<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to
___________________
Commission File No. 33-55254-19
VIANET TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Nevada 87-0434285
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
</TABLE>
83 Mercer Street, New York
New York 10012-4437
(Address of principal executive offices, zip code)
(212) 219-7680
(Registrant's telephone number, including area code)
________________________
Indicate by check mark whether the registrant (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 __
There were 8,801,386 shares of the registrant's
Common Stock, par value $.001 per share,
outstanding on August 20, 1999.
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Consolidated Balance Sheets (unaudited)
at June 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations
(unaudited) for the three months
ended June 30, 1999 and 1998 4
Consolidated Statements of Operations
(unaudited)for the six months ended
June 30, 1999 and 1998 5
Consolidated Statements of Cash Flows
(unaudited) for the six months ended
June 30, 1999 and 1998 6
Consolidated Statement of Cash Flows
(unaudited) for the three months ended
June 30, 1999 and 1998 7
Consolidated Statement of Stockholders'
Equity (unaudited)for the six months
ended June 30, 1999 8
Notes to Consolidated Financial Statements
(unaudited) 9
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 13
Item 6 Exhibits and Reports
Exhibit 1 - Calculation of Loss per Share 15
Exhibit 2 - Financial Data Schedule 16
Part 2 Legal and Capital Transactions
Signatures 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VIANET TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(U.S. Dollars, except
share data)
(Unaudited)
<S> <C> <C>
June 30 December 31
1999 1998
ASSETS
Current Assets:
Cash and cash equivalents $ 134,694 $ 13,856
Marketable securities - 669,268
Accounts receivable 1,496,329 -
Inventory 2,631,890 -
Prepaids 244,953 -
---------- ---------
4,507,866 683,124
Loans due from Develcon Electronics Ltd - 1,506,800
Loans due from Infinop Holdings, Inc. 470,000 -
Property and equipment, net 2,171,277 -
Intangibles arising from acquisition of
business, net 5,090,623 -
Interest receivable and other assets 6,500 65,375
Technology license, at cost less
accumulated amortization of $112,500 382,500 427,500
---------- ---------
$12,628,766 $2,682,799
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accruals $2,829,568 $ 251,384
Convertible demand notes and
loans payable 2,375,067 2,909,272
Current portion of long term debt 690,208 -
Payable to director of the Company 1,000 1,000
---------- ----------
5,895,843 3,161,656
Long term debt 1,262,302 -
---------- ----------
7,158,145 3,161,656
Shareholders' Equity:
Series A convertible preferred shares
(1998: authorized and issued -
250,000) - 1,000,000
Subscription Receivable (500) (990,500)
Common shares, $0.01 par value,
100,000,000 shares authorized.
8,801,386 issued and outstanding at
June 30,1999(1998 - 350,000) 8,801 3,500
Additional paid in capital 6,930,918 -
Comprehensive income 22,704 -
Accumulated deficit (1,491,302) ( 491,857)
----------- ---------
5,470,621 ( 478,857)
$12,628,766 $2,682,799
----------- ---------
</TABLE>
(The accompanying notes are an integral part of these
financial statements)
<PAGE>
<TABLE>
<CAPTION>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. Dollars,
except share data)
(Unaudited)
Three Months Ended June 30
1999 1998
<S> <C> <C>
STATEMENT OF OPERATIONS
Sales and other revenues:
Net sales $ 892,477 $ -
Interest and other income 35,787 -
------------ -----------
928,264 -
Costs and expenses:
Cost of goods sold 460,720 -
General and administrative 481,942 38,989
Selling and marketing 249,569 -
Research and Development 270,490 -
Depreciation and amortization 103,211 -
Interest 143,427 -
------------ -----------
Net loss from operations for period $ (781,095) $ (38,989)
LOSS PER SHARE $ (.010) $ (0.11)
------------ -----------
Weighted average number of shares and
common stock equivalents outstanding 7,264,952 350,000
------------ -----------
</TABLE>
(The accompanying notes are an integral part of these financial
statements)
<PAGE>
<TABLE>
<CAPTION>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(U.S. Dollars,
except share data)
(Unaudited)
Six Months Ended June 30
1999 1998
<S> <C> <C>
Sales and other revenues:
Net sales $892,477 $ -
Interest and other income 70,687 -
------------ -----------
963,164 -
Costs and expenses:
Cost of goods sold 460,720 -
General and administrative 711,692 65,366
Selling and marketing 249,569 -
Research and development 270,490 -
Depreciation and amortization 125,711 -
Interest 143,427 -
------------ -----------
Net loss from operations for period $ (998,445) $(65,366)
------------ -----------
LOSS PER SHARE - Basic and diluted $ (0.24) $ (0.19)
------------ -----------
Weighted average number of shares and
common stock equivalents outstanding 4,153,290 350,000
------------ -----------
</TABLE>
(The accompanying notes are an integral part of these financial
statements)
<PAGE>
<TABLE>
<CAPTION>
VIANET TECHNOLOGIES,INC.
