UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 33-19598-D
NANOPIERCE TECHNOLOGIES, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Nevada 84-0992908
------ ----------
(State of other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
370 Seventeenth Street, Suite 3580
Denver, Colorado 80202
----------------------
(Address and zip code of principal executive office)
Registrant's telephone number, including area code: (303) 592-1010
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
(Title of Class) Name of Each Exchange On Which Registered
---------------- -----------------------------------------
Common Stock, NASDAQ:BB
$0.0001 Par Value Frankfurt Exchange
Hamburg Exchange
Indicate by check mark whether the registrant: (1) 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
----- -----
<PAGE>
As of the close of trading on September 22, 2000, there were 36,136,702 common
shares outstanding, 24,812,014 of which were held by non-affiliates. The
aggregate market value of the common shares held by non-affiliates, based on the
average closing bid and asked prices on September 22, 2000, was approximately
$53,494,702.
Transitional Small Business Disclosure Yes No X
----- -----
2
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
COMPANY OVERVIEW
Nanopierce Technologies, Inc. (the "Company") is a Nevada corporation that
was incorporated on June 22, 1996, as Sunlight Systems, Ltd. From June 22, 1996
through November 1996 the Company engaged in limited activities as a dealer and
distributor of sun tunnels. This business, however, was discontinued and
substantially all assets were sold in November of 1996. From that time until
February 1998, the Company was generally inactive and reported no significant
operating revenues.
On February 26, 1998, the Company acquired the intellectual property rights
related to the Company's patented Particle Interconnect Technology (the "PI
Technology") from Particle Interconnect Corporation ("PI Corp"), a Colorado
Corporation, a wholly owned subsidiary of Intercell Corporation ("Intercell"), a
Colorado Corporation. In exchange for the assets of PI Corp the Company issued
7,250,000 shares of its common stock and 100 shares of the Company's Series A
Preferred Stock (convertible into 7,250,000 common shares) to Intercell. The
Company acquired the PI Technology in order to pursue a more focused, strategic
application and development of the PI Technology.
On January 19, 2000, the Company formed a wholly-owned subsidiary,
Nanopierce Card Technologies, GmbH, in Hohenbrunn, Germany ("Nanocard" or
"NCT"). The Company owns 100% of the equity of Nanocard. The subsidiary was
created to market the Company's technology initially within the
Smartcard/Smartlabel industry and eventually for all other electronic
applications on an international basis.
The Company plans to market the PI Technology and applications using the PI
Technology. This involves the generation of revenues through the formation of
joint ventures or strategic relationships with, or by licensing the PI
Technology to, established manufacturers. Eventually, if warranted, the Company
may undertake direct marketing of products utilizing the PI Technology. The
development of applications utilizing the PI Technology presents a long-range
opportunity for the Company to maximize the commercialization of its technology.
The Company has designated and is commercializing its PI Technology as the
Nanopierce Connection System (NCS).
In the Spring of 2000, the Company opened a facility in Colorado Springs,
Colorado. This facility is utilized for the development of further applications
of the NCS Technology. The facility houses the plating system used for the
application of NCS to modules used in the production of Smart Cards.
THE NANOPIERCE CONNECTION SYSTEM
The PI Technology begins with metallized, treated diamond or other hard
particles, which have been closely screened to a specified size. The particles
are tightly classified in sizes ranging from 5 microns to 125 microns, depending
upon the end-product application. These electrically conductive particles are
attached onto contact sites using standard electroplating processes. By
penetrating through the oxide, the embedded particles create a surface that
provides numerous parallel electrical paths, thereby eliminating the wiping
action of conventional contacts. The Company believes that its NCS is capable
of penetrating surface contamination and oils to create an effective and
reliable electrical contact.
3
<PAGE>
Reliable, connections can be made with NCS with as little as 10 grams of
force per contact. This low-level of force is sufficient to drive the particles
into the mating surface (for example an Input/Output pad on a silicon die) and
provide low contact resistance. Moreover, the diamond particles do
insignificant damage to the mating surface. This provides very long remate life
with very little degradation of the connection.
These particles can be applied to many different substrates- flexible,
rigid, metallic and non-metallic. This wide range of substrates, coupled with
the low contact force, gives the PI Technology the capability to make reliable
connectors out of materials that would collapse if subjected to normal required
contact forces.
APPLICATIONS
Commencing in January 1999 the Company successfully applied and introduced
its technology to applications in the manufacturing of smart cards and smart
labels. It is this industry's desire to obtain a secure, efficient connection
between the microprocessor chip and the radio antenna in dual interface smart
cards, contactless smart cards and contactless smart labels. The industry is
currently restrained by the lack of a cost effective and reliable system for
electrical connection of the microchip to the contact pads and/or antenna. The
industry cannot satisfy the market demands for low cost and reliable contactless
smart cards and smart labels with currently available technologies. The Company
believes it has the solution for the industry, using the Nanopierce Connection
System.
Commencing in the Spring of 1999, the Company implemented its strategic
business plan by forming strategic alliances intended to result in joint
ventures to develop applications for its technology in the smart card/ smart
label industry. In the Spring of 2000, the Company began the construction of a
system to apply NCS to the chip module substrate tapes used in Smart Cards. The
Company has entered into agreements, none of which, at this time require capital
commitments by the Company, with the following members of the industry:
MULTITAPE GMBH & CO., KG AGREEMENT
----------------------------------
On April 15, 1999, the Company entered into an Application Development
Agreement with Multitape, GmbH & Co., KG, of Paderborn, Germany to develop the
application of its technology on chip module substrate tapes manufactured by
Multitape. Multitape is a major supplier of chip module substrate tapes to
numerous card manufacturers including virtually all of the largest card
manufacturers in the world. Once this application is tested to the satisfaction
of the Company and Multitape, the parties contemplate that a more formal
arrangement will be entered into between them to commercially exploit the
opportunity.
MEINEN, ZEIGEL & CO. AGREEMENT
------------------------------
On May 17, 1999, the Company entered in a Technology Cooperation Agreement
with Meinen, Zeigel & Co., Munich, Germany to develop applications of its
technology for dual interface smart card modules and the qualification and
industrialization of a chip module embedding process on Meinen, Zeigel & Co.
equipment. During the Spring of 2000, Meinen, Zeigel & Co., effectively
discontinued operations. The Company anticipates no further meaningful
activities with Meinen Zeigel & Co.
4
<PAGE>
ORGA KARTENSYSTEMES, GMBH AGREEMENT
-----------------------------------
On June 11, 1999, the Company entered into a Technology Development
Agreement with ORGA Kartensystemes, GmbH ("ORGA"). ORGA of Flintbek, Germany,
one of the leading manufacturers of dual interface smart cards, is working with
the Company relating to the application of NCS to the design and manufacture of
dual interface smart cards, particularly as it relates to the connection of the
antenna to the chip modules. If all testing and qualifications standards are
met, the Company contemplates entering into a formal joint venture or direct
licensing of ORGA relating to the application of its technology to dual
interface smart cards and other products of ORGA.
SCHLUMBERGER SYSTEMS, S.A.
--------------------------
The Company entered into a Confidential Disclosure Agreement with
Schlumberger Systems, S.A. effective July 8, 1999. Schlumberger Systems, S.A.,
is one of the world's largest producers of smart cards and similar products.
The Company is in the process of exchanging information with Schlumberger
Systems, S.A. relating to the application of its technology to dual interface
smart cards and other applications.
GEMPLUS,
--------
The Company entered into a Mutual Confidential Disclosure Agreement with
Gemplus Corporation on November 5, 1999. Gemplus Corporation is a producer of
Smart Cards and similar products. The Company is in the process of exchanging
information with Gemplus Corporation relating to the application of its
technology to Smart Card modules.
SIMOTECH, GMBH
--------------
The Company entered into a Cooperative Agreement with Simotec, GmbH,
effective June 2000. Simotec, GmbH specializes in developing, manufacturing and
marketing fully automatic, flexible assembly machines for the semiconductor
backend assembly field and the marketing of microsystem manufacturing. The
Company will work with Simotec, GmbH to integrate the NCS Technology into the
highly advanced flip-chip bonder of Simotec, GmbH, which can be used to
manufacture Smart Labels.
In addition to the SmartCard/SmartLabel Application, the Company has worked
on the introduction of NCS to applications in other industries, such as LED and
Cellular Phones. In connection with such developments, the Company has entered
into the following agreements:
CIREXX CORPORATION AGREEMENT
----------------------------
The Company has entered into an Agreement-In-Principle to form a joint
venture or limited liability partnership with Cirexx Corporation, Santa Clara,
California. The proposed joint venture or limited liability partnership will be
organized to commercially exploit NCS in all applications. Cirexx Corporation is
a world leader in the quick turn prototype design and production manufacturer of
high technology, digital, RF, and analog flexible circuits and mixed
technologies.
5
<PAGE>
TAIKO DENKI, LTD.
-----------------
The Company is expanding the scope of its strategic business activities to
embrace potential applications of NCS in the connector market. The Company has
signed Confidentiality Agreements with Taiko Denki, Ltd., one of Japan's leading
connector manufacturers relating to the application of its technology to the
connector products of Taiko Denki, Ltd.
WAVECOM, LTD.
-------------
In May 2000, the Company signed a Marketing Agreement with Wavecom, Ltd. of
Mankato, Minnesota. Wavecom, Ltd. through its contacts in the cellular phone
industry will provide the Company with an introduction to the manufacturers of
cellular phones and other telecommunications products.
ELCOS, AG
---------
In September 2000, the Company signed a Cooperation Agreement with Elcos,
AG of Pfaffenhofen, Germany, to develop applications of the Company's technology
to the manufacturing of light emitting diodes (LEDs) arrays. The Company
anticipates that this market will become very significant in the future
operations of the Company.
SOFTWARE DEVELOPMENT AGREEMENTS
The Company through its subsidiary Nanocard has signed agreements and
contracts for software development and project management which are expected to
generate revenue in fiscal year 2001. This line of activity is expected to
increase in the future, and management anticipates that it could eventually
evolve into a separate division or subsidiary of the Company.
