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 September 30, 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 November 3, 1999 there were 31,602,673 shares of the registrant's
sole class of common stock outstanding.
Transitional Small Business Disclosure Format Yes No X
--- ---
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1 - Financial Statements
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE
----
Condensed Balance Sheet - September 30, 1999 F-2
Condensed Statements of Operations - three months ended
September 30, 1999 and 1998 F-3
Condensed Statements of Cash Flows - three months ended
September 30, 1999 and 1998 F-4
Condensed Statements of Stockholders' Equity - three months
ended September 30, 1999 F-5 to F-6
Notes to Financial Statements F-7 to F-10
F-1
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Condensed Balance Sheet
September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Current assets:
Cash $ 3,661
Prepaid expenses and deposits 10,945
---------
Total current assets 14,606
---------
Note receivable 10,000
Marketable securities 474
Intellectual property rights, net of accumulated
amortization of $159,315 840,685
---------
$ 865,765
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable:
Related party $ 197,414
Other 133,513
Accounts payable and accrued expenses:
Related parties 5,507
Other 221,890
---------
Total current liabilities 558,324
---------
Stockholders' equity:
Preferred stock, $.0001 par value 5,000,000
shares authorized:
Series A; no shares issued and outstanding
Series B: maximum of 75,000 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, 30,909,614 shares issued and outstanding 3,091
Additional paid-in capital 5,624,037
Accumulated other comprehensive income 474
Deficit (5,246,276)
Receivable from Intercell Corporation ( 73,885)
---------
Total stockholders' equity 307,441
---------
$ 865,765
=========
<FN>
See notes to the financial statements
</TABLE>
F-2
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Condensed Statements of Operations
Three Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues $ - -
General and administrative:
Related parties - 47,000
Other 254,889 502,739
--------- --------
Loss from operations ( 254,889) ( 549,739)
--------- --------
Other income(expenses):
Interest income and other 202 346
Interest expense:
Related party ( 4,544) ( 3,331)
Other ( 2,130) ( 1,261)
--------- --------
( 6,472) ( 4,246)
--------- --------
Net loss ( 261,361) ( 553,985)
--------- --------
Series A and B preferred stock dividends - ( 45,313)
--------- --------
Net loss applicable to common shareholders $( 261,361) ( 599,298)
========= ========
Net loss per share, basic and diluted,
applicable to common shareholders $( 0.01) ( 0.05)
========= ========
Weighted average number of common shares
outstanding 30,380,483 12,385,392
========== ==========
<FN>
See notes to the financial statements
</TABLE>
F-3
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Condensed Statements of Cash Flows
Three Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $( 261,361) ( 553,985)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Amortization expense 25,000 25,000
Amortization of discount on note receivable - ( 346)
Expenses incurred in exchange for
common stock 68,900 312,000
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses
and deposits 746 ( 32,925)
Increase (decrease) in accounts payable
and accrued expenses:
Related parties 1,492 ( 58,219)
Other 19,946 ( 28,035)
Increase in receivables from Intercell ( 4,703) -
--------- ---------
Total adjustments 111,381 217,475
--------- ---------
Net cash used in operating activities ( 149,980) ( 336,510)
--------- ---------
Cash flows from investing activities:
Payments received on notes receivable - 1,250
--------- ---------
Net cash provided by investing activities - 1,250
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable:
Related party - -
Other 50,000 -
Payments on note payable - ( 97,500)
Proceeds from issuance of Series B
preferred stock - 660,000
Proceeds from issuance of common stock 103,000 -
--------- ---------
Net cash provided by financing activities 153,000 562,500
--------- ---------
Net increase (decrease) in cash 3,020 227,240
Cash, beginning of period 641 11
--------- ---------
Cash, end of period $ 3,661 227,251
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,553 -
========= =========
<FN>
See notes to the financial statements
</TABLE>
F-4
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Condensed Statements of Stockholders' Equity
Three Months Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Accumulated other
Common stock Additional comprehensive
Shares Amount paid-in capital income
------ ------ ---------------- -----------------
<S> <C> <C> <C> <C>
Balance,
July 1, 1999 29,734,614 $2,973 5,452,255 948
Common Stock issued
for services 160,000 16 68,884 -