INTERIM STATEMENT OF CASH FLOWS
(Thousands of U.S.
Dollars)
(Unaudited)
Six Months Ended Six Months Ended
June 30, June 30,
1999 1998
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss for period $(975,742)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Amortization of technology license 45,000
Depreciation of fixed assets 43,511
Amortization of Goodwill 37,200
Realized gain on sale of
Marketable Securities (70,687)
Unrealized gain on foreign
currency translations (22,704)
Foregiveness of interest receivable 96,490
Non-cash expenses
Changes in operating assets and
liabilities:
Interest in prepaids and
other receivables 78,874 -
Increase in a/r (353,204)
Accounts payable and accrued
liabilities 1,513,921
Increase in inventory 138,708
Increase in acquisition costs -
---------- ----------
Net cash provided by operating activities 531,367 -
----------- ----------
Cash Flows From Investing Activities:
Loans to Develcon Electronics
Limited 1,506,800
Security Deposits (6,500)
Loans to Infinop (470,000)
Proceeds from sale of marketable
securities 739,955
Purchase of Develcon net of
cash required (4,484,910)
Deferred acquisition costs (291,870)
---------- ----------
Net cash used in investing activities (3,006,525) -
----------- ----------
Cash Flows From Financing Activities:
Repayment of convertible notes
payable (200,000)
wings notes loans payable 1,377,213
Long term debt 565,559
Proceeds from convertible notes
payable 30,000
Proceeds from issuance of common
stock 2,742,496
Conversion of notes payable to
stock (2,909,272)
Proceeds from subscription
receivable 990,000
----------- ---------
Net cash provided by financing
activities 2,595,996 -
----------- ---------
Net increase in cash and cash
equivalents 120,838
Cash and cash equivalents, beginning
of period 13,856
----------- ---------
Cash and cash equivalents, end of period $134,694 -
----------- ---------
Supplemental cash flow information:
Cash paid for taxes $ - $ -
Cash paid for interest $ - $ -
</TABLE>
(The accompanying notes are integral part of these financial
statements)
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
VIANET TECHNOLOGIES,INC.
INTERIM STATEMENT OF CASH FLOWS
(Thousands of U.S.
Dollars)
(Unaudited)
Three Months Ended Three Months Ended
June 30, June 30,
1999 1998
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss for period $(217,350)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Amortization of technology license 22,500
Depreciation of fixed assets -
Amortization of Goodwill
Realized gain on sale of
Marketable Securities -
Unrealized gain on foreign
currency translations -
Foregiveness of interest receivable -
Non-cash expenses
Changes in operating assets and
liabilities:
Interest in prepaids and
other receivables -
Increase in a/r (31,115)
Accounts payable and accrued
liabilities 102,469
---------- ----------
Net cash (used in) operating activities (123,496) --
----------- ----------
Cash Flows From Investing Activities:
Loans to Develcon Electronics
Limited (1,004,635)
Security Deposits
Loans to Infinop
Proceeds from sale of marketable
securities
Purchase of Develcon net of
cash required
Deferred acquisition costs
---------- ----------
Net cash used in investing activities (1,004,635) -
----------- ---------
Cash Flows From Financing Activities:
Repayment of convertible notes
payable (200,000)
wings notes loans payable 410,000
Long term debt
Proceeds from convertible notes
payable 30,000
Proceeds from issuance of common
stock
Conversion of notes payable to
stock
Proceeds from subscription
receivable 990,000
----------- ---------
Net cash provided by financing
activities 1,230,000 -
----------- ---------
Net increase in cash and cash
equivalents 101,869
Cash and cash equivalents, beginning
of period 13,856
----------- ---------
Cash and cash equivalents, end of period $115,725 -
----------- ---------
</TABLE>
<TABLE>
<CAPTION>
VIANET TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Convertible Common Shareholder Compre-
Preferred Stock Paid In Subscription Accumulated hensive
Shares Value Shares Par Capital Receivable Deficit Income Equity
<S> <C> <C> <C> <C> <C> <C>
<C>
<C> <C>
Balances-
December
31, 1998 250,000 $1,000,000 350,000 $3,500 $ - $(990,500) $(491,857) $- (478,857)
Issuance
of common
stock - - 8,201,386 4,301 5,931,918 990,000 (1,000) - 6,925,219
Conversion (250,000) (1,000,000) 250,000 1,000 999,000 - - - -
of
preferred
shares
into
common
stock
Compre-
hensive
Income 22,704 22,704
Net loss - - - - - - (988,446) (998,446)
Balances-
June 30,
1999 - - 8,801,386 8,801 6,930,918 (500) (1,491,303) 22,704 5,470,621
-------- -------- --------- ----- -------- ----- --------- ------ ---------
</TABLE>
(The accompanying notes are an integral part of these financial
statements)
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
a.Basis of Presentation
The accompanying consolidated financial statements have
been prepared by the Company without audit in accordance
with generally accepted accounting principles for interim
financial statements and with instructions to Form 10-Q and
Article 10 of Regulation S-X. In the opinion of
management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair
presentation have been included.