LIPAG-3S SILICON TECH, INC. - 3S-PHOENIX
----------------------------------------
This Contract covers the development of special machine control software
for the new die bonder series machine from 3S Silicon Tech and the management of
the entire international software project. Further business from this group is
expected in the future.
TPSA OTO LUBLIN
---------------
Telekomunikacja Polska S.A. (TPS.A.) through its OTO Lublin business
division entered into a software development agreement with Nanocard to develop
an expansion of its software to provide greater flexibility and new applications
for coding chip cards with the existing automatic personalization systems of OTO
Lublin. The contract is scheduled to last approximately 6 months. The Company
anticipates that further business will develop with OTO Lublin.
Generally, the Company believes that these initial software development
contracts will lead to additional contracts, some of which could be from East
European countries. Further, that while human resources will be needed for
these agreements, no significant capital commitments are anticipated by the
Company in connection with the agreements.
6
<PAGE>
RESEARCH AND DEVELOPMENT
The Company incurred research and development expenses of approximately
$133,000 for the fiscal year ending June 30, 2000, and approximately $9,500 in
1999. The Company hopes to avoid incurring substantial research and development
cash requirements by entering into joint ventures for the development of future
PI Products.
COMPETITION
Competition in the electronic connector market is fierce. The principal
competitive factors are product quality, performance, price and service. While
the Company is unaware of any competitors using diamond as an interconnect
material, the Company and its licensees face competition from well-established
firms with other interconnect technologies. However, most of these competitors
apply their technologies to very narrow markets or applications and most have
had only limited success in mass commercialization of their technologies.
The Company will face competition from the development of existing and
future competing technologies. There currently exists approximately 28
different technologies that can be used to create interconnect solutions,
including dendrite crystals, gold dot technology, anisotropic technology
(technologies using materials whose behavior differs in the up/down and
left/right diversion), elastomerics (rubber-like synthetic materials) and Z-axis
conductive adhesives. These technologies currently are produced by materials
and chemical suppliers, flexible and rigid printed circuit board manufacturers,
as well as electronics manufacturers who produce their own materials and
interconnect systems. Many of these competitors have substantially greater
financial and other resources than the Company. The Company believes that each
existing technology currently has unacceptable limitations with regard to
electrical/mechanical performance, manufacturability or cost as compared to the
PI Technology. However, there are no assurances that the Company or the PI
Technology can successfully compete with current or future technologies.
INTELLECTUAL PROPERTY
The Company will rely on a combination of patents, patent applications,
trademarks, copyrights and trade secrets to establish and protect its
proprietary rights in the PI Technology and its application. The Company
currently owns twelve U.S. patents (which expire from February 14, 2006 to
August 1, 2017) and three patent applications pending related to the proprietary
NCS.
Prior to The Company's acquisition of the PI Technology, the inventor of
the PI Technology or companies controlled by him granted the following exclusive
and nonexclusive licenses to pursue the patents and patent applications relating
to the PI Technology: (i) an exclusive license to Exatron Automatic Test
Equipment Inc. ("Exatron") for use in the field of sockets in the automated
handling and testing of integrated circuits and a non-exclusive license for
other applications; (ii) an exclusive license to Micro Module Systems, Inc. for
use in the field of certain Multi-Chip Module thin film bases, except attached
or associated products including integrated circuits, socket, lids, heat sinks,
housings and printed circuit boards; (iii) a non-exclusive license to
Johnson-Matthey Semiconductor Packagings, Inc. for use in the field of
laminate-based base products; (iv) a non-exclusive license to Multiflex, Inc.
for use in the field of the laminate-based bases and metal bases; and (v) a
non-exclusive license to Myers Consulting, Inc. for use in the field of
laminate-based bases, metal bases, and wafer or semi-conductor products. These
licenses have indefinite terms and, provided certain conditions are met, can be
terminated by either party by written notice. The Company retains the right to
exclude all other companies from using its patented technology without a
license. Consequently, the Company may license such other companies as it
chooses, provided the licensees are consistent with the exclusive licensees
previously granted and other licensing restrictions that may appear in the prior
licenses.
7
<PAGE>
All but two of the foregoing license agreements have been idle since their
acquisition by the Company and therefore these agreements have not produced any
royalty fees for the Company. Prior to the resolution of certain legal issues,
royalties under the one active agreement are being held in an escrow account,
and maintenance payments on one license are being held in a reserve account,
outside of the Company's control. As part of the settlement of certain legal
proceedings, (See - Item 3 Legal Proceedings) the Company does not expect to
realize any significant royalty revenue from these agreements.
In December 1998, MicroModule Systems, Inc. terminated all of its business
operations and sold its assets to an industry associate. As a result of this,
the Company has terminated the license of MicroModule Systems, Inc.
On July 12, 2000 Johnson-Matthey Semiconductor Packagings, Inc. advised the
Company that it had terminated its license effective July 12, 2000.
As part of a Court Ordered Settlement Agreement terminating litigation
between the Company and Mr. DiFrancesco, the inventor of the PI Technology, the
Company on November 30,1999, granted Mr. DiFrancesco a two-year, non-exclusive
license to apply the PI Technology to sockets, other than sockets used in the
automated handling and testing of integrated circuits. The non-exclusive
license will terminate at the end of the two-year term, without further notice
or action by the Company, unless Mr. DiFrancesco has paid the Company royalties
of not less than $25,000 during such two-year term, based upon the actual
application of the PI Technology to sockets other than sockets used in the
automated handling and testing of integrated circuits.
There can be no assurance that patents will be issued from any of the
pending applications, or that any claims allowed from existing or pending
patents will be sufficiently broad enough to protect the Company's PI
Technology. While the Company intends to vigorously protect its intellectual
property rights, there can be no assurance that any patents held by the Company
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide competitive advantages to the Company. Litigation may
be necessary to enforce the Company's patents, patent applications, trade
secrets, licenses and other intellectual property rights, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement. Such litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on the Company's
business and results of operations regardless of the final outcome of the
litigation. Despite the Company's efforts to maintain and safeguard its
proprietary rights, there can be no assurances that the Company will be
successful in doing so or that the Company's competitors will not independently
develop or patent technologies that are substantially equivalent or superior to
the Company's technologies.
The semiconductor and interconnect industries are characterized by
uncertain and conflicting intellectual property claims. The Company has in the
past and may in the future become aware of the intellectual property rights of
others that it may be infringing, although it does not believe that it is
infringing any third party proprietary rights at this time. To the extent that
it deems necessary, the Company may license the right to use certain technology
patented by others in certain products that it manufactures. There can be no
assurance that the Company will not in the future be notified that it is
infringing other patent and/or intellectual property rights of third parties.
In the event of such infringement, there can be no assurance that a license to
the technology in question could be obtained on commercially reasonable terms,
if at all, that litigation will not occur or that the outcome of such litigation
will not be adverse to the Company. The failure to obtain necessary licenses or
other rights, the occurrence of litigation arising out of such claims or an
adverse outcome from such litigation could have a material adverse effect on the
Company's business. In any event, patent litigation is expensive, and the
Company's operating results could be materially adversely affected by any such
litigation, regardless of its outcome.
8
<PAGE>
The Company intends to protect its trade secrets and proprietary
technology, in part, through confidentiality and non-competition agreements.
There can be no assurance that these agreements will not be breached, that the
Company will have adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known to or independently developed by others.
In addition, the laws of some foreign countries do not offer protection of the
Company's proprietary rights to the same extent, as do the laws of the United
States.
GOVERNMENT REGULATION
The Company believes that it is in substantial compliance with all material
federal and state laws and regulations governing its limited operations.
Further, the Company believes that it is in compliance with all material German
laws and regulations governing its limited operations in Germany. Compliance
with federal and state environmental laws and regulations did not have a
material effect on the Company's capital expenditures, earnings or competitive
position during the fiscal years ended June 30, 2000, or 1999.
EMPLOYEES
As of June 30, 2000, the Company and its subsidiary had 13 employees.
Messrs. Metzinger, Neuhaus, Wernle and Ms. Kampmann, key officers of the Company
have signed Employment Agreements with the Company or Nanocard. (See- Item 10-
"Directors and Officers of the Company") None of the Company's employees is
represented by a labor union or is subject to a collective bargaining agreement.
The Company believes that its relations with its employees are excellent.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company currently maintains its executive and administrative office in
space provided by Intercell, a related party of the Company at 370 Seventeenth
Street, Suite 3580, Denver, Colorado 80202. The Company also leases a facility
located at 4180 Center Park Drive, Colorado Springs, Colorado 80916. The
Company's wholly owned subsidiary leases a facility located at
Lise-Meitner-Strasse, 1, D-85662, Hohenbrunn, Germany.
ITEM 3. 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 who 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.
9
<PAGE>
Other than the above mentioned lawsuit, to the knowledge of the management
of the Company there are no material legal proceedings pending or threatened
(other than routine litigation incidental to business) to which the Company (or
any officer, director, affiliate of beneficial owner of more than 5% of the
Company's voting securities) is party or to which property of the Company is
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no meetings of security holders during the period covered by
this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock is presently traded on the over-the-counter market on the
OTC Bulletin Board maintained by the National Association of Securities Dealers,
Inc. (the "NASD") The NASDAQ symbol for the Common Stock is "NPCT". The common
stock of the Company is also traded on the Frankfurt Exchange under the symbol
"NPI" and on the Hamburg Exchange under the symbol "916132".
The following table sets forth the range of high and low bid quotations for
the Common Stock of each full quarterly period during the fiscal year or
equivalent period for the fiscal periods indicated below. The quotations were
obtained from information published by the NASD and reflect interdealer prices,
without retail mark-up, markdown or commission and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
<S> <C> <C>
1999 FISCAL YEAR ASK BID
September 30, 1998 $0.781 $0.718
December 31, 1998 0.33 0.32
March 31, 1999 0.70 0.66
June 30, 1999 0.47 0.42
2000 FISCAL YEAR
September 30, 1999 $ 0.34 $ 0.31
December 31, 1999 0.27 0.20
March 31, 2000 5.75 5.13
June 30, 2000 2.00 1.88
</TABLE>
As of June 30, 2000, there were approximately 262 holders of record of the
Company's Common Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock in the past
and does not anticipate paying any dividends in the foreseeable future.
