Stock
Could Change Based on This Offering."
SELLING HOLDERS
This Prospectus covers 11,239,588 shares of Common Stock, 61,000 shares of
Preferred Stock and 470,000 Warrants being offered by the Selling Holders. The
following table sets forth (a) the names of the Selling Holders, (b) the nature
of any position or other material relationship, if any, which the Selling
Holders have or have had with the Company, its predecessors or affiliates during
the past three years, (c) the number of shares of Common Stock, Preferred Stock
and warrants currently beneficially owned by the Selling Holders, (d) the
amount of Common Stock, Preferred Shares and Warrants offered by the Selling
Holders hereby, (e) the amount and (if 1% or more) the percentage of shares of
Common Stock that will be beneficially owned by the Selling Holders after
completion of the offering, assuming the sale of all of the shares set forth in
(d) above, (f) the amount of Preferred Shares that will be beneficially owned by
the Selling Holders after completion of the offering, assuming the sale of all
of the Preferred Shares set forth in (d) above, and (g) the amount of warrants
that will be beneficially owned by the Selling Holders after completion of the
offering, assuming the sale of all of the Warrants set forth in (d) above.
43
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF COMMON
COMMON STOCK(1)/ AMOUNT OF COMMON STOCK(1)/PREFERRED
PREFERRED STOCK/ STOCK(1)/PREFERRED STOCK/WARRANTS
SELLING STOCKHOLDER/ WARRANTS OWNED STOCK/WARRANTS OWNED AFTER
WARRANT HOLDER BEFORE OFFERING OFFERED OFFERING(2)
<S> <C> <C> <C>
Intercell Corporation(3) 12,650,000/ 100/ 0 5,250,000/ 0/ 0 7,400,000 (26.98%)/
100/ 0
Augustine Fund, L.P.(4) 1,000,000/ 0/ 0 1,000,000/ 0/ 0 0/ 0/ 0
Y. L. Hirsch(5) 3,458,588/ 61,000/ 3,458,588/ 61,000/ 0/ 0/ 0
50,000 50,000
Putter Consulting(6) 186,500/ 0/ 0 186,500/ 0/ 0 0/ 0/ 0
Kathy Knight-McConnell(7) 24,500/ 0/ 0 24,500/ 0/ 0 0/ 0/ 0
June and Jerry Tooley 750,000/ 0/ 0 750,000/ 0/ 0 0/ 0/ 0
Family Trust(8)
David and Ann Putnam(9) 100,000/ 0/ 0 100,000/ 0/ 0 0/ 0/ 0
The Hamilton Fund, 375,000/ 0/ 300,000 300,000/ 0/ 300,000 75,000/ 0/ 0
L.L.C.(10)
Portfolio Investment 70,000/ 0/ 70,000 70,000/ 0/ 70,000 0/ 0/ 0
Strategies
Corporation(11)
Berliner Freiverkehr 50,000 /0/ 50,000 50,000 /0/ 50,000 0/ 0/ 0
(Aktien) AG(12)
</TABLE>
(1) Includes the number of shares of Common Stock underlying the Preferred
Shares (assuming an average conversion price of $0.20 per share for the Series B
Shares) and Warrants offered hereby.
(2) Assumes that all of the shares and warrants being offered hereby are sold by
such Selling Holder unless otherwise indicated. There is no assurance that the
Selling Holders will sell any or all of the shares or warrants offered pursuant
to this Prospectus.
(3) Intercell currently is the beneficial owner of approximately 46% of the
Company's issued and outstanding Common Stock on a fully diluted basis. The
percentage owned by Intercell after the offering also is on a fully diluted
basis. The Common Stock includes 100 Series A Shares which are convertible into
7,250,000 shares of Common Stock. The proceeds from the sale of up to 750,000
shares offered hereby and currently held in trust will be used to repay
investors in Sigma 7 Corporation, a subsidiary of Intercell. All shares
remaining after the payment of such obligations will revert to Intercell. To the
extent that any shares held by the Augustine Fund, L.P. are returned to
Intercell (see note 4), Intercell's percentage ownership will increase. To the
extent that the proceeds from the sale of any of the shares offered by Intercell
are used directly or indirectly for the benefit of the Company, the Company will
issue shares to Intercell, upon demand from Intercell, in an amount equal to the
number of such shares sold.
(4) 1,000,000 shares of Common Stock were received from Intercell to secure
payment of amounts owed by Intercell to the fund. The shares are held in the
name of the fund and the fund has complete discretion and authority to sell
44
<PAGE>
such shares. All pledged shares remaining after the payment of such obligations
will be returned to Intercell unless the fund elects to pay Intercell for up to
200,000 of such shares, at a 20% discount from the then market price.
(5) The Common Stock includes 61,000 Series B Shares as fully converted into,
and 50,000 Hirsch Warrants as fully exercised for, shares of Common Stock. The
remaining 408,588 shares of Common Stock were received by Mr. Hirsch upon the
conversion of 14,000 Series B Shares.
(6) Currently provides market support services to the Company in the European
securities markets.
(7) These shares were issued as payment for services rendered in connection
with the Company's introduction to Berliner Freiverkehr (Aktien) AG, listing
agent for the Company on the Berlin Stock Exchange.
(8) These shares were received from Intercell in connection with the settlement
of certain claims arising from Intercell's acquisition of Cellular Magnetics,
Inc.
(9) These shares were received from Intercell in connection with the settlement
of certain claims arising from Intercell's acquisition of A.C. Magnetics, Inc.
(10) The Common Stock includes 300,000 shares issuable upon exercise of the
Hamilton Warrants, which were issued as payment for the placement of the
Preferred Shares and Hirsch Warrants.
(11) The Common Stock consists of 70,000 shares issuable upon exercise of the
Portfolio Warrants, which were issued as payment for the placement of the
Preferred Shares and Hirsch Warrants.
(12) The Common Stock consists of 50,000 shares issuable upon exercise of the
Berliner Warrants, which were issued as payment for the listing of the Common
Stock on the Berlin Stock Exchange.
PLAN OF DISTRIBUTION
Of the securities offered hereby, 61,000 Series B Shares, 408,588 shares of
Common Stock and 50,000 Warrants have been sold to Mr. Hirsch pursuant to the
terms of the Amended Securities Purchase Agreement. In connection with the sale
of the Preferred Shares and Hirsch Warrants, the Company issued the Hamilton
Warrants and the Portfolio Warrants. In connection with the listing of the
Common Stock on the Berlin Stock Exchange, the Company issued the Berliner
Warrants. The Preferred Shares, Hirsch Warrants, Agent Warrants and shares of
Common Stock issuable upon conversion or exercise thereof may be resold pursuant
to this Prospectus. The Common Stock owned by Mr. Hirsch and the other Selling
Holders also may be resold pursuant to this Prospectus.
The Company has been advised by the Selling Holders that they may sell or
transfer all or a portion of the shares and warrants offered hereby from time to
time to third parties (including purchasers) directly or by or through brokers,
dealers, agents or underwriters, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Holders
and/or from purchasers of the shares or warrants for whom they may act as agent.
Such sales and transfers of the shares, and where applicable the warrants, may
be effected from time to time in one or more transactions on the OTC Bulletin
Board, in the over-the-counter market, in negotiated transactions or otherwise,
at a fixed price or prices, which may be changed, at market prices prevailing at
the time of sale, at negotiated prices, or without consideration, or by any
other legally available means. Any or all of the shares and warrants may be
sold or transferred from time to time by means of (a) a block trade in which the
broker or dealer so engaged will attempt to sell the shares or warrants as agent
but may position and resell a portion of the block as principal to facilitate
the transaction; (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
(d) through the writing of options on the shares or warrants; (e) pledges as
collateral to secure loans, credit or other financing arrangements and any
subsequent foreclosure, if any, thereunder; (f) gifts, donations and
contributions; and (g) any other legally available means. To the extent
required, the number of shares or warrants to be sold or transferred, the
purchase price, the name
45
<PAGE>
of any such agent, broker, dealer or underwriter and any applicable discounts or
commissions and any other required information with respect to a particular
offer will be set forth in an accompanying Prospectus Supplement. The aggregate
net proceeds to the Selling Holders from the sale of the shares or warrants will
be the purchase price of such shares or warrants less any commissions. This
Prospectus also may be used, with the Company's prior written consent, by donees
and pledgees of the Selling Holders.
In order to comply with the securities laws of certain states, if
applicable, the shares and warrants will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states the shares and warrants may not be sold unless they have been registered
or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
See "RISK FACTORS State Blue Sky Laws May Prevent Sales of Securities" and "-
Federal Laws May Prevent Conversion of Preferred Shares and Exercise of
Warrants."
The Selling Holders and any brokers, dealers, agents or underwriters that
participate in the distribution of the shares and warrants may be deemed to be
"underwriters" within the meaning of the Securities Act, in which event any
discounts, concessions and commissions received by such brokers, dealers, agents
or underwriters and any profit on the resale of the shares and warrants
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
No underwriter, broker, dealer or agent has been engaged by the Company in
connection with the distribution of the shares or warrants.
Any shares and warrants covered by this Prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather
than pursuant to this Prospectus. There is no assurance that the Selling
Holders will sell any or all of the shares or warrants. The Selling Holders may
transfer, devise or gift shares and warrants by other means not described
herein.
The Company will pay all of the expenses incident to the registration of
the shares and warrants, other than underwriting discounts and selling
commissions, if any.
The Company has agreed to indemnify Mr. Hirsch and the June and Jerry
Tooley Family Trust against certain liabilities under the Securities Act arising
from this Prospectus or the Registration Statement of which it is a part.
EXPERTS
The audited financial statements of Nanopierce Technologies, Inc. as of
June 30, 1998, and for the year then ended, included herein and elsewhere in the
Registration Statement, have been audited by Gelfond Hochstadt Pangburn & Co.,
independent certified public accountants. Such financial statements have been
so included in reliance upon the report (which expresses an unqualified opinion
and includes an explanatory paragraph relating to the Company's ability to
continue as a going concern) of such firm given upon their authority as experts
in auditing and accounting.
46
<PAGE>
The financial statements and schedules of the Company for the fiscal years
ended June 30, 1997, and June 30, 1996, have been included in this Prospectus
and in the Registration Statement in reliance upon the report of Larry
O'Donnell, CPA, P.C., independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in giving said
reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports and other information with SEC.
Such reports and other information can be inspected and copied at the SEC's
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the SEC: Seven World Trade Center, 13th Floor,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can be obtained from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
The Company makes its filings electronically. The SEC maintains a website
that contains reports, proxy and information statements and other information
regarding registrants that file electronically, which information can be
accessed at http://www.sec.gov.
------------------
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-1,
including amendments thereto, under the Securities Act with respect to the
shares and warrants offered hereby. This Prospectus, which constitutes a part
of the Registration Statement, does not contain all the information set forth in
the Registration Statement, certain portions of which have been omitted as
permitted by the SEC's rules and regulations. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto. Items and information omitted from this
Prospectus but contained in the Registration Statement may be obtained from the
SEC in the manner set forth above.
47
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 1998, 1997 and 1996
AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<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 - years ended June 30, 1998 and 1997 F-4, F-5
Statements of Operations - years ended June 30, 1998, 1997 and 1996 F-6
Statements of Stockholders' Equity - years ended June 30, 1998, 1997 and 1996 F-7
Statements of Cash Flows - years ended June 30, 1998, 1997 and 1996 F-8, F-9
Notes to Financial Statements F-10 to F-22
Financial statements:
Balance Sheet - three months ended September 30, 1998 F-23
Statements of Operations - three months ended September 30, 1998 and 1997 F-24
Statement of Stockholders' Equity - 3 months ended September 30, 1998 F-25
Statements of Cash Flows - three months ended September 30, 1998 and 1997 F-26
Notes to Financial Statements F-27 to F-31
</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 AUDITORS' REPORT
Board of Directors
Nanopierce Technologies, Inc.
Denver, Colorado
I have audited the accompanying balance sheet of Nanopierce Technologies, Inc.
(formerly Sunlight Systems, Ltd.) (the Company) as of June 30, 1997 and the
related statements of operations, changes in shareholders' equity and cash flows
for the two years then ended. 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 audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits 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 audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of June 30, 1997 and
the results of its operations and its cash flows for the two years then ended in
conformity with generally accepted accounting principles.
LARRY O'DONNELL, CPA, PC
Denver, Colorado
September 24, 1997
F-3
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
BALANCE SHEETS
JUNE 30, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
June 30,1998
Unaudited June 30,1998 June 30,
pro forma Historical 1997
------------------- ------------------- -------------------
(Note 12)
<S> <C> <C> <C>
Current assets:
Cash $ 440,011 $ 11 $ 8,128
Current portion of note receivable (Note 4) 11,650 11,650 9,788
Other 324 324
------------------- ------------------- -------------------
Total current assets 451,985 11,985 17,916
Note receivable, net of current portion (Note 4) 27,089 27,089 37,811
Marketable securities 1,491 1,491 38,283
Intellectual property rights, net of accumulated 965,685 965,685
amortization of $34,315 (Note 3)
Investment in oil and gas properties 171,970
Other 4,090
------------------- ------------------- -------------------
$1,446,250 $1,006,250 $270,070
=================== =================== ===================
</TABLE>
(Continued)
F-4
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
BALANCE SHEETS (CONTINUED)
JUNE 30, 1998 AND 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unaudited June 30, 1998
pro forma Historical June 30, 1997
-------------------- -------------------- --------------------
(Note 12)
<S> <C> <C> <C>
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 31,500
Other 7,022 7,022
-------------------- -------------------- --------------------
Total liabilities (all current) 391,282 391,282 31,500
-------------------- -------------------- --------------------
Commitments and contingencies (Notes 10 and 12)
Shareholders' equity (Notes 3, 7 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 shares issuable; no shares
issued and outstanding;
Common stock, $0.0001 par value; authorized 45,000,000
shares; issued and outstanding 12,125,100 shares in
1998 and 3,833,407 shares in 1997 1,213 1,213 1,150
Additional paid-in capital 1,736,690 1,736,690 686,229
Unrealized gain on securities available-for-sale 1,491 1,491 38,283
Deficit (1,624,426) (1,624,426) (487,092)
-------------------- -------------------- --------------------
1,054,968 614,968 238,570
-------------------- -------------------- --------------------
$ 1,446,250 $ 1,006,250 $ 270,070
==================== ==================== ====================
</TABLE>
See notes to financial statements.
