FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

(Mark One)

[X]    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
       OF 1934

       For the quarterly period ended December 31, 1998

                                       OR

[ ]    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

                        Commission file number 33-19598-D

                          NANOPIERCE TECHNOLOGIES, INC.
        -----------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

             Nevada                                    84-0992908
             ------                                    ----------
(State or other jurisdiction of          (I.R.S. employer identification number)
incorporation or organization)

                        370 Seventeenth Street Suite 3580
                              Denver Colorado 80202
                    ----------------------------------------
                    (Address of principal executive offices)

                    Issuer's telephone number: (303) 592-1010

     Indicate  by check  mark  whether  the  issuer  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __

     As of February 8, 1999,  there were 14,106,481  shares of the  registrant's
sole class of common stock outstanding.

     Traditional Small Business Disclosure Format    Yes _____    No [X]
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page

Balance Sheet - December 31, 1998                                            F-2

Statements of Operations and Comprehensive Loss -
  three and six months ended December 31, 1998 and December 31, 1997         F-3

Statements of Cash Flows - six months ended December 31, 1998 and 1997       F-4

Statements of Stockholders' Equity - six months ended December 31, 1998      F-5

Notes to Financial Statements                                        F-6 to F-10

                                      F-1
<PAGE>
                          NANOPIERCE TECHNOLOGIES, INC.
                                  BALANCE SHEET
                                DECEMBER 31, 1998
                                   (UNAUDITED)

ASSETS
Current Assets:

  Cash                                                                     $125
  Current portion of notes receivable                                    11,650
                                                                     ----------
  Total current assets                                                   11,775

Other assets:
  Intellectual property rights net of
     accumulated amortization of $84,315                                915,685
  Marketable securities                                                   1,491
  Notes receivable, net of current portion                               26,184
  Deposits                                                               13,923
                                                                     ----------
  Total other assets                                                    957,283
                                                                     ==========
Total assets                                                           $969,058
                                                                     ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable related party                                         53,990
  Accounts payable and accrued expenses                                 110,682
  Notes payable                                                          68,513
                                                                     ----------
  Total current liabilities                                             233,185

Stockholders' equity:
  Preferred stock, 5,000,000 shares authorized, $.0001 par value
      Series A: 100 shares issued and outstanding; liquidation
        preference of $2,265,625; 8% dividend rate; cumulative
        unpaid dividends of $151,043                                    500,000
      Series B: maximum of 150,000 shares issuable; 58,500
        shares issued and outstanding; $0.70 per year per share
        cumulative dividend                                             504,600
      Series C: maximum of 700,000 shares issuable;
        no shares issued and outstanding
  Common stock, $.0001 par value
   45,000,000 shares authorized, 13,009,204 shares
      issued and outstanding                                              1,302
  Additional paid in capital                                          2,204,001
  Accumulated other comprehensive income - unrealized gain
     on securities available for sale                                     1,491
  Deficit                                                            (2,475,521)
                                                                     ----------
  Total stockholders' equity                                            735,873
                                                                     ==========
Total liabilities and stockholders' equity                             $969,058
                                                                     ==========

                      See notes to the financial statements

                                      F-2
<PAGE>
                          NANOPIERCE TECHNOLOGIES, INC.
                 STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
              THREE AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                      Three Months ended December 31       Six Months ended December 31
                                                         1998             1997               1998            1997
                                                   ----------------------------------  ---------------------------------
<S>                                                         <C>         <C>                   <C>          <C>
Revenues                                                       $138                               $138

General and administrative:

   Related parties                                           58,000                            105,000
   Other                                                    239,177     $     49,343           739,403     $     83,314

                                                   ---------------------------------------------------------------------
Loss from operations                                       (297,039)         (49,343)         (844,265)         (83,314)

Other Income/(Expense):
   Interest income and other:                                                 35,157               346           36,326
   Interest Expense:
      Related party                                          (1,323)                            (4,654)
      Other                                                  (1,260)                            (2,522)

                                                   ---------------------------------------------------------------------
Net loss                                                   (299,622)         (14,186)         (851,095)         (46,988)

Series A preferred stock dividend                           (45,313)                           (90,626)
                                                   ---------------------------------------------------------------------