Earnings, if any, are expected to be retained to fund future operations of the
Company. There can be no assurance that the Company will pay dividends at any
time in the future.
10
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
The Company made the following unregistered sales of its securities from
April 1, 2000 through June 30, 2000.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DATE TITLE OF
SECURITIES # OF SHARES CONSIDERATION PURCHASER
---- ----------- ----------- ------------- ---------
4/17/00 Stock Option 500 Services David Correll
4/17/00 Stock Option 50,000 Services of Employee Richard Cunningham
4/17/00 Stock Option 50,000 Services of Employee Kristi J. Kampmann
4/17/00 Stock Option 35,000 Services of Employee Michael Kober
4/17/00 Stock Option 35,000 Service of Employee Karl-Heinz Kuhn
4/17/00 Stock Option 40,000 Service of Employee Bernhard Maier
4/17/00 Stock Option 1,000 Services Thor Metzinger
4/17/00 Stock Option 100,000 Service of Employee Dr. Herbert J. Neuhaus
4/17/00 Stock Option 500 Services Kalene Rivers
4/17/00 Stock Option 100,000 Service of Employee Dr. Michael E. Wernle
4/17/00 Stock Option 50,000 Service of Employee Frederick Blum
5/14/00 Common Stock 278,022 Warrant Exercise Gemini Investments, Ltd.
</TABLE>
EXEMPTION FROM REGISTRATION CLAIMED. All of the sales by the Company of its
unregistered securities were made by Registrant in reliance upon Section 4(2) of
the Securities Act of 1933, as amended. All of the individuals who purchased
the unregistered securities were all known to the Company and its management,
through pre-existing business relationships, as long standing business
associates, friends, employees, relatives or members of the immediate family of
management. All purchasers were provided access to all material information,
which they requested, and all information necessary to verify such information
and were afforded access to management of the Company in connection with their
purchases. All purchasers of the unregistered securities acquired such
securities for investment and not with a view toward distribution acknowledging
such intent to the Company. All certificates or agreements representing such
securities that were issued contained restrictive legends, prohibiting further
transfer of the certificates or agreements representing such securities, without
such securities either being first registered or otherwise exempt from
registration in any further resale or disposition.
11
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Certain Statements contained in this Form 10-KSB contains "forward-looking
statements" within the meaning of the private Securities Litigation Reform Act
of 1995. These are statements that do not relate strictly to historical or
current facts. Such forward-looking statements involve known and unknown risks
and uncertainties. In this regard, see "MANAGEMENT'S DISCUSSION AND ANALYSIS -
General" and "- Trends and Uncertainties". The Company's actual results could
differ materially from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences are discussed below.
These risks and uncertainties include, without limitation:
- The rate of market development and acceptance of the interconnect
technology the industry within which its subsidiary, The Company is
concentrating its business activities.
- The unpredictability of the Company's sales cycle;
- The limited revenues and significant operating losses generated to date;
- The possibility of significant ongoing capital requirements
- The loss of any significant customer;
- The ability of the Company to compete successfully with the other
providers of interconnect technologies. See Description of
Business -- Competition";
- The ability of the Company to secure additional financing as and when
necessary;
- The ability of the Company to retain the services of its key management,
and to attract new members of the management team;
- The ability of the Company to effect and retain appropriate patent,
copyright and trademark protection of its products;
For the purposes of the safe harbor protection for forward-looking
statements provided by the Private Securities Litigation Reform Act of 1995,
readers are urged to review the list of certain important factors set forth in
"Cautionary Statement for Purposes of the 'Safe Harbor' Provisions of the
Private Securities Litigation Reform Act of 1995".
The Company undertakes no obligation to release publicly any revisions to
the forward-looking statements or to reflect events or circumstances after the
date of this Report.
RESULTS OF OPERATIONS
The Company recognized no revenues in the fiscal year ended June 30, 2000
or the fiscal year ended June 30, 1999. In the fiscal year ended June 30, 2000,
income in the amount of $41,431 was earned from interest on various interest
bearing cash and cash equivalent accounts compared to $714 in the fiscal year
ended June 30, 1999.
General and administrative expenses decreased to $2,521,715 for the year
ended June 30, 2000 from $3,105,046 for the year ended June 30, 1999. This
decrease is mainly due to a decrease in public relation fees from $1,960,951 for
the fiscal year ended June 30, 1999 to $203,209 for the fiscal year ended June
30, 2000. Consulting expenses were $72,424 in the fiscal year ended June 30,
2000, a decrease from $126,858 in the fiscal year ended June 30, 1999. As the
Company has been successful in entering into a number of application and
development agreements, as well as, obtaining financing for its German
subsidiary, management has been able to reduce its public relation and related
expenditures. Professional fees increased to $93,549 in the fiscal year ended
June 30, 2000 from $37,270 in the fiscal year ended June 30, 1999. This
increase can be attributed to costs incurred in connection with Registration
Statements filed by the Company during the year ended June 30, 2000. Payroll
expenses increased to $627,371 in the fiscal year ended June 30, 2000 from
$312,771 for the fiscal year ended June 30, 1999. Such increase is
attributable to the hiring of employees for both the Colorado Springs facility
and Nanocard.
12
<PAGE>
During the year ended June 30, 1999, Intercell Corporation, an affiliate of
the Company, paid management fees of $47,000 to the Company for administrative
and other services. No management fees were earned during the fiscal year
ended June 30, 2000. All payables to the Company, by its affiliate Intercell
Corporation were paid in full in the fiscal year ended June 30, 2000.
The Company experienced net losses of $3,743,305 and $3,139,439 for the
fiscal years ended June 30, 2000 and 1999, respectively. The increase can be
attributed to the significant increase in interest expense to $1,129,933 in the
fiscal year ended June 30, 2000 from $25,595 in the fiscal year ended June 30,
1999. Such increase can be attributed primarily to a $995,000 beneficial
conversion feature related to the convertible debentures issued in 2000, which
was recorded as interest expense in addition to the stated interest incurred
with recent financings of the Company.
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 years ended June 30, 2000 and 1999.
LIQUIDITY & CAPITAL RESOURCES
The independent auditors' report on the Company's financial statements as
of June 30, 2000, and for each of the years in the two year period then ended,
includes a "going concern" explanatory paragraph, that describes 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 to Notes to the Financial Statements.
In January 2000, the Company formed a wholly-owned subsidiary, Nanopierce
Card Technologies, GmbH in Hohenbrunn, Germany. The subsidiary was created to
market the Company's technology initially within the Smartcard/Smartlabel
industry and eventually for all other electronic applications on an
international basis. The Company has invested $476,000 in the equity of
Nanocard and has advanced Nanopierce approximately $133,000 through June 30,
2000. In April 2000, the Company opened a facility in Colorado Springs,
Colorado as the center of its applications work.
In January 2000, the Company completed a $4 Million Convertible Debt
financing. The Convertible Debentures have an interest rate of 6% and are
convertible into free trading common shares of the Company, based on a 3-day
average of the lowest closing market price in a 30 day time period. At June 30,
2000, $3,300,000 Convertible Debentures were outstanding, as a result of
$700,000 in debenture conversions to equity through June 30, 2000.
The Company, throughout the fiscal years of 1999 and 2000, signed various
agreements with companies both overseas and in the United States. The
agreements are to apply the Company's NCS technology to various products, mainly
in the smart card industry. In addition, the Company has signed several
software development contracts that are expected to generate revenue over the
next fiscal year. 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.
13
<PAGE>
The Company incurred research and development expenses of approximately
$133,000 for the fiscal year ended June 30, 2000. Approximately $16,500 and
$9,500 in fiscal years ended June 30, 2000 and 1999, respectively, were incurred
in the application of the NCS technology to the products of the parties that the
Company has signed various agreements with, in order to perform tests by such
parties of the technology application to their products. Approximately $116,500
in fiscal year 2000 was incurred by Nanocard.
The Company, at this time, does not recognize any revenues from the
agreements it has signed. Further, the Company's current operations are not
generating positive cash flow. To address the cash flow concern, the Company is
in discussions with investment bankers and financial institutions attempting to
raise funds to support current and future operations. Further, the Company as
mentioned above, is in talks with various companies to develop agreements
applying its technology to their products and advancing those agreements it has
already executed.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement, as amended by SFAS No. 137, 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,
management believes that SFAS No. 133 will not impact the Company's financial
statements.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements and related financial information required to be filed
are indexed on page F-1 and are incorporated herein.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and significant employees of the Company
are as follows:
NAME AND AGE POSITION PERIOD
Paul H. Metzinger (61) Director, President, December 1998 to
Chief Executive Officer present
General Manager of Nanocard January 19, 2000 to
present
Dr. Herbert J. Neuhaus (41) Director, Executive January 1999 to
Vice President of present
Technology & Marketing
Kristi J. Kampmann (27) Chief Financial Officer October 15, 1999 to
present
Secretary February 1998 to
present
Dr. Michael E. Wernle (39) Director, Executive Vice November 1, 1999 to
President of Strategic present
Business Development
President & Chief Executive January 19, 2000 to
Officer of Nanocard present
14
<PAGE>
The directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. The Board of
Directors elects the officers at its annual meeting immediately following the
shareholders, annual meeting and hold office until they resign or are removed
from office. There are no family relationships that exist between any director,
executive officer, significant employee or person nominated or chosen by the
Company to become a director or executive officer. The Company has not
established an executive committee of the Board of Directors or any committee
that would serve similar functions such as an audit, incentive compensation or
nominating committee.