F-5
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------- --------------------
<S> <C> <C> <C>
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 12,570
------------------ ------------------- --------------------
1,174,999 214,289 12,570
------------------ ------------------- --------------------
Loss from operations (1,173,480) (214,289) (12,570)
------------------ ------------------- --------------------
Other income (expense):
Interest and other income 3,964 4,274 8,993
Gain on sale of marketable securities 37,528 31,781
Interest expense:
Related party (4,720)
Other (626)
------------------ ------------------- --------------------
36,146 36,055 8,993
------------------ ------------------- --------------------
Loss from continuing operations (1,137,334) (178,234) (3,577)
------------------ ------------------- --------------------
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) (3,577)
Series A preferred stock dividends (Note 3) (60,417)
------------------ ------------------- --------------------
Net loss applicable to common shareholders $(1,197,751) $ (487,092) $ (3,577)
================== =================== ====================
Loss per common share:
Continuing operations $(0.18) $ (0.05) $ (0.00)
Discontinued operations (0.09)
------------------ ------------------- --------------------
Net loss $(0.18) $ (0.14) $ (0.00)
================== =================== ====================
Weighted average number of common shares outstanding 6,621,757 3,518,286 1,830,519
================== =================== ====================
</TABLE>
See notes to financial statements.
F-6
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Nanopierce Technologies, Inc. (formerly Sunlight Systems, Ltd.)
--------------------------------------------------------------------------------------------------
Series A
Preferred stock Common stock Unrealized gain
--------------------- ------------------------ Additional on securities
Shares Amount Shares Amount paid-in capital available-for-sale Deficit
------ -------- ---------- -------- --------------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances,
July 1, 1995
Sale of common
stock
Net loss for
the year
------ -------- ---------- -------- --------------- ------------------ -----------
Balances,
June 30, 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 12,125,100 $ 1,213 $ 1,736,690 $ 1,491 $(1,624,426)
====== ======== ========== ======== =============== ================== ===========
</TABLE>
<TABLE>
<CAPTION>
Mendell-Denver Corporation
--------------------------------------------------
Common stock Total
---------------------------- shareholders'
Shares Amount Deficit equity
----------- ------------ ----------------- -------------
<S> <C> <C> <C> <C>
Balances,
July 1, 1995 5,491,558 $ 5,492 $ (1,608) $ 3,884
Sale of common
stock 5,000,000 100 (4,900) (4,800)
Net loss for
the year (3,577) (3,577)
----------- ------------ ----------------- -------------
Balances,
June 30, 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, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------ ------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $(1,137,334) $(487,092) $(3,577)
------------------- ------------------ ------------------
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 (decrease) in accounts payable and accrued
expenses:
Related parties 115,247
Other 7,022 31,500 (2,345)
Decease in accounts receivables 4,145
(Increase) decrease in other assets 3,766 (4,090)
------------------- ------------------ ------------------
Total adjustments 841,476 84,958 1,800
------------------- ------------------ ------------------
Net cash used in operating activities (295,858) (402,134) (1,777)
------------------- ------------------ ------------------
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)
------------------- ------------------ ------------------
</TABLE>
See notes to financial statements.
F-8
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ----------------- ------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from notes payable:
Related party 144,000
Other 93,513
Proceeds from issuance of common stock 200 515,000 100
------------------- ----------------- ------------------
Net cash provided by financing activities 237,713 515,000 100
------------------- ----------------- ------------------
Net increase (decrease) in cash (8,117) 7,721 (1,677)
Cash, beginning 8,128 407 2,084
------------------- ----------------- ------------------
Cash, ending $ 11 $ 8,128 $ 407
=================== ================= ==================
The Company incurred no interest expense or income tax expense for fiscal years ended June 30, 1998, 1997, and 1996.
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 $ 72,053
discontinued operations =================
</TABLE>
See notes to financial statements.
F-9
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
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
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
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.
OIL AND GAS PROPERTIES:
The Company followed the successful efforts method of accounting for its
oil and gas activities. Under this method, costs associated with the
acquisition, drilling and equipping of successful exploratory wells were
capitalized and amortized ratable over the life of production from related
proved reserves. Geological and geophysical costs, delay rentals, and
drilling costs of unsuccessful exploratory wells were charged to expense as
incurred. Costs of drilling, both successful and unsuccessful development
wells, were also capitalized and amortized ratable over the life of
production from related proved reserves. Undeveloped properties were
assessed periodically to determine whether the properties were impaired,
and when impairment occurred, a loss was recognized.
F-11
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
1. BUSINESS, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
OIL AND GAS PROPERTIES (CONTINUED):
Property acquisition costs for unproved oil and gas properties were
initially capitalized. The acquisition costs for unproved properties were
assessed at least annually, and if necessary, an impairment in value was
recognized. Proceeds from sales of partial interests in unproved leases
were accounted for as a recovery of cost without recognizing and gain or
loss. Costs of properties abandoned were expenses in the date of
abandonment.
MARKETABLE SECURITIES:
Marketable securities consist of approximately 23,700 shares of common
stock of Intercell at June 30, 1998. At June 30, 1997, the Company held
approximately 139,000 shares of common stock of Energy Corporation and
20,000 shares of common stock of Intercell. In July 1997, Energy
Corporation entered into a voluntary Plan of Liquidation Dissolution
(Plan). As a result of the Plan, in August 1997, the Company received
approximately 139,000 shares of Intercell common stock in exchange for
their Energy Corporation shares of common stock. These securities are
classified as available-for-sale and are carried at fair value based upon
market quotes. Restricted securities are carried at cost. 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).
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.
F-12
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
1. BUSINESS, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
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.
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 and 1996 financial statements have
been reclassified to conform with the 1998 presentation.
F-13
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
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-14
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
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.
F-15
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
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, 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.
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 at June 30, 1998. Accounts payable and accrued expenses, related
parties, consisted of $31,500 owed to an affiliate for management services
at June 30, 1997.
Related party general and administrative expenses during the years ended
June 30, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <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
F-16
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
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>
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.
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 $18,700 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 the operations consisted of the following:
F-17
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
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 in February 1998. 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 be ultimately
successful in defending this matter, the Company has not recognized any
royalty revenue until it can determine the ultimate outcome. In the
opinion of management, the ultimate disposition of this matter will not
have a material impact on the Company's operations or the further
development of the Particle Interconnect technology.
F-18
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
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 and
1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Noncurrent deferred tax assets: $ 550,000 $ 180,000
Net operating loss carryforwards 4,000
Intellectual property rights
Noncurrent deferred tax liabilities:
Unrealized gains on securities (9,000)
Valuation allowance (554,000) (171,000)
-------------- --------------
Net deferred tax assets $ $
============== ==============
</TABLE>
The reconciliation between taxes computed at the statutory federal tax rate
and the effective tax rate for the years ended June 30, 1998, 1997 and 1996
is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Expected income tax benefit $(383,000) $(165,000) $(1,000)
Increase in valuation allowance 383,000 165,000 1,000
--------- --------- -------
Actual income tax benefit $ $ $
========= ========= =======
</TABLE>
F-19
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
11. INCOME TAXES (CONTINUED):
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:
NET
YEAR OPERATING LOSS
2010 $ 2,000
2011 3,000
2012 487,000
2013 1,126,000
----------
$1,618,000
==========
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.
F-20
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
12. SUBSEQUENT EVENT (CONTINUED):
(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.
(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.
F-21
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
12. SUBSEQUENT EVENT (CONTINUED):
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-22
<PAGE>
<TABLE>
<CAPTION>
NANOPIERCE TECHNOLOGIES, INC
BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
<S> <C>
Current Assets:
Cash $ 227,251
Current portion of notes receivable 11,650
----------------------------
Total current assets 238,901
Other assets:
Intellectual property rights net of
Accumulated amortization of $59,315 940,685
Marketable securities 1,491
Notes receivable, net of current portion 26,184
Deposits 32,925
----------------------------
Total other assets 1,001,285
Total assets $ 1,240,186
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable Related party 88,528
Accounts payable and accrued expenses 50,162
Notes payable current portion 68,513
----------------------------
Total current liabilities 207,203
Stockholders' equity:
Preferred stock, $.0001 par value 5,000,000 shares authorized:
Series A; 100 shares issued and outstanding; 500,000
liquidation preference of $2,265,625; plus unpaid
dividends, 8% dividend rate; cumulative
unpaid dividends of $105,730
Series B; maximum of 150,000 shares issuable; 589,600
67,000 shares issued and outstanding; $0.70 per
year per share cumulative dividend;
Series C; maximum of 700,000 shares issuable;
no shares issued and outstanding
Common stock, $.0001 par value
45,000,000 shares authorized, 12,500,476 shares 1,251
issued and outstanding
Additional paid in capital 2,119,052
Unrealized gain on securities available for sale 1,491
Deficit (2,178,411)
----------------------------
Total stockholders' equity 1,032,983
Total liabilities and stockholders' equity $ 1,240,186
============================
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
NANOPIERCE TECHNOLOGIES, INC
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
<S> <C> <C>
Revenues $ 0 $ 1,169
General and administrative:
Related parties 47,000
Other 502,739 33,971
-------------------------------------
Loss from operations (549,739) (32,802)
Other income:
Interest income 346
Interest expense:
Related party (3,331)
Other (1,261)
-------------------------------------
Net loss (553,985) (32,802)
Series A preferred stock dividend (45,313)
-------------------------------------
Net loss applicable to common shareholders ($599,298) ($32,802)
=====================================
Net loss ($553,985) ($32,802)
Other comprehensive income (loss):
Unrealized gain on securities
available for sale 1,491 31,527
-------------------------------------
Comprehensive loss ($552,494) ($1,275)
=====================================
Net loss per common share: ($0.05) ($0.01)
-------------------------------------
Weighted average number of common shares 12,385,392 3,833,355
=====================================
</TABLE>
F-24
<PAGE>
NANOPIERCE TECHNOLOGIES, INC
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THREE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Unrelized
Preferred Stock Common Stock Paid-in Gain On Accumulated
Shares Amount Shares Amount Capital Securities Deficit
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1998 100 $500,000 12,125,100 $1,213 $1,736,690 $1,491 ($1,624,426)
Stock issued for services 223,500 23 311,977
Issuance of Series B preferred, 75,000 660,000
net of issuance costs
Series B preferred converted to (8,000) 70,400 151,876 15 70,385
common stock
Net loss (553,985)
---------------------------------------------------------------------------------------------------
Balance, September 30, 1998 67,100 $1,230,400 12,500,476 $1,251 $2,119,052 $1,491 ($2,178,411)
===================================================================================================
</TABLE>
F-25
<PAGE>
NANOPIERCE TECHNOLOGIES, INC
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net loss ($553,985) ($32,802)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 25,000
Amortized discount on notes receivable (346) (1,169)
Expenses incurred in exchange for common stock 312,000
Change in assets and liabilities:
(Increase) decrease in:
Deposits (32,925)
Accounts payable and accrued expenses (86,254) 22,174
-------------------------
Net cash used in operating activities (336,510) (11,797)
-------------------------
Cash flows from investing activities:
Payments received on notes receivable 1,250 1,250
-------------------------
Net cash provided by investing activities 1,250 1,250
-------------------------
Cash flows from financing activities:
Proceeds from sale of preferred series B stock 660,000
Proceeds from notes payable 4,500
Payments on notes payable (97,500)
-------------------------
Net cash flows provided by financing activities 562,500 4,500
-------------------------
Net increase (decrease) in cash 227,240 (6,047)
Cash, beginning 11 8,127
-------------------------
Cash, ending $ 227,251 $ 2,080
=========================
</TABLE>
F-26
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1. Business, organization and summary of significant accounting policies:
Presentation of Interim Information:
In the opinion of the management of Nanopierce Technologies, Inc. (the
Company), the accompanying unaudited financial statements include all
material adjustments including all normal recurring adjustments, considered
necessary to present fairly the financial position as of September 30, 1998
and 1997 and the results of operations for the quarters ended September 30,
1998 and 1997 and cash flows for the quarters ended September 30, 1998 and
1997. Interim results are not necessarily indicative of results for a full
year.
The financial statements and notes are presented as permitted by Form 10-
QSB, and do not contain certain information included in the Company's last
Annual Report on Form 10-KSB for the fiscal year ended June 30, 1998. It
is the Company's opinion that, when the interim statements are read in
conjunction with the June 30, 1998 Annual Report on Form 10-KSB, the
disclosures are adequate to make the information presented not misleading.
The results of operations for the three months ended September 30, 1998 and
1997 are not necessarily indicative of the operating results for the year.
Business:
Nanopierce Technologies, Inc. (the Company) is engaged in the design,
development and licensing of products using its electronic connection
technology intellectual property. The intellectual property, called
Particle Interconnect, consists of patents, pending patent applications,
patent applications in preparation, trade secrets, trade names and
trademarks. The Particle Interconnect technology improves electrical,
thermal and mechanical characteristics of electronic products. The Company
markets Particle Interconnect to technology companies in various industries
for a wide range of applications. The Company has not recognized any
royalty revenue through September 30, 1998, pending the resolution of
litigation regarding a license agreement.
Organization:
The Company was originally formed in July 1985 under the name of Mendell-
Denver Corporation (Mendell). At July 1, 1996, Mendell was essentially a
shell company with no significant business operations. In July 1996,
Mendell acquired all of the outstanding common stock of Sunlight Systems,
Ltd. (Sunlight) and Mendell was merged into Sunlight. For accounting
purposes, the transactions
F-27
<PAGE>
have been treated as an acquisition of Mendell by Sunlight and as a re-
capitalization of Sunlight.
Sunlight was a dealer in Colorado and Nevada and a distributor in Illinois,
Ohio, Michigan and Indiana of skylights. In November 1996, Sunlight sold
its dealerships and distributorships (Note 8).
In February 1998, Sunlight acquired the Particle Interconnect technology
from Particle Interconnect Corporation, a wholly owned subsidiary of
Intercell Corporation (Intercell). In exchange for Particle Interconnect,
Sunlight issued to Intercell 7,250,000 shares of its common stock, and 100
shares of its Series A voting preferred stock. In connection with this
transaction, Sunlight changed its name to Nanopierce Technologies, Inc.
After the transaction, Intercell owns approximately 60% of the outstanding
common stock of the Company and approximately 74% of the common stock on a
diluted basis, considering the voting and conversion rights of the Series A
preferred stock.
Reverse stock split:
In February 1998, the Company effected a one-for-three reverse stock split
of its common stock. All references in the financial statements to number
of shares and per share amounts have been restated to reflect the reverse
stock split.
Use of estimates in the financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Loss per Share:
Loss per share of common stock is computed based on the weighted average
number of common shares outstanding during the year. Stock options,
warrants and convertible preferred stock are not considered in the
calculation as the impact of the potential common shares would be to
decrease loss per share. Therefore, diluted loss per share is equivalent
to basic loss per share.
Comprehensive income:
On July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. This standard
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
F-28
<PAGE>
shareholders' equity. Items of comprehensive income relate to unrealized
gains on securities available for sale. Reclassification of earlier
financial statements for comprehensive purposes is required. The financial
statements for the three months ended September 30, 1997, have been
reclassified to disclose items of comprehensive income. There are no
significant tax effects related to these items.
