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, 2000
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, 2000 there were 50,448,423 shares of the registrant's
sole class of common stock outstanding.
Transitional Small Business Disclosure Format Yes No X
----- -----
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
PAGE
----
Independent Accountants' Report F-2
Condensed Consolidated Balance Sheet
September 30, 2000 F-3
Condensed Consolidated Statements of Operations -
Three months ended
September 30, 2000 and 1999 F-4
Condensed Consolidated Statements of Comprehensive Loss -
Three months ended September 30, 2000 F-5
Condensed Consolidated Statement of Stockholders'
Equity (Deficit) - Three months ended September 30, 2000 F-6
Condensed Consolidated Statements of Cash Flows -
Three months ended September 30, 2000 and 1999 F-8
Notes to Condensed Consolidated Financial Statements F-9
Item 2. Management's Discussion and Analysis 1
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 3
Item 2. Changes in Securities 3
Item 6. Exhibits and Reports in Form 8-K 4
SIGNATURES 5
LIST OF EXHIBITS 6
F-1
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
Board of Directors
Nanopierce Technologies, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Nanopierce Technologies, Inc. and subsidiary as of September 30, 2000, and the
related condensed consolidated statements of operations, comprehensive loss,
stockholders' equity (deficit) and cash flows for the three-month period then
ended. These condensed consolidated financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
GELFOND HOCHSTADT PANGBURN, P.C.
Denver, Colorado
November 8, 2000
F-2
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheet
September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 1,887,018
Accounts receivable 41,938
Prepaid expenses 21,610
----------
Total current assets 1,950,566
----------
Property and equipment:
Machinery 211,306
Office equipment and furniture 74,378
----------
285,684
Less accumulated depreciation ( 23,145)
----------
262,539
----------
Other assets:
Marketable securities 1,420
Deposits and other 16,600
Intellectual property rights, net of accumulated
amortization of $259,315 740,685
Patent applications 10,368
----------
769,073
----------
$ 2,982,178
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, related party $ 66,837
Accounts payable 98,419
Accrued liabilities:
Interest 68,138
Other 9,735
Deferred revenue 35,246
----------
Total current liabilities 278,375
----------
Convertible debentures 1,976,760
----------
Total liabilities 2,255,135
----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.0001 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, $0.0001 par value; 100,000,000 shares
authorized; 36,226,081 shares issued and outstanding 3,623
Additional paid-in capital 10,138,678
Accumulated other comprehensive income 2,521
Accumulated deficit ( 9,417,779)
----------
Total shareholders' equity 727,043
----------
$ 2,982,178
==========
<FN>
See notes to the condensed consolidated financial statements.
</TABLE>
F-3
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations
Three Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revenues $ 14,942 -
-------- --------
Research and development expense 67,301 -
General and administrative expenses 640,331 254,889
-------- --------
Loss from operations ( 692,690) ( 254,889)
-------- --------
Other income(expenses):
Interest income 27,568 202
Interest expense:
Related party ( 1,264) ( 4,544)
Other ( 23,173) ( 2,130)
-------- --------
3,131 ( 6,472)
-------- --------
Net loss $( 689,559) ( 261,361)
======== ========
Net loss per share, basic and diluted $( 0.02) ( 0.01)
======== ========
Weighted average number of common shares
outstanding 35,816,632 30,380,483
========== ==========
<FN>
See notes to the condensed consolidated financial statements
</TABLE>
F-4
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Comprehensive Loss
Three Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net loss $( 689,559) ( 261,361)
Change in unrealized gain
on securities ( 521) ( 474)
Change in foreign currency
translation adjustments 3,575 -
--------- ---------
Comprehensive loss $( 686,505) ( 261,835)
========= =========
<FN>
See notes to the condensed consolidated financial statements.
