FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 33-19598-D
NANOPIERCE TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 84-0992908
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(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
370 Seventeenth Street Suite 3580
Denver Colorado 80202
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(Address of principal executive offices)
Issuer's telephone number: (303) 592-1010
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
As of February 8, 1999, there were 14,106,481 shares of the registrant's
sole class of common stock outstanding.
Traditional Small Business Disclosure Format Yes _____ No [X]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page
Balance Sheet - December 31, 1998 F-2
Statements of Operations and Comprehensive Loss -
three and six months ended December 31, 1998 and December 31, 1997 F-3
Statements of Cash Flows - six months ended December 31, 1998 and 1997 F-4
Statements of Stockholders' Equity - six months ended December 31, 1998 F-5
Notes to Financial Statements F-6 to F-10
F-1
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NANOPIERCE TECHNOLOGIES, INC.
BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
ASSETS
Current Assets:
Cash $125
Current portion of notes receivable 11,650
----------
Total current assets 11,775
Other assets:
Intellectual property rights net of
accumulated amortization of $84,315 915,685
Marketable securities 1,491
Notes receivable, net of current portion 26,184
Deposits 13,923
----------
Total other assets 957,283
==========
Total assets $969,058
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable related party 53,990
Accounts payable and accrued expenses 110,682
Notes payable 68,513
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Total current liabilities 233,185
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized, $.0001 par value
Series A: 100 shares issued and outstanding; liquidation
preference of $2,265,625; 8% dividend rate; cumulative
unpaid dividends of $151,043 500,000
Series B: maximum of 150,000 shares issuable; 58,500
shares issued and outstanding; $0.70 per year per share
cumulative dividend 504,600
Series C: maximum of 700,000 shares issuable;
no shares issued and outstanding
Common stock, $.0001 par value
45,000,000 shares authorized, 13,009,204 shares
issued and outstanding 1,302
Additional paid in capital 2,204,001
Accumulated other comprehensive income - unrealized gain
on securities available for sale 1,491
Deficit (2,475,521)
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Total stockholders' equity 735,873
==========
Total liabilities and stockholders' equity $969,058
==========
See notes to the financial statements
F-2
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NANOPIERCE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
THREE AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended December 31 Six Months ended December 31
1998 1997 1998 1997
---------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Revenues $138 $138
General and administrative:
Related parties 58,000 105,000
Other 239,177 $ 49,343 739,403 $ 83,314
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Loss from operations (297,039) (49,343) (844,265) (83,314)
Other Income/(Expense):
Interest income and other: 35,157 346 36,326
Interest Expense:
Related party (1,323) (4,654)
Other (1,260) (2,522)
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Net loss (299,622) (14,186) (851,095) (46,988)
Series A preferred stock dividend (45,313) (90,626)
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Net loss applicable to common shareholders ($344,935) ($14,186) ($941,721) ($46,988)
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Net loss per common share: ($0.03) ($0.00) ($0.07) ($0.01)
Weighted average number of common shares 12,901,297 3,833,355 12,776,637 3,833,355
=====================================================================
Net loss (299,622) (14,186) (851,095) (46,988)
Other comprehensive income (loss):
Unrealized gains (losses) on securities
available for sale - - - -
====================================================================
Comprehensive loss (299,622) (14,186) (851,095) (46,988)
====================================================================
</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
F-3
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NANOPIERCE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(UNAUDITED)
1998 1997
-------------------------
Cash flows from operating activities
Net loss ($851,095) ($46,988)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 50,000
Amortized discount on notes receivable (346) (2,273)
Gain on sale of investments (32,535)
Expenses incurred in exchange for common stock 312,000
Change in assets and liabilities:
(Increase) decrease in:
Deposits (13,599)
Accounts payable and accrued liabilities (60,596) 38,960
-------------------------
Net cash used in operating activities (563,636) (42,836)
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Cash flows from investing activities:
Proceeds from sale of investments 32,535
Payments received on notes receivable 1,250 6,250