Recently issued accounting pronouncements:
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. Particle Interconnect and Series A preferred stock:
In February 1998, the Company acquired the Particle Interconnect technology
from Particle Interconnect Corporation (a wholly-owned subsidiary of
Intercell) in exchange for 7,250,000 shares of common stock and 100 shares
of Series A preferred stock. Prior to the acquisition of the technology,
Particle Interconnect Corporation primarily incurred expenses related to
the research and development of Particle Interconnect, but had no revenue
producing activities or any other significant ongoing business activities.
The Series A preferred stock has voting rights equal to 7,250,000 shares of
common stock and an aggregate liquidation preference of $2,265,625. Each
share of Series A preferred stock is convertible into 72,500 shares of
common stock. Dividends accumulate on the Series A preferred stock at 8%
of the liquidation preference amount. Any dividends not declared and paid
are at the option of the holder, also convertible to common stock of the
Company at the same conversion rate as the Series A preferred stock. At
September 30, 1998, cumulative unpaid dividends were $105,730. The Company
may redeem the Series A preferred stock, with six months notice, for the
liquidation preference amount.
F-29
<PAGE>
3. Common stock, stock options and warrants issued for services:
During the quarter ended September 30, 1998, the Company issued 223,500
shares of common stock in exchange for services valued at $311,977 based on
the quoted market price of the Company's common stock at the date the
services were performed. The shares were issued to third parties for
investment related services.
4. License agreements:
The Company has several license agreements with third parties which allows
the third parties to utilize defined aspects of the intellectual property
rights in return for royalty fees. All but one license agreement has been
idle since the Company acquired the property rights and therefore these
agreements have not produced any royalty fees for the Company. With regard
to all current licensees, the Company is involved in pending litigation
with a third party who is asserting ownership of the rights to the related
royalty revenues. Royalties under this agreement through June 30, 1998
total approximately $24,000. These monies are being held in an escrow
account, outside of the Company's control, until the litigation is
resolved. Although management believes that the Company will be ultimately
successful in defending this matter, the Company has not recognized any
royalty revenue until it can determine the ultimate outcome. In the
opinion of management, the ultimate disposition of this matter will not
have a material impact on the Company's operations or the further
development of the Particle Interconnect technology.
5. Preferred stock Series B:
On July 23, 1998, the Company executed a Securities Purchase Agreement (the
"Agreement") with a third party (Buyer). The Buyer agreed to acquire
Series B convertible preferred stock (Series B Shares) and Series C
convertible preferred stock (Series C Shares) at specified closing dates.
The Agreement is for a two-year period and will allow the Company to issue
to the Buyer up to $8,500,000 of preferred stock. In addition, at each
closing date, the Company agreed to issue to the Buyer, as additional
consideration a warrant (Warrant). Terms of the Agreement are as follows:
a. At the first closing, on July 23, 1998, the Company issued 50,000
Series B Shares at $10 per share resulting in net proceeds of $440,000
net of $60,000 of issuance costs. The second closing scheduled for
August was executed in part on September 29, 1998 for 25,000 Series B
shares at $10 per share resulting in net proceeds of $220,000 net of
$30,000 of issuance costs. The balance due on the second and third
closings has been cancelled by mutual consent of the Company and the
Buyer. The Company is no longer looking for additional investment in
the Series B or Series C preferred shares. Management is in the
process of negotiating
F-30
<PAGE>
new agreement terms with additional investors. The Company has yet to
identify a qualified investor to fulfill the immediate cash
requirements of the Company.
The Series B Shares are non-voting with cumulative dividends of $0.70
per share per year and are redeemable by the Company at $12 per share
plus any accumulated and unpaid dividends. The Series B Shares are
convertible into shares of the Company's common stock at a conversion
rate of $10 per share plus accumulated and unpaid dividends, divided
by the lesser of 110% of the average closing bid price of the
Company's common stock for the five days prior to the purchase of the
Series B Shares or 80% of the average closing bid price of the
Company's common stock for the five days prior to the conversion date.
F-31
<PAGE>
The only sources of information given to you by the Company about your
investment decision are the Prospectus and any documents referred to in this
Prospectus. We did not authorize anyone to give you any other information about
your investment decision.
This Prospectus is not an offer to sell securities and is not meant to
induce the sale of securities if it would violate state law. If the persons
who are trying to offer the securities for sale, or the persons who receive
such offers for sale are prohibited from doing so under state law, this
Prospectus is not meant to induce sale of the securities described in this
Prospectus.
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY............................................... 1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS................ 4
DIVIDEND POLICY.................................................. 5
PRICE RANGE OF COMMON STOCK...................................... 5
USE OF PROCEEDS.................................................. 6
SELECTED FINANCIAL DATA.......................................... 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................... 7
RISK FACTORS..................................................... 11
THE COMPANY...................................................... 18
MANAGEMENT....................................................... 29
EXECUTIVE COMPENSATION........................................... 30
OPTION GRANTS TABLE.............................................. 32
AGGREGATED OPTION EXERCISE AND FISCAL YEAR-END OPTION TABLE...... 32
CERTAIN TRANSACTIONS............................................. 34
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS..................... 36
DESCRIPTION OF SECURITIES........................................ 38
SHARES ELIGIBLE FOR FUTURE SALE.................................. 42
SELLING HOLDERS.................................................. 43
PLAN OF DISTRIBUTION............................................. 45
EXPERTS.......................................................... 46
AVAILABLE INFORMATION............................................ 47
ADDITIONAL INFORMATION........................................... 47
INDEX TO FINANCIAL STATEMENTS....................................F-1
11,239,588 SHARES OF COMMON STOCK
AND
470,000 COMMON STOCK PURCHASE WARRANTS
AND
61,000 SHARES OF PREFERRED STOCK
NANOPIERCE
TECHNOLOGIES, INC.
COMMON STOCK, COMMON STOCK PURCHASE WARRANTS
AND PREFERRED STOCK
_____________________
PROSPECTUS
_____________________
_______________, 1999
<PAGE>
<TABLE>
<CAPTION>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
<C> <S>
Item 13. OTHER The following are the estimated expenses in connection with the
EXPENSES OF registration and distribution of the shares and warrants (other than
ISSUANCE AND underwriting discounts and commissions, if any):
DISTRIBUTION.
SEC Registration Fee $693.22
Printing and Engraving Expenses ______*
Accounting Fees and Expenses ______*
Legal Fees and Expenses ______*
Miscellaneous ______*
Total $______*
_______________
*Estimated. To be filed by amendment.
Item 14. Article VII of the registrant's Articles of Incorporation, as amended,
INDEMNIFICATION provide that the registrant shall indemnify its directors, officers,
OF DIRECTORS AND employees and agents to the maximum extent and in accordance with the
OFFICERS. provisions of the Nevada General Corporation Law, as in effect from time to
time. Sections 78.7502 and 78.751 of the Nevada General Corporation Law
provide generally and in pertinent part that a Nevada corporation may
indemnify its directors and officers against expenses, judgements, fines
and settlements actually and reasonably incurred by them in connection with
any civil suit or action or any administrative or investigative proceeding,
except actions by or in the right of the corporation, if, in connection
with the matters in issue, they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and in connection with any criminal suit or proceeding, if in
connection with the matters in issue, they had no reasonable cause to
believe their conduct was unlawful. Section 78.7502 further provides that
in connection with the defense or settlement of any action by or in the
right of the corporation, a Nevada corporation may indemnify its directors
and officers against expenses actually and reasonably incurred by them in
connection therewith, provided that they acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, the best
interests of the corporation. Section 78.751 permits a Nevada corporation
to grant its directors and officers additional rights of indemnification
through bylaw provisions and otherwise and Section 78.752 permits a Nevada
corporation to purchase indemnity insurance or make other financial
arrangements on behalf of its directors and officers.
Article VIII of the registrant's Articles of Incorporation provides that
directors shall not be liable to the registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability arising
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
from (a) any breach of the director's loyalty to the
registrant or its shareholders, (b) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) any
transaction from which the director receives an improper personal benefit,
or (d) any other act expressly proscribed or for which directors are
otherwise liable under the Nevada General Corporation Law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
</TABLE>
<TABLE>
<CAPTION>
Item 15. RECENT The Company made the following unregistered sales of its securities from June 22,
SALES OF 1996 (its date of incorporation), through December 8, 1998.
UNREGISTERED
SECURITIES
Title of Amount of
Date of Sale Securities Securities Consideration Purchaser
- ------------ ---------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
1) 11/4/96 Common Stock 500,000* $125,000 Barbara J. Drew
Rev. Living Trust
2) 11/13/96 Common Stock 2,000,000* $ 80,000 Bert Roosen
3) 2/23/98 Common Stock 960,000* Services Zenith Petroleum
Corporation
4) 2/23/98 Common Stock 300,000* Services Barbara J. Drew
Rev. Living Trust
5) 2/24/98 Warrant to 300,000 Placement Agent The Hamilton Fund,
acquire Common Services L.L.C.
Stock at $0.25
6) 2/26/98 Option to 1,000,000 Services/Transfer Paul Metzinger
acquire Common of assets from
Stock at $0.325 Particle
Interconnect Corp.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
7) 2/26/98 Option to 1,000,000 Services Zenith Petroleum Corp.
acquire Common
Stock at $0.325
8) 2/26/98 Option to 430,000 Services Bert Roosen
acquire Common
Stock at $0.325
9) 2/26/98 Option to 400,000 Services Thomas Vander Stel
acquire Common
Stock at $0.325
10) 2/26/98 Option to 50,000 Services Kristi J. Kampmann
acquire Common
Stock at $0.325
11) 2/26/98 Option to 120,000 Services Kevin Waide
acquire Common
Stock at $0.325
12) 2/26/98 Option to 300,000 Services Barbara J. Drew
acquire Common
Stock at $0.325
13) 2/26/98 Option to 1,500,000 Services Gilbert Olachea
acquire Common
Stock at $0.325
14) 2/27/98 Option to 500,000 Services Paul Metzinger
acquire Common
Stock at $0.325
15) 2/27/98 Common Stock 7,250,000 Transfer of assets Intercell Corporation
from Particle
Interconnect Corp.
valued at $1,000,000
16) 2/27/98 Series A 100 Transfer of assets Intercell Corporation
Preferred from Particle
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Stock Interconnect Corp.
valued at $1,000,000
17) 3/3/98 Common Stock 100,000 Retainer for Billington
Independent Corporate Publications, Inc.
Publication Contractor
Services
18) 3/3/98 Common Stock 150,000 Retainer for Omni Capital
Independent Corporate Corporation
Publication Contractor
Services
19) 3/3/98 Common Stock 150,000 Retainer for Lance Fortt
Independent Corporate
Publication Contractor
Services
20) 4/7/98 Option to 100,000 Settlement Jerry W. Tooley
acquire Common
Stock at $1.60
21) 4/14/98 Common Stock 100,000 Investment Banking John Messina
Services
22) 4/14/98 Common Stock 30,000 Services Kevin B. Waide
23) 4/14/98 Common Stock 16,593 Services Kristi J. Kampmann
24) 4/14/98 Common Stock 50,000 Consulting Services Lumenaria, LLC
25) 4/23/98 Common Stock 25,000 Investment Banking Joel Dnistrian
Services
26) 6/11/98 Common Stock 100 Cash Edward Burrell
27) 7/1/98 Common Stock 186,500 Market support services Putter Consulting
28) 7/1/98 Common Stock 24,500 Services Kathy Knight-McConnell
29) 7/1/98 Common Stock 6,250 Services Hans Kast
30) 7/15/98 Common Stock 6,250 Services Roger L. Smothers
31) 7/23/98 Series B 50,000 $500,000 Y. L. Hirsch
Preferred Stock
32) 7/23/98 Warrant to 50,000 Purchase of Series B Y. L. Hirsch
acquire Common Shares
Stock at
$3.515625
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
33) 7/23/98 Warrant to 70,000 Placement services Portfolio Investment
acquire Common Strategies Corporation
Stock at $2.8125
34) 8/19/98 Common Stock 17,730 Conversion of shares of Y. L. Hirsch
Series B Preferred Stock
35) 9/2/98 Common Stock 134,146 Conversion of shares of Y. L. Hirsch
Series B Preferred Stock
36) 9/9/98 Warrant to 50,000 Berlin listing agent fee Berliner Freiverkehr
acquire Common (Aktien) AG
Stock at $0.50
37) 9/29/98 Series B 25,000 $250,000 Y.L. Hirsch
Preferred Stock
38) 10/26/98 Common Stock 71,023 Conversion of shares of Y.L. Hirsch
Series B Preferred Stock
39) 11/3/98 Common Stock 90,992 Conversion of shares of Y.L. Hirsch
Series B Preferred Stock
40) 11/4/98 Common Stock 94,697 Conversion of shares of Y.L. Hirsch
Series B Preferred Stock
</TABLE>
_____________
* Prior to giving effect to the Company's 1:3 reverse stock split on February
23, 1998.
UNDERWRITERS
With the exception of the sale of the Series B Shares and Hirsch Warrants
to Mr. Hirsch, no underwriter or selling or placement agent was involved in any
of the transactions described above. The Global Funding Group, L.L.C., an
affiliate of The Hamilton Fund, L.L.C., was engaged as the placement agent in
connection with the sale of the Series B Shares. As payment for such services,
The Hamilton Fund, L.L.C. received a warrant to purchase 300,000 shares of
Common Stock at a price of $0.25 per share, which warrant expires on February
24, 2003. Portfolio Investment Strategies Corporation was engaged by The Global
Funding Group, L.L.C. and the Company as the investment banker in connection
with the sale of the Series B Shares and Series C Shares. As payment for such
services, it received a warrant to purchase 70,000 shares of Common Stock at a
price of $2.8125 per share, which warrant expires on July 22, 2003.
II-5
<PAGE>
EXEMPTIONS FROM REGISTRATION CLAIMED
All of the sales by the Company of its unregistered securities (except for
the sale described in Item 2, which was made pursuant to Regulation S to a
founder and significant shareholder of the registrant, and those described in
Items 31, 32, 34, 35 and 37 to 40, which were made pursuant to Rule 506 of
Regulation D adopted under the Securities Act) were made by the Company in
reliance upon Section 4(2) of the Securities Act. 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.
The sale of 75,000 shares of Series B Shares and 50,000 warrants to
purchase Common Stock, and the conversion of Series B Shares into shares of
Common Stock, were made pursuant to and in compliance with Rule 506 of
Regulation D. The offering was restricted to and entirely purchased by
accredited investors. Appropriate documentation was prepared and utilized to
insure compliance with the terms, conditions and provisions of Regulation D. The
purchaser and the Company each were represented by their own independent
counsel, tax advisors, accounting firms and other advisors. The Company and its
transfer agent undertook and implemented control procedures to assure compliance
with the terms and conditions of Regulation D.
II-6
<PAGE>
<TABLE>
<C> <S>
Item 16. (A) EXHIBITS. The following is a complete list of Exhibits filed as part of
EXHIBITS AND this Registration Statement. Exhibit numbers correspond to the numbers in
FINANCIAL the Exhibit Table of Item 601 of Regulation S-K.