</TABLE>
F-5
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
Three Months Ended September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Common stock Additional
Shares Amount paid-in capital
------ ------ ---------------
<S> <C> <C> <C>
Balances,
July 1, 2000 35,113,674 $3,511 8,673,504
Common stock issued
for services 36,000 4 82,112
Common stock issued
for convertible debt
and accrued interest 1,076,407 108 1,326,412
Option issued for
services - - 56,650
Net loss - - -
Other comprehensive
income-change in
unrealized gain on
securities - - -
Foreign currency
translation
adjustments - - -
---------- ----- ----------
Balances,
September 30, 2000 36,226,081 $3,623 10,138,678
========== ===== ==========
<FN>
See notes to the condensed consolidated financial statements
(Continued)
</TABLE>
F-6
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
Three Months Ended September 30, 2000
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
Accumulated other Total
comprehensive Accumulated stockholders'
income(loss) deficit equity(deficit)
------------ ------- ---------------
<S> <C> <C> <C>
Balances,
July 1, 2000 ( 533) (8,728,220) ( 51,738)
Common stock issued
for services - - 82,116
Common stock issued
for convertible debt
and accrued interest - - 1,326,520
Option issued for
services - - 56,650
Net loss - ( 689,559) ( 689,559)
Other comprehensive
income-change in
unrealized gain on
securities - - ( 521)
Foreign currency
translation
adjustments 3,575 - 3,575
----- --------- ---------
Balances,
September 30, 2000 2,521 (9,417,779) 727,043
===== ========= =========
<FN>
See notes to the condensed consolidated financial statements
</TABLE>
F-7
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $( 689,559) ( 261,361)
--------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization expense 25,000 25,000
Depreciation expense 15,205 -
Amortization of discount on debentures 4,473 -
Expenses incurred in exchange for common
stock, warrants and options 181,954 68,900
Changes in operating assets and liabilities:
Increase in accounts receivable ( 37,568) -
Decrease in prepaid expenses 22,839 746
Increase in accounts payable and
accrued liabilities 2,140 21,438
Increase in deferred revenue 18,424 -
Increase in deposits and other assets ( 1,545) ( 4,703)
--------- ---------
Total adjustments 230,922 111,381
--------- ---------
Net cash used in operating activities ( 458,637) ( 149,980)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment ( 121,962) -
--------- ---------
Net cash used in investing activities ( 121,962) -
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable:
Related party - 50,000
Proceeds from issuance of common stock - 103,000
--------- ---------
Net cash provided by financing activities - 153,000
--------- ---------
Effect of exchange rate changes on cash and cash equivalents 1,324 -
--------- ---------
Net increase (decrease) in cash and cash equivalents ( 579,275) 3,020
Cash and cash equivalents, beginning 2,466,293 641
--------- ---------
Cash and cash equivalents, ending $ 1,887,018 3,661
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ - 3,553
========= =========
Supplemental schedule of non-cash investing and financing activities:
Conversion of debentures and accrued
interest to common stock $ 1,326,520 -
========= =========
<FN>
See notes to the condensed consolidated financial statements.
</TABLE>
F-8
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
Three Months Ended September 30, 2000 and 1999
(Unaudited)
1. Business, Organization and Summary of Significant Accounting Policies:
Presentation of Interim Information:
The accompanying condensed consolidated financial statements include the
accounts of Nanopierce Technologies, Inc., a Nevada corporation (the
Company), and its wholly owned foreign subsidiary, Nanopierce Card
Technologies GmbH, Hohenbrunn (NCT), a German subsidiary, which was
incorporated on January 19, 2000. All significant intercompany accounts
and transactions have been eliminated in consolidation. NCT activities
through September 30, 2000 consist primarily of administrative, research
and development activities.
In the opinion of the management of the Company, the accompanying
unaudited condensed consolidated financial statements include all material
adjustments, including all normal recurring adjustments, considered
necessary to present fairly the financial position and operating results
for the periods presented. 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, 2000. It is the Company's opinion
that, when the interim statements are read in conjunction with the June
30, 2000 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 accompanying consolidated financial statements 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, 2000, the Company reported
a net loss of $689,559 and an accumulated deficit of $9,417,779. The
Company has not recognized any significant amount of revenues from its PI
Technology and expects to incur continued cash outflows. The Company has
also 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, in October, 2000 the Company
entered into an agreement for a $15,000,000 equity financing as described
in Note 4. 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 with the October 2000 financing, adequate
funding is 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-9
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
Three Months Ended September 30, 2000 and 1999
(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.