Net loss applicable to common shareholders                ($344,935)        ($14,186)        ($941,721)        ($46,988)
                                                   =====================================================================

Net loss per common share:                                   ($0.03)          ($0.00)           ($0.07)          ($0.01)


Weighted average number of common shares                 12,901,297        3,833,355        12,776,637        3,833,355
                                                   =====================================================================

Net loss                                                   (299,622)         (14,186)         (851,095)         (46,988)
Other comprehensive income (loss):
   Unrealized gains (losses) on securities
     available for sale                                           -                -                 -                -

                                                   ====================================================================
Comprehensive loss                                        (299,622)         (14,186)         (851,095)         (46,988)
                                                   ====================================================================
</TABLE>
Diluted  loss  per  share  is not  presented  as  the  effect  of the  potential
conversion of preferred stock to common stock would decrease loss per share.

                      See notes to the financial statements

                                      F-3
<PAGE>
                          NANOPIERCE TECHNOLOGIES, INC.
                            STATEMENTS OF CASH FLOWS
                   SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
                                   (UNAUDITED)

                                                           1998           1997
                                                       -------------------------
                                                   
Cash flows from operating activities
Net loss                                                ($851,095)     ($46,988)
Adjustments to reconcile net loss to net cash used
 in operating activities:
     Depreciation and amortization                         50,000
     Amortized discount on notes receivable                  (346)       (2,273)
     Gain on sale of investments                                        (32,535)
     Expenses incurred in exchange for common stock       312,000
Change in assets and liabilities:
   (Increase) decrease in:
     Deposits                                             (13,599)
     Accounts payable and accrued liabilities             (60,596)       38,960
                                                       -------------------------
Net cash used in operating activities                    (563,636)      (42,836)
                                                       -------------------------

Cash flows from investing activities:
     Proceeds from sale of investments                                   32,535
     Payments received on notes receivable                  1,250         6,250
                                                       -------------------------
Net cash provided by investing activities                   1,250        38,785
                                                       -------------------------

Cash flows from financing activities:
     Proceeds from sale of Series B preferred stock       660,000
     Payments on notes payable                            (97,500)
                                                       -------------------------
Net cash flows provided by financing activities           562,500             0
                                                       -------------------------
Net increase (decrease) in cash                               114        (4,051)
Cash, beginning                                                11         8,128
                                                       =========================
Cash, ending                                                 $125        $4,077
                                                       =========================

                      See notes to the financial statements

                                       F-4
<PAGE>
                          NANOPIERCE TECHNOLOGIES, INC.
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                       SIX MONTHS ENDED DECEMBER 31, 1998
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                          Accumulated Other
                                                                           Additional   Comprehensive Income
                                 Preferred Stock          Common Stock       Paid-in   Unrealized Gain (Loss)  Accumulated
                              Shares      Amount       Shares     Amount     Capital       on Securities         Deficit     Total
                              ------------------------------------------------------------------------------------------------------
<S>                           <C>       <C>         <C>           <C>      <C>               <C>           <C>            <C>
Balance, July 1, 1998            100     $500,000   12,125,100     $1,213  $1,736,690         $1,491       ($1,624,426)    $614,968

Stock issued for services                              223,500         23     311,977                                       312,000
Issuance of Series B
  Preferred Stock             75,000      660,000
Series B Preferred Stock
 converted to common stock   (16,500)    (155,400)     660,604         66     155,334                                       660,000

Net loss                                                                                                      (851,095)    (851,095)
                              ======================================================================================================
Balance, December 31, 1998    58,600   $1,004,600   13,009,204     $1,302  $2,204,001         $1,491       ($2,475,521)    $735,873
                              ======================================================================================================
</TABLE>
                      See notes to the financial statements

                                      F-5
<PAGE>
                          NANOPIERCE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                   SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997

1.   Business, organization and summary of significant accounting policies:

     Presentation of Interim Information:

     In the opinion of the  management  of  Nanopierce  Technologies,  Inc. (the
     Company),  the  accompanying  unaudited  financial  statements  include all
     material   adjustments,   including  all  normal   recurring   adjustments,
     considered  necessary  to present  fairly  the  financial  position  of the
     Company as of December 31, 1998,  the Company's  results of operations  for
     the  three  and six  months  ended  December  31,  1998 and  1997,  and the
     Company's  cash flows for the six months ended  December 31, 1998 and 1997.
     Interim results are not necessarily indicative of results for a full year.