BIOGRAPHICAL INFORMATION ON OFFICERS AND
DIRECTORS AND SIGNIFICANT EMPLOYEES
PAUL H. METZINGER. Mr. Metzinger was President and Chief Executive Officer
of the Company from February 26, 1998 to May 6, 1998 and has served in that same
capacity from December 1, 1998 to present. He has been a director of the
Company since February 26, 1998. He has served as the General Manager of
Nanocard since January, 2000. In addition, he serves as the President and Chief
Executive Officer and a Director of Intercell Corporation. Prior to becoming a
director and officer of the Company, Mr. Metzinger served as Intercell's General
Counsel and practiced securities law in Denver, Colorado for over 32 years. Mr.
Metzinger received his J.D. degree in 1967 from Creighton University Law School
and his L.L.M. from Georgetown University in 1969.
HERBERT J. NEUHAUS, PH.D. Dr. Neuhaus has been the Executive Vice
President of Marketing and Technology and a Director of the Company since
January 1, 1999. Dr. Neuhaus previously served as the Managing Director of
Particle Interconnect Corporation from August 18, 1997 to November 1, 1997.
From August 1989 to August 1997, he was associated with Electronic Material
Venture Group in the new Business Development Department of Amoco Chemical
Company, Naperville, Illinois. While associated with Amoco chemical Company he
held among other positions: Business Development Manger/Team Leader; Project
Manager --High Density Interconnect; Product Manager MCM Products and as a
research scientist.
Dr. Neuhaus received his Ph.D. degree in Physics form the Massachusetts
Institute of Technology, Cambridge, Massachusetts in 1989 and his BS in Physics
from Clemson University, Clemson, South Carolina in 1980.
DR. MICHAEL E. WERNLE. Dr. Wernle has served as the Executive Vice
President for Strategic Business Development and a Director of the Company,
since November 1999. He has been the President and Chief Executive Officer of
Nanocard since January 19, 2000. Dr. Wernle was formerly Chief Operations
Officer for Meinen, Ziegel & Co., GmbH, Munich, Germany. He has also served as
the Director of Production for Mikron/Philips-Graz, Graz, Austria. Where he was
responsible for the development and production of RFID and Contactless Smart
Card Systems.
Dr. Wernle received his Ph.D. in applied physics from the Technical
University of Vienna in 1990 and his Masters Degree in Industrial Electronics in
1988.
KRISTI J. KAMPMANN. Ms. Kampmann was appointed the Chief Financial Officer
of the Company on October 15, 1999. Ms. Kampmann has been Secretary of the
Company since February 1998. In addition, she has served as the Secretary of
Intercell, since July 28, 1999. Since June 1997, she has been the
administrative assistant to the Chief Executive Officer and Chief Financial
Officer, in addition, during the same period she served in the same capacity to
the Chief Executive Officer of Intercell. From April 1996 to June 1997, she
served as a paralegal and administrative assistant for Paul H. Metzinger, P.C.
Ms. Kampmann graduated from the Denver Paralegal Institute in 1996. Ms.
Kampmann received a B.A. from the University of Minnesota in Morris in 1995,
majoring in Political Science with a minor in Business Management. She
currently is attending the University of Colorado at Denver, where she is
completing work on an M.B.A.
15
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid by the Company to the Chief Executive Officer ("CEO") and any other
executive officer whose total annual salary and bonus exceeded $100,000 for the
fiscal year ended June 30, 2000 and 1999 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------------------------------------
AWARDS PAYOUTS
------------------------
Name & Principal Year Salary Bonus Other Annual Restricted Securities LTIP All Other
Position ($) ($) Compensation Stock Underlying Payouts Compensation
($) Awards ($) Options (#) ($) ($)
Paul H. Metzinger, 2000 $165,000 $-0- $ -0- $ -0- -0- $ -0- $ -0-
Director, President 1999 $150,000 $-0- $ -0- $ -0- 500,000 $ -0- $ -0-
& CEO(1)
Dr. Herbert J. Neuhaus, 2000 $165,000 $-0- $ -0- $ -0- 100,000 $ -0- $ -0-
Director, Executive 1999 $150,000 $-0- $ -0- $ -0- 750,000 $ -0- $ -0-
Vice President of
Technology & Marketing(2)
Dr. Michael E. Wernle, 2000 $165,000 $-0- $ -0- $ -0- 485,000 $ -0- $ -0-
Director, Executive 1999 $ -0- $-0- $ -0- $ -0- $ -0- $ -0-
Vice President of
Strategic Business
Development, President
& Chief Executive Officer
of Nanocard (3)
Kristi J. Kampmann, 2000 $ 42,000 $-0- $ -0- $ -0- 50,000 $ -0- $ -0-
Chief Financial 1999 $ $-0- $ -0- $ -0- 50,000 $ -0- $ -0-
Officer, Secretary
</TABLE>
_______________
(1) Paul Metzinger served as President and Chief Executive officer from February
26, 1998 to May 6, 1998, during that time period he did not receive monetary
compensation for his services. Mr. Metzinger was re-appointed President & Chief
Executive Officer on December 1, 1998. He is compensated pursuant to a written
Employment Agreement, dated January 1, 1999 at an annual salary of $165,000.00.
(2) Dr. Neuhaus was appointed Executive Vice President of Technology and
Marketing on January 6, 1999. He is compensated pursuant to a written
Employment Agreement, dated January 1, 2000 at an annual salary of $165,000.00.
(3) Dr. Wernle was appointed Executive Vice President of Strategic Business
Development in November, 1999. He was appointed the President & Chief Executive
Officer of Nanocard on January 19, 2000. He is compensated pursuant to a
written Employment Agreement, dated February 1, 2000, at an annual salary of
$165,000.
(4) Kristi Kampmann was appointed the Chief Financial Officer on October 15,
1999. She was compensated pursuant to a written Employment Agreement, dated
October 1999, at an annual salary of $42,000, which has been replaced by a
written Employment Agreement, dated July 2000.
The foregoing compensation table does not include certain fringe benefits
made available on a nondiscriminatory basis to all Company employees such as
group health insurance, dental insurance, long-term disability insurance,
vacation and sick leave. In addition, the Company makes available certain
non--monetary benefits to its executive officers with a view to acquiring and
retaining qualified personnel and facilitating job performance. The Company
considers such benefits to be ordinary and incidental business costs and
expenses. The aggregate value of such benefits in the case of each executive
officer listed in the above table, which cannot be precisely ascertained but
which is less than 10% of the cash compensation paid to each such executive
officer, is not included in such table.
16
<PAGE>
OPTION/SAR GRANTS TABLE
The following table provides information relating to the grant of stock
options to the Company's executive officers during the fiscal year ended June
30, 2000.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
------------------------------------- ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION TERM
----------------------------------
<S> <C> <C> <C> <C> <C> <C>
% of Total
Options Options Exercise
Name ./SARS /SARS or Base Expiration 5%($) 10%($)
---- Granted Granted to Price Date ----- ------
in Fiscal Employees ($/sh) ----
Year (#) in Fiscal ------
-------- Year
----
Paul H. Metzinger - - - - - -
Dr. Herbert J. Neuhaus 100,000 13.16% $2.75 4/17/10 172,946 438,279
Dr. Michael E. Wernle 300,000 39.47% $0.52 11/1/09 98,108 248,624
160,000 21.05% $2.75 4/17/10 276,714 701,247
Kristi J. Kampmann 50,000 6.58% $2.75 4/17/10 86,473 219,140
</TABLE>
_______________
l Potential realizable value is based on an assumption that the stock price of
the Common Stock appreciates at the annual rate shown (compounded annually) from
the date of grant until the end of the 10-year option term. The numbers are
calculated based on the requirements promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock price
growth, which may or may not occur.
2 Computed based on the average closing bid and asked prices on the date of
grant.
3 Based on a total of 760,000 options granted to employees in the fiscal year
ended June 30, 2000.
4 Numbers in parentheses are negative numbers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
The following table provides information relating to the exercise of stock
options during the fiscal year ended June 30, 2000 by the Company's executive
officers and the 2000 fiscal year-end value of unexercised options.
17
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year,
and Fiscal Year-end Option/SAR Values
<S> <C>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARS at Fiscal Options/SAR at
Year(1) FY - End ($)(1)
---------------------------------------------------
Shares
NAME Acquired on Exercisable/ Exercisable/
---- Exercise Value Realized ($) Unexercisable Unexercisable
-------- ------------------ ------------- -------------
(#)
---
Paul H. Metzinger 0 0 2,000,000/0 $3,880,000/0
Dr. Herbert J. Neuhaus 0 0 850,000/0 1,649,000/0
Dr. Michael E. Wernle 0 0 485,000/0 940,900/0
Kristi J. Kampmann 0 0 150,000/0 291,000/0
</TABLE>
_______________
1 The average of the closing bid and asked price of the Common Stock on June 30,
2000 ($1.94) was used to calculate the option value.
EMPLOYMENT AGREEMENTS
On January 1, 1999, the Company entered into an employment agreement with
Paul H. Metzinger to serve as President and Chief Executive Officer of the
Company. The employment agreement with Mr. Metzinger expires December 31, 2002.
On January 6, 1999 the Company entered into an employment agreement with Dr.
Herbert J. Neuhaus to serve as the Executive Vice President of Technology and
Marketing. The employment agreement with Dr. Neuhaus was renewed on January 1,
2000 and expires December 31, 2003. On November 1, 1999, the Company entered
into an employment agreement with Dr. Michael E. Wernle to serve as the
Executive Vice President Strategic Business Development. This employment
agreement has been superceded by his employment agreement with Nanocard. On
February 1, 2000, Nanocard entered into an employment agreement with Dr. Michael
E. Wernle to serve as the President of Nanocard. The employment agreement
between Dr. Wernle and Nanocard expires at the end of the calendar month, in
which Dr. Wernle becomes 65 years old.
The above mentioned executives receive annual compensation of $165,000 for
the calendar year of 2000. Salaries increase on January 1st at a rate of
approximately 9%.