Product and Process Technology:
Costs related to the PI Technology (intellectual property) are being
amortized to expense using the straight-line method over 10 years.
Costs incurred to establish patents are capitalized and will be amortized
when the patent is granted over the shorter of the estimated useful life
of the technology or the patent term.
Property and Equipment:
Property and equipment are stated at cost. Depreciation expense is
provided by use of the accelerated and straight-line methods over the
estimated useful lives of the assets, generally 3 to 10 years for
machinery, office equipment and furniture.
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.
International Operations:
The Company's subsidiary (NCT) operations are located in Germany. NCT
transactions are conducted in currencies other than the U.S. dollar (the
currency into which NCT's historical financial statements have been
translated) primarily the Euro. As a result, the Company is exposed to
adverse movements in foreign currency exchange rates. In addition, the
Company is subject to risks including adverse developments in the foreign
political and economic environment, trade barriers, managing foreign
operations and potentially adverse tax consequences. There can be no
assurance that any of these factors will not have a material adverse
effect on the Company's financial condition or results of operations in
the future.
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-10
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
Three Months Ended September 30, 2000 and 1999
(Unaudited)
Revenue Recognition:
Revenues from the sale of services, products or product licenses are
generally recorded at the time of delivery to the customer and when no
significant obligations remain related to implementation. Revenues are
deferred if significant future obligations are to be fulfilled or if
collection is not probable.
Research and Development:
Research and development costs are expensed as incurred.
Foreign Currency Translation:
The financial statements of the Company's foreign subsidiary are measured
using the local currency (the Euro) as the functional currency. Assets
and liabilities of the subsidiary are translated at exchange rates as of
the balance sheet date. Revenues and expenses are translated at average
rates of exchange in effect during the period. The resulting cumulative
translation adjustments have been recorded as a component of comprehensive
income (loss), included as a separate item in shareholders' equity.
Foreign Currency Transactions:
Gains and losses from foreign currency transactions are included in net
income (loss). Foreign currency transaction gains and losses were not
significant during the period ended September 30, 2000. The Company had
no foreign operations in 1999.
Loss Per Share:
Statement of Financial Accounting Standards (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 period. Stock options, warrants, and
convertible preferred stock are not considered in the calculation, as the
impact of the potential common shares (16,324,500 shares at September 30,
2000 and 5,345,000 shares at September 30, 1999) 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 1999 financial statements have been
reclassified to conform with the 2000 presentation.
F-11
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
Three Months Ended September 30, 2000 and 1999
(Unaudited)
2. Common Stock, Stock Options and Warrants:
During the three months ended September 30, 2000, the Company issued
1,076,407 shares of common stock in exchange for $1,278,855 of convertible
debentures and $43,192 of accrued interest on the convertible debentures.
Under the debenture agreement, the debentures are convertible at the
lessor of $2.915 or 80% of the average of the three lowest daily closing
bid prices of the Company's common stock during the 30 trading days
immediately preceding the date on which the holder elects to convert the
debentures. During the quarter ended September 30, 2000, the conversion
rate for those transactions was approximately $1.23 per share. The
Company also issued 36,000 shares of common stock to third parties in
exchange for services valued at $82,116 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, 2000, the Company granted
stock options to purchase 70,000 shares of common stock at exercise prices
of $1.625 to $2.375 per share to employees of the Company. The options
exercise prices were based upon the quoted market prices of the Company's
common stock on the dates of grant. The stock options expire in the year
2010.
In September, 2000 the Company issued a stock option to purchase 50,000
shares of common stock at $3.00 per share for services received from third
party. The stock option expires on December 31, 2002. The option was
valued at $56,650 using the Black-Scholes pricing model, and that expense
was charged to general and administrative expense.