The accompanying consolidated financial statements do not
include certain footnotes and financial presentations
normally required under generally accepted accounting
principles and, therefore, should be read in conjunction
with the audited financial statements included in the
Company's Form 10-KB as at December 31, 1998.
b. Foreign Currency Transactions
Gains and losses from foreign currency transactions
are included in selling, general and administrative
expenses in the period in which they occur.
C. Fair Value of Financial Instruments
Statement of Financial Accounting Standards ("SFAS")
No.107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of the fair value of
certain financial instruments for which it is practicable
to estimate fair value. For purposes of the disclosure
requirements, the fair value of a financial instrument is
the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in
a forced sale or liquidation. The carrying values of cash,
marketable securities and accounts payable are reasonable
estimates of their fair value due to the short-term
maturity of underlying financial instruments. The carrying
value of the convertible demand notes payable are
reasonable estimates of their fair value since they were
convertible into the Company's common stock at a price
equivalent to the conversion rights of the Company's Series
A convertible preferred shares.
d. Income Taxes
The Company accounts for income taxes under the asset
and liability method as required by SFAS No. 109,
Accounting for Income Taxes. Under this method, deferred
tax assets and liabilities are determined based on the
differences between the financial reporting and income tax
bases of assets and liabilities and are measured using the
enacted tax rates and laws expected to apply to taxable
income in the years in which those temporary differences
are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes
the enactment date.
e. Cash and Cash Equivalents
Cash and cash equivalents include cash held in banks and
time deposits having original maturities of three months or
less.
f. Technology License
The technology license consists of purchased technology,
amortized by the straight-line method over a period of five
years, the initial term of the license agreement.
g. Investment in Marketable Equity Securities
The Company accounts for its investments in equity
securities that have readily determinable fair values under
the provisions of SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Marketable
equity securities consist of shares of common stock and are
stated at market value. Management has identified the
Company's marketable equity securities as trading
securities and, accordingly, unrealized gains and losses on
such securities are recorded in the statement of
operations.
h. Use of Estimates
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 period. Actual
results could differ from those estimates.
i. Stock Option Plan
The Company accounted for stock options issued to
employees in accordance with SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to
continue to apply the provisions of Accounting Principles
Board ("APB") Opinion No. 25 and provide pro forma net
income disclosures for employee stock option grants as if
the fair value based method, as defined in SFAS No. 123,
had been applied. The Company has elected to apply the
provisions of APB Opinion No. 25 and provide the pro forma
disclosure required by SFAS No. 123.
j. Comprehensive Income
The Company reports and presents comprehensive income and
its components in accordance with SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130. requires only
additional disclosures in the financial statements; it does
not affect the Company's financial position or results of
operations.
k. Net Loss Per Share
We follow the provisions of Statement of Financial
Accounting Standards diluted earnings per share (EPS) on the
face of the statement of operations. Basic EPS is computed
using the weighted average number of common shares
outstanding during the period. The diluted EPS calculation
assumes that all stock options or contracts to issue common
stock were exercised or converted into common stock at the
beginning of the period. We have excluded certain common
stock equivalents from our diluted EPS calculation during
the quarters ended June 30, 1999 and 1998 because the effect
would have reduced our net loss per share.
2. Basis of Consolidation
The consolidated financial statements include the accounts of Vianet
Technologies, Inc. and its wholly owned subsidiary, Develcon Electronics Ltd.
(collectively, the "Company"). All significant intercompany accounts and
transactions have been eliminated.
3. Acquisition of Develcon Electronics, Ltd.
On February 12, 1999 the Company entered into an Arrangement
Agreement (the "Arrangement") to acquire all the outstanding
shares of Develcon. The Arrangement was approved by the Supreme
Court of British Columbia, the Securityholders and
Debentureholders of Develcon.
