SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8 K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
August 17, 1999
(Date of report)
VIANET TECHNOLOGIES, INC.
<TABLE>
<S> <C> <C>
NEVADA 033-55254-19 87-0434285
(State of (Commission File (IRS
Incorporation) Number) Employer ID)
</TABLE>
83 Mercer Street
New York, New York 10012
(Address of Principle Executive Offices)
(212) 219-7680
(Registrant's Telephone Number)
ITEM 5.
This set of audited financial reports
includes the opinion of our current
accounting firm, Edward Isaacs & Company
LLP. The information enclosed herein is not
materially different from the information
reported in our earlier 8K/A that was stated
to be unaudited by our previous accounting
firm, KPMG.
ITEM 7.
Exhibits:
A) Vianet Technologies, Inc.:
Audited Financial Statements as of
December 31, 1998
Notes to Financial Statements
Independent Auditors Report
SIGNATURE
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.
Vianet Technologies, Inc.
(Registrant)
Dated: August 17, 1999 /s/ Peter Leighton
______________________
By: Peter Leighton
President & CEO
<PAGE>
EXHIBIT A
VIANET TECHNOLOGIES, INC.
AUDITED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Vianet Technologies, Inc.
We have audited the accompanying balance sheet of
Vianet Technologies, Inc. as of December 31, 1998, and
the related statements of operations and accumulated
deficit, deficiency in shareholders' equity and cash
flows for the period from March 20, 1998 (inception) to
December 31, 1998. 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 audit.
We conducted our audit 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 audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
financial position of Vianet Technologies, Inc. as of
December 31, 1998, and the results of its operations
and cash flows for the period from March 20, 1998
(inception) to December 31, 1998, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been
prepared assuming that the Company will continue as a
going concern. As discussed in Note 1 to the financial
statements, the Company is a recently formed entity
which is dependent upon its ability to obtain
additional sources of financing to fund its working
capital requirements. 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 1. The financial
statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/EDWARD ISAACS & COMPANY LLP
EDWARD ISAACS & COMPANY LLP
<PAGE>
<TABLE>
<CAPTION>
Vianet Technologies, Inc.
Balance Sheet
December 31, 1998
ASSETS
<S> <C>
Current Assets
Cash and cash equivalents $ 13,856
Investment in marketable equity
securities 669,268
-------
Total Current Assets 683,124
Other Assets:
Loans due from Develcon
Electronics Limited 1,506,800
Accrued interest receivable 65,375
Technology license, at cost
less accumulated amortization
of $22,500 427,500
---------
$2,682,799
LIABILITIES AND DEFICIENCY IN
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accruals $ 251,384
Convertible demand notes payable 2,909,272
Payable to Director of the Company 1,000
---------
Total Current Liabilities 3,161,656
Deficiency in Stockholders' Equity:
Series A convertible preferred
shares - par vale $0.01 per share,
1,000,000 shares authorized: issued
and outstanding - 250,000 shares 1,000,000
Common stock - par value $0.01 per
share, 3,000,000 shares authorized,
issued and outstanding - 350,000 shares 3,500
Accumulated deficit (491,857)
---------
511,643
Less subscriptions receivable (990,500)
Total Deficiency in Stockholders'
Equity (478,857)
----------
$2,682,799
</TABLE>
See Independent Auditors' Report and Notes to
Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Vianet Technologies, Inc.
Statement of Operations and Accumulated Deficit
For the period from March 20, 1998 (inception) to
December 31, 1998
<S> <C>
Operating Expenses:
Selling, general and administrative $ 557,276
-------
Total operating expenses 557,276
Loss from Operations (557,276)
Interest Income 66,341
--------
Loss before Income Taxes $(490,935)
Income Taxes 922
--------
Net loss Transferred to Accumulated
Deficit $ (491,857)
---------
</TABLE>
See Independent Auditors' Report and Notes to
Financial Statements
<PAGE>
<TABLE>
Vianet Technologies, Inc.
