FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 33-19598-D
NANOPIERCE TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 84-0992908
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
370 Seventeenth Street, Suite 3580
Denver, Colorado 80202
(Address of principal executive offices)
Issuer's telephone number: (303) 592-1010
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of May 11,1999, there were 16,420,564 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 - March 31, 1999 F-2
Statements of Operations and Comprehensive Loss -
three and nine months ended March 31, 1999
and March 31, 1998 F-3
Statements of Cash Flows - nine months ended
March 31, 1999 and 1998 F-4
Statements of Stockholders' Equity - nine months ended
March 31, 1999 F-5
Notes to Financial Statements F-6 to F-10
F-1
<PAGE>
<TABLE>
NANOPIERCE TECHNOLOGIES, INC.
Balance Sheet
March 31, 1999
(Unaudited)
ASSETS:
- -------
<S> <C>
Current assets:
Cash $ 1,743
Current portion of notes receivable 11,650
---------
Total current assets 13,393
---------
Other assets:
Intellectual property rights net of
accumulated amortization of $ 109,315 890,685
Marketable securities 1,491
Notes receivable, net of current portion 36,184
Advances to related party 48,584
Deposits 13,923
---------
Total other assets 990,867
---------
Total assets $ 1,004,260
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable related party $ 56,502
Advances from officer and director 68,777
Accounts payable and accrued expenses 155,587
Notes payable 68,513
---------
Total current liabilities 349,379
---------
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 $196,356 500,000
Series B: maximum of 150,000 shares
issuable; no shares issued and outstanding -
Series C: maximum of 700,000 shares
issuable; no shares issued and outstanding -
Common stock, $.0001 par value
45,000,000 shares authorized, 16,420,564
shares issued and outstanding 1,642
Additional paid-in capital 2,933,164
Accumulated other comprehensive income -
unrealized gain on securities available
for sale 1,491
Deficit (2,781,416)
---------
Total stockholders' equity 654,881
---------
Total liabilities and stockholders' equity $ 1,004,260
=========
See notes to the financial statements
F-2
</TABLE>
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<TABLE>
NANOPIERCE TECHNOLOGIES, INC.
Statements of Operations and Comprehensive Loss
Three and Nine Months Ended March 31, 1999 and 1998
(Unaudited)
<CAPTION>
Three Months ended Nine Months ended
March 31 March 31
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues $ - 353 138 353
General and administrative:
Related parties 19,303 - 124,303 -
Other 259,095 758,740 998,498 842,054
------- ------- --------- -------
Loss from operations (278,398) (758,387) (1,122,663) (841,701)
Other income/expenses):
Interest income and other - - 346 36,326
Interest expense:
Related party ( 1,351) - ( 6,005) -
Other ( 1,243) - ( 3,765) -
------- ------- --------- -------
Net loss (280,992) (758,387) (1,132,087) (805,375)
------- ------- --------- -------
Series A and B preferred
stock dividends ( 70,216) - ( 160,842) -
------ ------- --------- -------
Net loss applicable to
common shareholders $(351,208) (758,387) (1,292,929) (805,375)
======= ======= ========= =======
Net loss per common share: $( .02) ( .11) ( .10) ( .17)
======= ======= ========= =======
Weighted average number of
common shares 15,414,955 6,788,577 13,487,172 4,804,048
========== ========= ========== =========
Net loss $(280,992) (758,387) (1,132,087) (805,375)
Other comprehensive
income(loss):
Unrealized gains(losses) on
securities available for sale - - - -
------- ------- --------- -------
Comprehensive loss $(280,992) (758,387) (1,132,087) (805,375)
======= ======= ========= =======
<FN>
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.
</FN>
See notes to the financial statements
F-3
</TABLE>
<PAGE>
<TABLE>
NANOPIERCE TECHNOLOGIES, INC.