STATEMENT
SCHEDULES. EXHIBIT NO. DESCRIPTION
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 /(3)/
4.02 Amendment to the Articles of Incorporation of the Company /(4)/
4.03 Certificate of Designation of Rights and Preferences of the Series A
Preferred Stock /(5)/
4.04 Certificate of Designation of Rights and Preferences of the Series B
Preferred Stock /(6)/
4.05 Certificate of Designation of Rights and Preferences of the Series C
Preferred Stock /(7)/
4.06 Form of Common Stock Certificate /(8)/
4.07 Warrant issued to The Hamilton Fund, L.L.C. /(1)/
4.08 Warrant No. 1-B issued to Portfolio Investment Strategies Corporation
/(1)/
4.09 Warrant issued to Y. L. Hirsch /(1)/
4.10 Warrant issued to Berliner Freiverkehr (Aktien) AG /(1)/
4.11 The Bylaws of the Company /(9)/
5 Opinion of Kutak Rock Regarding Legality /(1)/
10.01 Securities Purchase Agreement between the registrant and Y.L. Hirsch
dated as of July 23, 1998 /(10)/
10.02 Amendment to the Securities Purchase Agreement between the registrant
and Y.L. Hirsch dated as of September 29, 1998 /(11)/
10.03 Registration Rights Agreement between the registrant and Y.L. Hirsch
dated as of July 23, 1998 /(12)/
10.04 Amendment to the Registration Rights Agreement between the registrant
and Y.L. Hirsch dated as of September 29, 1998 /(13)/
11 Statement Regarding Computation of Per Share Earnings /(1)/
12 Statement Regarding Computation of Ratios /(1)/
23.01 Consent of Larry O'Donnell, CPA, P.C./(1)/
23.02 Consent of Gelfond Hochstadt Pangburn & Co. /(1)/
23.03 Consent of Kutak Rock (included in Exhibit 5)
24 Power of Attorney (included on page II-11 of the Registration
Statement)
27 Financial Data Schedule /(1)/
</TABLE>
II-7
<PAGE>
<TABLE>
<C> <S>
________________
/(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 Annual Report on Form 10-KSB for the fiscal year ended June 30,
1998, filed on October 8, 1998, and incorporated herein by reference.
/(4)/ Filed with the Securities and Exchange Commission as Exhibit 4.02 to the
registrant's Annual Report on Form 10-KSB for the fiscal year ended June 30,
1998, filed on October 8, 1998, and incorporated herein by reference.
/(5)/ 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.
/(6)/ 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.
/(7)/ 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.
/(8)/ Filed with the Securities and Exchange Commission as Exhibit 4.06 to the
registrant's Annual Report on Form 10-KSB for the fiscal year ended June 30,
1998, filed on October 8, 1998, and incorporated herein by reference.
/(9)/ Filed with the Securities and Exchange Commission as Exhibit 4.07 to the
registrant's Annual Report on Form 10-KSB for the fiscal year ended June 30,
1998, filed on October 8, 1998, and incorporated herein by reference.
/(10)/ 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.
/(11)/ Filed with the Securities and Exchange Commission as Exhibit 10.01 to
the registrant's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1998, filed on November 20, 1998, and incorporated herein by
reference.
/(12)/ 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.
/(13)/ Filed with the Securities and Exchange Commission as Exhibit 10.02 to
the registrant's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1998, filed on November 20, 1998, and incorporated herein by
reference.
(B) FINANCIAL STATEMENT SCHEDULES. See "Index to Financial Statements" on
page F-1.
</TABLE>
Item 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended ("Securities Act");
(2) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective
II-8
<PAGE>
amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in this Registration
Statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(3) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that paragraphs (a)(i)(1) and (a)(i)(2) above do not apply if
this Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the SEC
by the registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, as amended ("Exchange Act") that are incorporated by
reference in this Registration Statement.
(ii) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(iii) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
II-9
<PAGE>
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Denver,
State of Colorado, on December 11, 1998.
NANOPIERCE TECHNOLOGIES, INC.
By /s/ Paul H. Metzinger
-----------------------------------
Paul H. Metzinger, President, Chief
Executive Officer and Director
II-11
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Paul H. Metzinger and Thomas Vander Stel, and
each of them, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement on Form S-1 and file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto such attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, to all intents and
purposes and as full as they might or could do in person, hereby ratifying and
confirming all that such attorney-in-fact and agent, or his substitute, lawfully
may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Paul H. Metzinger President, Chief Executive December 11, 1998
- ---------------------------------------- Officer and Director
Paul H. Metzinger (Principal Executive
Officer)
/s/ Thomas Vander Stel Vice President and Chief December 11, 1998
- ---------------------------------------- Financial Officer
Thomas Vander Stel (Principal Financial and
Accounting Officer)
</TABLE>
II-12
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NO.
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 (3)
4.02 Amendment to the Articles of Incorporation of the Company (4)
4.03 Certificate of Designation of Rights and Preferences of the
Series A Preferred Stock (5)
4.04 Certificate of Designation of Rights and Preferences of the
Series B Preferred Stock (6)
4.05 Certificate of Designation of Rights and Preferences of the
Series C Preferred Stock (7)
4.06 Form of Common Stock Certificate (8)
4.07 Warrant issued to The Hamilton Fund, L.L.C. (1)
4.08 Warrant No. 1-B issued to Portfolio Investment Strategies
Corporation (1)
4.09 Warrant issued to Y. L. Hirsch (1)
4.10 Warrant issued to Berliner Freiverkehr (Aktien) AG (1)
4.11 The Bylaws of the Company (9)
5 Opinion of Kutak Rock Regarding Legality (1)
10.01 Securities Purchase Agreement between the registrant and Y.L.
Hirsch dated as of July 23, 1998 (10)
10.02 Amendment to the Securities Purchase Agreement between the
registrant and Y.L. Hirsch dated as of September 29, 1998 (11)
10.03 Registration Rights Agreement between the registrant and Y.L.
Hirsch dated as of July 23, 1998 (12)
10.04 Amendment to the Registration Rights Agreement between the
registrant and Y.L. Hirsch dated as of September 29, 1998 (13)
11 Statement Regarding Computation of Per Share Earnings (1)
12 Statement Regarding Computation of Ratios (1)
23.01 Consent of Larry O'Connell, CPA, P.C. (1)
23.02 Consent of Gelfond Hochstadt Pangburn & Co. (1)
23.03 Consent of Kutak Rock (included in Exhibit 5)
24 Power of Attorney (included on page II-11 of the Registration
Statement)
27 Financial Data Schedule (1)
________________
(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 Annual Report on Form 10-KSB for the fiscal year ended June 30,
1998, filed on October 8, 1998, and incorporated herein by reference.
<PAGE>
(4) Filed with the Securities and Exchange Commission as Exhibit 4.02 to the
registrant's Annual Report on Form 10-KSB for the fiscal year ended June 30,
1998, filed on October 8, 1998, and incorporated herein by reference.
(5) 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.
(6) 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.
(7) 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.
(8) Filed with the Securities and Exchange Commission as Exhibit 4.06 to the
registrant's Annual Report on Form 10-KSB for the fiscal year ended June 30,
1998, filed on October 8, 1998, and incorporated herein by reference.
(9) Filed with the Securities and Exchange Commission as Exhibit 4.07 to the
registrant's Annual Report on Form 10-KSB for the fiscal year ended June 30,
1998, filed on October 8, 1998, and incorporated herein by reference.
(10) 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.
(11) Filed with the Securities and Exchange Commission as Exhibit 10.01 to the
registrant's Quarterly Report on Form 10-QSB for the quarter ended September 30,
1998, filed on November 20, 1998, and incorporated herein by reference.
(12) 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.
(13) Filed with the Securities and Exchange Commission as Exhibit 10.02 to the
registrant's Quarterly Report on Form 10-QSB for the quarter ended September 30,
1998, filed on November 20, 1998, and incorporated herein by reference.
<PAGE>
EXHIBIT 4.07
THIS WARRANT AND THE SECURITIES RECEIVABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (I) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase 300,000 shares
WARRANT TO PURCHASE COMMON STOCK
OF
NANOPIERCE TECHNOLOGIES, INC.
THIS CERTIFIES that The Hamilton Fund, L.L.C. or any subsequent ("Holder")
hereof, has the right to purchase from NANOPIERCE TECHNOLOGIES, INC., a Nevada
corporation (the "Company"), up to 300,000 fully paid and nonassessable shares
of the Company's Common Stock, no par value ("Common Stock"), subject to
adjustment as provided herein, at a price equal to the Exercise Price as defined
in Section 3 below, at any time beginning on the Date of Issuance and ending at
5:00 p.m., New York, New York time, on February 24, 2003.
The Holder of this Warrant agrees with the Company that this Warrant is
issued and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. DATE OF ISSUANCE.
This Warrant shall be deemed to be issued on February 24, 1998 ("Date of
Issuance").
2. EXERCISE.
(a) MANNER OF EXERCISE. On or after the Date of Issuance, this
Warrant may be exercised as to all or any lesser number of full shares of
Common Stock covered hereby upon surrender of this Warrant, with the
Exercise Form attached hereto duly executed, together with the full
Exercise Price (as defined in Section 3) for each share of Common Stock as
to which this Warrant is exercised, at the office of the Company, 370 17th
Street, Suite 3290, Denver, Colorado 80202; Attention: President, Telephone
No. (303)592-1010, Telecopy No. (303)592-1054, or at such other office or
agency as the Company may designate in writing, by overnight mail, with an
advance copy of the Exercise Form attached as Exhibit A ("Exercise Form")
by facsimile (such surrender and payment of the Exercise Price hereinafter
called the "Exercise of this Warrant").
<PAGE>
(b) DATE OF EXERCISE. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the Exercise Form is sent by
facsimile to the Company, provided that the original Warrant and Exercise
Form are received by the Company as soon as practicable thereafter.
Alternatively, the Date of Exercise shall be defined as the date the
original Exercise Form is received by the Company, if Holder has not sent
advance notice by facsimile.
(c) CANCELLATION OF WARRANT. This Warrant shall be canceled upon its
Exercise, and, as soon as practical after the Date of Exercise, the Holder
hereof shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise, and if this Warrant is not exercised in full,
the Holder shall be entitled to receive a new Warrant or Warrants
(containing terms identical to this Warrant) representing any unexercised
portion of this Warrant in addition to such Common Stock.
(d) HOLDER OF RECORD. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to have become
the Holder of record of such shares on the Date of Exercise of this
Warrant, irrespective of the date of delivery of such shares of Common
Stock. Nothing in this Warrant shall be construed as conferring upon the
Holder hereof any rights as a shareholder of the Company.
3. PAYMENT OF WARRANT EXERCISE PRICE.
The Exercise Price shall equal the closing bid price on February 24, 1998
($0.25) ("Exercise Price").
Payment of the Exercise Price may be made by either of the following, or a
combination thereof, at the election of Holder:
(a) CASH EXERCISE: cash, certified check or cashiers check or wire
transfer; or
(b) CASHLESS EXERCISE: subject to the last sentence of this Section
3, surrender of this Warrant at the principal office of the Company
together with notice of cashless election, in which event the Company shall
issue Holder a number of shares of Common Stock computed using the
following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant
is being exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be defined as
the average closing price of the Common Stock for the five (5) trading
days prior to the Date of Exercise of this Warrant (the "Average
Closing Price"), as reported by the OTC Bulletin Board, or if the
Common Stock is not traded on the OTC Bulletin Board, the Average
Closing Price in the over-the-counter market; provided, however, that
if the Common Stock is listed on a stock exchange, the Market Price
shall be the
2
<PAGE>
Average Closing Price on such exchange. If the Common
Stock is/was not traded during the five (5) trading days prior to the
Date of Exercise, then the closing price for the last publicly traded
day shall be deemed to be the closing price for any and all (if
applicable) days during such five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is
intended, understood and acknowledged that the Common Stock issuable upon
exercise of this Warrant in a cashless exercise transaction shall be deemed to
have been acquired at the time this Warrant was issued. Moreover, it is
intended, understood and acknowledged that the holding period for the Common
Stock issuable upon exercise of this Warrant in a cashless exercise transaction
shall be deemed to have commenced on the date this Warrant was issued.
4. TRANSFER.
(a) TRANSFER RIGHTS. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in
whole or in part, in person or by attorney, upon surrender of this Warrant
properly endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of
this Warrant transferred, and the Holder of this Warrant shall be entitled
to receive a new Warrant or Warrants as to the portion hereof retained.
5. ANTI-DILUTION ADJUSTMENTS.
(a) STOCK DIVIDEND. If the Company shall at any time declare a
dividend payable in shares of Common Stock, then the Holder hereof, upon
Exercise of this Warrant after the record date for the determination of
Holders of Common Stock entitled to receive such dividend, shall be
entitled to receive upon Exercise of this Warrant, in addition to the
number of shares of Common Stock as to which this Warrant is Exercised,
such additional shares of Common Stock as such Holder would have received
had this Warrant been Exercised immediately prior to such record date and
the Exercise Price will be proportionately adjusted.
(b) RECAPITALIZATION OR RECLASSIFICATION. If the Company shall at any
time effect a recapitalization, reclassification or other similar
transaction of such character that the shares of Common Stock shall be
changed into or become exchangeable for a larger or smaller number of
shares, then upon the effective date thereof, the number of shares of
Common Stock which the Holder hereof shall be entitled to purchase upon
Exercise of this Warrant shall be increased or decreased, as the case may
be, in direct proportion to the increase or decrease in the number of
shares of Common Stock by reason of such recapitalization, reclassification
or similar transaction, and the Exercise Price shall be, in the case of an
increase in the number of shares, proportionally decreased and, in the case
of decrease in the number of shares, proportionally increased. The Company
shall give the Warrant Holder the same notice it provides to holders of
Common Stock of any transaction described in this Section 5(b).
3
<PAGE>
(c) DISTRIBUTIONS. If the Company shall at any time distribute to
Holders of Common Stock cash, evidences of indebtedness or other securities
or assets (other than cash dividends or distributions payable out of earned
surplus or net profits for the current or preceding year) then, in any such
case, the Holder of this Warrant shall be entitled to receive, upon
exercise of this Warrant, with respect to each share of Common Stock
issuable upon such Exercise, the amount of cash or evidences of
indebtedness or other securities or assets which such Holder would have
been entitled to receive with respect to each such share of Common Stock as
a result of the happening of such event had this Warrant been Exercised
immediately prior to the record date or other date fixing shareholders to
be affected by such event (the "Determination Date") or, in lieu thereof,
if the Board of Directors of the Company should so determine at the time of
such distribution, a reduced Exercise Price determined by multiplying the
Exercise Price on the Determination Date by a fraction, the numerator of
which is the result of such Exercise Price reduced by the value of such
distribution applicable to one share of Common Stock (such value to be
determined by the Board in its discretion) and the denominator of which is
such Exercise Price.