     The  financial  statements  and notes are  presented  as  permitted by Form
     10-QSB,  and do not contain certain  information  included in the Company's
     last Annual  Report on Form 10-KSB for the fiscal year ended June 30, 1998.
     It is the Company's  opinion that, when the interim  statements are read in
     conjunction  with the June 30,  1998  Annual  Report  on Form  10-KSB,  the
     disclosures are adequate to make the information  presented not misleading.
     The results of  operations  for the six months ended  December 31, 1998 are
     not necessarily indicative of the operating results for the year.

     Business:

     The Company is engaged in the design, development and licensing of products
     using its  electronic  connection  technology  (the  Particle  Interconnect
     Technology).  The  Particle  Interconnect  Technology  consists of patents,
     pending patent  applications,  patent  applications in  preparation,  trade
     secrets, trade names and trademarks.  The Particle Interconnect  Technology
     improves electrical,  thermal and mechanical  characteristics of electronic
     products.  The Company  markets the  Particle  Interconnect  Technology  to
     technology   companies   in  various   industries   for  a  wide  range  of
     applications.  The Company has not recognized any royalty  revenue  through
     December 31, 1998, pending the resolution of litigation regarding a license
     agreement. See Part II, Item 1 - Legal Proceedings.

     Organization:

     The  Company  was  originally  formed  in  July  1985  under  the  name  of
     Mendell-Denver   Corporation  (Mendell).  At  July  1,  1996,  Mendell  was
     essentially a shell company with no  significant  business  operations.  In
     July 1996, Mendell acquired all of the outstanding common stock of Sunlight
     Systems,  Ltd.  (Sunlight)  and  Mendell  was  merged  into  Sunlight.  For
     accounting  purposes,  the transactions have been treated as an acquisition
     of Mendell by Sunlight and as a re-capitalization of Sunlight.

                                      F-6
<PAGE>
     Sunlight was a dealer in Colorado and Nevada and a distributor in Illinois,
     Ohio,  Michigan and Indiana of skylights.  In November 1996,  Sunlight sold
     its dealerships and distributorships.

     In February 1998,  Sunlight acquired the Particle  Interconnect  Technology
     from  Particle  Interconnect  Corporation,  a wholly  owned  subsidiary  of
     Intercell   Corporation   (Intercell).   In  exchange   for  the   Particle
     Interconnect  Technology,  Sunlight issued to Intercell 7,250,000 shares of
     its  common  stock,  and 100  shares of its Series A  preferred  stock.  In
     connection with this transaction,  Sunlight changed its name to "Nanopierce
     Technologies,  Inc." After the transaction,  Intercell owned  approximately
     60% of the outstanding common stock of the Company and approximately 74% of
     its common stock on a diluted basis,  considering the conversion  rights of
     the Series A preferred stock.

     Reverse stock split:

     In February 1998, the Company effected a one-for-three  reverse stock split
     of its common stock.  All references in the financial  statements to number
     of shares and per share  amounts have been  restated to reflect the reverse
     stock split.

     Use of estimates in the financial statements:

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure  of  contingent  assets  and  liabilities  at  the  date  of the
     financial  statements  and the  reported  amounts of revenues  and expenses
     during the  reporting  periods.  Actual  results  could  differ  from those
     estimates.

     Loss per share:

     Loss per share of common stock is computed  based on the  weighted  average
     number  of common  shares  outstanding  during  the  year.  Stock  options,
     warrants  and  convertible  preferred  stock  are  not  considered  in  the
     calculation  as the  impact  of the  potential  common  shares  would be to
     decrease loss per share. Therefore, diluted loss per share is equivalent to
     basic loss per share.