Common stock issued
as collateral on
note payable 500,000 50 ( 50) -
Common stock issued
for cash 515,000 52 102,948 -
Increase in receivable
from Intercell - - - -
Net loss - - - -
Other comprehensive
income-change in
unrealized gain on
securities - - - ( 474)
Comprehensive
income(loss) - - - -
---------- ----- --------- ------
Balances,
September 30, 1999 30,909,614 $3,091 5,624,037 474
========== ===== ========= ======
<FN>
See notes to the financial statements
</TABLE>
F-5
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Condensed Statements of Stockholders' Equity
Three Months Ended September 30, 1999
(Continued)
(Unaudited)
<TABLE>
<CAPTION>
Receivable Total
Accumulated from Comprehensive stockholders'
deficit Intercell income equity
----------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Balance,
July 1, 1999 (4,984,915) ( 69,182) - 402,079
Common Stock issued
for services - - - 68,900
Common stock issued
as collateral on
note payable - - - -
Common stock issued
for cash - - - 103,000
Increase in receivable
from Intercell - ( 4,703) - ( 4,703)
Net loss ( 261,361) - (261,361) ( 261,361)
Other comprehensive
income-change in
unrealized gain on
securities - - ( 474) ( 474)
-------
Comprehensive
income(loss) - - (261,835) -
--------- -------- ======= --------
Balances,
September 30, 1999 (5,246,276) ( 73,885) 307,441
========= ======== ========
<FN>
See notes to the financial statements
</TABLE>
F-6
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Notes to Financial Statements
Three Months Ended September 30, 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 September 30, 1999,
the Company's results of operations for the three months ended September 30,
1999 and 1998, and the Company's cash flows for the three months ended September
30, 1999 and 1998. 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,
1999. It is the Company's opinion that, when the interim statements are read in
conjunction with the June 30, 1999 Annual Report on Form 10-KSB, the disclosures
are adequate to make the information presented not misleading. Interim results
are not necessarily indicative of results for a full year or any future period.
The Company's financial statements for the period ended September 30, 1999 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 period ended September 30, 1999, the Company reported a net
loss of $261,361 and a deficit of $5,246,276. The Company has not recognized
any revenues from its PI technology and 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.
To address its current cash flow concerns, the Company is in discussions with
investment bankers and financial institutions attempting to raise funds to
support current and future operations. This includes attempting to raise
additional working capital through the sale of additional capital stock or
through the issuance of debt. Currently, 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 a further issuance of debt or equity in the
Company.
The Company believes that if financing can be completed, adequate funding may
then be available to support operations for the next twelve months. The Company
also believes that sales of its products and technology license rights may
provide sufficient funds to meet the Company's capital requirements.
F-7
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Notes to Financial Statements (Continued)
Three Months Ended September 30, 1999 and 1998
(Unaudited)
Business:
The Company is engaged in the design, development and licensing of products
using its intellectual property, the PI Technology. The PI Technology consists
of patents, pending patent applications, patent applications in preparation,
trade secrets, trade names, and trademarks. The PI Technology improves
electrical, thermal and mechanical characteristics of electronic products. The
Company has designated and is commercializing its PI Technology as the
Nanopierce Connection System (NCS) and markets the PI Technology to companies in
various industries for a wide range of applications. The Company has not
recognized any royalty revenue through September 30, 1999, pending the
resolution of litigation regarding its license agreements. The intellectual
property is being amortized to expense using the straight-line method over 10
years.
Business Risk:
The Company is subject to risks and uncertainties common to technology-based
companies, including rapid technological change, dependence on principle
products and third party technology, new product introductions and other
activities of competitors, dependence on key personnel, and limited operating
history.
Year 2000 Conversion:
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. Software failures due to processing
errors potentially arising from calculations using the Year 2000 date are a
known risk. The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of the operational systems.