On July 15, 2000, the Company entered into an employment agreement with
Kristi J. Kampmann to serve as the Chief Financial Officer. Such employment
agreement expires on July 15, 2002. Pursuant to her employment agreement Ms.
Kampmann receives an annual salary of $54,600 to be increased to $60,000 upon
the completion of over $10 Million in financing by the Company, and to be
increased to $75,000 annually upon the completion of her MBA.
In connection with the Employment Agreements, generally, the Company or the
Employee may terminate the Employment Agreement at any time with or without
cause. In the event the Company terminates an Employment Agreement for cause or
the Employee terminates his Employee Agreement without cause, all of such
Employee's rights to compensation would cease upon the date of his termination.
If the Company terminates an Employment Agreement without cause, the Employee
terminates his Employment Agreement for cause, or in the event of a change in
control, the Company will pay to the Employee all compensation and other
benefits that would have accrued and/or been payable to the Employee during the
full term of the Employment Agreement.
18
<PAGE>
A change of control is considered to have occurred when, as a result of any
type of corporate reorganization, execution of proxies, voting trusts or similar
arrangements, a person or group of persons (other than incumbent officers,
directors and principal shareholders of the Company) acquires sufficient control
to elect more than a majority of the Company's Board of Directors, acquires 50%
or more of the voting shares of the Company, or the Company adopts a plan of
dissolution of liquidation. The Employment Agreement also include a noncompete
and nondisclosure provisions in which each Employee agrees not to compete with
or disclose confidential information regarding the Company and its business
during the term of the Employment Agreement and for a period of one year
thereafter.
COMPENSATION PURSUANT TO PLANS
STOCK OPTION PLANS. During the fiscal year ended June 30, 2000, the
Company granted options to purchase 760,000 shares of common stock to directors,
officers, employees and consultants of the Company and its subsidiaries. As of
June 30, 2000, 4,737,000 options are exercisable.
The Company has one Stock Option Plan entitled the Nanopierce Technologies,
Inc. 1998 Compensatory Stock Option Plan. The Company has reserved 5,400,000
shares of common stock for issuance under the Plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of outstanding shares of Common Stock as of June 30, 2000 on a fully
diluted basis, by (a) each person known by the Company to own beneficially 5% or
more of the outstanding shares of Common Stock, (b) the Company's directors,
Chief Executive Officer and executive officers whose total compensation exceeded
$100,000 for the last fiscal year, and (c) all directors and executive officers
of the Company as a group.
Name and Address of Beneficial Owner Number of Shares % OF
OUTSTANDING (7)
Paul H. Metzinger, President
Chief Executive Officer and Director
370 17th Street, Suite 3580
Denver, CO 80202 4,093,058(1) 7.98%
Cheri L. Perry/Metzinger
3236 Jellison Street
Wheat Ridge, CO 80033 4,093,058(2) 7.98%
Dr. Herbert J. Neuhaus, Executive
Vice President of Technology &
Marketing and Director
770 Marroonglen Court
Colorado Springs, CO 80096 960,000(3) 1.87%
Kristi J. Kampmann, Chief Financial
Officer
370 17th Street, Suite 3580
Denver, CO 80202 169,080(4) 0.33%
Dr. Michael E. Wernle, Executive
Vice President of Strategic
Business Development, President
& Chief Executive Officer of Nanocard
370 17th Street, Suite 3580
Denver, CO 80202 485,000(5) 0.95%
Intercell Corporation
370 17th Street, Suite 3580
Denver, CO 80202 9,177,550(6) 17.88%
All officers and directors
as a group (4 persons) 5,707,138(7) 11.12%
19
<PAGE>
(1) Consists of 1,010,251 shares owned indirectly & beneficially through his
wife, Cheri L. Metzinger, 1,082,807 owned directly of record and beneficially;
1,000,000 shares subject to a presently exercisable option expiring February 26,
2008; 500,000 shares subject to a presently exercisable option expiring February
27, 2008 and 500,000 shares subject to a presently exercisable option expiring
March 12, 2009.
(2) Consists of 1,010,251 shares owned directly, of record and beneficially;
1,082,807 shares owned indirectly and beneficially through her husband, Paul H.
Metzinger and beneficial ownership of 2,000,000 shares subject to options held
by her husband.
(3) Consists of 110,000 shares owned directly, of record and beneficially;
500,000 shares subject to a presently exercisable option expiring January 6,
2009, 250,000 shares subject to a presently exercisable option expiring March
12, 2009, 100,000 shares subject to a presently exercisable option expiring
April 17, 2010.
(4) Consists of 19,080 shares held directly, of record and beneficially and
50,000 shares subject to a presently exercisable option expiring February 26,
2008, 50,000 shares subject to a presently exercisable option expiring March 12,
2009, 50,000 shares subject to a presently exercisable option expiring April 17,
2010.
(5) Consists of 25,000 shares subject to a presently exercisable option
expiring March 12, 2009, 300,000 shares subject to a presently exercisable
option expiring November, 2009 and 160,000 shares subject to a presently
exercisable option expiring April 2010.
(6) Consists of 9,177,550 shares held directly, of record and beneficially.
Intercell Corporation is an affiliate of the Company, Paul H. Metzinger is the
President, Chief Executive Officer, a director and a principal shareholder of
Intercell Corporation, but he disclaims beneficial ownership of the shares held
by Intercell Corporation.
(7) Based on 35,113,674 shares of common stock issued and outstanding on
June 30, 2000 and assuming exercise of all 4,737,000 presently exercisable
options and exercise of 11,437,500 outstanding warrants, there would be
51,318,174 shares outstanding. Mr. Metzinger's and his wife's stock ownership
are not duplicated in this computation.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended June 30, 1999, Paul H. Metzinger, President &
Chief Executive Officer, a Director and a major shareholder of the Company
loaned the Company $130,577. This amount was represented by a demand, unsecured
Corporate Promissory Note in the amount of $130,577, dated April 1, 1999. The
Note bears interest at the rate of 8% per annum. During 2000, the Company paid
the Corporate Promissory Note in full using a combination of 455,934 shares of
common stock and $47,582 in cash.
In addition, a former affiliate and a shareholder of the Company made
certain loans to the Company amounting to $66,837. Cheri L. Metzinger, wife
of Paul H. Metzinger, acquired such Note from such shareholder by paying the
face amount of the Notes. The Company issued a demand unsecured Corporate
Promissory Note in the amount of $66,837, dated March 31, 1999, bearing
interest at the rate of 10% per annum to Cheri L. Metzinger. As of June 30,
1999, the Company had made no payments to Mrs. Metzinger.
As previously stated options were granted to each of Dr. Herbert J.
Neuhaus, Dr. Michael E. Wernle and Kristi J. Kampmann, officers and directors of
the Company, during the fiscal year ended June 30, 2000.
20
<PAGE>
PART IV
ITEM 13. EXHIBITS
(a) The following documents are filed as a part of this Report.
(i) Financial Statements. See Index to Financial Statements on page
F-1 of this Report.
(ii) Exhibits. The following is a complete list of exhibits filed
as part of this Form 10-K. Exhibit numbers correspond to the numbers
in the Exhibit Table of Item 601 of Regulation S-B.
EXHIBIT NO. DESCRIPTION
2 Agreement dated February 26, 1998, by and among the registrant,
Particle Interconnect Corporation and Intercell Corporation (4)
2.02 Application and Development Agreement, dated April 15, 1999, by
and among the registrant and Multitape & Co., GmbH, KG. (2)
2.03 Technology Cooperation Agreement, dated May 17, 1999, by and
among the registrant and Meinen, Zeigel & Co. (2)
2.04 Technology Development Agreement, dated June 11, 1999, by and
among the registrant and ORGA Kartensysteme, GmbH. (2)
2.05 Agreement-In-Principle, dated May 18, 1999, by and among the
registrant and Cirrex Corporation. (2)
4.01 The Articles of Incorporation of the Company (3)
4.02 Amendment to the Articles of Incorporation of the Company (3)
4.03 Certificate of Designation of Rights and Preferences of the
Series A Preferred Stock (4)
4.04 Certificate of Designation of Rights and Preferences of the
Series B Preferred Stock (5)
4.05 Certificate of Designation of Rights and Preferences of the
Series C Preferred Stock (5)
4.06 Form of Common Stock Certificate (3)
4.07 The By-laws of the Company (3)
10.01 Employment and Non-Disclosure, Non-Competition Agreement,
dated January 1, 1999, between Paul H. Metzinger and the
registrant (2)
10.02 Employment and Non-Disclosure, Non-Competition Agreement,
dated January 6, 1999, between Dr. Herbert J. Neuhaus and
the registrant (2)
10.03 Employment and Non-Disclosure, Non-Competition Agreement,
dated July 15, 2000, between Kristi J. Kampmann and the
registrant (1)
11 Statement regarding Computation of Per Share Earnings (1)
27 Financial Data Schedule (1)
___________________
1 Filed herewith
2 Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended June 30, 1999.
3 Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended June 30, 1998.
4 Incorporated by reference to the Company's Current Report on Form 8-K,
dated February 26, 1998.
5 Incorporated by reference to the Company's Current Report on Form 8-K,
dated July 23, 1998.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.,
(a Nevada corporation)
Date: September 25, 2000 By /s/ Paul H. Metzinger
---------------------------------------
Paul H. Metzinger, Director, Chief
Executive Officer & President
Date: September 25, 2000 By: /s/ Kristi J. Kampmann
---------------------------------------
Kristi J. Kampmann, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and the capacities and on the dates indicated.