     Recently issued accounting pronouncements:

     On July 1, 1998, the Company adopted SFAS No. 130, Reporting  Comprehensive
     Income.   This  standard   establishes   requirements   for  disclosure  of
     comprehensive income and its components, which includes, among other items,
     unrealized gains or losses from marketable  securities that previously were
     only reported as a component of shareholders'  equity.  Reclassification of
     earlier financial  statements for comprehensive  purposes is required.  The
     income  statements for the three and six months ended December 31, 1998 and
     1997 have no items of  comprehensive  income that have a material impact on
     the Company's operations. There are no tax effects related to these items.

     The FASB recently  issued SFAS No. 131,  Disclosures  about  Segments of an
     Enterprise  and  Related   Information,   and  SFAS  No.  132,   Employer's
     Disclosures about Pensions

                                      F-7
<PAGE>
     and Other Postretirement  Benefits.  Both of these statements are effective
     for the Company beginning July 1, 1998,  require  disclosure only, and will
     not impact the Company's financial statements.

     The  FASB  recently   issued  SFAS  No.  133,   Accounting  for  Derivative
     Instruments and Hedging Activities.  This statement is effective for fiscal
     years  beginning after December 15, 1999.  Currently,  the Company does not
     have any  derivative  financial  instruments  and does not  participate  in
     hedging  activities.  Therefore  management  believes SFAS No. 133 will not
     impact the Company's financial statements.

     Reclassifications:

     Certain  amounts  reported  in the  1997  financial  statements  have  been
     reclassified to conform with the 1998 presentation.

2.   Particle Interconnect Technology and Series A preferred stock:

     In February 1998, the Company acquired the Particle Interconnect Technology
     from  Particle  Interconnect  Corporation  (a  wholly-owned  subsidiary  of
     Intercell) in exchange for 7,250,000  shares of common stock and 100 shares
     of Series A preferred  stock.  Prior to the  acquisition of the technology,
     Particle  Interconnect  Corporation  primarily incurred expenses related to
     the research and development of the Particle Interconnect  Technology,  but
     had no  revenue  producing  activities  or any  other  significant  ongoing
     business activities.

     The Series A preferred stock has voting rights equal to 7,250,000 shares of
     common stock and an aggregate  liquidation  preference of $2,265,625.  Each
     share of Series A preferred stock is convertible to 72,500 shares of common
     stock.  Dividends  accumulate on the Series A preferred  stock at 8% of the
     liquidation  preference amount. Any dividends not declared and paid are, at
     the option of the holder, convertible to common stock of the Company at the
     same conversion rate as the Series A preferred stock. At December 31, 1998,
     cumulative  unpaid  dividends  were  $151,043.  The  Company may redeem the
     Series A  preferred  stock,  with six months  notice,  for the  liquidation
     preference amount.

3.   Common stock, stock options and warrants issued for services:

     During the six months ended  December 31, 1998,  the Company issued 223,500
     shares of common stock in exchange for services valued at $312,000 based on
     the  quoted  market  price of the  Company's  common  stock on the date the
     services  were  performed.  The shares  were  issued to third  parties  for
     investment related services.

4.   License agreements:

     The Company has several  license  agreements with third parties which allow
     the third parties to utilize defined  aspects of the Particle  Interconnect
     Technology  in return for royalty fees.  All but one license  agreement has
     been idle since the Company acquired the Particle Interconnect  Technology.
     With  regard to the active  current  licensee,  the

                                      F-8
<PAGE>
     Company is  involved  in  litigation  with a third  party who is  asserting
     ownership of the rights to the related  royalty  revenues.  Royalties under
     this agreement  through December 31, 1998 total  approximately  $53,000.00.
     These monies are being held in an escrow account,  outside of the Company's
     control,  until the litigation is resolved.  Although  management  believes
     that the Company  ultimately  will be successful in defending  this matter,
     the Company will not recognize any royalty  revenue until the litigation is
     resolved.  In the opinion of management,  the ultimate  disposition of this
     matter will not have a material  impact on the Company's  operations or the
     further development of the Particle Interconnect  Technology.  See Part II,
     Item 1 - Legal Proceedings.