The Arrangement provided for Develcon shareholders to receive
one share of common stock of the Company for every 30.75 shares
of Develcon. The Arrangement also provided that the Develcon
convertible notes payable will be converted into 5.9963 Develcon
shares for each $1.00 principal amount of notes payable and that
interest accrued on the convertible notes payable but not paid
shall be forgiven. These shares were converted into Vianet
shares in the ratio of one share of the Company for every 30.75
shares of Develcon. Additionally, certain other creditors of
Develcon agreed to either accept common stock of Vianet as
payment for amounts or portions of amounts owed to them and have
restructured the repayment schedule. In exchange for
restructuring the repayment schedule of its debt, if such debt
has not been repaid by June 30, 1999, a lender of Develcon has
been granted warrants to purchase 150,000 shares of Vianet stock
at the greater of $6.00 per share or 90% of the price per share
of an offering of no less than $2.5 million completed between
May 15, 1999 and June 30, 1999. The warrants become exercisable
over an approximate 24-month period and expire on June 30, 2002.
On May 11, 1999, Develcon held its Annual and Special Meeting of
Shareholders, at which time the Securityholders and
Debentureholders approved the Arrangement. The Arrangement
became effective on May 17, 1999. Accordingly, the assets and liabilities have
been consolidated as of the date of acquisition and the results of operations
have been included from May 17, 1999 to June 30, 1999.
As a result of the closing of the Arrangement, the former
shareholders and creditors of Develcon hold 2,587,114 shares of the 8,801,386
shares of common stock the Company has outstanding.
4. SPS Technology License
The Company purchased a license for the SPS technology
from NewCom Technologies, Inc. (the "Licensor") for $450,000.
The license entitles the Company to use certain intellectual
property rights. This "right to use" includes any patents
associated with the SPS technology along with the current
preferred embodiment of the patent. Royalty payments of 2.5% of
Net Cash Received, as defined in the license agreement, on
products manufactured and sold, licensed or services rendered by
Vianet during the term of the license are due to the licensor.
The Company may, at its option, pay a one-time royalty fee of
$2.1 million at any time during the term. If such one time
payment is made, the license shall become perpetual and no
further royalties will be due under the license.
The license provides the Company with all the source code and
documentation required to allow the Company to integrate the
technology into its products. The license provides for quarterly
updates from NewCom of the hardware/firmware for the initial
five year term of the agreement.
5. Related Party Transactions
Fees and Expenses
The Company accrued consulting fees aggregating approximately
$11,000 to a company owned by two shareholders who are also
officers of the Company for engineering and other services.
Convertible Demand Notes Payable
At December 31, 1998, the Company had convertible demand notes
payable of $2,909,272 to entities controlled by two officers and
directors of the Company. These borrowings were interest free.
The convertible demand notes were convertible into shares of
common stock at a ratio of one share for every $1 of principle
amount. Of these notes $669,268 were contributed in exchange
for marketable securities and $1,355,000 was contributed in the
form of loans receivable from Develcon. In the six months period ended June 30,
1999, $200,000 was repaid to one of the lenders and additional convertible
demand notes of $30,000 were issued to two of the lenders.
On March 23, 1999, the notes payable were converted into common
stock of the Merged Company. Based upon the original exchange
ratio of one common share of Company common stock for every $1
of principal amount.
Other
During the period ended June 30, 1999 the Company borrowed
$1,065,000 from a company controlled by two officers of the
Company. The loan is unsecured, bears interest at 8% and is
repayable on demand.
6. Series A Convertible Preferred Stock
The authorized Series A convertible preferred stock of the
Company consists of 1,000,000 shares, of which 250,000 shares
were issued and outstanding at December 31, 1998. The Series A
preferred stock was convertible into common stock at a rate of
four for one. Such shares were issued at $4.00 per share. Of
the issued and outstanding shares, 2,500 were fully paid at
December 31, 1998. The remaining subscription receivable
outstanding, $990,000 was paid subsequent to December 31, 1998.
On March 23, 1999 the Series A preferred stock was converted
into common stock. As a result, the Series A preferred
shareholders received 1,000,000 shares of common stock of the
Company.
7. Merger with Vianet Technologies, Inc.
On March 16, 1999 the Company entered into a Merger Agreement
with Vianet Technologies, Inc.("Old Vianet"), a Delaware
corporation, under the terms of which the Company and Old Vianet
merged through an exchange of shares (the "Merger"). Subject to
the terms and conditions of this Merger Agreement, on March 23,
1999, the Company issued to the shareholders of Old Vianet, four
shares of fully paid and nonassessable shares of the Company's
common stock, $.001 par value ("Common Stock") per share in
exchange for each share of Old Vianet's outstanding common
stock. The existing common shareholders of Old Vianet received
1,400,000 shares of common stock of the Merged Company in
exchange for the 350,000 shares then outstanding. All shares of
Old Vianet's Series A Convertible Preferred Stock issued and
outstanding immediately prior to the Merger were deemed to have
been converted into an aggregate of 250,000 shares of Old
Vianet's common stock and the Series A Convertible Preferred
shareholders received 1 million shares of Common Stock of the
Company. Further, Old Vianet convertible demand notes payable
holders received 2,709,272 shares of Common Stock. For accounting
purposes, Old Vianet was considered to be the acquiror in a
reverse acquisition accounted for as a purchase.