Date: September 25, 2000 By /s/ Paul H. Metzinger
---------------------------------------
Paul H. Metzinger, Director, Chief
Executive Officer & President
Date: September 25, 2000 By /s/ Herbert J. Neuhaus
---------------------------------------
Herbert J. Neuhaus, Director & Executive
Vice President of Technology & Marketing
22
<PAGE>
NANOPIERCE TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Financial statements:
Consolidated Balance Sheet - June 30, 2000 F-3
Consolidated Statements of Operations -
Years ended June 30, 2000 and 1999 F-4
Consolidated Statements of Comprehensive Loss -
Years ended June 30, 2000 and 1999 F-5
Consolidated Statements of Shareholders' Deficit -
Years ended June 30, 2000 and 1999 F-6
Consolidated Statements of Cash Flows -
Years ended June 30, 2000 and 1999 F-10
Notes to Consolidated Financial Statements F-12
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Nanopierce Technologies, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Nanopierce
Technologies, Inc. and subsidiary as of June 30, 2000, and the related
consolidated statements of operations, comprehensive loss, shareholders' equity
(deficit) and cash flows for each of the years in the two-year period ended June
30, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nanopierce
Technologies, Inc. and subsidiary as of June 30, 2000, and the results of their
operations and their cash flows for each of the years in the two-year period
ended June 30, 2000, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company reported a net loss of $3,743,305 for the year
ended June 30, 2000, and an accumulated deficit of $8,728,220 as of June 30,
2000. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
GELFOND HOCHSTADT PANGBURN, P.C.
Denver, Colorado
September 8, 2000
F-2
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $2,466,293
Interest receivable 4,370
Prepaid expenses 44,449
---------
Total current assets 2,515,112
---------
Property and equipment:
Machinery 94,551
Office equipment and furniture 69,171
---------
163,722
Less accumulated depreciation ( 10,195)
---------
153,527
---------
Other assets:
Marketable securities 1,941
Deposits and other 25,423
Intellectual property rights, net of accumulated
amortization of $234,315 765,685
---------
793,049
---------
$3,461,688
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable, related parties (Note 5) $ 66,837
Accounts payable 65,435
Accrued liabilities:
Interest 74,549
Other 34,168
Deferred revenue 16,822
---------
Total current liabilities 257,811
---------
Convertible debentures (Note 7) 3,255,615
---------
Total liabilities 3,513,426
---------
Commitments and contingencies (Note 9)
Shareholders' deficit (Notes 7 and 8):
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; 35,113,674 shares issued and outstanding 3,511
Additional paid-in capital 8,673,504
Accumulated other comprehensive loss ( 533)
Accumulated deficit (8,728,220)
---------
Total shareholders' deficit ( 51,738)
---------
$3,461,688
=========
<FN>
See notes to the consolidated financial statements.
</TABLE>
F-3
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Operating expenses:
Research and development $ 133,088 9,512
General and administrative expenses:
Related party (Note 6) - 1,614,791
Other 2,521,715 1,490,255
--------- ---------
2,654,803 3,114,558
--------- ---------
Loss from operations (2,654,803) (3,114,558)
--------- ---------
Other income (expense):
Interest income 41,431 714
Interest expense:
Related party ( 10,548) ( 10,330)
Other (1,119,385) ( 15,265)
--------- ---------
(1,088,502) ( 24,881)
--------- ---------
Net loss (3,743,305) (3,139,439)
Series A and B preferred stock dividends (Note 8) - ( 160,633)
--------- ---------
Net loss applicable to common shareholders $(3,743,305) (3,300,072)
========= =========
Net loss per share, basic and diluted,
applicable to common shareholders. $( 0.11) ( 0.23)
========= =========
Weighted average number of common shares
outstanding 32,709,638 14,457,613
========== ==========
<FN>
See notes to the consolidated financial statements.
</TABLE>
F-4
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
Net loss $(3,743,305) (3,139,439)
Unrealized gain on securities 993 543
Foreign currency
translation adjustments ( 2,474) -
--------- ---------
Comprehensive loss $(3,744,786) (3,138,896)
========= =========
<FN>
See notes to the consolidated financial statements.
</TABLE>
F-5
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Preferred stock Common stock
--------------- ------------ Additional
Shares Amount Shares Amount paid-in-capital
------ ------ ------ ------ ---------------
<S> <C> <C> <C> <C> <C>
Balances, July 1, 1998 100 $ 500,000 12,125,100 $1,213 $ 1,736,690
Common stock issued for services 762,500 76 556,199
Shares of series B preferred stock
issued for cash 75,000 660,000
Shares of Series B preferred stock
converted to common stock (75,000) (660,000) 2,974,687 297 659,703
Shares of Series A preferred stock
converted to common stock ( 100) (500,000) 7,250,000 725 499,275
Common stock issued for accrued
dividends on Series B preferred stock 97,277 10 24,893
Common stock issued for accrued
dividends on Series A preferred stock 752,550 75 196,072
Common stock issued to Intercell to
replace Nanopierce stock issued
for services by Intercell Corporation 4,650,000 465 1,529,535
Common stock issued for cash 1,070,000 107 249,893
Net loss
Shares issued upon exercise of
stock option 52,500 5 ( 5)
Advances to Intercell Corporation
Other comprehensive loss - change
in unrealized gain on securities
------ ------- --------- ----- ---------
F-6
<PAGE>
Accumulated other Receivable Total
comprehensive Accumulated from shareholders'
income(loss) deficit Intercell equity(deficit)
------------ ------- --------- ---------------
<S> <C> <C> <C> <C>
Balances, July 1, 1998 1,491 (1,624,426) 614,968
Common stock issued for services 556,275
Shares of series B preferred stock
issued for cash 660,000
Shares of Series B preferred stock
converted to common stock
Shares of Series A preferred stock
converted to common stock
Common stock issued for accrued
dividends on Series B preferred stock ( 24,903)
Common stock issued for accrued
dividends on Series A preferred stock ( 196,147)
Common stock issued to Intercell to
replace Nanopierce stock issued
for services by Intercell Corporation 1,530,000
Common stock issued for cash 250,000
Net loss (3,139,439) (3,139,439)
Shares issued upon exercise of stock option
Advances to Intercell Corporation $( 69,182) ( 69,182)
Other comprehensive loss - change
in unrealized gain on securities ( 543) ( 543)
------ --------- ------- ---------
</TABLE>
(Continued)
F-7
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 2000 AND 1999
(CONTINUED)
<TABLE>
<CAPTION>
Preferred stock Common stock
--------------- ------------ Additional
Shares Amount Shares Amount paid-in-capital
------ ------ ------ ------ ---------------
<S> <C> <C> <C> <C> <C>
Balances, June 30, 1999 - - 29,734,614 2,973 5,452,255
Common stock issued for services - - 985,125 99 276,851
Common stock issued for cash - - 1,369,911 137 332,613
Common stock issued for note
payable, accrued interest and
accounts payable to officers - - 565,934 57 152,745
Common stock issued upon exercise
of stock options and warrants - - 1,434,229 143 49,777
Common stock issued for notes
payable - - 624,000 62 298,005
Common stock issued for convertible
debentures and accrued interest - - 399,861 40 703,953
Warrants issued in connection
with notes payable and
convertible debentures - - - - 122,305
Warrants issued for services - - - - 290,000
Beneficial conversion feature
related to convertible debentures - - - - 995,000
Payments received from
Intercell Corporation - - - - -
Net loss - - - - -
Change in unrealized gain on
securities - - - - -
Foreign currency translation
adjustments - - - - -
------ ------- ---------- ----- ---------
Balances, June 30, 2000 - - 35,113,674 $3,511 8,673,504
====== ======= ========== ===== =========
F-8
<PAGE>
Accumulated other Receivable Total
comprehensive Accumulated from shareholders'
income(loss) deficit Intercell equity(deficit)
------------ ------- --------- ---------------
<S> <C> <C> <C> <C>
Balances, June 30, 1999 948 (4,984,915) ( 69,182) 402,079
Common stock issued for services - - - 276,950
Common stock issued for cash - - - 332,750
Common stock issued for note
payable, accrued interest and
accounts payable to officers - - - 152,802
Common stock issued upon exercise
of stock options and warrants - - - 49,920
Common stock issued for notes
payable - - - 298,067
Common stock issued for convertible
debentures and accrued interest - - - 703,993
Warrants issued in connection
with notes payable and
convertible debentures - - - 122,305
Warrants issued for services - - - 290,000
Beneficial conversion feature
related to convertible debentures - - - 995,000
Payments received from
Intercell Corporation - - 69,182 69,182
Net loss - (3,743,305) - (3,743,305)
Change in unrealized gain on
securities 993 - - 993
Foreign currency translation
adjustments ( 2,474) - - ( 2,474)
------ --------- -------- ---------
Balances, June 30, 2000 ( 533) (8,728,220) - ( 51,738)
====== ========= ======== =========
<FN>
See notes to the consolidated financial statements.
</TABLE>
F-9
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,743,305) (3,139,439)
--------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization expense 100,000 100,000
Depreciation expense 10,195 -
Amortization of discount on note receivable - ( 346)
Amortization of discount on debentures 21,615 -
Amortization of beneficial conversion
feature on convertible debentures 995,000 -
Provision for losses on notes receivable - 37,835
Expenses incurred in exchange for common
stock and warrants 566,950 2,086,275
Changes in operating assets and liabilities:
Increase in interest receivable ( 4,370) -
Increase in prepaid expenses ( 44,449) ( 1,367)
Increase in accounts payable and
accrued liabilities 26,564 52,190
Increase in deferred revenue 16,822 -
Increase in deposits and other assets ( 13,732) ( 10,000)
--------- ---------
Total adjustments 1,674,595 2,264,587
--------- ---------
Net cash used in operating activities (2,068,710) ( 874,852)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment ( 163,722) -
Advances to Intercell Corporation - ( 69,182)
Payments received on Intercell Corporation advance 69,182 -
Payments received on note receivable 54,100 1,250
Increase in notes receivable ( 44,100) ( 10,000)
--------- ---------
Net cash used in investing activities ( 84,540) ( 77,932)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of convertible debentures
and warrants 4,000,000 -
Proceeds from notes payable:
Related party - 53,414
Other 302,500 -
Payments on note payable ( 62,582) ( 10,000)
Proceeds from issuance of Series B preferred stock - 660,000
Proceeds from exercise of options and warrants 49,920 -
Proceeds from issuance of common stock 332,750 250,000
--------- ---------
Net cash provided by financing activities 4,622,588 953,414
--------- ---------
Effect of exchange rate changes on cash and cash equivalents ( 3,686) -
--------- ---------
Net increase in cash and cash equivalents 2,465,652 630
Cash and cash equivalents, beginning 641 11
--------- ---------
Cash and cash equivalents, ending $2,466,293 641
========= =========
</TABLE>
(continued)
F-10
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000 AND 1999
(CONTINUED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 6,329 9,498
======== =========
Supplemental schedule of non-cash investing and financing activities:
Conversion of note payable, accrued interest and
accounts payable to officers, to common stock $ 152,802 -
======== =========
Conversion of notes payable, and
accrued interest to common stock $ 298,067 -
======== =========
Conversion of debentures and accrued
interest to common stock $ 703,993 -
======== =========
Warrants issued in connection with notes
payable and convertible debentures $ 122,305 -
======== =========
Conversion of Series A and B preferred stock
to common stock $ - 1,160,000
======== =========
Common stock issued for accrued preferred stock dividends $ - 221,050
======== =========
<FN>
See notes to the consolidated financial statements.