5.   Series B and Series C preferred stock:

     On July 23, 1998, the Company executed a securities purchase agreement with
     a third party (Buyer) pursuant to which the Buyer agreed to acquire 150,000
     shares of Series B preferred  stock (Series B) and 700,000 shares of Series
     C preferred  stock (Series C) at $10 per share at specified  closing dates.
     The agreement was for a two-year  period and would have allowed the Company
     to issue to the Buyer up to $8,500,000 of preferred stock. In addition, the
     Company would have issued warrants to the Buyer on each closing date.

     At the first closing,  on July 23, 1998, the Company issued 50,000 Series B
     shares at $10 per share,  resulting  in net  proceeds of  $440,000  (net of
     $60,000 of issuance  costs).  The second  closing  scheduled for August was
     executed in part on  September  30, 1998 for 25,000  Series B shares at $10
     per  share,  resulting  in net  proceeds  of  $220,000  (net of  $30,000 of
     issuance  costs).  The  balance  due on the  remaining  closings  has  been
     cancelled by mutual consent of the Company and the Buyer. The Company is no
     longer  looking  for  additional  investment  in the  Series B or  Series C
     shares.  Management is in the process of negotiating new  investments  with
     other  investors.  The Company has yet to identify a qualified  investor to
     fulfill the immediate cash requirements of the Company.

     The Series B shares are non-voting with  cumulative  dividends of $0.70 per
     share per year and are  redeemable by the Company at $12 per share plus any
     accumulated and unpaid dividends.  The Series B shares are convertible into
     shares of the Company's  common stock at a conversion rate of $10 per share
     plus accumulated and unpaid dividends, divided by the lesser of 110% of the
     average  closing bid price of the Company's  common stock for the five days
     prior to the purchase of the Series B shares or 80% of the average  closing
     bid price of the  Company's  common  stock  for the five days  prior to the
     conversion date.

     During the quarter  ended  December 31, 1998,  16,500  Series B shares were
     converted into 508,728 shares of common stock.  These  transactions did not
     result in any proceeds to the Company.

6.   Subsequent events:

     In January of 1999, the Company issued  1,000,000 shares of common stock to
     an  accredited  investor  for $200,000  ($0.20 per share).  The Company has
     designated  these  funds to be used for  ongoing  business  operations.  On
     January  8, 1999,  the  Company

                                      F-9
<PAGE>
     filed a registration  statement with the Securities and Exchange Commission
     to register  13,506,604  shares of common stock,  58,500 shares of Series B
     stock  and  warrants  to  purchase  470,000  shares  of  common  stock in a
     secondary offering. The 13,506,604 shares of common stock represented about
     46.7% of the  Company's  issued  and  outstanding  common  stock on a fully
     diluted basis as of January 6, 1999.

                                      F-10
<PAGE>
ITEM 2 - MANAGEMENT'S PLAN OF OPERATION

     The  statements  contained  in this Form  10-QSB,  if not  historical,  are
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation  Reform Act of 1995, and involve risks and  uncertainties  that could
cause  actual  results  to differ  materially  from the  results,  financial  or
otherwise,  or other expectations described in such forward-looking  statements.
Any  forward-looking  statement or statements speak only as of the date on which
such  statements  were made, and  Nanopierce  Technologies,  Inc.  undertakes no
obligation  to  update  any  forward-looking  statement  to  reflect  events  or
circumstances  after the date on which such  statements  are made or reflect the
occurrence of unanticipated events. Therefore, forward-looking statements should
not be relied upon as a prediction of actual future results.

     The independent  auditor's report on the Company's financial statements for
the year ended June 30, 1998 included a "going concern"  explanatory  paragraph,
meaning the  auditors  have  expressed  substantial  doubt  about the  Company's
ability to  continue  as a going  concern.  Management's  plans in regard to the
factors prompting the explanatory paragraph are discussed below and also in Note
2 of the audited financial  statements  contained in the Company's Annual Report
on Form 10-KSB for the fiscal year ended June 30, 1998.