<PAGE>
Item 3. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD
ENDED JUNE 30, 1999
This quarterly report on Form 10-Q contains forward-
looking statements that are subject to risks and uncertainties
which could cause actual results to differ materially from those
expressed or implied in the statements. Forward-looking
statements (including oral representations) are statements about
future performance or results, and include any statements using
the words "believe", "expect", "anticipate" or similar words.
All forward-looking statements are only predictions or
statements of current plans, which we are constantly reviewing.
All forward-looking statements may differ from actual future
results due to, but not limited to, changes in the local and
overall economy, the nature and pace of technological changes,
the number and effectiveness of competitors in the Company's
markets, success in overall strategy, changes in legal and
regulatory policy, relations with ILECs and their ability to
provide delivery of services including interoffice trunking,
implementation of back office service delivery systems, the
Company's ability to identify future markets and successfully
expand existing ones and the mix of products and services
offered in the Company's target markets. You should consider
these important factors in evaluating any statement contained in
this report and/or made by us or on our behalf. We have no
obligation to update or revise forward-looking statements.
The following information has not been audited. You should
read this information in conjunction with the condensed
financial statements and related notes to financial statements
included in this report. In addition, please see our Management
Discussion and Analysis of Financial Condition and Results of
Operations, audited financial statements and related notes
included in our Annual Report on Form 10-K for the year ended
December 31, 1998. Vianet Technologies, Inc. is referred to as
"we", "us" or "our" in this report.
RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30,1999
The Company is transitioning through a period of completing
transactions. The costs and other effects of these programs and
activities are adversely impacting current results for intended
benefits of improving revenues, operating performance and
financial results in future reporting periods. The Company has completed one
acquisition, Develcon, and intends to complete two more before the end of
December 1999 as follows:
Develcon Electronics Ltd.
The Develcon Product Portfolio consists of two main platforms, the Athena
Enterprise Communications System and the Orbitor family of access routers.
The Athena platform is a powerful enterprise communications system that offers
high-speed edge switching for backbone networks and large-scale aggregation for
Central Site locations. A flexible, scaleable platform, Athena seamlessly
integrates switching, routing and network access services. By combining
switching and routing in the same platform and adding advanced traffic
management capabilities such as prioritization, alternate routing and
bandwidth on demand, Athena delivers superior networking functionality.
Athena Access, a new flexible voice/data solution designed for remote branch
offices, incorporates the most innovative voice compression algorithms in the
industry to offer top-rated voice quality and optimized bandwidth utilization.
Built to satisfy the total communication requirements of today's multi-media
branch office environment, Athena Access provides a cost effective
alternative to dedicated phone lines.
The Orbitor product family includes a complete line of Ethernet Access routers
designed for SOHO (small office, home office), branch office and central site
applications. The Orbitor portfolio delivers cost-effective access to a wide
variety of network services including leased lines, ISDN, public frame relay
networks and the Internet.
The Company believes the new Orbitor 530 Branch Office Router is the only
product available in today's market that combines the features and
performance of a large branch office router, while still keeping the product
small in both size and price. In the Orbotor 530, Develcon has developed a
versatile full-featured router that is targeted specifically to the needs of
small offices.
With the rapid advancement of the information age and the explosion of
business services based on networking technologies, the speed and
reliability of data transmission has reached paramount importance.
Develcon's new Orbitor 5100 modular access router delivers maximum
performance and reliability for branch offices through a rich feature set
that offers automatic ISDN backup of main network connections and
bandwidth on demand for guaranteed transmission times.
This acquisition was completed on May 18, 1999.
Infinop Holdings, Inc.
Infinop is an industry leader in the development of advanced compression
technologies for a wide range of software and hardware applications.
Infinop's patented compression technology dramatically improves
compression ratios, increases transmission speeds and improves image
quality. Infinop offers a unique approach which has the capability to
generate an entire spectrum of compression products for every type of
data.
The Company expects this acquisition to be completed in August 1999.
PSI Communications, Inc.
PSI is a designer and manufacturer of fiber optic access equipment and
specializes in the application of advanced technologies that help Access
and Exchange networks operate and interact efficiently and reliably.
Serving the emerging commercial multimedia communications markets, PSI
focuses on providing equipment to interface for carrier access and
enterprise fiber optic networks with their DLC Mux product. PSI has built
a product for the weakest chain in the Internet/Intranet link - the last
mile, also known as the local loop.
The Company expects this acquisition to be completed in December 1999.