The Company has established processes for evaluating and managing the risks and
costs associated with this problem. Management believes the total cost of
compliance, and its effect on the Company's future results of operations will be
insignificant.
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.
F-8
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Notes to Financial Statements (Continued)
Three Months Ended September 30, 1999 and 1998
(Unaudited)
Loss per share:
SFAS No. 128, Earnings per Share, requires dual presentation of basic and
diluted earnings or loss per share (EPS) with a 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.
Loss per share of common stock is computed based on the 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.
Reclassification:
Certain amounts reported in the 1998 financial statements have been reclassified
to conform with the 1999 presentation.
2. Receivable from Intercell:
At September 30, 1999, the Company has a receivable from Intercell Corporation
of $73,885, which is collateralized by common stock of the Company owned by
Intercell. Intercell has advised the Company that it does not currently have
the funds to repay the receivable. Therefore, this receivable balance is
classified as a reduction of shareholders' equity at September 30, 1999.
3. Common stock, stock options and warrants:
During the three months ended September 30, 1999, the Company issued 160,000
shares of common stock to third parties in exchange for services valued at
$68,900 based on the quoted market price of the Company's common stock on the
date the services were performed.
During the three months ended September 30, 1999, the Company issued 515,000
shares of common stock to accredited investors for $103,000.
In September, 1999 the Company issued 500,000 shares of common stock as
collateral on a $50,000 loan. The shares will be returned to the Company if the
loan is paid in full by its due date in March, 2000.
No additional options or warrants to purchase common stock were granted during
the three months ended September 30, 1999.
F-9
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Notes to Financial Statements (Continued)
Three Months Ended September 30, 1999 and 1998
(Unaudited)
4. 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 litigation with a third party who is
asserting ownership of the rights to the related royalty revenues. Royalties
under this agreement through September 30, 1999, total approximately $90,000.
These monies are being held in an escrow account, outside of the Company's
control, until the litigation is resolved. The company has not recognized, and
does not expect to recognize, any royalty revenue until it can determine the
ultimate outcome of this matter. 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 PI technology.
F-10
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 the Company undertakes no obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which such statements are made or reflect the occurrence of unanticipated
events. Therefore, forward-looking statements should not be relied upon as
prediction of actual future results.
The independent auditors' report on the Company's financial statements for
the year ended June 30, 1999 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, 1999.
Results of operations
---------------------
The Company had no revenues for the three months ended September 30, 1999
and 1998.
General and administrative expenses decreased to $254,889 for the three
months ended September 30, 1999 from $549,739 for the three months ended
September 30, 1998. The decrease in general and administrative expenses was
primarily due to a decrease in marketing and public relations fees from $321,211
for the three months ended September 30, 1998 to $14,270 for the three months
ended September 30, 1999.
The Company experienced net losses of $261,361 for the three months ended
September 30, 1999 compared to net losses of $599,298 for the three months ended
September 30, 1998. The reduction in the net loss is primarily due to the
reduction in general and administrative expenses.
Liquidity and financial condition
---------------------------------
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.
The Company, in the Spring of 1999, signed various agreements with
companies both overseas and in the States. The agreements are to apply the
Company's NCS (Nanopierce Connection System) technology to various products,
mainly in the smart card industry. Management is pursuing the development of
further similar agreements both nationally and internationally with companies
not only in the smart card industry, but other industries, as well. Further,
the Company is working to advance the agreements already in place.
1
<PAGE>
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.
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.
2
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Company and Louis DiFrancesco, the inventor of the PI Technology, are
involved in litigation relating to the Company's ownership of its intellectual
property and the rights as to whom should receive royalty payments from
licenses, which were outstanding as of September 3, 1996.
The parties are currently negotiating settlement of the litigation and
believe they are near agreement. Any Settlement Agreement relating to the
litigation will be filed as an Exhibit to a Current Report on Form 8-K.
Item 2 - Changes in Securities
The Company made the following unregistered sales of its securities from
June 30, 1999, to September 30, 1999.