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Net cash provided by investing activities 1,250 38,785
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Cash flows from financing activities:
Proceeds from sale of Series B preferred stock 660,000
Payments on notes payable (97,500)
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Net cash flows provided by financing activities 562,500 0
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Net increase (decrease) in cash 114 (4,051)
Cash, beginning 11 8,128
=========================
Cash, ending $125 $4,077
=========================
See notes to the financial statements
F-4
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NANOPIERCE TECHNOLOGIES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated Other
Additional Comprehensive Income
Preferred Stock Common Stock Paid-in Unrealized Gain (Loss) Accumulated
Shares Amount Shares Amount Capital on Securities Deficit Total
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<S> <C> <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) $614,968
Stock issued for services 223,500 23 311,977 312,000
Issuance of Series B
Preferred Stock 75,000 660,000
Series B Preferred Stock
converted to common stock (16,500) (155,400) 660,604 66 155,334 660,000
Net loss (851,095) (851,095)
======================================================================================================
Balance, December 31, 1998 58,600 $1,004,600 13,009,204 $1,302 $2,204,001 $1,491 ($2,475,521) $735,873
======================================================================================================
</TABLE>
See notes to the financial statements
F-5
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
1. Business, organization and summary of significant accounting policies:
Presentation of Interim Information:
In the opinion of the management of Nanopierce Technologies, Inc. (the
Company), the accompanying unaudited financial statements include all
material adjustments, including all normal recurring adjustments,
considered necessary to present fairly the financial position of the
Company as of December 31, 1998, the Company's results of operations for
the three and six months ended December 31, 1998 and 1997, and the
Company's cash flows for the six months ended December 31, 1998 and 1997.
Interim results are not necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form
10-QSB, and do not contain certain information included in the Company's
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 six months ended December 31, 1998 are
not necessarily indicative of the operating results for the year.
Business:
The Company is engaged in the design, development and licensing of products
using its electronic connection technology (the Particle Interconnect
Technology). The Particle Interconnect Technology 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 the Particle Interconnect Technology to
technology companies in various industries for a wide range of
applications. The Company has not recognized any royalty revenue through
December 31, 1998, pending the resolution of litigation regarding a license
agreement. See Part II, Item 1 - Legal Proceedings.
Organization:
The Company was originally formed in July 1985 under the name of
Mendell-Denver Corporation (Mendell). At July 1, 1996, Mendell was
essentially a shell company with no significant business operations. In
July 1996, Mendell acquired all of the outstanding common stock of Sunlight
Systems, Ltd. (Sunlight) and Mendell was merged into Sunlight. For
accounting purposes, the transactions have been treated as an acquisition
of Mendell by Sunlight and as a re-capitalization of Sunlight.
F-6
<PAGE>
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.
In February 1998, Sunlight acquired the Particle Interconnect Technology
from Particle Interconnect Corporation, a wholly owned subsidiary of
Intercell Corporation (Intercell). In exchange for the Particle
Interconnect Technology, Sunlight issued to Intercell 7,250,000 shares of
its common stock, and 100 shares of its Series A preferred stock. In
connection with this transaction, Sunlight changed its name to "Nanopierce
Technologies, Inc." After the transaction, Intercell owned approximately
60% of the outstanding common stock of the Company and approximately 74% of
its common stock on a diluted basis, considering the conversion rights of
the Series A preferred stock.
Reverse stock split:
In February 1998, the Company effected a one-for-three reverse stock split
of its common stock. All references in the financial statements to number
of shares and per share amounts have been restated to reflect the reverse
stock split.
Use of estimates in the financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Loss per share:
Loss per share of common stock is computed based on the weighted average
number of common shares outstanding during the year. Stock options,
warrants and convertible preferred stock are not considered in the
calculation as the impact of the potential common shares would be to
decrease loss per share. Therefore, diluted loss per share is equivalent to
basic loss per share.