The Company had net sales of $892,477 for the six months ended June 30,
1999. The Company acquired the first of it's target acquisitions on May
18, 1999 and accordingly, the sales recorded are for the six week period
to June 30, 1999 only. The Company does not expect a significant increase
in sales until the first quarter of 2000. Other revenues consisted of
interest on cash deposits and a gain on the sale of marketable securities
of $70,687.
Cost of Goods Sold and Gross profit
The Company's cost of sales was $460,720 representing margins of 48%
which is below historical margins for Develcon's products due difficulting
in shipping economic quantities of products given limited working
capital. The Company expects margins to improve to historic levels of
approximately 52% by the end of the fourth quarter based upon a more a stable
financial operating environment, although no assurances can be given that
the margin improvement can be achieved.
General and administrative
General and administrative expenses amounted to $481,720 comprised of
legal, professional fees and investor relations expenses ($533,530). These
later expenses are expected to reduce significantly in the third quarter
after the Infinop acquisition is completed. The Company has capitalized
$291,870 of expenses relating to the acquisition of Develcon in the period
ended June 30,1999 which are included in "Intangible assets arising from the
acquisition of business" - on the balance sheet.
Selling and Marketing
Selling and marketing amounted to $325,797 which includes product
support of $76,288. The Company has continued a high level of spending
relative to sales during the period of adjustment under new ownership. The
Company expects more traditional ratios of sales to expenditures to be
achieved by the end of the fiscal year although no assurances can be
given that this will be achieved.
Research and Development
Research and development amounted to $270,491 which consists primarily
expenditures on Orbitor and Athena Access product lines. The Company
expects more traditional ratios of sales to research and development
expenditures to be achieved by the end of the fiscal year although no
assurances can be given that this will be achieved.
Depreciation and Amortization
Depreciation and amortization amounted to $125,711 and represents the
amortization of the Company's SPS Technology License ($45,000) over five
years, depreciation on Develcon's property and equipment($43,511)and
amortization of intangibles on the acquisition of Develcon over periods
from five to fifteen years ($37,200).
Significant Transactions
Merger with Vianet Technologies, Inc.
On March 16, 1999 the Company entered into a Merger Agreement
with Vianet Technologies, Inc.("Old Vianet"), a Delaware
corporation, under the terms of which the Company and Old Vianet
merged through an exchange of shares (the "Merger"). Subject to
the terms and conditions of this Merger Agreement, on March 23,
1999, the Company issued to the shareholders of Old Vianet, four
shares of fully paid and nonassessable shares of the Company's
common stock, $.001 par value ("Common Stock") per share in
exchange for each share of Old Vianet's outstanding common
stock. The existing common shareholders of Old Vianet received
1,400,000 shares of common stock of the Merged Company in
exchange for the 350,000 shares then outstanding. All shares of
Old Vianet's Series A Convertible Preferred Stock issued and
outstanding immediately prior to the Merger were deemed to have
been converted into an aggregate of 250,000 shares of Old
Vianet's common stock and the Series A Convertible Preferred
shareholders received 1 million shares of Common Stock of the
Company. Further, Old Vianet convertible demand notes payable
holders received 2,709,272 shares of Common Stock. For accounting
purposes, Old Vianet was considered to be the acquiror in a
reverse acquisition accounted for as a purchase.
Acquisition of Develcon Electronics, Ltd.
On May 18, 1999 acquired Develcon. The acquisition resulted in the
issuance of 2,587,114 shares to various shareholders, debt holders and
convertible debt holders of Develcon in the third quarter ended June 30,
1999. The acquisition of Develcon was accounted for as an acquisition and
accordingly the assets and liabilities of Develcon are included in the
consolidated balance sheet as at June 30, 1999 and the results of
operations of Develcon from May 18, 1999 (the date of acquisition) are
included in the results of operations and statement of cash flows for the
six months ended June 30, 1999.
Acquisition of Infinop Holdings, Inc.
On May 19, 1999 the Company entered into a letter of intent to acquire
100% of Infinop Holdings, Inc. ("Infinop") of Denton, Texas, a privately
held corporation, in exchange for common shares of Vianet. As part the
agreement the Company agreed to advance Infinop $640,000 ($470,000 was
advanced as at June 30,1999: and the balance of $170,000 was advance in
July and August)in loans. If completed the Company will issue 2,164,167
common shares to Infinop's shareholders and option holders and the loans
will be forgiven.
Infinop is an industry leader in the development of advanced compression
technologies for a wide range of software and hardware applications.
Infinop's patented compression technology dramatically improves
compression ratios, increases transmission speeds and improves image
quality. Infinop offers a unique approach which has the capability to
generate an entire spectrum of compression products for every type of
data.
Acquisition of PSI Communications, Inc.