3. License Agreements:
The Company has 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 two license agreements are
idle. Royalties and maintenance payments from the two license agreements
have been held in an escrow account, outside of the Company's control,
pending the resolution of certain legal issues. On November 30, 1999, the
Company obtained a Court Order of Declaratory Judgment that it has
incontestable and exclusive ownership of all patents, patent applications,
licenses, trade names, trademarks, trade secrets and other intellectual
properties relating to the PI Technology. As part of the Court Order, the
original inventor of the technology is to receive all accrued and future
royalty payments from the licenses which were outstanding as of September
3, 1996. The Company also granted to the original inventor of the
technology a two-year, royalty bearing, non-exclusive license to use the
PI Technology for certain specified applications. The Company has not
recorded any receivables or revenues associated with the accrued royalty
payments on licenses which were outstanding as of September 3, 1996. The
original inventor filed a Motion of Appeal on March 29, 2000 regarding the
Declaratory Judgment. The Company believes that the resolution of this
litigation will not have a material adverse impact on either results of
operations, financial position, or cash flows.
4. Foreign and Domestic Operations:
Operating results and long-lived assets as of and for the quarter ended
September 30, 2000, by geographic area, are presented in the table below.
There were no significant amounts of transfers between geographic areas.
United States Germany Total
------------- ------- -----
Revenues for quarter
ended September 30, 2000 $ - 14,942 14,942
========= ======== =========
Long-lived assets at
September 30, 2000 $ 974,557 55,635 1,030,192
========= ======== =========
F-12
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
Three Months Ended September 30, 2000 and 1999
(Unaudited)
5. Subsequent Event:
Financing Agreement:
In October 2000, the Company entered into a $15,000,000 equity financing
agreement with a third party. Under the agreement, the Company received
$7,500,000 cash, net of $490,000 in offering costs, in exchange for
4,531,613 shares of the Company's common stock (approximately $1.66 per
share), a warrant ("the Initial Warrant") to purchase an additional
453,161 shares of the Company's common stock, and a separate warrant to
purchase shares of the Company's common stock ("the Vesting Warrant").
The $1.66 per share amount was based upon 80% of the average market price
of the Company's common stock prior to the closing, as defined in the
agreement. The Initial Warrant is exercisable immediately through October
2005 at an exercise price of $2.586 per share. Under the Vesting Warrant,
on defined dates, the warrant shall vest with respect to a defined number
of shares that are exercisable at $0.001 per share immediately and through
October 2005. The defined dates are the 65th, 130th, and 195th trading
days following the closing of the $7,500,000 transaction. The defined
number of shares is equal to one-third of the initial shares (2,507,492)
multiplied by $7,500,000 and by an initial percentage (the initial
percentage is equal to 115%, 125% and 140% from the 65th, 130th, and 190th
days, respectively, from the initial closing date), less the reset price,
which is equal to the average market value of the Company's common stock
at those dates. This amount is then divided by the reset price and equals
the number of shares issuable under the Vesting Warrant. At the Company's
option, but no earlier than 195 days and no later than 225 days after the
first issuance, the Company can sell up to $7,500,000 of additional shares
of common stock (based on the then average market price, as defined), and
warrants, both Initial and Vesting Warrants, to purchase additional common
shares.
As a result of services rendered by another third party in connection with
the financing agreement, the Company agreed to reduce the exercise price
of the existing warrants to purchase 10,000,000 shares of common stock
from $.51 to $.25 per share. The warrants were exercised through a
cash-less exercise and 9,532,520 shares of common stock were issued in
October 2000.
Convertible Debentures:
In October 2000, $150,000 of convertible debentures and accrued interest
of approximately $5,000 were converted into 104,567 shares of the
Company's common stock. The remaining $1,850,000 of convertible
debentures and accrued interest of $59,878 were redeemed, at a 25%
premium, for cash of $2,372,378. The Company also agreed to issue an
additional warrant for 50,000 shares of the Company's common stock at an
exercise price of $2.17 per share.
F-13
<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, 2000 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, 2000.
Results of operations
The Company recognized revenues of $14,942 for the three months ended
September 30, 2000. The revenues were from work on various contracts to provide
consulting services and software development assistance to third parties by the
Company's German subsidiary, Nanocard Technologies, GmbH ("Nanocard"). During
the three months ended September 30, 1999 the Company had no revenues.