Statements of Cash Flows
Nine Months Ended March 31, 1999 and 1998
(Unaudited)
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,132,087) (805,375)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 75,000 9,315
Amortized discount on notes receivable ( 345) ( 2,626)
Impairment of oil and gas properties - 171,970
Gain on sale of investments - ( 32,535)
Expenses incurred in exchange for
common stock 312,000 472,320
Change in assets and liabilities:
(Increase) decrease in deposits ( 13,599) -
Increase (decrease) in accounts payable
and accrued liabilities 127,097 103,914
--------- -------
Net cash used in operating activities ( 631,934) ( 83,017)
--------- -------
Cash flows from investing activities:
Proceeds from sale of investments - 32,535
Increase in notes receivable ( 10,000) -
Advances to related party ( 48,584) -
Payments received on notes receivable 1,250 7,500
--------- -------
Net cash provided by investing activities ( 57,334) 40,035
--------- -------
Cash flows from financing activities:
Prceeds from sale of Series B preferred stock 660,000 -
Proceed from sale of Common stock 200,000 -
Notes payable - 35,000
Payments on notes payable ( 169,000) -
--------- -------
Net cash provided by financing activities 691,000 35,000
--------- -------
Net increase (decrease) in cash 1,732 ( 7,982)
Cash, beginning of period 11 8,128
--------- -------
Cash, end of period $ 1,743 146
========= =======
See notes to the financial statements
F-4
</TABLE>
<PAGE>
<TABLE>
NANOPIERCE TECHNOLOGIES, INC.
Statements of Changes in Stockholders' Equity
Nine Months Ended March 31, 1999
(Unaudited)
<CAPTION>
Preferred Common Additional Unrealized
Stock Stock Paid-in Gain on Accumulated
Amount Amount Capital Securities Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Balance,
July 1, 1998 $500,000 1,213 1,736,690 1,491 (1,624,426) 614,968
223,500 shares
of Common Stock
issued for
services - 22 311,978 - - 312,000
75,000 shares
of Series B
Preferred
Stock issued 660,000 - - - - 660,000
16,500 shares
of Series B
Preferred
Stock
converted to
660,604 shares
of Common
Stock (155,400) 66 155,334 - - -
1,000,000 shares
of Common Stock
issued - 100 199,900 - - 200,000
58,500 shares
of Series B
Preferred Stock
converted to
2,314,083 shares
of Common Stock (504,600) 231 504,369 - - -
97,277 shares
of Common Stock
issued for
accrued dividends
on Series B
Preferred Stock - 10 24,893 - ( 24,903) -
Net loss - - - - (1,132,087)(1,132,087)
-------- ------ ---------- ------ --------- ---------
Balance,
March 31, 1999 $ 500,000 1,642 2,933,164 1,491 (2,781,416) 654,881
======== ====== ========== ====== ========= =========
See notes to the financial statements
F-5
</TABLE>
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Notes to Financial Statements
Nine Months Ended March 31, 1999 and 1998
(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 of the
Company as of March 31, 1999, the Company's results of operations for the
three and nine months ended March 31, 1999 and 1998, and the Company's cash
flows for the nine months ended March 31, 1999 and 1998. 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 nine months ended March 31,
1999 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 Nanopierce
connection System, "NCS"). The NCS consists of patents, pending patent
applications, patent applications in preparation, trade secrets, trade
names and trademarks. The NCS improves electrical, thermal and mechanical
characteristics of electronic products. The Company markets the NCS to
technology companies in various industries for a wide range of
applications. The Company has not recognized any royalty revenue
through March 31, 1999, pending the resolution of litigation with the
inventor of the technology 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
(renamed Nanopierce Connection System) 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 it's 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 compre-
hensive 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 nine months ended March 31, 1999 and
1998 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.
F-7
<PAGE>
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 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.
Reclassification:
Certain amounts reported in the 1998 financial statements have been re-
classified to conform with the 1999 presentation.
2. Particle Interconnect Technology and Series A preferred stock:
In February 1998, the Company acquired the Particle Interconnect Technology
(Nanopierce Connection System) 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
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 March 31, 1999,
cummulative unpaid dividends were $196,356. 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 nine months ended March 31, 1999, 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.
During the nine months ended March 31, 1999, the Company issued 1,000,000
shares of common stock to accredited investors for $200,000. The Company
also issued 2,974,687 shares of common stock upon conversion of all of the
Series B Preferred Stock and issued 97,277 shares of common stock for the
accrued dividends due on the Series B Preferred Stock.
During the nine months ended March 31, 1999 the Company granted stock
options to employees for the purchase of 1,325,000 shares of common stock.
As the exercise price 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.
F-8
<PAGE>
4. License Agreements:
The Company has several license agreements with third parties, which allow
the third parties to utilize defined aspects of the NCS in return for
royalty fees. All but one license agreement has been idle since the
Company acquired the NCS Technology.