On July 15, 1999 the Company signed an option agreement to acquire 100% of
PSI Communications, Inc.)("PSI"), a privately held Delaware corporation,
in exchange for common shares of Vianet. As part the agreement the Company
agreed to fund PSI $500,000 in loans. If completed the Company will issue
a minimum of 1,200,000 common shares to PSI's shareholders and option
holders and the loans will be forgiven. In the event that the Company
decides not to exercise its option to acquire PSI, it will be entitled to
non-exclusive license for PSI's products. The Company currently intends to
exercise its option to acquire PSI.
PSI is a designer and manufacturer of fiber optic access equipment and
specializes in the application of advanced technologies that help Access
and Exchange networks operate and interact efficiently and reliably.
Serving the emerging commercial multimedia communications markets, PSI
focuses on providing equipment to interface for carrier access and
enterprise fiber optic networks with their DLC Mux product. PSI has built
a product for the weakest chain in the Internet/Intranet link - the last
mile, also known as the local loop.
The DLC system has the capability to transport Bellcore and ITU-T standard
and data interfaces over fiber optic T-1, E-1 and V.35 with plans to add
broadband Internet interfaces including ISDN, BRI/PRI, xDSL, IP video and
Frame Relay. This combination will result in the first true integrated
V5.2 DLC fiber optics multiplexer. This technology solves a long time
telco concern: how to reach the consumer market with high bandwidth
capabilities, cost effectively voice
The Company believes that the combined product portfolio of PSI, Develcon,
and Infinop provides a broad range of solutions aimed at the high growth
of domestic network buildout fueled by the e-commerce boom. Vianet is now
well positioned to address the Internet Service Provider and CLEC market.
Year 2000
The Year 2000 (Y2K) issue is the result computer programs,
microprocessors and date reliant systems that may recognize a
date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculation causing
disruption in business operations.
In an effort to assess our Y2K state of readiness we performed a
complete inventory assessment and test of all of our internal
systems and external interfaces. All of our financial, message
processing and office support systems are currently Year 2000
compliant.
The Company has communicated with all of its major customers and
suppliers to determine the extent to which the Company's
interface systems are vulnerable to any failure by third parties
to upgrade their own software. The Company believes that its
customers and suppliers are addressing the issues and will
timely adjust their systems. If such modifications are not made
by customers or suppliers, or are not completed in a timely
manner, the Company's operations will not be affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company is considering several financing alternatives to
fund its medium and longer-term financing requirements,
including anticipated accounts receivable and inventory
requirements and future R&D needs. While the Company has, in
the past, been able to maintain access to adequate external
financing sources on acceptable terms, no assurances can be
given that such access will continue. If the Company is unable
to obtain short-term and long-term funding on acceptable terms
from existing financing sources or through secure new sources,
the Company's ongoing operations could be adversely impacted.
LIQUIDITY OUTLOOK -SUBSEQUENT FINANCINGS
Subsequent to June 30,1999 the Company has completed the following
financings:
On July 17, 1999 the company borrowed $285,000 ($252,000 net of
commissions) from certain private investors.
On July 30, 1999 the Company issued 100,000 common shares to certain non-
US investors for cash of $550,000 ($517,000 net of commissions).
A lender of $1,019,000 has restructured the repayment schedules to
commence on December 31, 2000. In exchange for restructuring the
repayment of debt the at the greater of $6.00 per share. The warrants
become exercisable over an approximate 24-month period and expire on June
30, 2002.
The Company is currently in negotiations with several other potential
investors to fund its cash requirements. No assurances can be given that
the Company will be successful in completing these financings.
CONCLUSION
The Company has operational, financial and product introduction plans
which, if achieved, will result in profitability and cash equilibrium
before the end of 1999. Considering the available financial resources,
current business prospects, the outlook for cash available from customer
collections, the outlook for cash to be used in operations and investing,
and actions to control spending, the Company believes it has or can obtain
the financial resources to meet its business requirements for the balance
of the current year. There can be no assurance, however, that the
assumptions and projections underlying or supporting this outlook will be
realized. The Company has incurred significant operating losses and
negative cash flows from operations in since its inception in March 1998.
The cash flows were funded by proceeds from borrowings under credit
facilities and by sales common stock. The Company expects operating losses
and negative operating cash flow to continue at least through the end of
1999. It is uncertain when, if ever, the Company will report operating
income or positive cash flow from operations. If cash needs exceed
available resources, there also can be no assurance that additional
capital will be available through public or private equity or debt
financings. The financial statements have been prepared assuming the
Company will continue as a going concern and do not include any
adjustments that might result from the unfavorable outcome of such an
uncertainty.
ADDITIONAL FACTORS THAT MAY EFFECT RESULTS
Future operating results may be impacted by a number of
factors, including worldwide economic and political conditions,
industry specific factors, the Company's ability to maintain
access to external financing sources and its financial
liquidity, the Company's ability to timely develop and produce
commercially viable products at competitive prices, the
availability and cost of components, the Company's ability to
manage expense levels, the continued financial strength of the
Company's dealers and distributors, and the Company's ability to
accurately anticipate customer demand.