     Pursuant to a securities  purchase agreement dated as of July 23, 1998, and
amended September 29, 1998, the Company sold 75,000 shares of Series B Preferred
Stock ("Series B Shares") to an accredited investor at $10 per share,  resulting
in net  proceeds of $660,000  (net of $90,000 of issuance  costs).  The Series B
Shares are non-voting with cumulative  dividends of $0.70 per share per year and
are redeemable by the Company at $12 per share plus any  accumulated  and unpaid
dividends.  The Series B Shares are  convertible  into  shares of the  Company's
common stock at a conversion  rate of $10 per share plus  accumulated and unpaid
dividends, divided by the lesser of 110% of the average closing bid price of the
Company's  common  stock for the five days prior to the purchase of the Series B
Shares or 80% of the average closing bid price of the Company's common stock for
the five days prior to the  conversion  date.  During the quarter ended December
31, 1998,  16,500 Series B Shares were  converted  into 508,728 shares of common
stock.

     In January of 1999, the Company issued  1,000,000 shares of common stock to
an  accredited  investor  for  $200,000  ($0.20  per  share).  The  Company  has
designated these funds to be used for ongoing business operations.

     On January 8, 1999,  the Company filed a  registration  statement  with the
Securities  and  Exchange  Commission  to register  13,506,604  shares of common
stock,  58,500  shares of Series B  Preferred  Stock and  warrants  to  purchase
470,000 shares of common stock in a secondary offering. The 13,506,604 shares of
common stock  represented  about 46.7% of the Company's  issued and  outstanding
common stock on a fully diluted basis as of January 6, 1999.

                                       1
<PAGE>
RESULTS OF OPERATIONS

     Nanopierce  Technologies Inc.'s revenues were $138 for the three months and
six months ended December 31, 1998, compared to no revenues for the three months
and six months ended December 31, 1997.

     General and  administrative  expenses  increased  to $297,177 for the three
months ended December 31, 1998, and to $844,403 for the six months  December 31,
1998, from $49,343 for the three months ended December 31, 1997, and $83,314 for
the six months  ended  December 31,  1997.  This  increase is due in part to the
issuance  of  stock  for  investment  management  fees  totaling   approximately
$312,000.  Salaries and wages increased to  approximately  $61,000 for the three
months  ended  December  31,  1998,  and to  $141,000  for the six months  ended
December  31, 1998,  from $0 for the three months and six months ended  December
31,  1997.  During the six months  ended  December  31,  1998,  the Company also
incurred legal fees of approximately $140,000 and management fees of $105,000 to
Intercell, its majority shareholder.

     The Company has accrued  preferred  stock dividend of $45,313 for the three
months ended  December 31, 1998,  and $90,626 for the six months ended  December
31, 1998  compared to $0 for the three months and six months ended  December 31,
1997.

     The Company  experienced  net losses of $299,622 and $851,095 for the three
months and six months ended  December 31, 1998,  compared to $14,186 and $46,988
for the three months and six months ended December 31, 1997.

LIQUIDITY AND FINANCIAL CONDITION

     Nanopierce  Technologies,  Inc.'s  current  operations  are not  generating
positive cash flow and the current cash reserves are not  sufficient to fund the
Company's plan of operation for the ensuing twelve months.

     At  December  31,  1998,  the  Company  had a working  capital  deficit  of
approximately  $221,000  compared to a working capital deficit of  approximately
$6,000 at December 31, 1997.  This  increase is due primarily to the increase in
the Company's  operating  expenses.  The Company sold 1,000,000 shares of common
stock during the month of January  1999 at $0.20 per share,  netting the Company
$200,000 for continuing operations.

     The Company is  continuing  to look for  additional  financing  through the
marketing  of its  Particle  Interconnect  Technology  through  the  pursuit  of
licensing,  joint venture,  co-manufacturing  or other similar  arrangement with
connector  manufacturers.  The failure to secure such a relationship will result
in the Company requiring  substantial  additional capital and resources to bring
its  products  to  market.  To the  extent  the  Company's  operations  are  not
sufficient to fund the  Company's  capital  requirements,  the Company may enter
into a revolving loan agreement with a financial institution or attempt to raise
capital through the sale of additional  capital stock or through the issuance of
debt. At the present time the Company does not have a revolving  loan  agreement
with any financial institution nor can the Company provide any assurance that it
will be able to enter into any such  agreement in the future or be able to raise

                                       2
<PAGE>
funds through the further issuance of debt or equity in the Company. The Company
continues to evaluate additional merger and acquisition opportunities.