</TABLE>
F-11
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
1. BASIS OF PRESENTATION, BUSINESS, ORGANIZATION, AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The accompanying 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 Germany subsidiary, which was incorporated on
January 19, 2000. All significant intercompany accounts and transactions
have been eliminated in consolidation. NCT activities through June 30,
2000 consist primarily of administrative, research and development
activities.
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 has begun to
market the PI Technology to companies in various industries for a wide
range of applications.
ORGANIZATION:
In February 1998, the Company acquired the PI Technology from Particle
Interconnect Corporation, a subsidiary of Intercell Corporation
(Intercell), in exchange for 7,250,000 shares of the Company's common stock
and 100 shares of the Company's Series A voting preferred stock (converted
to 7,250,000 shares of common stock during the year ended June 30, 1999).
At June 30, 2000 Intercell owns approximately 26% of the outstanding common
stock of the Company. Prior to the acquisition of the PI Technology,
Particle Interconnect Corporation primarily incurred expenses related to
the research and development of the PI Technology, but had no revenue-
producing activities or any other significant ongoing business activities.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair values of the Company's cash equivalents, receivables, accounts
payable and accrued expenses approximate their carrying amounts due to the
short maturities of these instruments. The fair value of the Company's
payables to related parties are not practicable to estimate due to the
related party nature of the underlying transactions. Management believes
that the carrying amounts of the Company's convertible debentures
approximate fair value because the effective interest rate of the
debentures is believed to be similar to rates currently available to the
Company for instruments with similar risks.
F-12
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
1. BASIS OF PRESENTATION, BUSINESS, ORGANIZATION, AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED):
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with an original
maturity of three months or less and money market instruments to be cash
equivalents.
INTELLECTUAL PROPERTY:
The PI Technology was acquired upon the issuance of 7,250,000 shares of
common stock and 100 shares of Series A preferred stock of the Company and
was valued at the estimated fair value of the PI Technology at the date of
acquisition based on a written cash offer for Particle Interconnect from an
outside third party. This third party is a manufacturer in a field which
uses the intellectual property. The intellectual property is being
amortized using the straight-line method over 10 years. The 10-year period
is based on the estimated useful life, limited by the remaining average
patent protection period. Management assesses the carrying values of
long-lived assets for impairment when circumstances warrant such a review.
In performing this assessment, management considers current market analysis
and appraisal of the PI Technology, along with projected operating
information. Based on its evaluation, management does not believe that
there has been any impairment through June 30, 2000.
MARKETABLE SECURITIES:
Marketable securities consist of approximately 23,700 shares of common
stock of Intercell. These securities are classified as available-for-sale
and are carried at fair value based upon quoted market prices. Unrealized
gains and losses are computed on the basis of specific identification and
are reported as a separate component of comprehensive income (loss),
included as a separate item in shareholders' equity. Realized gains,
realized losses, and declines in value, judged to be other-than-temporary,
are included in other income (expense).
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.
REVENUE RECOGNITION:
Revenues from the sale of 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.
F-13
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
1. BASIS OF PRESENTATION, BUSINESS, ORGANIZATION, AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED):
STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock- Based Compensation, allows companies to choose whether to account
for employee stock-based compensation on a fair value method, or to
continue accounting for such compensation under the intrinsic value method
prescribed in Accounting Principles Board opinion No. 25, Accounting for
Stock Issued to Employees (APB 25). The Company has chosen to continue to
account for employee stock-based compensation using APB 25.
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 years ended June 30, 2000 and 1999.
INCOME TAXES:
Deferred tax assets and liabilities are recognized for the future
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax basis. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to reverse. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
statement of operations in the period that includes the enactment date.
COMPREHENSIVE INCOME:
SFAS No. 130, Reporting Comprehensive Income, establishes new rules for the
reporting and display of comprehensive income and its components. SFAS
No. 130 requires unrealized gains and losses on the Company's available-
for-sale securities and foreign currency translation adjustments to be
included in comprehensive income (loss). Accumulated other comprehensive
loss of ($533) at June 30, 2000, consists of an unrealized gain on
marketable securities of $1,941 and foreign currency translation
adjustments of ($2,474).
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.
F-14
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
1. BASIS OF PRESENTATION, BUSINESS, ORGANIZATION, AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED):
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 and debentures are not considered in the
calculation, as the impact of the potential common shares (16,204,500
shares at June 30, 2000 and 5,345,000 shares at June 30, 1999) would be to
decrease loss per share. Therefore, diluted loss per share is equivalent
to basic loss per share.
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, management believes that SFAS No. 133 will not impact the
Company's financial statements.
RECLASSIFICATIONS:
Certain amounts reported in the 1999 financial statements have been
reclassified to conform with the 2000 presentation.
2. GOING CONCERN, RESULTS OF OPERATIONS, AND MANAGEMENT'S PLANS:
The Company's financial statements for the year ended June 30, 2000 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. The Company reported a net loss of $3,743,305 for the
year ended June 30, 2000, and an accumulated deficit of $8,728,220 as of
June 30, 2000. The Company has not recognized any revenues from its PI
technology and expects to incur continued cash outflows which are expected
to result in a working capital deficiency within the next year. As a
result, the Company may experience difficulty and uncertainty in meeting
its liquidity needs during the next fiscal year. 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 additional funds to meet the Company's capital
requirements.
F-15
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
3. RISK CONSIDERATIONS:
BUSINESS RISK:
The Company is subject to risks and uncertainties common to technology-
based companies, including rapid technological change, dependence on
principal 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.
4. NOTES RECEIVABLE:
At June 30, 1999, the Company had a $10,000, 8%, unsecured note receivable
from a third party. In December 1999, the Company loaned an additional
$44,100 to this party, and in January 2000, the entire $54,100 was
collected.
During the year ended June 30, 1999, the Company recorded a loss of
approximately $38,000 in connection with the write off of the balance
due on a note receivable which was deemed uncollectible. The note was
received in connection with a sale of assets in 1996.
5. NOTES AND OTHER PAYABLES - RELATED PARTIES:
At June 30, 2000, the Company has an unsecured, $66,837 promissory note
payable to a party related to an officer of the Company. The note bears
interest at 10% and is due on demand.
During the year ended June 30, 2000, the Company issued 565,934 shares of
common stock and paid $47,582 in cash to officers of the Company in full
settlement of a note payable, accrued interest, and other payables totaling
$200,384.
6. RELATED PARTY TRANSACTIONS:
RECEIVABLE FROM INTERCELL:
At June 30, 1999, the Company had an unsecured, non-interest bearing
receivable for $69,182 due from Intercell, which was classified as a
reduction of shareholders' equity at June 30, 1999. This receivable was
paid in full during the year ended June 30, 2000.
F-16
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
GENERAL AND ADMINISTRATIVE EXPENSES:
Related party general and administrative expenses during the year ended
June 30, 1999 consist of the following (none were incurred in 2000):
Expenses paid by Intercell:
Salaries and benefits $ 25,794
Legal 33,434
Travel 7,121
Other 57,954
-----------
124,303
Marketing services in exchange
for common stock 1,500,000
-----------
$ 1,624,303
===========
In June 1999, Intercell entered into an arrangement whereby a third party
provided marketing services on behalf of the Company in exchange for
4,500,000 shares of Company common stock owned by Intercell. The Company
issued 4,500,000 shares of common stock to Intercell as reimbursement.
These shares were valued at $1,500,000, the market value of the common
stock at the date of the transaction.
During 1999, the Company also issued 150,000 shares of common stock to
Intercell, which were valued at $30,000, the market value of the common
stock at the date of the transaction, in satisfaction of a portion of a
payable due to Intercell.
7. CONVERTIBLE DEBENTURES AND NOTES PAYABLE:
CONVERTIBLE DEBENTURES:
During the year ended June 30, 2000, the Company issued $4,000,000 of 6%
convertible debentures and warrants to purchase 400,000 shares of the
Company's common stock for an aggregate purchase price of $4,000,000. The
portion of the proceeds applicable to the warrants was determined to be
$66,000 utilizing the Black-Scholes pricing model. The debentures are due
on January 10, 2002. The warrants expire on January 10, 2003 (Note 8).
The convertible debentures include a beneficial conversion feature in which
the debentures are convertible at the lesser 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. The intrinsic value of
the beneficial conversion feature was $995,000 and was charged to interest
expense. In addition to the 400,000 warrants described above, warrants to
purchase 230,000 shares of the Company's common stock were issued for
services performed by a third party in connection with the issuance of the
debentures. The warrants to purchase common stock are at an exercise price
of $2.915 per share, which was 80% of the quoted market price of the
Company's common stock at the date of issue and are exercisable over a
ten-year period (Note 8). These warrants were valued at $37,905 using the
Black-Scholes pricing model and that amount has been included in general
and administrative expense. The convertible debentures place certain
restrictions on the Company, including the Company's ability to issue
additional shares of common stock. In the quarter ended June 30, 2000,
$700,000 of debentures and accrued interest of $3,993 were converted into
399,861 shares of common stock, and subsequent to June 30, 2000, $1,000,000
of debentures and accrued interest were converted into 808,701 shares of
the Company's common stock.