The Company's future success is highly dependent upon its
ability to develop, produce and market products that incorporate
new technology, are priced competitively and achieve significant
market acceptance. There can be no assurance that the Company's
products will be commercially successful or technically advanced
due to the rapid improvements in information technology and
resulting product obsolescence. There is also no assurance that
the Company will be able to deliver commercial quantities of new
products in a timely manner. The success of new product
introductions is dependent on a number of factors, including
market acceptance, the Company's ability to manage risks
associated with product transitions, the effective management of
inventory levels in line with anticipated product demand and the
timely manufacturing of products in appropriate quantities to
meet anticipated demand. The Company competes with established
equipment manufacturers with greater financial resources and
more developed channels of distribution. No assurances can be
given that the Company will be successful in competing in this
environment.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to foreign currency exchange rate risk relating to
receipts from customers, payments to suppliers. We do not consider the
market risk exposure relating to foreign exchange to be material.
We do not have financial instruments which are subject to interest rate
risk and accordingly our exposure to interest rate risk is not material.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
I - Calculation of Earnings Per Share
II - Financial Data Schedule
(b) Reports on Form 8-K
On March 23, 1999, the Company filed a report on Form 8-K reporting the
merger with Vianet Technologies, Inc.
On August 18,1999 the Company filed a report on From 8-K/A reflecting the
audited financial statements as at December 31, 1998.
Legal and Capital Transactions
- ------------------------------
The Company is not party to any legal proceedings or changes in capital
structure.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
VIANET TECHNOLOGIES, INC
(Registrant)
Date: August 20, 1999 /s/ PETER G. LEIGHTON
--------------------------
Peter G. Leighton
President and Chief Executive
Officer
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT I
VIANET TECHNOLOGIES, INC. AND SUBSIDIARY
CALCULATION OF CONSOLIDATED LOSS PER SHARE
Six Months Six Months
ended ended
June 30, June 30,
1999 1998
<S> <C> <C>
Basic and Diluted Loss Per Share
Shares in issue beginning of period 350,000 350,000
Shares issued (weighted average) 3,803,290 -
Weighted average shares in issue end
of period 4,153,290 350,000
Dilutive Common Stock Equivalents
(weighted average)(1) - -
Other stock options
using treasury stock method (1) - -
Total weighted average common shares
and common stock equivalents(1) 4,153,290 350,000
Loss for period (U.S. Dollars) $(998,445) $(65,366)
Loss per share - basic and
diluted (1) $(0.24) $ (0.19)
</TABLE>
(1) Note: Potentially dilutive common stock equivalents and other options
totaling 2,481,910 at June 30, 1999 have been excluded from the
computation of diluted net loss per common share because they are anti
dilutive for the period presented
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT I (Continued)
Three Months Three Months
ended ended
June 30, June 30,
1999 1998
<S> <C> <C>
Basic and Diluted Loss Per Share
Shares in issue beginning of period 6,214,272 350,000
Shares issued (weighted average) 1,050,680 -
Weighted average shares in issue
end of period 7,264,952 350,000
Dilutive Common Stock Equivalents
weighted average)(1) - -
Other stock options using treasury
stock method (1) - -
Total weighted average common
shares and common stock
equivalents(1) 7,264,952 350,000
Loss for period (U.S. Dollars) $ (781,095) $(38,989)
Loss per share - basic and
diluted (1) $(0.10) $(0.11)
</TABLE>
(1) Note: Potentially dilutive common stock equivalents and other options
totaling 2,481,910 at June 30, 1999 have been excluded from the
computation of diluted net loss per common share because they are
anti-dilutive for the period presented.
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
EXHIBIT II
VIANET TECHNOLOGIES, INC.
FINANCIAL DATA SCHEDULE - EXHIBIT 27
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> MAR-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 135
<SECURITIES> 0
<RECEIVABLES> 1,496
<ALLOWANCES> 0
<INVENTORY> 2,632
<CURRENT-ASSETS> 4,508
<PP&E> 2,171
<DEPRECIATION> 103
<TOTAL-ASSETS> 12,629
<CURRENT-LIABILITIES> 5,896
<BONDS> 0
0
0
<COMMON> 6,939
<OTHER-SE> (1,469)
<TOTAL-LIABILITY-AND-EQUITY> 12,629
<SALES> 892
<TOTAL-REVENUES> 963
<CGS> 461
<TOTAL-COSTS> 1,818
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143
<INCOME-PRETAX> (998)
<INCOME-TAX> 0
<INCOME-CONTINUING> (998)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (998)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