(d) NOTICE OF CONSOLIDATION OR MERGER. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or
other similar event, as a result of which shares of Common Stock of the
Company shall be changed into the same or a different number of shares of
the same or another class or classes of stock or securities or other assets
of the Company or another entity or there is a sale of all or substantially
all the Company's assets (a "Corporate Change"), then this Warrant shall be
exercisable into such class and type of securities or other assets as the
Holder would have received had the Holder exercised this Warrant
immediately prior to such Corporate Change; provided, however, that Company
may not affect any Corporate Change unless it first shall have given thirty
(30) business days notice to the Holder hereof of any Corporate Change.
(e) EXERCISE PRICE ADJUSTED. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in
Section 3 of this Warrant, until the occurrence of an event stated in
subsection (a), (b) or (c) of this Section 5, and thereafter shall mean
said price as adjusted from time to time in accordance with the provisions
of said subsection. No such adjustment under this Section 5 shall be made
unless such adjustment would change the Exercise Price at the time by $.01
or more; provided, however, that all adjustments not so made shall be
deferred and made when the aggregate thereof would change the Exercise
Price at the time by $.01 or more. No adjustment made pursuant to any
provision of this Section 5 shall have the effect of increasing the
Exercise Price. The number of shares of Common Stock subject hereto shall
increase proportionately with each decrease in the Exercise Price.
(f) ADJUSTMENTS: ADDITIONAL SHARES, SECURITIES OR ASSETS. In the
event that at any time, as a result of an adjustment made pursuant to this
Section 5, the Holder of this Warrant shall, upon Exercise of this Warrant,
become entitled to receive shares and/or other securities or assets (other
than Common Stock) then, wherever appropriate, all references herein to
shares of Common Stock shall be deemed to refer to and include such shares
and/or other securities or assets; and thereafter the number of such shares
4
<PAGE>
and/or other securities or assets shall be subject to adjustment from time
to time in a manner and upon terms as nearly equivalent as practicable to
the provisions of this Section 5.
6. FRACTIONAL INTERESTS.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, the
Holder hereof may purchase only a whole number of shares of Common Stock. If,
on Exercise of this Warrant, the Holder hereof would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon conversion shall be the next higher number of shares.
7. RESERVATION OF SHARES.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for Exercise and
payment of the Exercise Price of this Warrant. The Company covenants and agrees
that upon Exercise of this Warrant, all shares of Common Stock issuable upon
such Exercise shall be duly and validly issued, fully paid, nonassessable and
not subject to preemptive rights, rights of first refusal or similar rights of
any person or entity.
8. RESTRICTIONS ON TRANSFER.
(a) REGISTRATION OR EXEMPTION REQUIRED. This Warrant has been issued
in a transaction exempt from the registration requirements of the Act by
virtue of Regulation D. The Warrant and the Common Stock issuable upon
exercise of the Warrant may not be sold except pursuant to an effective
registration statement or an exemption to the registration requirements of
the Act and applicable state laws.
(b) PIGGYBACK REGISTRATION RIGHTS. During the five (5) year period
commencing on the Date of Issuance, if the Company proposes to file a
registration statement for a public offering of any of its securities under
the Act, it will give written notice, at least forty-five (45) days prior
to the filing of each such registration statement to the Holders of the
Warrant and/or the underlying securities of its intention to do so. Upon
written request from any of the Holders notifying the Company within twenty
(20) days after the giving of such notice of each such registration
statement of their desire to sell the securities issued or of such notice
of each such registration statement of their desire to sell the securities
issued or issuable upon the exercise of this Warrant, the Company shall
afford such Holders of the Warrant and/or underlying securities registered
or qualified under such registration statement. This is not applicable to
a registration statement filed with the Commission of Forms S-4 or S-8 or
any other inappropriate forms, not is it applicable to the Warrant once
they have expired. The Holders who elect such piggyback registration
rights agree to withdraw such of the registrable securities as shall
reasonably be required by the underwriter in connection with any such
offering. Neither the delivery of such notice by the Company nor the
election or request by such Holders shall in any way obligate the Company
to file such
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registration statement under this Section 8(b), and the
Company may, at any time prior to the effective date thereof, determine not
to offer the securities to which the registration statement relates,
without liability to such Holders. In addition, each Holder shall, upon
the request of the managing underwriter, if any, of such public offering,
agree in writing not to sell, transfer, assign, hypothecate, or otherwise
dispose of the securities issued or issuable upon the exercise of this
Option for a period of 24 moths in such managing underwriter's discretion.
(c) DEMAND REGISTRATION RIGHTS. During the five (5) year period
commencing the Date of Issuance, upon the written request of the Holders
of those securities representing at least a majority of the sum of the
Shares issuable upon the exercise of this Warrant, the Company agrees to
prepare and file with the Commission, no more than once, a post-Effective
Amendment, or a registration statement under the Act, registering or
qualifying, as the case may be, this Option and/or the securities
underlying this Option. The Company agrees to use its best efforts to
cause the above filing to become effective. These Demand Registration
Rights are not applicable to the Warrants once they have expired.
(d) ASSIGNMENT. Assuming the conditions of (a) above regarding
registration or exemption have been satisfied, the Holder may sell,
transfer, assign, pledge or otherwise dispose of this Warrant, in whole or
in part. Holder shall deliver a written notice to Company, substantially in
the form of the Assignment attached hereto as Exhibit B, indicating the
person or persons to whom the Warrant shall be assigned and the respective
number of warrants to be assigned to each assignee. The Company shall
effect the assignment within ten (10) days, and shall deliver to the
assignee(s) designated by Holder a Warrant or Warrants of like tenor and
terms for the appropriate number of shares.
9. BENEFITS OF THIS WARRANT.
Nothing in this Warrant shall be construed to confer upon any person other
than the Company and the Holder of this Warrant any legal or equitable right,
remedy or claim under this Warrant and this Warrant shall be for the sole and
exclusive benefit of the Company and the Holder of this Warrant.
10. APPLICABLE LAW.
This Warrant is issued under and shall for all purposes be governed by and
construed in accordance with the laws of the state of Nevada, without giving
effect to conflict of law provisions thereof.
11. LOSS OF WARRANT.
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
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12. NOTICE OR DEMANDS.
Notices or demands pursuant to this Warrant to be given or made by the
Holder of this Warrant to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by the
Company, to Attention: President, Intercell Corporation, 370 17th Street, Suite
3290, Denver, Colorado 80202, Attention: President, Telephone No. (303)592-1010,
Telecopy No. (303)592-1054. Notices or demands pursuant to this Warrant to be
given or made by the Company to or on the Holder of this Warrant shall be
sufficiently given or made if sent by certified or registered mail, return
receipt requested, postage prepaid, and addressed, to the address of the Holder
set forth in the Company's records, until another address is designated in
writing by Holder.
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IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
24th day of February, 1998.
NANOPIERCE TECHNOLOGIES, INC.
By ________________________________
Print Name: Paul H. Metzinger
Title: Chief Executive Officer and President
The Hamilton Fund, LLC, and any subsequent Holder agree that if The Global
Funding Group, an affiliate of the Hamilton Fund, LLC shall not have completed a
minimum financing of One Million, Five Hundred Thousand Dollars ($1,500,000.00)
for Nanopierce Technologies, Inc. in connection with the Financing described in
the Letter, dated February 23, 1998, from The Global Funding Group to Sunlight
Systems, Ltd., (now known as Nanopierce Technologies, Inc.) on or before June
30, 1998, this Warrant shall thereafter, without any prior notice or any other
written acknowledgment, be null, void and of no further force and effect. If
such financing shall be completed on or before such date, Nanopierce
Technologies, Inc., and The Global Funding Group and the Hamilton Fund, LLC
shall sign a written instrument confirming the successful completion of such
financing.
HAMILTON FUND, LLC.
______________________
By Authorized Agent
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EXHIBIT A
EXERCISE FORM
TO: NANOPIERCE TECHNOLOGIES, INC.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock of NANOPIERCE TECHNOLOGIES, INC., a
Nevada corporation (the "Company"), evidenced by the attached Warrant, and
herewith makes payment of the Exercise Price with respect to such shares in
full, all in accordance with the conditions and provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any of Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be
issued free of any restrictive legend, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
Registered Holder and delivered to the undersigned at the address set forth
below:
Dated:
________________________________________________________________________________
Signature of Registered Holder
________________________________________________________________________________
Name of Registered Holder (Print)
________________________________________________________________________________
Non-U.S. Address
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EXHIBIT B
ASSIGNMENT
(To be executed by the registered Holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby
sells, assigns and transfers unto the person or persons below named the right to
purchase _______ shares of the Common Stock of NANOPIERCE TECHNOLOGIES, INC.
evidenced by the attached Warrant and does hereby irrevocably constitute and
appoint _______________________ attorney to transfer the said Warrant on the
books of the Company, with full power of substitution in the premises.
Dated: ______________________________
Signature
Fill in for new Registration of Warrant:
___________________________________
Name
___________________________________
Address
___________________________________
Please print name and address of assignee
(including zip code number)
________________________________________________________________________________
NOTICE
The signature to the foregoing Exercise Form or Assignment must correspond
to the name as written upon the face of the attached Warrant in every
particular, without alteration or enlargement or any change whatsoever.
________________________________________________________________________________
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EXHIBIT 4.08
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "LAWS"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
LAWS, OR (II) AN OPINION OF COUNSEL PROVIDED TO THE ISSUER IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER THE LAWS DUE TO AN AVAILABLE EXCEPTION TO OR EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE LAWS.
NANOPIERCE TECHNOLOGIES, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.1-B Number of Shares: 70,000
Date of Issuance: July 23, 1998
Nanopierce Technologies, Inc., Inc., a Nevada corporation (the "Company"),
hereby certifies that, for value received, Portfolio Investment Strategies
Corporation, and permitted assigns, the registered holder hereof ("Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company
upon surrender of this Warrant, at any time after the date hereof, but not after
5:00 P.M. New York time on the Expiration Date (as defined herein) Seventy
Thousand (70,000) fully paid and nonassessable shares of Common Stock (as
defined herein) of the Company (each a "Warrant Share" and collectively the
"Warrant Shares") at a purchase price of U.S.$2.8125 per share (the "Exercise
Price") in lawful money of the United States. The number of Warrant Shares
purchasable hereunder and the Exercise Price are subject to adjustment as
provided in Section 9 below.
Section 1.
(a) Definitions. The following words and terms used in this Warrant shall
have the following meanings:
"Common Stock" means (a) the Company's common stock and (b) any capital
stock into which such Common Stock shall have been changed or any capital stock
resulting from a reclassification of such Common Stock.
"Convertible Securities" mean any securities issued by the Company which
are convertible into or exchangeable for, directly or indirectly, shares of
Common Stock.
<PAGE>
"Expiration Date" means the date which is five (5) years from the date of
this Warrant or, if such date falls on a Saturday, Sunday or other day on which
banks are required or authorized to be closed in the City of New York or the
State of New York (a "Holiday"), the next preceding date that is not a Holiday.
"Market Price" means the closing bid price on the day prior to the date on
which the Exercise Form is delivered to the Company, as quoted on the National
Association of Securities Dealers' OTC Bulletin Board Market.
"Securities Act" means the Securities Act of 1933, as amended.
"Transfer" shall include any disposition of this Warrant or any Warrant
Shares, or of any interest in either thereof which would constitute a sale
thereof within the meaning of the Securities Act of 1933, as amended, or
applicable state securities laws.
"Warrant" shall mean this Warrant and all Warrants issued in exchange,
transfer or replacement of any thereof.
"Warrant Exercise Price" shall be U.S.$2.8125 per share.
(b) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references herein (A) to
the Company shall be deemed to include the Company's successors; and (B) to any
applicable law defined or referred to herein, shall be deemed references to such
applicable law as the same may have been or may be amended or supplemented from
time to time.
(ii) When used in this Warrant, unless the otherwise specified in a
particular instance, the words "herein," "hereof," and "hereunder," and words of
similar import, shall refer to this Warrant as a whole and not to any provision
of this Warrant, and the words "Section," "Schedule," and "Exhibit" shall refer
to Sections of, and Schedules and Exhibits to, this Warrant unless otherwise
specified.
(iii) Whenever the context so requires the neuter gender includes the
masculine or feminine, and the singular number includes the plural, and vice
versa.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the Holder, as a whole or in part, at any time prior to 5:00 P.M.
New York Time on the Expiration Date. The rights represented by this Warrant
may be exercised by the Holder, as a whole or from time to time in part (except
that this Warrant shall not be exercisable as to a fractional share) by (i)
delivery of a written notice, in the form of the exercise form attached as
Exhibit I hereto (an "Exercise Form"), of the Holder's election to exercise this
Warrant, which notice shall specify the number of Warrant Shares to be
purchased, (ii) payment to the Company of an amount equal to the Warrant
Exercise Price multiplied by the number of Warrant Shares as to which the
Warrant is being exercised (plus any applicable issue or transfer taxes) in
immediately available funds (either by wire transfer or a certified or cashier's
check drawn on a United States bank), for
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<PAGE>
the number of Warrant Shares as to which this Warrant shall have been exercised,
and (iii) the surrender of this Warrant, properly endorsed, at the principal
office of the Company (or at such other agency or office of the Company as the
Company may designate by notice to the Holder).
In addition, and notwithstanding anything to the contrary contained in this
Warrant, this Warrant may be exercised by presentation and surrender of this
Warrant to the Company in a cashless exercise, including a written calculation
of the number of Warrant Shares to be issued upon such exercise in accordance
with the terms hereof (a "Cashless Exercise"). In the event of a Cashless
Exercise, in lieu of paying the Exercise Price, the Holder shall surrender this
Warrant for, and the Company shall issue in respect thereof, the number of
Warrant Shares determined by multiplying the number of Warrant Shares to which
the Holder would otherwise be entitled by a fraction, the numerator of which
shall be the difference between the then current Market Price per share of the
Common Stock and the Exercise Price, and the denominator of which shall be the
then current Market Price per share of Common Stock.
The Warrant Shares so purchased shall be deemed to be issued to the Holder
or Holder's designees, as the record owner of such Warrant Shares, as of the
date on which this Warrant shall have been surrendered, the completed Exercise
Agreement shall have been delivered, and payment (or notice of an election to
effect a Cashless Exercise) shall have been made for such Warrant Shares as set
forth above.
In the event of any exercise of the rights represented by this Warrant in
compliance with this Section 2(a), a certificate or certificates for the Warrant
Shares so purchased, registered in the name of, or as directed by, the Holder,
shall be delivered to, or as directed by, the Holder within three (3) business
days after such rights shall have been so exercised.
(b) Unless this Warrant shall have expired or shall have been fully
exercised, the Company shall issue a new Warrant identical in all respects to
the Warrant exercised except (i) it shall represent rights to purchase the
number of Warrant Shares purchasable immediately prior to such exercise under
the Warrant exercised, less the number of Warrant Shares with respect to which
such Warrant is exercised, and (ii) the holder thereof shall be deemed to have
become the holder of record of such Warrant Shares immediately prior to the
close of business on the date on which the Warrant is surrendered and payment of
the amount due in respect of such exercise and any applicable taxes is made,
irrespective of the date of delivery of such share certificate, except that, if
the date of such surrender and payment is a date when the stock transfer books
of the Company are properly closed, such person shall be deemed to have become
the holder of such Warrant Shares at the opening of business on the next
succeeding date on which the stock transfer books are open.