With regard to the active current licensee, the Company is involved in
litigation with the inventor of the technology who is asserting ownership
of the rights to the related royalty revenues. Royalites under this
agreement through March 31, 1999 total approximately $71,000.00. 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 resolving this matter,
the Company will not recognize any royalty revenue until the litigation is
resolved. In the opinion of management, the ultimate disposition of
royalty entitlement will not have a material impact on the Company's
operations or the further development of the NCS. See Part II, Item 1 -
Legal Proceedings.
On March 27, 1999 the Company entered into an Application Development
Agreement with a foreign company to cooperate in the development of
products using the Company's NCS. The parties to the agreement agree to
negotiate the terms and conditions of a mutually acceptable agreement to
exploit any business opportunity.
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
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 were non-voting with cumulative dividends of $0.70
per share per year and were redeemable by the Company at $12 per share plus
any accumulated and unpaid dividends. The Series B shares were convertible
into shares of the Company's common stock at a conversion rate of $10 per
share plus accumulated and unpaid dividends, divided by the lesser of 110%
of the average closing bid price of the Company's common stock for the five
days prior to the purchase of the Series B shares or 80% of the average
closing bid price of the Company's common stock for the five days prior to
the conversion date.
F-9
<PAGE>
During the quarter ended December 31, 1998, 16,500 Series B shares were
converted into 660,604 shares of common stock. During the quarter ended
March 31, 1999, the balance of the issued Series B shares (58,500) were
converted into 2,314,083 shares of common stock. The Company also issued
97,277 shares of common stock for the accrued dividends due on the Series
B Preferred Stock. These transactions did not result in any proceeds to
the Company.
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 other-
wise, 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 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). During the
quarter ended December 31,1998, 16,500 Series B Shares were converted into
660,604 shares of common stock. During the quarter ended March 31, 1999, the
balance of the issued Series B shares (58,500) were converted into 2,314,083
shares of common stock. The Company also issued 97,277 shares of common stock
for the accrued dividends due on the Series B Preferred Stock.
In January of 1999, the Company sold 1,000,000 registered shares of common
stock to foreign and U.S. investors for $200,000 ($0.20 per share). The
Company has used these funds for ongoing business operations.
On January 11, 1999, a registration statement, which the Company had filed
with the Securities and Exchange Commission, registered 13,506,604 shares of
common stock, 58,500 shres 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 nine months ended
March 31, 1999 (none of the three months ended March 31, 1999), compared to
revenues of $353 for the three months and nine months ended March 31, 1998.
General and administrative expenses decreased to $278,398 for the three
months ended March 31, 1999 compared to $758,740 for the three months ended
March 31, 1998. General and administrative expenses increased to $1,122,801
for the nine months ended March 31, 1999 compared to $842,054 for the nine
months ended March 31, 1998. General and administrative expenses for the
three months ended March 31, 1998 included $472,320 of expenses associated with
the market value of common stock issued for consulting, public relations and
administrative services. General and administrative expenses increased for
the nine months ended March 31, 1999 compared to the nine months ended
March 31, 1998 primarily as a result of increases in legal expenses associated
with the Company's litigation, professional fees associated with a registration
statement filed in January, 1999, salaries, and amortization expense associated
with intellectual property rights.
The Company experienced net losses of $280,992 and $1,132,087 for the three
and nine months ended March 31, 199, compared to $758,387 and $805,375 for the
three months and nine months ended March 31, 1998.
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 March 31, 1999, the Company had a working capital deficit of approxi-
mately $336,000 compared to a working capital deficit of approximately
$158,000 at March 31, 1998. This increase is due primarily to the increase in
the Company's operating expenses.
On March 27, 1999 the Company entered into an Application Development
Agreement with a foreign company to cooperate in the development of products
using the Company's NCS. The parties to the agreement agree to negotiate the
terms and conditions of a mutually acceptable agreement to exploit any business
opportunity.
The Company is continuing to look for additional financing through the
marketing of its NCS through the pursuit of licensing, joint venture,
co-manufacturing or other similar arrangement with industry partners. The
failure to secure such a relationship will result in the Company requiring
substantial additional capital and resources to bring its NCS to market. To
the extent the Company's operations are not sufficient to fund the Company's
capital requirements, the Company may enter into a revolving loan agreement
with a financial institution or attempt to raise capital through the sale of
additional capital stock or through the issuance of debt. At the present time
the Company does not have a revolving loan agreement with any financial
institution nor can the Company provide any assurance that it will be able to
enter into any such agreement in the future or be able to raise funds through
the further issuance of debt or equity in the Company. The Company continues
to evaluate additional merger and acquisition opportunities.