Recently issued accounting pronouncements:
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. Reclassification of
earlier financial statements for comprehensive purposes is required. The
income statements for the three and six months ended December 31, 1998 and
1997 have no items of comprehensive income that have a material impact on
the Company's operations. There are no tax effects related to these items.
The FASB recently issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, and SFAS No. 132, Employer's
Disclosures about Pensions
F-7
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and Other Postretirement Benefits. Both of these statements are effective
for the Company beginning July 1, 1998, require disclosure only, and will
not impact the Company's financial statements.
The FASB recently issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement is effective for fiscal
years beginning after December 15, 1999. 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 Technology 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 the Particle Interconnect Technology, 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, convertible to common stock of the Company at the
same conversion rate as the Series A preferred stock. At December 31, 1998,
cumulative unpaid dividends were $151,043. The Company may redeem the
Series A preferred stock, with six months notice, for the liquidation
preference amount.
3. Common stock, stock options and warrants issued for services:
During the six months ended December 31, 1998, the Company issued 223,500
shares of common stock in exchange for services valued at $312,000 based on
the quoted market price of the Company's common stock on 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 allow
the third parties to utilize defined aspects of the Particle Interconnect
Technology in return for royalty fees. All but one license agreement has
been idle since the Company acquired the Particle Interconnect Technology.
With regard to the active current licensee, the
F-8
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Company is involved in litigation with a third party who is asserting
ownership of the rights to the related royalty revenues. Royalties under
this agreement through December 31, 1998 total approximately $53,000.00.
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 ultimately will be successful in defending this matter,
the Company will not recognize any royalty revenue until the litigation is
resolved. 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. See Part II,
Item 1 - Legal Proceedings.
5. Series B and Series C preferred stock:
On July 23, 1998, the Company executed a securities purchase agreement with
a third party (Buyer) pursuant to which the Buyer agreed to acquire 150,000
shares of Series B preferred stock (Series B) and 700,000 shares of Series
C preferred stock (Series C) at $10 per share at specified closing dates.
The agreement was for a two-year period and would have allowed the Company
to issue to the Buyer up to $8,500,000 of preferred stock. In addition, the
Company would have issued warrants to the Buyer on each closing date.
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 30, 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 remaining 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
shares. Management is in the process of negotiating new investments with
other 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.
During the quarter ended December 31, 1998, 16,500 Series B shares were
converted into 508,728 shares of common stock. These transactions did not
result in any proceeds to the Company.
6. Subsequent events:
In January of 1999, the Company issued 1,000,000 shares of common stock to
an accredited investor for $200,000 ($0.20 per share). The Company has
designated these funds to be used for ongoing business operations. On
January 8, 1999, the Company
F-9
<PAGE>
filed a registration statement with the Securities and Exchange Commission
to register 13,506,604 shares of common stock, 58,500 shares of Series B
stock and warrants to purchase 470,000 shares of common stock in a
secondary offering. The 13,506,604 shares of common stock represented about
46.7% of the Company's issued and outstanding common stock on a fully
diluted basis as of January 6, 1999.
F-10
<PAGE>
ITEM 2 - MANAGEMENT'S PLAN OF OPERATION
The statements contained in this Form 10-QSB, if not historical, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, and involve risks and uncertainties that could
cause actual results to differ materially from the results, financial or
otherwise, or other expectations described in such forward-looking statements.
Any forward-looking statement or statements speak only as of the date on which
such statements were made, and Nanopierce Technologies, Inc. undertakes no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statements are made or reflect the
occurrence of unanticipated events. Therefore, forward-looking statements should
not be relied upon as a prediction of actual future results.
The independent auditor's report on the Company's financial statements for
the year ended June 30, 1998 included a "going concern" explanatory paragraph,
meaning the auditors have expressed substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to the
factors prompting the explanatory paragraph are discussed below and also in Note
2 of the audited financial statements contained in the Company's Annual Report
on Form 10-KSB for the fiscal year ended June 30, 1998.