(c) In the case of any dispute with respect to an exercise, the Company
shall promptly issue such number of Warrant Shares as are not disputed in
accordance with this Section. If such dispute only involves the number of
Warrant Shares receivable by the Holder under a Cashless Exercise, the Company
shall submit the disputed calculations to an independent accounting firm of
national standing via facsimile within two (2) business days of receipt of the
Exercise Form. The accountant shall audit the calculations and notify the
Company and the Holder of the results no later than two (2) business days from
the date it receives the disputed calculations. The
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<PAGE>
accountant's calculation shall be deemed conclusive absent manifest error. The
Company shall then issue the appropriate number of shares of Common Stock in
accordance with this Section.
Section 3. Covenants as to Common Stock. The Company covenants and agrees
that all Warrant Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable. The Company further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved a sufficient number of
shares of Common Stock to provide for the exercise of the rights then
represented by this Warrant and that the par value of said shares will at all
times be less than or equal to the applicable Warrant Exercise Price.
Section 4. Taxes. The Company shall not be required to pay any tax or
taxes attributable to the initial issuance of the Warrant Shares or any
permitted transfer involved in the issue or delivery of any certificates for
Warrant Shares in a name other than that of the registered holder hereof or upon
any permitted transfer of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. No holder, as such,
of this Warrant shall be entitled to vote or receive dividends or be deemed the
holder of shares of the Company for any purpose, nor shall anything contained in
this Warrant be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the holder of this Warrant of the Warrant
Shares which he or she is then entitled to receive upon the due exercise of this
Warrant. Notwithstanding the foregoing, the Company will provide the holder of
this Warrant with copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.
Section 6. No Limitation on Corporate Action. No provisions of this
Warrant and no right or option granted or conferred hereunder shall in any way
limit, affect or abridge the exercise by the Company of any of its corporate
rights or powers to recapitalize, amend its Certificate of Incorporation,
reorganize, consolidate or merge with or into another corporation, or to
transfer all or any part of its property or assets, or the exercise of any other
of its corporate rights and powers.
Section 7. Representations of Holder. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment and not with a view to, or for sale in
connection with, any distribution hereof or of any of the shares of Common Stock
or other securities issuable upon the exercise thereof, and not with any present
intention of distributing any of the same. Upon exercise of this Warrant, the
holder shall, if requested by the Company, confirm in writing, in a form
reasonably satisfactory to the Company, that the Warrant Shares so purchased are
being acquired solely for the holder's own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale.
If such holder cannot make such representations because they would be factually
incorrect, it shall be a condition to such holder's exercise of the Warrant that
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<PAGE>
the Company receive such other representations as the Company considers
reasonably necessary to assure the Company that the issuance of its securities
upon exercise of the Warrant shall not violate any United States or state
securities laws.
Section 8. Transfer; Opinions of Counsel; Restrictive Legends.
(a) The holder of this Warrant understands that (i) this Warrant and the
Warrant Shares have not been and are not being registered under the Securities
Act or any state securities laws (other than as described herein, and may not be
offered for sale, sold, assigned or transferred unless (x) subsequently
registered thereunder, or (y) pursuant to an exemption from such registration;
(ii) any sale of such securities made in reliance on Rule 144 promulgated under
the Securities Act may be made only in accordance with the terms of said Rule
and further, if said Rule is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the Securities and Exchange Commission
thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such securities (other than as described herein) under
the Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.
(b) Notwithstanding anything herein to the contrary, during the five (5)
year period commencing on the date of this Warrant, if the Company proposes to
file a registration statement for a public offering of any of its securities
under the Securities Act, it will give written notice, at least twenty (20) days
prior to the filing of each such registration statement, to each of the holders
of the Warrant and/or the Warrant Shares of its intention to do so. Upon the
request of any of such holders within ten (10) days after such notice from the
Company was received by such requesting holder, the Company shall include the
Warrant and/or the Warrant Shares owned by such holder in such registration
statement such that said Warrant and/or Warrant Shares shall be registered or
qualified under such registration statement. This provision is not applicable to
a registration statement filed on Form S-4 or Form S-8, nor is it applicable to
the Warrant once it has expired under the terms hereof.
Section 9. Adjustments.
(a) Reclassification and Reorganization. In case of any reclassification,
capital reorganization or other change of outstanding shares of the Common
Stock, or in case of any consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common Stock),
the Company shall cause effective provision to be made so that the Holder shall
have the right thereafter, by exercising this Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation or merger by a holder of the number of shares of Common Stock that
could have been purchased upon exercise of the Warrant immediately prior to such
reclassification, capital reorganization or other change, consolidation or
merger. Any such provision shall include provision for adjustments that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 9. The foregoing
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provisions shall similarly apply to successive reclassifications, capital
reorganizations and other changes of outstanding shares of Common Stock and to
successive consolidations or mergers. If the consideration received by the
holders of Common Stock is other than cash, the value shall be as determined by
the Board of Directors of the Company acting in good faith.
(b) Dividends and Stock Splits. If and whenever the Company shall effect
a stock dividend, a stock split, a stock combination, or a reverse stock split
of the Common Stock, the number of Warrant Shares purchasable hereunder and the
Warrant Exercise Price shall be proportionately adjusted in the manner
determined by the Company's Board of Directors acting in good faith. The number
of shares, as so adjusted, shall be rounded down to the nearest whole number and
the Warrant Exercise Price shall be rounded to the nearest cent.
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
is lost, stolen or destroyed, the Company shall, on receipt of an
indemnification undertaking reasonably satisfactory to the Company, issue a new
Warrant of like denomination and tenor as the Warrant so lost, stolen or
destroyed. In the event the holder hereof asserts such loss, theft or
destruction of this Warrant, the Company may require such holder to post a bond
issued by a surety reasonably satisfactory to the Company with respect to the
issuance of such new Warrant.
Section 11. Notice. Any notices required or permitted to be given under
the terms of this Warrant shall be sent by mail or delivered personally or by
courier and shall be effective five days after being placed in the mail, if
mailed, certified or registered, return receipt requested, or upon receipt, if
delivered personally or by courier or by facsimile, in each case properly
addressed to the party to receive the same. The addresses for such
communications shall be:
If to the Company: Nanopierce Technologies, Inc.
370 Seventeenth Street, Suite 3290
Denver Colorado 80202
Telephone: 303.592.1054
Facsimile: 303.592.1010
Attention: Mr. Gilbert Olachea, President & CEO
If to Holder: Portfolio Investment Strategies Corporation
6 Lake Street, Suite 1800
Monroe, NY 10950
Telephone: 914.774.7949
Facsimile: 914.774.7275
Attention: Harry Schwartz
Section 12. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party or holder hereof against which enforcement of such change,
waiver, discharge or termination is sought. The headings in this Warrant are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof. This Warrant shall be governed by and interpreted under the
laws of the State of Delaware. Headings are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof. This Warrant
shall be binding upon the Company and its successors and assigns and shall inure
to the benefit of the Holder and its successors and
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<PAGE>
assigns. The Holder may not assign this Warrant except in accordance with
applicable federal and state securities laws. The Holder shall immediately
notify the Company with respect to any permitted assignment of this Warrant.
Section 13. Date. The date of this Warrant is July 23, 1998. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 8 shall continue in full force and
effect after such date as to any Warrant Shares or other securities issued upon
the exercise of this Warrant.
NANOPIERCE TECHNOLOGIES, INC.
By: /s/ Gilbert Olachea
-------------------
Mr. Gilbert Olachea, President & CEO
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<PAGE>
EXHIBIT I TO WARRANT
EXERCISE FORM TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
NANOPIERCE TECHNOLOGIES, INC.
The undersigned hereby exercises the right to purchase the number of
Warrant Shares covered by the Warrant attached hereto as specified below
according to the conditions thereof and herewith makes payment of U.S.
$______________________ (unless effected by a Cashless Exercise in accordance
with the terms of the Warrant), the aggregate Warrant Exercise Price of such
Warrant Shares in full pursuant to the terms and conditions of the Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained upon exercise of the Warrant, except under
circumstances that will not result in a violation of the 1933 Act or applicable
state securities laws.
(ii) The undersigned requests that the stock certificates for the Warrant
Shares be issued, and a Warrant representing any unexercised portion hereof be
issued, pursuant to the terms of the Warrant in the name of the Holder (or such
other person(s) indicated below) and delivered to the undersigned (or
designee(s)) at the address or addresses set forth below.
Dated:_______________________, 199_.
HOLDER: ___________________________________
By:
========================================
Name: _____________________________________
Title: ____________________________________
Address: ___________________________________
___________________________________
___________________________________
Number of Warrant Shares
BEING PURCHASED: ________________________
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EXHIBIT 4.09
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "LAWS"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
LAWS, OR (II) AN OPINION OF COUNSEL PROVIDED TO THE ISSUER IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER THE LAWS DUE TO AN AVAILABLE EXCEPTION TO OR EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE LAWS.
NANOPIERCE TECHNOLOGIES, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No. 01 Number of Shares: 50,000
Date of Issuance: July 23, 1998
Nanopierce Technologies, Inc., a Nevada corporation (the "Company"), hereby
certifies that, for value received, Y. L. Hirsch, and permitted assigns, the
registered holder hereof ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company upon surrender of this Warrant, at any time
after the date hereof, but not after 5:00 P.M. New York time on the Expiration
Date (as defined herein) 50,000 fully paid and nonassessable shares of Common
Stock (as defined herein) of the Company (each a "Warrant Share" and
collectively the "Warrant Shares") at a purchase price of U.S.$3.515625 per
share (the "Exercise Price") in lawful money of the United States. The number of
Warrant Shares purchasable hereunder and the Exercise Price are subject to
adjustment as provided in Section 9 below.
Section 1.
(a) Definitions. The following words and terms used in this Warrant shall
have the following meanings:
"Common Stock" means (a) the Company's common stock and (b) any capital
stock into which such Common Stock shall have been changed or any capital stock
resulting from a reclassification of such Common Stock.
<PAGE>
"Convertible Securities" mean any securities issued by the Company which
are convertible into or exchangeable for, directly or indirectly, shares of
Common Stock.
"Expiration Date" means the date which is three (3) years from the date of
this Warrant or, if such date falls on a Saturday, Sunday or other day on which
banks are required or authorized to be closed in the City of New York or the
State of New York (a "Holiday"), the next preceding date that is not a Holiday.
"Market Price" means the closing bid price on the day prior to the date on
which the Exercise Form is delivered to the Company, as quoted on the National
Association of Securities Dealers' OTC Bulletin Board Market.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement between the holder hereof (or its predecessor in interest) and the
Company for the purchase of this Warrant and the other Securities (as defined in
the Securities Purchase Agreement).
"Transfer" shall include any disposition of this Warrant or any Warrant
Shares, or of any interest in either thereof which would constitute a sale
thereof within the meaning of the Securities Act of 1933, as amended, or
applicable state securities laws.
"Warrant" shall mean this Warrant and all Warrants issued in exchange,
transfer or replacement of any thereof.
"Warrant Exercise Price" shall be U.S.$3.515625 per share.
(b) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references herein (A) to
the Company shall be deemed to include the Company's successors; and (B) to any
applicable law defined or referred to herein, shall be deemed references to such
applicable law as the same may have been or may be amended or supplemented from
time to time.
(ii) When used in this Warrant, unless the otherwise specified in a
particular instance, the words "herein," "hereof," and "hereunder," and words of
similar import, shall refer to this Warrant as a whole and not to any provision
of this Warrant, and the words "Section," "Schedule," and "Exhibit" shall refer
to Sections of, and Schedules and Exhibits to, this Warrant unless otherwise
specified.
(iii) Whenever the context so requires the neuter gender includes the
masculine or feminine, and the singular number includes the plural, and vice
versa.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the Holder, as a whole or in part, at any time prior to 5:00 P.M.
New York Time on the Expiration Date. The rights represented by this Warrant
may be exercised by the Holder, as a whole or from
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time to time in part (except that this Warrant shall not be exercisable as to a
fractional share) by (i) delivery of a written notice, in the form of the
exercise form attached as Exhibit I hereto (an "Exercise Form"), of the Holder's
election to exercise this Warrant, which notice shall specify the number of
Warrant Shares to be purchased, (ii) payment to the Company of an amount equal
to the Warrant Exercise Price multiplied by the number of Warrant Shares as to
which the Warrant is being exercised (plus any applicable issue or transfer
taxes) in immediately available funds (either by wire transfer or a certified or
cashier's check drawn on a United States bank), for the number of Warrant Shares
as to which this Warrant shall have been exercised, and (iii) the surrender of
this Warrant, properly endorsed, at the principal office of the Company (or at
such other agency or office of the Company as the Company may designate by
notice to the Holder).
In addition, and notwithstanding anything to the contrary contained in this
Warrant, this Warrant may be exercised by presentation and surrender of this
Warrant to the Company in a cashless exercise, including a written calculation
of the number of Warrant Shares to be issued upon such exercise in accordance
with the terms hereof (a "Cashless Exercise"). In the event of a Cashless
Exercise, in lieu of paying the Exercise Price, the Holder shall surrender this
Warrant for, and the Company shall issue in respect thereof, the number of
Warrant Shares determined by multiplying the number of Warrant Shares to which
the Holder would otherwise be entitled by a fraction, the numerator of which
shall be the difference between the then current Market Price per share of the
Common Stock and the Exercise Price, and the denominator of which shall be the
then current Market Price per share of Common Stock.
The Warrant Shares so purchased shall be deemed to be issued to the Holder
or Holder's designees, as the record owner of such Warrant Shares, as of the
date on which this Warrant shall have been surrendered, the completed Exercise
Agreement shall have been delivered, and payment (or notice of an election to
effect a Cashless Exercise) shall have been made for such Warrant Shares as set
forth above.
In the event of any exercise of the rights represented by this Warrant in
compliance with this Section 2(a), a certificate or certificates for the Warrant
Shares so purchased, registered in the name of, or as directed by, the Holder,
shall be delivered to, or as directed by, the Holder within three (3) business
days after such rights shall have been so exercised.
(b) Unless this Warrant shall have expired or shall have been fully
exercised, the Company shall issue a new Warrant identical in all respects to
the Warrant exercised except (i) it shall represent rights to purchase the
number of Warrant Shares purchasable immediately prior to such exercise under
the Warrant exercised, less the number of Warrant Shares with respect to which
such Warrant is exercised, and (ii) the holder thereof shall be deemed to have
become the holder of record of such Warrant Shares immediately prior to the
close of business on the date on which the Warrant is surrendered and payment of
the amount due in respect of such exercise and any applicable taxes is made,
irrespective of the date of delivery of such share certificate, except that, if
the date of such surrender and payment is a date when the stock transfer books
of the Company are properly closed, such person shall be deemed to have become
the holder of such Warrant Shares at the opening of business on the next
succeeding date on which the stock transfer books are open.