     Loss per share of common stock is computed  based on the  weighted  average
number of common shares outstanding during the year. Stock options, warrants and
convertible  preferred stock are not considered in the calculation as the impact
of the potential  common shares would be to decrease loss per share.  Therefore,
diluted loss per share is equivalent to basic loss per share.

YEAR 2000 CONVERSION

     The  Company  recognizes  the need to  ensure  its  operations  will not be
adversely  impacted by Year 2000  software  failures.  Software  failures due to
processing errors potentially arising from calculations using the Year 2000 date
are known risks.  The Company is addressing  this risk to the  availability  and
integrity  of its  financial  systems  and the  reliability  of its  operational
systems.  Management believes the total cost of compliance and its effect on the
Company's future results of operations will be insignificant.

ACCOUNTING PRONOUNCEMENTS

     On July 1, 1998, the Company adopted SFAS No. 130, Reporting  Comprehensive
Income. This standard  establishes  requirements for disclosure of comprehensive
income and its components,  which includes,  among other items, unrealized gains
or losses from  marketable  securities  that  previously were only reported as a
component  of  shareholders'  equity.   Reclassification  of  earlier  financial
statements for comprehensive  purposes is required. The financial statements for
the three and six months ended December 31, 1998 and 1997 have been reclassified
to disclose items of comprehensive  income.  There are no tax effects related to
these items.

     The FASB recently  issued SFAS No. 131,  Disclosures  about  Segments of an
Enterprise and Related  Information,  and SFAS No. 132,  Employer's  Disclosures
about Pensions and Other Postretirement  Benefits.  Both of these statements are
effective for fiscal years beginning after December 15, 1997.  These  statements
require  disclosure  only and therefore will not impact the Company's  financial
statements.

     The FASB also issued SFAS No. 133,  Accounting for  Derivative  Instruments
and Hedging  Activities.  This statement is effective for fiscal years beginning
after  December 15, 1999.  Currently,  the Company does not have any  derivative
financial instruments and does not participate in hedging activities.  Therefore
management  believes  SFAS No.  133  will not  impact  the  Company's  financial
statements.

                           PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

     The Company has received  multiple copies of a summons and complaint naming
one of its licensees and identifying  others (but not naming the Company) by Mr.
Louis DiFrancesco in a

                                       3
<PAGE>
lawsuit filed on March 10, 1998 with the Superior Court of California, County of
Santa Clara, case number CV772523.  Mr.  DiFrancesco  asserts that copies of the
complaint delivered in Colorado were served on certain affiliated  companies and
employees,  directors and officers of the Company and its affiliated  companies.
Mr. DiFrancesco,  the inventor of the Particle Interconnect Technology,  alleges
that one of the Company's licensees has not paid him the royalties he is due and
seeks monetary damages. Pursuant to a stipulation among the parties, none of the
defendants are required to file any responsive pleadings until Mr. DiFrancesco's
complaint is amended or re-filed. Since the date of the stipulation,  no further
actions or developments  have occurred in this litigation.  The Company believes
that this action is without merit and intends to  vigorously  defend itself with
respect to the matters alleged, if the lawsuit is prosecuted.

     The Company  filed suit against Mr. Louis  DiFrancesco  on October 5, 1998,
with the District Court for the City and County of Denver,  Colorado,  to enjoin
him from certain  specified actions against the Company and its licensees and to
confirm the Company's ownership of its intellectual  property rights. On October
19, 1998, the District Court for the City and County of Denver,  Colorado issued
a temporary  restraining  order  prohibiting Mr.  DiFrancesco  from, among other
things,  claiming any ownership of the Company's  patents and claiming any right
to royalty  payments  under the  Company's  licenses.  On November 5, 1998,  the
District Court for the City and County of Denver,  Colorado issued a preliminary
injunction  prohibiting  Mr.  DiFrancesco  from:  (i)  contacting  any actual or
potential customer,  licensee or investor of the Company or its related entities
using the name "Particle  Interconnect Research & Development" or any other name
confusingly  similar  to the  Company's  trade  name and  trade  mark  "Particle
Interconnect;"  (ii)  contacting any actual or potential  customer,  licensee or
investor of the  Company or its  related  entities  under the  auspices  that he
represents,  works for, or is associated with the Company;  and (iii) making any
statement  to any actual or  potential  customer,  licensee  or  investor of the
Company or its related  entities which  directly or by implication  asserts that
(a) he owns all or any  portion of the patents or patent  applications  which he
previously  has  assigned to the Company or (b) his  consulting  agreement  with
Particle  Interconnect  Corporation  (a  predecessor  of the  Company)  has  not
expired.