Pursuant to a securities purchase agreement dated as of July 23, 1998, and
amended September 29, 1998, the Company sold 75,000 shares of Series B Preferred
Stock ("Series B Shares") to an accredited investor at $10 per share, resulting
in net proceeds of $660,000 (net of $90,000 of issuance costs). 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. During the quarter ended December
31, 1998, 16,500 Series B Shares were converted into 508,728 shares of common
stock.
In January of 1999, the Company issued 1,000,000 shares of common stock to
an accredited investor for $200,000 ($0.20 per share). The Company has
designated these funds to be used for ongoing business operations.
On January 8, 1999, the Company filed a registration statement with the
Securities and Exchange Commission to register 13,506,604 shares of common
stock, 58,500 shares of Series B Preferred Stock and warrants to purchase
470,000 shares of common stock in a secondary offering. The 13,506,604 shares of
common stock represented about 46.7% of the Company's issued and outstanding
common stock on a fully diluted basis as of January 6, 1999.
1
<PAGE>
RESULTS OF OPERATIONS
Nanopierce Technologies Inc.'s revenues were $138 for the three months and
six months ended December 31, 1998, compared to no revenues for the three months
and six months ended December 31, 1997.
General and administrative expenses increased to $297,177 for the three
months ended December 31, 1998, and to $844,403 for the six months December 31,
1998, from $49,343 for the three months ended December 31, 1997, and $83,314 for
the six months ended December 31, 1997. This increase is due in part to the
issuance of stock for investment management fees totaling approximately
$312,000. Salaries and wages increased to approximately $61,000 for the three
months ended December 31, 1998, and to $141,000 for the six months ended
December 31, 1998, from $0 for the three months and six months ended December
31, 1997. During the six months ended December 31, 1998, the Company also
incurred legal fees of approximately $140,000 and management fees of $105,000 to
Intercell, its majority shareholder.
The Company has accrued preferred stock dividend of $45,313 for the three
months ended December 31, 1998, and $90,626 for the six months ended December
31, 1998 compared to $0 for the three months and six months ended December 31,
1997.
The Company experienced net losses of $299,622 and $851,095 for the three
months and six months ended December 31, 1998, compared to $14,186 and $46,988
for the three months and six months ended December 31, 1997.
LIQUIDITY AND FINANCIAL CONDITION
Nanopierce Technologies, Inc.'s current operations are not generating
positive cash flow and the current cash reserves are not sufficient to fund the
Company's plan of operation for the ensuing twelve months.
At December 31, 1998, the Company had a working capital deficit of
approximately $221,000 compared to a working capital deficit of approximately
$6,000 at December 31, 1997. This increase is due primarily to the increase in
the Company's operating expenses. The Company sold 1,000,000 shares of common
stock during the month of January 1999 at $0.20 per share, netting the Company
$200,000 for continuing operations.
The Company is continuing to look for additional financing through the
marketing of its Particle Interconnect Technology through the pursuit of
licensing, joint venture, co-manufacturing or other similar arrangement with
connector manufacturers. The failure to secure such a relationship will result
in the Company requiring substantial additional capital and resources to bring
its products to market. To the extent the Company's operations are not
sufficient to fund the Company's capital requirements, the Company may enter
into a revolving loan agreement with a financial institution or attempt to raise
capital through the sale of additional capital stock or through the issuance of
debt. At the present time the Company does not have a revolving loan agreement
with any financial institution nor can the Company provide any assurance that it
will be able to enter into any such agreement in the future or be able to raise
2
<PAGE>
funds through the further issuance of debt or equity in the Company. The Company
continues to evaluate additional merger and acquisition opportunities.
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.
YEAR 2000 CONVERSION
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are known risks. The Company is addressing this risk to the availability and
integrity of its financial systems and the reliability of its operational
systems. Management believes the total cost of compliance and its effect on the
Company's future results of operations will be insignificant.