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(c) In the case of any dispute with respect to an exercise, the Company
shall promptly issue such number of Warrant Shares as are not disputed in
accordance with this Section. If such dispute only involves the number of
Warrant Shares receivable by the Holder under a Cashless Exercise, the Company
shall submit the disputed calculations to an independent accounting firm of
national standing via facsimile within two (2) business days of receipt of the
Exercise Form. The accountant shall audit the calculations and notify the
Company and the Holder of the results no later than two (2) business days from
the date it receives the disputed calculations. The accountant's calculation
shall be deemed conclusive absent manifest error. The Company shall then issue
the appropriate number of shares of Common Stock in accordance with this
Section.
Section 3. Covenants as to Common Stock. The Company covenants and agrees
that all Warrant Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable. The Company further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved a sufficient number of
shares of Common Stock to provide for the exercise of the rights then
represented by this Warrant and that the par value of said shares will at all
times be less than or equal to the applicable Warrant Exercise Price.
Section 4. Taxes. The Company shall not be required to pay any tax or
taxes attributable to the initial issuance of the Warrant Shares or any
permitted transfer involved in the issue or delivery of any certificates for
Warrant Shares in a name other than that of the registered holder hereof or upon
any permitted transfer of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. No holder, as such,
of this Warrant shall be entitled to vote or receive dividends or be deemed the
holder of shares of the Company for any purpose, nor shall anything contained in
this Warrant be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the holder of this Warrant of the Warrant
Shares which he or she is then entitled to receive upon the due exercise of this
Warrant. Notwithstanding the foregoing, the Company will provide the holder of
this Warrant with copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.
Section 6. No Limitation on Corporate Action. No provisions of this
Warrant and no right or option granted or conferred hereunder shall in any way
limit, affect or abridge the exercise by the Company of any of its corporate
rights or powers to recapitalize, amend its Certificate of Incorporation,
reorganize, consolidate or merge with or into another corporation, or to
transfer all or any part of its property or assets, or the exercise of any other
of its corporate rights and powers.
Section 7. Representations of Holder. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment and not with a view to, or for sale in
connection with, any distribution hereof or of
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<PAGE>
any of the shares of Common Stock or other securities issuable upon the exercise
thereof, and not with any present intention of distributing any of the same.
Upon exercise of this Warrant, the holder shall, if requested by the Company,
confirm in writing, in a form satisfactory to the Company, that the Warrant
Shares so purchased are being acquired solely for the holder's own account and
not as a nominee for any other party, for investment, and not with a view toward
distribution or resale. If such holder cannot make such representations because
they would be factually incorrect, it shall be a condition to such holder's
exercise of the Warrant that the Company receive such other representations as
the Company considers reasonably necessary to assure the Company that the
issuance of its securities upon exercise of the Warrant shall not violate any
United States or state securities laws.
Section 8. Transfer; Opinions of Counsel; Restrictive Legends.
(a) The holder of this Warrant understands that (i) this Warrant and the
Warrant Shares have not been and are not being registered under the Securities
Act or any state securities laws (other than as described in the Securities
Purchase Agreement and the Registration Rights Agreement), and may not be
offered for sale, sold, assigned or transferred unless (a) subsequently
registered thereunder, or (b) pursuant to an exemption from such registration;
(ii) any sale of such securities made in reliance on Rule 144 promulgated under
the Securities Act may be made only in accordance with the terms of said Rule
and further, if said Rule is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the Securities and Exchange Commission
thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such securities (other than as described in the
Securities Purchase Agreement and the Registration Rights Agreement) under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.
Section 9. Adjustments.
(a) Reclassification and Reorganization. In case of any reclassification,
capital reorganization or other change of outstanding shares of the Common
Stock, or in case of any consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common Stock),
the Company shall cause effective provision to be made so that the Holder shall
have the right thereafter, by exercising this Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation or merger by a holder of the number of shares of Common Stock that
could have been purchased upon exercise of the Warrant immediately prior to such
reclassification, capital reorganization or other change, consolidation or
merger. Any such provision shall include provision for adjustments that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 9. The foregoing provisions shall similarly apply to successive
reclassifications, capital reorganizations and other changes of outstanding
shares of Common Stock and to successive consolidations or mergers. If
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<PAGE>
the consideration received by the holders of Common Stock is other than cash,
the value shall be as determined by the Board of Directors of the Company acting
in good faith.
(b) Dividends and Stock Splits. If and whenever the Company shall effect
a stock dividend, a stock split, a stock combination, or a reverse stock split
of the Common Stock, the number of Warrant Shares purchasable hereunder and the
Warrant Exercise Price shall be proportionately adjusted in the manner
determined by the Company's Board of Directors acting in good faith. The number
of shares, as so adjusted, shall be rounded down to the nearest whole number and
the Warrant Exercise Price shall be rounded to the nearest cent.
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
is lost, stolen or destroyed, the Company shall, on receipt of an
indemnification undertaking reasonably satisfactory to the Company, issue a new
Warrant of like denomination and tenor as the Warrant so lost, stolen or
destroyed. In the event the holder hereof asserts such loss, theft or
destruction of this Warrant, the Company may require such holder to post a bond
issued by a surety reasonably satisfactory to the Company with respect to the
issuance of such new Warrant.
Section 11. Notice. Any notices required or permitted to be given under
the terms of this Warrant shall be sent by mail or delivered personally or by
courier and shall be effective five days after being placed in the mail, if
mailed, certified or registered, return receipt requested, or upon receipt, if
delivered personally or by courier or by facsimile, in each case properly
addressed to the party to receive the same. The addresses for such
communications shall be:
If to the Company: Nanopierce Technologies, Inc.
370 Seventeenth Street, Suite 3290
Denver Colorado 80202
Telephone: 303.592.1054
Facsimile: 303.592.1010
Attention: Mr. Gilbert Olachea, President & CEO
If to Holder, to it at the address set forth below Holder's signature on the
signature page of the Securities Purchase Agreement (Holder is defined therein
as the "Buyer"). Each party shall provide notice to the other party of any
change in address.
Section 12. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party or holder hereof against which enforcement of such change,
waiver, discharge or termination is sought. The headings in this Warrant are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof. This Warrant shall be governed by and interpreted under the
laws of the State of Delaware. Headings are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof. This Warrant
shall be binding upon the Company and its successors and assigns and shall inure
to the benefit of the Holder and its successors and assigns. The Holder may not
assign this Warrant except in accordance with applicable federal and state
securities laws. The Holder shall immediately notify the Company with respect to
any permitted assignment of this Warrant.
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<PAGE>
Section 13. Date. The date of this Warrant is July 23, 1998. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 8 shall continue in full force and
effect after such date as to any Warrant Shares or other securities issued upon
the exercise of this Warrant.
NANOPIERCE TECHNOLOGIES, INC.
By: /s/ Gilbert Olachea
------------------------------------
Mr. Gilbert Olachea, President & CEO
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<PAGE>
EXHIBIT I TO WARRANT
EXERCISE FORM TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
NANOPIERCE TECHNOLOGIES, INC.
The undersigned hereby exercises the right to purchase the number of
Warrant Shares covered by the Warrant attached hereto as specified below
according to the conditions thereof and herewith makes payment of U.S.
$______________________ (unless effected by a Cashless Exercise in accordance
with the terms of the Warrant), the aggregate Warrant Exercise Price of such
Warrant Shares in full pursuant to the terms and conditions of the Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained upon exercise of the Warrant, except under
circumstances that will not result in a violation of the 1933 Act or applicable
state securities laws.
(ii) The undersigned requests that the stock certificates for the Warrant
Shares be issued, and a Warrant representing any unexercised portion hereof be
issued, pursuant to the terms of the Warrant in the name of the Holder (or such
other person(s) indicated below) and delivered to the undersigned (or
designee(s)) at the address or addresses set forth below.
Dated:_______________________, 199_.
HOLDER:_____________________________________
By:
=========================================
Name: ______________________________________
Title: _____________________________________
Address: ___________________________________
___________________________________
___________________________________
Number of Warrant Shares
BEING PURCHASED: ________________________
<PAGE>
EXHIBIT 4.10
THIS WARRANT AND THE SECURITIES RECEIVABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase 50,000 shares
WARRANT TO PURCHASE COMMON STOCK
OF
NANOPIERCE TECHNOLOGIES, INC.
THIS CERTIFIES that Berliner Freiverkehr (Aktien) AG or any subsequent
("Holder") hereof, has the right to purchase from NANOPIERCE TECHNOLOGIES, INC.,
a Nevada corporation (the "Company"), up to 50,000 fully paid and nonassessable
shares of the Company's Common Stock, no par value ("Common Stock"), subject to
adjustment as provided herein, at a price equal to the Exercise Price as defined
in Section 3 below, at any time beginning on the Date of Issuance and ending at
5:00 p.m., New York, New York time, on September 9, 2000.
The Holder of this Warrant agrees with the Company that this Warrant is
issued and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. DATE OF ISSUANCE.
This Warrant shall be deemed to be issued on September 9, 1998 ("Date of
Issuance").
2. EXERCISE.
(a) MANNER OF EXERCISE. On or after the Date of Issuance, this
Warrant may be exercised as to all or any lesser number of full shares of
Common Stock covered hereby upon surrender of this Warrant, with the
Exercise Form attached hereto duly executed, together with the full
Exercise Price (as defined in Section 3) for each share of Common Stock as
to which this Warrant is exercised, at the office of the Company, 370 17th
Street, Suite 3580, Denver, Colorado 80202; Attention: President, Telephone
No. (303)592-1010, Telecopy No. (303)592-1054, or at such other office or
agency as the Company may designate in writing, by overnight mail, with an
advance copy of the Exercise Form attached as Exhibit A ("Exercise Form")
by facsimile (such surrender and payment of the Exercise Price hereinafter
called the "Exercise of this Warrant").
<PAGE>
(b) DATE OF EXERCISE. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the Exercise Form is sent by
facsimile to the Company, provided that the original Warrant and Exercise
Form are received by the Company as soon as practicable thereafter.
Alternatively, the Date of Exercise shall be defined as the date the
original Exercise Form is received by the Company, if Holder has not sent
advance notice by facsimile.
(c) CANCELLATION OF WARRANT. This Warrant shall be canceled upon its
Exercise, and, as soon as practical after the Date of Exercise, the Holder
hereof shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise, and if this Warrant is not exercised in full,
the Holder shall be entitled to receive a new Warrant or Warrants
(containing terms identical to this Warrant) representing any unexercised
portion of this Warrant in addition to such Common Stock.
(d) HOLDER OF RECORD. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to have become
the Holder of record of such shares on the Date of Exercise of this
Warrant, irrespective of the date of delivery of such shares of Common
Stock. Nothing in this Warrant shall be construed as conferring upon the
Holder hereof any rights as a shareholder of the Company.
3. PAYMENT OF WARRANT EXERCISE PRICE.
The Exercise Price shall be Fifty Cents ($0.50) per share ("Exercise
Price").
Payment of the Exercise Price may be made by either of the following, or a
combination thereof, at the election of Holder:
(a) CASH EXERCISE: cash, certified check or cashiers check or wire
transfer; or
(b) CASHLESS EXERCISE: subject to the last sentence of this Section
3, surrender of this Warrant at the principal office of the Company
together with notice of cashless election, in which event the Company shall
issue Holder a number of shares of Common Stock computed using the
following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant
is being exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be defined as
the average closing price of the Common Stock for the five (5) trading
days prior to the Date of Exercise of this Warrant (the "Average
Closing Price"), as reported by the OTC Bulletin Board, or if the
Common Stock is not traded on the OTC Bulletin Board, the Average
Closing Price in the over-the-counter market; provided, however, that
if the Common Stock is listed on a stock exchange, the Market Price
shall be the
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<PAGE>
Average Closing Price on such exchange. If the Common Stock is/was not
traded during the five (5) trading days prior to the Date of Exercise,
then the closing price for the last publicly traded day shall be
deemed to be the closing price for any and all (if applicable) days
during such five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is
intended, understood and acknowledged that the Common Stock issuable upon
exercise of this Warrant in a cashless exercise transaction shall be deemed to
have been acquired at the time this Warrant was issued. Moreover, it is
intended, understood and acknowledged that the holding period for the Common
Stock issuable upon exercise of this Warrant in a cashless exercise transaction
shall be deemed to have commenced on the date this Warrant was issued.
4. TRANSFER.
(a) TRANSFER RIGHTS. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in
whole or in part, in person or by attorney, upon surrender of this Warrant
properly endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of
this Warrant transferred, and the Holder of this Warrant shall be entitled
to receive a new Warrant or Warrants as to the portion hereof retained.
5. ANTI-DILUTION ADJUSTMENTS.
(a) STOCK DIVIDEND. If the Company shall at any time declare a
dividend payable in shares of Common Stock, then the Holder hereof, upon
Exercise of this Warrant after the record date for the determination of
Holders of Common Stock entitled to receive such dividend, shall be
entitled to receive upon Exercise of this Warrant, in addition to the
number of shares of Common Stock as to which this Warrant is Exercised,
such additional shares of Common Stock as such Holder would have received
had this Warrant been Exercised immediately prior to such record date and
the Exercise Price will be proportionately adjusted.
(b) RECAPITALIZATION OR RECLASSIFICATION. If the Company shall at any
time effect a recapitalization, reclassification or other similar
transaction of such character that the shares of Common Stock shall be
changed into or become exchangeable for a larger or smaller number of
shares, then upon the effective date thereof, the number of shares of
Common Stock which the Holder hereof shall be entitled to purchase upon
Exercise of this Warrant shall be increased or decreased, as the case may
be, in direct proportion to the increase or decrease in the number of
shares of Common Stock by reason of such recapitalization, reclassification
or similar transaction, and the Exercise Price shall be, in the case of an
increase in the number of shares, proportionally decreased and, in the case
of decrease in the number of shares, proportionally increased. The Company
shall give the Warrant Holder the same notice it provides to holders of
Common Stock of any transaction described in this Section 5(b).
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<PAGE>
(c) DISTRIBUTIONS. If the Company shall at any time distribute to
Holders of Common Stock cash, evidences of indebtedness or other securities
or assets (other than cash dividends or distributions payable out of earned
surplus or net profits for the current or preceding year) then, in any such
case, the Holder of this Warrant shall be entitled to receive, upon
exercise of this Warrant, with respect to each share of Common Stock
issuable upon such Exercise, the amount of cash or evidences of
indebtedness or other securities or assets which such Holder would have
been entitled to receive with respect to each such share of Common Stock as
a result of the happening of such event had this Warrant been Exercised
immediately prior to the record date or other date fixing shareholders to
be affected by such event (the "Determination Date") or, in lieu thereof,
if the Board of Directors of the Company should so determine at the time of
such distribution, a reduced Exercise Price determined by multiplying the
Exercise Price on the Determination Date by a fraction, the numerator of
which is the result of such Exercise Price reduced by the value of such
distribution applicable to one share of Common Stock (such value to be
determined by the Board in its discretion) and the denominator of which is
such Exercise Price.