Title of Amount of
Date of Sale Securities Securities Consideration Purchaser
- ------------ ---------- ---------- ------------- ---------
7/14/99 Common Stock 300,000 Financing Mallory Smith, CPA
7/15/99 Common Stock 15,000 Services Kathy B. Leigh
7/20/99 Common Stock 30,000 Financing Terrence E. Dooher
7/20/99 Common Stock 15,000 Financing Dennis Ferraro
7/20/99 Common Stock 10,000 Financing David Ferraro
7/20/99 Common Stock 25,000 Financing Dennis S. McGuire
7/22/99 Common Stock 25,000 Financing Paul DeMott
7/22/99 Common Stock 25,000 Financing Ronald J. Damiana
7/22/99 Common Stock 55,000 Services Stan Richards
8/1/99 Common Stock 25,000 Financing Eric Foster
8/1/99 Common Stock 25,000 Financing Michael A. Curran
8/6/99 Common Stock 50,000 Services Thompson & Lowe, PC
8/17/99 Common Stock 10,000 Financing Leslie Smith
8/17/99 Common Stock 25,000 Financing R. Mark Richards
9/2/99 Common Stock 500,000 Collateral Nanopierce
Technologies, Inc.
9/15/99 Common Stock 25,000 Services Gemini
Investments, Ltd.
9/24/99 Common Stock 15,000 Services Kathy B. Leigh
3
<PAGE>
Exemptions from Registration Claimed
All of the sales by the Company of its unregistered securities were made by
the Company in reliance upon Section 4(2) of the Act. All of the individuals
and/or entities listed above that purchased the unregistered securities were all
known to the Company and its management, through pre-existing business
relationships, as long standing business associates, friends, and employees.
All purchasers were provided access to all material information, which they
requested, and all information necessary to verify such information and were
afforded access to management of the Company in connection with their purchases.
All purchasers of the unregistered securities acquired such securities for
investment and not with a view toward distribution, acknowledging such intent to
the Company. All certificates or agreements representing such securities that
were issued contained restrictive legends, prohibiting further transfer of the
certificates or agreements representing such securities, without such securities
either being first registered or otherwise exempt from registration in any
further resale or disposition.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 11 Computation on net loss per share
Exhibit 27 Financial Data Schedule
(b) Reports:
None
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NANOPIERCE TECHNOLOGIES, INC.
(Registrant)
November 11, 1999 /s/ Paul H. Metzinger
----------------------------------
Paul H. Metzinger, President & CEO
November 11, 1999 /s/ Kristi J. Kampmann
-------------------------------------------
Kristi J. Kampmann, Chief Financial Officer
<PAGE>
EXHIBIT 11
NANOPIERCE TECHNOLOGIES, INC.
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three months ended September 30,
1999 1998
---- ----
<S> <C> <C>
Net loss $( 261,361) ( 553,985)
Dividends on Series A and B
preferred stock - ( 45,313)
--------- --------
Net loss applicable to common shareholders $( 261,361) ( 599,298)
========= ========
Weighted average number of common
shares outstanding 30,380,483 12,385,392
Common equivalent shares representing
shares issuable upon exercise of
outstanding options and warrants - -
---------- ----------
30,380,483 12,385,392
========== ==========
Basic and diluted loss per share
applicable to common shareholders $( .01) ( .05)
========= ========
Stock options and warrants are not considered in the calculations as the impact
of the potential common shares would be to decrease net loss per share.
</TABLE>
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PERIOD-TYPE> FISCAL YEAR END
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,661
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,606
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 865,765
<CURRENT-LIABILITIES> 558,324
<BONDS> 0
0
0
<COMMON> 3,091
<OTHER-SE> 304,350
<TOTAL-LIABILITY-AND-EQUITY> 865,765
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 254,889
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,472
<INCOME-PRETAX> (261,361)
<INCOME-TAX> 0
<INCOME-CONTINUING> (261,361)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (261,361)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