General and administrative expenses increased to $640,331 for the three
months ended September 30, 2000, from $254,889 for the three months ended
September 30, 1999. This increase is primarily attributable to the increases in
payroll expense, public relation expenses and auditing expenses due to the
increase in operations at both of the facilities in Colorado Springs and in
Germany and the hiring of additional employees to support operations.
Interest expense increased as a result of the convertible debentures issued
in January and March of 2000.
The Company incurred a net loss of $689,559 for the three months ended
September 30, 2000 compared to a net loss of $261,361 for the three months ended
September 30, 1999. The increase in the net loss is primarily due to the
increase in activity described in general and administrative expenses.
Liquidity and financial condition
The Company's current operations are not generating positive cash flow. In
order to meet operating needs, the Company, in October 2000, entered into an
agreement for a $15,000,000 equity financing. The financing is divided into two
installments, which allows the Company, at its option, in approximately 200 days
to sell additional common shares and warrants to access an additional $7.5
million. In October 2000, the Company received $7,500,000 under the terms of
the financing and in return issued 4,531,613 of its common stock at $1.65 per
share to the investor. In addition the Company issued the investor a warrant to
purchase 453,161 shares of common stock of the Company at $2.58 per share.
Management believes that this funding, assuming the additional $7,500,000 is
taken, will be adequate to support operations for the next 24 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/smart label 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 ventures,
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.
Recently issued accounting pronouncement:
In June 1998, the Financial Accounting Standard Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement, as amended, is effective for fiscal years beginning after June 15,
2000. Currently, the Company does not have any derivative financial instruments
and does not participate in hedging activities; therefore, SFAS No. 133 will not
impact the Company's financial statements.
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
The Company and Louis DiFrancesco, the inventor of the PI Technology, were
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. On November 30, 1999,
the Company obtained a Court Order of Declaratory Judgment that it has
incontestable and exclusive ownership of all patents, patent applications,
licenses, trade names, trademarks, trade secrets and other intellectual
properties relating to the PI Technology. As part of the Court Order, Mr.
DiFrancesco is to receive all accrued and future royalty payments from the
licenses, which were outstanding as of September 3, 1996. The Company also
granted to Mr. DiFrancesco a two-year royalty bearing, non-exclusive license to
use the PI Technology for certain specified applications.
Mr. DiFrancesco filed an Appeal on March 28, 2000 with the Colorado Court
of Appeals regarding the Declaratory Judgment. The Company is opposing the
Appeal and believes it will prevail on the merits of its case.
Item 2 - Changes in Securities:
The Company made the following unregistered sales of its securities from
June 30, 2000, to September 30, 2000.
Date Title of Amount of
of Sale Securities Securities Consideration Purchaser
------- ---------- ---------- ------------- ---------
7/05/00 Common Stock 208,572 Debt Conversion Equinox Securities
7/11/00 Common Stock 417,479 Debt Conversion Equinox Securities
7/24/00 Stock Options 10,000 Services of Employee Sarah L. Ord
8/01/00 Stock Options 50,000 Services of Employee Richard Berger
8/14/00 Common Stock 182,649 Debt Conversion Equinox Securities
8/18/00 Stock Options 10,000 Services of Employee Richard Cunningham
9/07/00 Stock Options 50,000 Services Stock Enterprises,
Inc.
9/12/00 Common Stock 36,000 Services Stock Enterprises,
Inc.
9/12/00 Common Stock 178,332 Debt Conversion Equinox Securities
9/27/00 Common Stock 89,375 Debt Conversion Equinox Securities
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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
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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 9, 2000 /s/ Paul H. Metzinger
---------------------
Paul H. Metzinger, President & CEO
November 9, 2000 /s/ Kristi J. Kampmann
----------------------
Kristi J. Kampmann, Chief Financial Officer
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LIST OF EXHIBITS
Exhibit 11 Computation of Net Loss Per Share
Exhibit 27 Financial Data Schedule
6
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