(d) NOTICE OF CONSOLIDATION OR MERGER. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or
other similar event, as a result of which shares of Common Stock of the
Company shall be changed into the same or a different number of shares of
the same or another class or classes of stock or securities or other assets
of the Company or another entity or there is a sale of all or substantially
all the Company's assets (a "Corporate Change"), then this Warrant shall be
exercisable into such class and type of securities or other assets as the
Holder would have received had the Holder exercised this Warrant
immediately prior to such Corporate Change; provided, however, that Company
may not affect any Corporate Change unless it first shall have given thirty
(30) business days notice to the Holder hereof of any Corporate Change.
(e) EXERCISE PRICE ADJUSTED. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in
Section 3 of this Warrant, until the occurrence of an event stated in
subsection (a), (b) or (c) of this Section 5, and thereafter shall mean
said price as adjusted from time to time in accordance with the provisions
of said subsection. No such adjustment under this Section 5 shall be made
unless such adjustment would change the Exercise Price at the time by $.01
or more; provided, however, that all adjustments not so made shall be
deferred and made when the aggregate thereof would change the Exercise
Price at the time by $.01 or more. No adjustment made pursuant to any
provision of this Section 5 shall have the effect of increasing the
Exercise Price. The number of shares of Common Stock subject hereto shall
increase proportionately with each decrease in the Exercise Price.
(f) ADJUSTMENTS: ADDITIONAL SHARES, SECURITIES OR ASSETS. In the
event that at any time, as a result of an adjustment made pursuant to this
Section 5, the Holder of this Warrant shall, upon Exercise of this Warrant,
become entitled to receive shares and/or other securities or assets (other
than Common Stock) then, wherever appropriate, all references herein to
shares of Common Stock shall be deemed to refer to and include such shares
and/or other securities or assets; and thereafter the number of such shares
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<PAGE>
and/or other securities or assets shall be subject to adjustment from time
to time in a manner and upon terms as nearly equivalent as practicable to
the provisions of this Section 5.
6. FRACTIONAL INTERESTS.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, the
Holder hereof may purchase only a whole number of shares of Common Stock. If,
on Exercise of this Warrant, the Holder hereof would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon conversion shall be the next higher number of shares.
7. RESERVATION OF SHARES.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for Exercise and
payment of the Exercise Price of this Warrant. The Company covenants and agrees
that upon Exercise of this Warrant, all shares of Common Stock issuable upon
such Exercise shall be duly and validly issued, fully paid, nonassessable and
not subject to preemptive rights, rights of first refusal or similar rights of
any person or entity.
8. RESTRICTIONS ON TRANSFER.
(a) REGISTRATION OR EXEMPTION REQUIRED. This Warrant has been issued
in a transaction exempt from the registration requirements of the Act by
virtue of Section 4(2). The Warrant and the Common Stock issuable upon
exercise of the Warrant may not be sold except pursuant to an effective
registration statement or an exemption to the registration requirements of
the Act and applicable state laws.
(b) PIGGYBACK REGISTRATION RIGHTS. During the two (2) year period
commencing on the Date of Issuance, if the Company proposes to file a
registration statement for a public offering of any of its securities under
the Act, it will give written notice, at least forty-five (45) days prior
to the filing of each such registration statement to the Holders of the
Warrant and/or the underlying securities of its intention to do so. Upon
written request from any of the Holders notifying the Company within twenty
(20) days after the giving of such notice of each such registration
statement of their desire to sell the securities issued or of such notice
of each such registration statement of their desire to sell the securities
issued or issuable upon the exercise of this Warrant, the Company shall
afford such Holders of the Warrant and/or underlying securities registered
or qualified under such registration statement. This is not applicable to
a registration statement filed with the Commission of Forms S-4 or S-8 or
any other inappropriate forms, not is it applicable to the Warrant once
they have expired. The Holders who elect such piggyback registration
rights agree to withdraw such of the registrable securities as shall
reasonably be required by the underwriter in connection with any such
offering. Neither the delivery of such notice by the Company nor the
election or request by such Holders shall in any way obligate the Company
to file such
5
<PAGE>
registration statement under this Section 8(b), and the Company may, at any
time prior to the effective date thereof, determine not to offer the
securities to which the registration statement relates, without liability
to such Holders. In addition, each Holder shall, upon the request of the
managing underwriter, if any, of such public offering, agree in writing not
to sell, transfer, assign, hypothecate, or otherwise dispose of the
securities issued or issuable upon the exercise of this Option for a period
of 24 moths in such managing underwriter's discretion.
(c) DEMAND REGISTRATION RIGHTS. During the two (2) year period
commencing the Date of Issuance, upon the written request of the Holders
of those securities representing at least a majority of the sum of the
Shares issuable upon the exercise of this Warrant, the Company agrees to
prepare and file with the Commission, no more than once, a post-Effective
Amendment, or a registration statement under the Act, registering or
qualifying, as the case may be, this Option and/or the securities
underlying this Option. The Company agrees to use its best efforts to
cause the above filing to become effective. These Demand Registration
Rights are not applicable to the Warrants once they have expired.
(d) ASSIGNMENT. Assuming the conditions of (a) above regarding
registration or exemption have been satisfied, the Holder may sell,
transfer, assign, pledge or otherwise dispose of this Warrant, in whole or
in part. Holder shall deliver a written notice to Company, substantially in
the form of the Assignment attached hereto as Exhibit B, indicating the
person or persons to whom the Warrant shall be assigned and the respective
number of warrants to be assigned to each assignee. The Company shall
effect the assignment within ten (10) days, and shall deliver to the
assignee(s) designated by Holder a Warrant or Warrants of like tenor and
terms for the appropriate number of shares.
9. BENEFITS OF THIS WARRANT.
Nothing in this Warrant shall be construed to confer upon any person other
than the Company and the Holder of this Warrant any legal or equitable right,
remedy or claim under this Warrant and this Warrant shall be for the sole and
exclusive benefit of the Company and the Holder of this Warrant.
10. APPLICABLE LAW.
This Warrant is issued under and shall for all purposes be governed by and
construed in accordance with the laws of the state of Nevada, without giving
effect to conflict of law provisions thereof.
11. LOSS OF WARRANT.
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
6
<PAGE>
12. NOTICE OR DEMANDS.
Notices or demands pursuant to this Warrant to be given or made by the
Holder of this Warrant to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by the
Company, to Attention: President, Nanopierce Technologies, Inc., 370 17th
Street, Suite 3580, Denver, Colorado 80202, Attention: President, Telephone No.
(303)592-1010, Telecopy No. (303)592-1054. Notices or demands pursuant to this
Warrant to be given or made by the Company to or on the Holder of this Warrant
shall be sufficiently given or made if sent by certified or registered mail,
return receipt requested, postage prepaid, and addressed, to the address of the
Holder set forth in the Company's records, until another address is designated
in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the 9th
day of September, 1998.
NANOPIERCE TECHNOLOGIES, INC.
By ________________________________
Print Name: Thomas Vander Stel
Title: Vice President
7
<PAGE>
EXHIBIT A
EXERCISE FORM
TO: NANOPIERCE TECHNOLOGIES, INC.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock of NANOPIERCE TECHNOLOGIES, INC., a
Nevada corporation (the "Company"), evidenced by the attached Warrant, and
herewith makes payment of the Exercise Price with respect to such shares in
full, all in accordance with the conditions and provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any of Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be
issued free of any restrictive legend, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
Registered Holder and delivered to the undersigned at the address set forth
below:
Dated:
________________________________________________________________________
Signature of Registered Holder
________________________________________________________________________
Name of Registered Holder (Print)
________________________________________________________________________
Non-U.S. Address
8
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered Holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby
sells, assigns and transfers unto the person or persons below named the right to
purchase _______ shares of the Common Stock of NANOPIERCE TECHNOLOGIES, INC.
evidenced by the attached Warrant and does hereby irrevocably constitute and
appoint _______________________ attorney to transfer the said Warrant on the
books of the Company, with full power of substitution in the premises.
Dated: ______________________________
Signature
Fill in for new Registration of Warrant:
___________________________________
Name
___________________________________
Address
___________________________________
Please print name and address of assignee
(including zip code number)
_______________________________________________________________________
NOTICE
The signature to the foregoing Exercise Form or Assignment must correspond
to the name as written upon the face of the attached Warrant in every
particular, without alteration or enlargement or any change whatsoever.
________________________________________________________________________
9
<PAGE>
EXHIBIT 5
Nanopierce Technologies, Inc.
370 17th Street, Suite 3580
Denver, Colorado 80202
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to Nanopierce Technologies, Inc., a Nevada
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of 11,239,588 shares of common
stock, $.0001 par value per share (the "Common Stock"), 470,000 warrants to
purchase Common Stock (the "Warrants"), and 61,000 shares of Series B Preferred
Stock (the "Preferred Stock") which may be sold from time to time by the selling
stockholders and warrant holders identified in the Company's registration
statement on Form S-1 filed with the Securities and Exchange Commission ("SEC")
on or about December 11, 1998. Such registration statement and the related
prospectus on file with the SEC at the time such registration statement becomes
effective (including financial statements and schedules, exhibits and all other
documents filed as a part thereof or incorporated therein) are herein called,
respectively, the "Registration Statement" and the "Prospectus."
In connection with this opinion, we have made such investigations and
examined such records, including the Company's Articles of Incorporation, Bylaws
and corporate minutes as we deemed necessary to the performance of our services
and to render this opinion. We have also examined and are familiar with the
originals or copies, certified or otherwise identified to our satisfaction, of
such other documents, corporate records and other instruments as we have deemed
necessary for the preparation of this opinion. In expressing this opinion, we
have relied, as to any questions of fact upon which our opinion is predicated,
upon representations and certificates of the officers of the Company.
In giving this opinion, we assumed:
(a) the genuineness of all signatures and the authenticity and
completeness of all documents submitted to us as originals;
(b) the conformity to originals and the authenticity of all documents
supplied to us as certified, photocopied, conformed or facsimile copies and
the authenticity and completeness of the originals of any such documents;
and
(c) the proper, genuine and due execution and delivery of all
documents by all parties to them and that there has been no breach of the
terms thereof.
Based upon the foregoing and subject to the qualifications set forth above,
and assuming (i) that the Registration Statement has become effective under the
Act; (ii) that all required actions are taken and conditions satisfied with
respect to the issuance of certain shares of Common Stock and Preferred Stock
and certain Warrants as specified in the Prospectus; and (iii) consideration is
received for such shares of Common Stock, Preferred Stock and Warrants,
<PAGE>
we are of the opinion that the Common Stock, Preferred Stock and Warrants when
sold will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and the use of our name in the Registration Statement. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Act or the Rules and
Regulations of the SEC promulgated pursuant thereto.
Very truly yours,
/s/ Kutak Rock
-------------------------------
Kutak Rock
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
Nanopierce Technologies, Inc
Computation of Net Loss Per Share
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
1998 1997
<S> <C> <C>
Net loss ($553,985) ($32,802)
Series A Preferred Stock dividend (45,313)
------------------ -----------------
Net loss applicable to common shareholders ($599,298) ($32,802)
================== =================
Weighted average number
of common shares 12,385,392 3,833,355
================== =================
Net loss per share ($0.05) ($0.01)
================== =================
</TABLE>
Diluted loss per share is not presented as the effect of the potential
conversion of preferred stock to common stock would decrease loss per share.
See notes to the financial statements.
<PAGE>
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED JUNE 30,
------------------------ -------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Historical:
Earnings/(Losses):
Loss from continuing operations $(549,739) $(32,802) $(1,137,334) $(178,234) $(3,577) $(13,429) $(40,435)
Fixed charges excluding preferred dividend 4,592 0 5,346 0 0 3,969 0
----------------------------------------------------------------------------------
Earnings/(Losses) (545,147) (32,802) (1,131,988) (178,234) (3,577) (9,460) (40,435)
----------------------------------------------------------------------------------
Fixed Charges:
Interest expense 4,592 5,346 3,969
Preferred stock dividend 45,313 60,417
----------------------------------------------------------------------------------
Fixed Charges $ 49,905 $ 0 $ 65,763 $ 0 $ 0 $ 3,969 $ 0
==================================================================================
Ratio of earnings to fixed charges Earnings are inadequate to cover fixed charges and preferred dividends
Amount of deficiency $ 595,052 $ 0 $ 1,197,751 $ 0 $ 0 $ 13,429 $ 0
==================================================================================
</TABLE>
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the inclusion of our opinion dated September 24, 1997
on the financial statements of Nanopierce Technologies, Inc. (formerly Sunlight
Systems, Ltd.) as of and for the period ended June 30, 1997, in the Registration
Statement on Form S-1 of Nanopierce Technologies, Inc. of which this exhibit is
a part, and in any amendments to the Registration Statement.
/s/ Larry O'Donnell, CPA, P.C.
- ------------------------------
Larry O'Donnell, CPA, P.C.
Denver, Colorado
December 10, 1998
<PAGE>
EXHIBIT 23.02
CONSENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement of our report
dated July 23, 1998, except for Note 12 to which the date is September 28, 1998
(which expresses an unqualified opinion and includes an explanatory paragraph
relating to the Company's ability to continue as a going concern), relating to
the financial statements of Nanopierce Technologies, Inc. as of June 30, 1998
and for the year then ended, and to the reference to our Firm under the caption
"Experts" in the Prospectus.
/s/ Gelfond Hochstadt Pangburn & Co.
- ------------------------------------
Gelfond Hochstadt Pangburn & Co.
Denver, Colorado
December 10, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NANOPIERCE
TECHNOLOGIES, INC.'S FINANCIAL STATEMENTS AS OF JUNE 30, 1998, AND SEPTEMBER 30,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-END> JUN-30-1998 SEP-30-1998
<CASH> 11 227,251
<SECURITIES> 1,491 1,491
<RECEIVABLES> 38,739 11,650
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 11,985 238,901
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,006,250 1,240,186
<CURRENT-LIABILITIES> 391,282 207,203
<BONDS> 0 0
500,000 0
0 1,089,600
<COMMON> 1,213 1,251
<OTHER-SE> 113,755 (57,868)
<TOTAL-LIABILITY-AND-EQUITY> 1,006,250 1,240,186
<SALES> 1,519 0
<TOTAL-REVENUES> 1,519 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,174,999 549,739
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,346 4,592
<INCOME-PRETAX> (1,137,334) (553,985)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,137,334) (553,985)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,197,751) (599,298)
<EPS-PRIMARY> (.18) (0.05)
<EPS-DILUTED> (.18) (0.05)
</TABLE>