2
<PAGE>
Loss per share of common stock is computed based on the weighted 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 nine months ended March 31, 1999 and 1998 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 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 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.
3
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Louis DiFrancesco the inventor of the Company's technology filed a lawsuit
on March 10, 1998 with the Superior Court of California, County of Santa Clara,
Case No. CV772523, purportedly against the Company and other parties. Mr.
DiFrancesco made numerous allegations purportedly against the Company, its
employees, directors and officers and other affiliated companies and licensees.
Pursuant to a stipulation among the parties, none of the defendants were
required to file responsive pleadings until Mr. DiFrancesco's Complaint was
amended or refiled. On December 24, 1998, DiFrancesco finally filed a First
Amended and Supplemental Complaint against the Company, Intercell and Paul H.
Metzinger. The Company filed responsive motions to dismiss or stay the claims
arguing among other grounds that Mr. DiFrancesco was merely "forum shopping"
and that the action was an attempt to retry the same matters which are the
subject of litigation pending in the District Court in and for the City and
County of Denver, Colorado and therefore should be dismissed or stayed by the
court. The Court entered an order staying any further prosecution of the
action in California pending the outcome of the Colorado litigation. The
Company believes that the California action is without merit and intends to
vigorously defend itself with respect to the matters alleged, if the lawsuit
is further prosecuted.
The Company filed suit against Mr. Louis DiFranceso 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 rights 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 entites 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 Metzinger, filed answers denying all of the allegations contained
in the DiFrancesco Complaint. In addition, they filed motions requiring
DiFrancesco's counterclaims to be more definite and certain in their alleged
claims against the Company, Intercell and Metzinger. The District Court ruled
4
<PAGE>
in favor of the motions and required DiFrancesco to submit amended
counterclaims. DiFrancesco failed to timely file the amended counterclaims by
February 19, 1999 when due. DiFrancesco did eventually file amended
counterclaims on April 5, 1999. The Company, Intercell and Metzinger filed
motions to strike or dismiss the amended counterclaims for lacking the
specificity required and because they were untimely filed. This motion is
pending before the Court and the parties are awaiting a ruling.
Item 2 - Changes in Securities
The Company made the following unregistered sales of its securities from
January 1, 1999, through March 31, 1999.
Title of Amount of
Date of Sale Securities Securities Consideration Purchaser
- ------------ ---------- ---------- ------------- ---------
1) 1/6/99 Option to 500,000 Services Herbert J. Neuhaus
purchase common
shares at $0.20
2) 3/12/99 Option to 500,000 Services Paul H. Metzinger
purchase common
shares at $0.52
3) 3/12/99 Option to 250,000 Services Herbert J. Neuhaus
purchase common
shares at $0.52
4) 3/12/99 Option to 50,000 Services Kristi J. Kampmann
purchase common
shares at $0.52
5) 3/12/99 Option to 25,000 Services Michael E. Wernle
purchase common
shares at $0.52
Underwriters
No underwriter or selling or placement agent was involved in any of the
transactions described above.
5
<PAGE>
Exemptions from Registration Claimed
The issuer is relying upon the exemption provided by Section 4(2) of the
Securities Act of 1933, as amended, since the issuance of the options was made
to officers, directors, employees and consultants to the Company. All such
persons have by virtue of their office or position, access to all material
information. All instruments representing the options have been appropriately
endorsed with restrictive legends and other measures to safe guard the
exemption.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit
No. Description
27 Financial Data Schedule
(b) Reports: None
6
<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 . . . . . . . . . . . . . . . . . . . . 4
Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 4
Item 2 - Changes in Securities . . . . . . . . . . . . . . . . . . . 5
Item 6 - Exhibits And Reports On Form 8-K . . . . . . . . . . . . . 6
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities 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.
May 13, 1999 /s/ Paul H. Metzinger
---------------------------------------
Paul H. Metzinger, President, CEO and
Principal Financial and Accounting
Officer
<PAGE>
LIST OF EXHIBITS
Exhibit Description
No.
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,743
<SECURITIES> 0
<RECEIVABLES> 11,650
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,393
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,004,260
<CURRENT-LIABILITIES> 349,379
<BONDS> 0
0
500,000
<COMMON> 1,642
<OTHER-SE> 153,239
<TOTAL-LIABILITY-AND-EQUITY> 1,004,260
<SALES> 138
<TOTAL-REVENUES> 138
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,122,801
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,770
<INCOME-PRETAX> (1,132,087)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,132,087)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,132,087)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