F-17
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTES PAYABLE:
During the year ended June 30, 2000, the Company issued unsecured
promissory notes in the amount of $122,500. The notes were due in one year
with interest at 10%. The Company issued detached warrants to purchase
857,500 shares of common stock in connection with the promissory notes.
The detached warrants were valued at $18,400 using the Black-Scholes
pricing model, and the resulting discount on the notes of $18,400 was being
amortized to interest expense over one year through March 16, 2000, at
which time all of the notes were converted into 49,000 shares of the
Company's common stock.
During the year ended June 30, 2000, the Company also issued $180,000 of
promissory notes, convertible at $0.20 to $0.40 per share into common stock
of the Company. The conversion price represents the market price of the
Company's common stock on the date of issuance of the notes. The notes
were converted on January 20, 2000 into 575,000 shares of common stock.
8. SHAREHOLDERS' EQUITY:
PREFERRED STOCK:
SERIES A PREFERRED STOCK:
The Company issued 100 shares of its Series A voting preferred stock to
Intercell in February 1998. On June 30, 1999, Intercell converted all of
the Series A voting preferred stock into 7,250,000 shares of the Company's
common stock. Intercell also converted accrued dividends of $196,147 on
the Series A preferred stock into 752,550 shares of common stock.
SERIES B AND SERIES C PREFERRED STOCK:
In July 1998, the Company executed a securities purchase agreement with a
third party buyer (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.
Through September 1998, the Company issued 75,000 shares of Series B at $10
per share, resulting in net proceeds of $660,000 (net of $90,000 of
issuance costs). The balance due on the remaining closings was canceled by
mutual consent of the Company and the Buyer.
All of the Series B shares were converted into 2,974,687 shares of the
Company's common stock during the year ended June 30, 1999. The Company
also issued 97,277 shares of the Company's common stock as consideration
for accrued dividends of $24,903 due on the Series B preferred stock.
F-18
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
8. SHAREHOLDERS' EQUITY (CONTINUED):
COMMON STOCK:
In October 1999, the Company increased its authorized shares of common
stock from 45,000,000 shares to 100,000,000 shares.
During the years ended June 30, 2000 and 1999, the Company issued shares of
common stock in exchange for services. The shares were issued for the
following services and were valued at the quoted market price of the
Company's common stock at the date the services were performed:
2000 1999
---- ----
Shares Amount Shares Amount
------ ------ ------ ------
Third parties,
investment-
related services 985,125 $ 276,950 762,500 $ 556,275
Marketing services - - 4,500,000 1,500,000
------- --------- --------- ---------
985,125 $ 276,950 5,262,500 $2,056,275
======= ========= ========= =========
Subsequent to June 30, 2000, the Company issued 808,701 shares of common
stock in connection with the conversion of $1,000,000 of the convertible
debentures.
STOCK OPTIONS AND WARRANTS:
STOCK OPTIONS:
The Company has established a Compensatory Stock Option Plan (the Option
Plan) and has reserved 5,400,000 shares of common stock for issuance under
the Option Plan. Vesting provisions are determined by the Board of
Directors. All stock options expire 10 years from the date of grant.
A summary of the Option Plan is as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding, beginning of
Year 4,875,000 $ .37 5,400,000 $ .34
Granted 912,000 1.82 1,375,000 .39
Forfeited - - (1,750,000) .33
Exercised (1,050,000) .33 ( 150,000) .33
--------- ----- --------- -----
Outstanding, end of year 4,737,000 $ .66 4,875,000 $ .37
========= ===== ========= =====
Options exercisable at
end of year 4,267,000 4,245,000 $ .38
Weighted-average fair value of
options granted during the
year at market $ 1.36 $ .35
</TABLE>
F-19
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
8. SHAREHOLDERS' EQUITY (CONTINUED):
STOCK OPTIONS AND WARRANTS (CONTINUED):
During the year ended June 30, 2000, 1,050,000 options were exercised
(including cashless exercises) in exchange for 973,207 shares of common
stock. The following table summarizes information about stock options
outstanding as of June 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- -------------------
Weighted-
average Weighted-
Range of remaining Weighted- average
exercise Number contractual average Number exercise
prices exercisable life (years) exercise price exercisable prices
------ ----------- ------------ -------------- ----------- ------
<S> <C> <C> <C> <C> <C>
$0.20 - 0.33 2,850,000 7.81 $ 0.30 2,605,000 $ 0.31
0.40 - 0.52 1,255,000 9.03 0.49 1,030,000 0.50
1.60 - 1.60 100,000 1.77 1.60 100,000 1.60
2.75 - 2.75 522,000 9.86 2.75 522,000 2.75
6.00 - 6.00 10,000 9.67 6.00 10,000 6.00
--------- ---- ----- --------- -----
4,737,000 8.27 $ 0.66 4,267,000 $ 0.70
========= ==== ===== ========= =====
</TABLE>
During 2000, options to purchase 912,000 shares of the Company's common
stock at exercise prices ranging from $.40 to $6.00 per share were granted
to twelve employees of the Company, three of whom are directors of the
Company. The exercise prices were based on the market value of the
Company's common stock at the date of grant and expire through 2010.
During 1999, options to purchase 1,300,000 shares of the Company's common
stock, at exercise prices ranging from $.20 to $.52 per share, were granted
to three employees of the Company, two of whom are directors of the
Company. The exercise prices were based on the market value of the
Company's common stock at the date of grant and expire through 2009.
Accounting for stock-based compensation under SFAS No. 123:
The Company applies APB 25 for its employee-based stock-compensation plans.
Had compensation cost for the Company's stock plan been determined based on
fair value at the grant dates for awards under the plan consistent with the
method prescribed under SFAS No. 123, the Company's net loss and net loss
per share would have changed to the pro forma amounts indicated below:
2000 1999
---- ----
Net loss, as reported $ (3,743,305) (3,139,439)
Net loss, pro forma (4,988,305) (3,491,439)
Net loss, per share, as reported ( 0.11) ( 0.23)
Net loss, per share, pro forma ( 0.15) ( 0.24)
F-20
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
8. SHAREHOLDERS' EQUITY (CONTINUED):
STOCK OPTIONS AND WARRANTS (CONTINUED):
The fair value of options granted during 2000 and 1999 is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
2000 1999
---- ----
Expected dividend yield 0% 0%
Expected stock price volatility 96% 82.5%
Risk-free interest rate 6.5% 6.0%
Expected life of options 6.5 years 6.5 years
WARRANTS:
At June 30, 2000, the following warrants to purchase common stock were
outstanding:
Number of common Exercise Expiration
shares covered by warrants price date
-------------------------- -------- ----------
70,000 2.81 July 22, 2003
50,000 3.52 July 22, 2001
10,000,000 .51 December 10, 2004
140,000 1.50 January 4, 2003
630,000 2.92 January 10, 2003
105,000 .30 October 26, 2002
192,500 .30 October 27, 2002
140,000 .30 November 8, 2002
70,000 .30 November 22, 2002
70,000 .30 December 17, 2002
----------
11,467,500
==========
The warrants to purchase 10,000,000 shares of the Company's common stock
were issued to two entities for services performed in connection with
arranging proposed debt financing which the Company elected not to pursue.
These warrants are exercisable at $0.51 per share and expire on
December 10, 2004. The exercise price represents the market price of the
Company's common stock at the date of issuance. The warrants were valued
at $290,000 using the Black-Scholes pricing model, and that expense was
charged to general and administrative expense.
During the year ended June 30, 2000, warrants were exercised for the
purchase of 461,022 shares of the Company's common stock for proceeds of
$25,000.
F-21
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
9. 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.
10. INCOME TAXES:
The Company and its subsidiary did not incur income tax expense for the
years ended June 30, 2000 and 1999. The reconciliation between taxes
computed at the statutory federal tax rate of 34% and the effective tax
rate for the years ended June 30, 2000 and 1999 is as follows:
2000 1999
---- ----
Expected income tax benefit $(1,272,000) (1,067,000)
Increase in valuation allowance 1,272,000 1,067,000
--------- ---------
$ - -
========= =========
The tax effects of temporary differences that give rise to substantially
all of deferred tax assets at June 30, 2000 are as follows:
Deferred tax assets:
Net operating loss $ 1,768,000
---------
Less valuation allowance (1,768,000)
---------
Net deferred tax assets $ -
=========
As of June 30, 2000, the Company has net operating loss carryforwards of
approximately $5,500,000, which expire between 2010 and 2020. The
Company's net operating loss carryforwards may be subject to annual
limitations which could reduce or defer the utilization of the losses as a
result of an ownership change as defined in Section 382 of the Internal
Revenue Code.
F-22
<PAGE>
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
11. LEASES:
During the year ended June 30, 2000, the Company entered into certain
facilities and equipment leases in Colorado Springs, Colorado and Germany.
The leases are non-cancelable operating leases that expire through June 30,
2006. Future minimum lease payments under these operating leases are as
follows:
Year ending United
June 30, States Germany Total
---------- ------ ------- -----
2001 $ 17,500 63,000 80,500
2002 18,400 62,000 80,400
2003 16,000 36,000 52,000
2004 - 1,000 1,000
2005 - 1,000 1,000
Thereafter - 1,000 1,000
------- ------- -------
$ 51,900 164,000 215,900
======= ======= =======
Aggregate rental expense under operating leases was $21,650 and $11,500 for
the years ended June 30, 2000 and 1999.
12. FOREIGN AND DOMESTIC OPERATIONS:
Operating results and long-lived assets as of and for the year ended
June 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
------------- ------- -----
Net loss for year
ended June 30, 2000 $(3,438,994) ( 304,311) (3,743,305)
========= ======== =========
Long-lived assets at
June 30, 2000 $ 922,774 21,861 944,635
========= ======== =========
F-23
<PAGE>