ACCOUNTING PRONOUNCEMENTS
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. Reclassification of earlier financial
statements for comprehensive purposes is required. The financial statements for
the three and six months ended December 31, 1998 and 1997 have been reclassified
to disclose items of comprehensive income. There are no tax effects related to
these items.
The FASB recently issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, and SFAS No. 132, Employer's Disclosures
about Pensions and Other Postretirement Benefits. Both of these statements are
effective for fiscal years beginning after December 15, 1997. These statements
require disclosure only and therefore will not impact the Company's financial
statements.
The FASB also issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. This statement is effective for fiscal years beginning
after December 15, 1999. Currently, the Company does not have any derivative
financial instruments and does not participate in hedging activities. Therefore
management believes SFAS No. 133 will not impact the Company's financial
statements.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company 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
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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 Particle Interconnect 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 Particle
Interconnect Corporation (a subsidiary of Intercell) acquired the Particle
Interconnect 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.
ITEM 2 - CHANGES IN SECURITIES
The Company made the following unregistered sales of its securities from
October 1, 1998, through December 31, 1998.
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Title of Amount of
Date of Sale Securities Securities Consideration Purchaser
- ------------ ---------- ---------- ------------- ---------
1) 10/26/98 Common Stock 71,023 Conversion of shares of Y. L. Hirsch
Series B Preferred Stock
2) 11/3/98 Common Stock 90,992 Conversion of shares of Y. L. Hirsch
Series B Preferred Stock
3) 11/4/98 Common Stock 94,697 Conversion of shares of Y. L. Hirsch
Series B Preferred Stock
4) 12/18/98 Common Stock 252,016 Conversion of shares of Y. L. Hirsch
Series B Preferred Stock
UNDERWRITERS
No underwriter or selling or placement agent was involved in any of the
transactions described above.
EXEMPTIONS FROM REGISTRATION CLAIMED
The conversions by Mr. Hirsch of preferred shares into shares of Common
Stock were made pursuant to and in compliance with Rule 506 of Regulation D. The
offering of preferred shares was restricted to and entirely purchased by an
accredited investor. Appropriate documentation was prepared and utilized to
insure compliance with the terms, conditions and provisions of Regulation D. The
purchaser and the Company each were represented by their own independent
counsel, tax advisors, accounting firms and other advisors. The Company and its
transfer agent undertook and implemented control procedures to assure compliance
with the terms and conditions of Regulation D.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
(B) REPORTS: None.
5
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
INDEX
Page
----
PART I - FINANCIAL INFORMATION...................................F-1
Item 1 - Financial Statements....................................F-1
Item 2 - Management's Plan Of Operation............................1
PART II - OTHER INFORMATION........................................3
Item 1 - Legal Proceedings.........................................3
Item 2 - Changes In Securities.....................................4
Item 6 - Exhibits And Reports On Form 8-K..........................5
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, as
amended, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NANOPIERCE TECHNOLOGIES, INC.
February 12, 1999 /s/ Paul H. Metzinger
-----------------------------------------------
Paul H. Metzinger, President, CEO and Principal
Financial and Accounting Officer
<PAGE>
LIST OF EXHIBITS
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NANOPIERCE
TECHNOLOGIES, INC.'S FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000827161
<NAME> Nanopierce Technologies, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 125
<SECURITIES> 1,491
<RECEIVABLES> 37,834
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,775
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 969,058
<CURRENT-LIABILITIES> 233,185
<BONDS> 0
0
1,004,600
<COMMON> 1,302
<OTHER-SE> (270,029)
<TOTAL-LIABILITY-AND-EQUITY> 969,058
<SALES> 138
<TOTAL-REVENUES> 138
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 844,403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,176
<INCOME-PRETAX> (851,095)
<INCOME-TAX> 0
<INCOME-CONTINUING> (851,095)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (851,095)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