     On November 24, 1998, Mr. DiFrancesco filed an answer in the District Court
for the City and County of Denver,  Colorado,  generally denying the allegations
contained in the Company's complaint and asserting certain affirmative defenses.
The answer also asserts  counterclaims  against the Company,  Intercell and Paul
Metzinger,  individually,  for breach of contract,  fraud in the  inducement and
legal  malpractice and seeks rescission of the merger pursuant to which Particle
Interconnect  Corporation  (a  subsidiary  of  Intercell)  acquired the Particle
Interconnect  Technology and certain declaratory relief. The Company,  Intercell
and  Mr.  Metzinger  intend  to  vigorously  defend   themselves   against  such
counterclaims  and are in the process of preparing  answers and defenses to such
counterclaims.

ITEM 2 - CHANGES IN SECURITIES

     The Company made the following  unregistered  sales of its securities  from
October 1, 1998, through December 31, 1998.

                                       4
<PAGE>
                Title of       Amount of
Date of Sale   Securities     Securities   Consideration             Purchaser
------------   ----------     ----------   -------------             ---------

1) 10/26/98    Common Stock    71,023     Conversion of shares of   Y. L. Hirsch
                                          Series B Preferred Stock
2) 11/3/98     Common Stock    90,992     Conversion of shares of   Y. L. Hirsch
                                          Series B Preferred Stock
3) 11/4/98     Common Stock    94,697     Conversion of shares of   Y. L. Hirsch
                                          Series B Preferred Stock
4) 12/18/98    Common Stock   252,016     Conversion of shares of   Y. L. Hirsch
                                          Series B Preferred Stock

     UNDERWRITERS

     No  underwriter  or selling or  placement  agent was involved in any of the
transactions described above.

     EXEMPTIONS FROM REGISTRATION CLAIMED

     The  conversions  by Mr.  Hirsch of preferred  shares into shares of Common
Stock were made pursuant to and in compliance with Rule 506 of Regulation D. The
offering of preferred  shares was  restricted  to and  entirely  purchased by an
accredited  investor.  Appropriate  documentation  was  prepared and utilized to
insure compliance with the terms, conditions and provisions of Regulation D. The
purchaser  and the  Company  each  were  represented  by their  own  independent
counsel, tax advisors,  accounting firms and other advisors. The Company and its
transfer agent undertook and implemented control procedures to assure compliance
with the terms and conditions of Regulation D.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(A)  EXHIBITS:

     EXHIBIT NO.                  DESCRIPTION

          27        Financial Data Schedule

(B)  REPORTS:  None.

                                       5
<PAGE>
                          NANOPIERCE TECHNOLOGIES, INC.
                                      INDEX

                                                                 Page
                                                                 ----

PART I - FINANCIAL INFORMATION...................................F-1
Item 1 - Financial Statements....................................F-1
Item 2 - Management's Plan Of Operation............................1

PART II - OTHER INFORMATION........................................3
Item 1 - Legal Proceedings.........................................3
Item 2 - Changes In Securities.....................................4
Item 6 - Exhibits And Reports On Form 8-K..........................5
<PAGE>
                                   SIGNATURES

     In  accordance  with Section 13 or 15(d) of the  Exchange  Act of 1934,  as
amended,  the  registrant  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                 NANOPIERCE TECHNOLOGIES, INC.

February 12, 1999                /s/ Paul H. Metzinger
                                 -----------------------------------------------
                                 Paul H. Metzinger, President, CEO and Principal
                                 Financial and Accounting Officer
<PAGE>
                                LIST OF EXHIBITS

   EXHIBIT NO.     DESCRIPTION

       27        Financial Data Schedule