Statement of Cash Flows
For the period from March 20, 1998 (inception) to
December 31, 1998
<CAPTION>
<S> <C>
Operating Activities:
Net loss $ (491,857)
Adjustments to reconcile net loss
to net cash used in operating activities:
Amortization of technology license 22,500
Unrealized loss from foreign currency
transactions 73,200
Issue of stock for operating expense 2,500
Increase (Decrease) in cash attributable
to changes in operating assets and liabilities:
Accrued interest receivable (65,375)
Accrued payable and accruals 251,384
--------
Net Cash Used in Operating Activities (207,648)
Investing Activities:
Loans to Develcon Electronics Limited (225,000)
Purchase of SPS Technology License (450,000)
---------
Net Cash Used in Investing Activities: (675,000)
Financing Activities:
Proceeds from issuance of common stock 1,500
Proceeds from issuance of convertible
preferred shares 10,000
Proceeds of convertible demand notes payable 885,004
--------
Net Cash Provided by Financing
Activities: 896,504
---------
Net Increase in Cash and Cash
Equivalents $ 13,856
Cash and Cash Equivalents at
March 20, 1998 (inception) $ --
--------
Cash and Cash Equivalents at
December 31, 1998 $ 13,856
Noncash Activities are as follows:
Noncash Financing Activities:
Issuance of convertible demand notes
payable in return for marketable equity
securities $669,268
--------
Issuance of convertible demand notes
payable in return for loan receivable
from Develcon $1,355,000
----------
</TABLE>
See Independent Auditors' Report and Notes to Financial
Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS:
For the Period from March 20, 1998 (inception) to
December 31, 1998
1. Organization and Business
Vianet Technologies, Inc. (the "Company") was
incorporated in the State of Delaware, U.S. on
March 20, 1998 initially to acquire Develcon
Electronics Limited. ("Develcon") and a license
to utilize SPS Technology ("SPS") developed by
NewCom Technologies, Inc.
Develcon is publicly traded on the Toronto Stock
Exchange (symbol DLC) and is a global provider of
enterprise network solutions and LAN/WAN
connectivity. Develcon designs high quality
products and implements innovative services based
on a wide range of flexible and modular
communications platforms. Develcon products
integrate diverse LAN, legacy and voice
applications using technologies such as frame
relay, ISDN, PPP and packet switching.
SPS is a technology developed to exploit the
convergence of telecommunications and data
transmission methods. The Company plans to
integrate the SPS technology into Develcon's
product lines and to develop other adaptations to
further expand the product capabilities of
Develcon.
The Company is a recently formed entity which is
dependent upon its ability to obtain additional
sources of financing to fund its working capital
requirements. The Company is considering several
financing alternatives to fund such requirements.
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.
These factors raise substantial doubt about the
Company's ability to continue as a going concern.
The financial statements do not include any
adjustments that might result from the outcome of
this uncertainty.
2. Significant Accounting Policies
(a) 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. For the period
from March 20, 1998 (inception) to December
31, 1998, the Company experienced $3,906 in
realized foreign exchange transaction gains
and $73,200 in unrealized foreign exchange
transaction losses.
(b) 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
purpose 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
<PAGE>
NOTES TO FINANCIAL STATEMENTS:
For the Period from March 20, 1998 (inception) to
December 31, 1998
2. Significant Accounting Policies (Continued)
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.
(c) 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.
(d) Cash and Cash Equivalents:
Cash and cash equivalents include cash held
in banks and time deposits having original
maturities of three months or less.
(e) 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.
(f) 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.
Subsequent to December 31, 1998, on various
dates, the Company sold 65,000 shares of
approximately 83,000 shares it held at
December 31, 1998 at an average price in
excess of its carrying value per share.
<PAGE>
NOTES TO FINANCIAL STATEMENTS:
For the Period from March 20, 1998 (inception) to
December 31, 1998
2. Significant Accounting Policies (Continued)
(g) 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.
(h) 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, has 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.
(i) 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. For the period from March 20,
1998 (inception) to December 31, 1998, there
were no items of other comprehensive income.
3. Merger Agreement with Radar Resources, Inc.
On March 16, 1999 the Company entered into a
Merger Agreement with Radar Resources, Inc.
("Radar"), a Nevada corporation, under the terms
of which the Company and Radar merged through an
exchange of shares (the "Merger"). Subject to
the terms and conditions of this Merger
Agreement, on March 23, 1999, Radar issued to the
shareholders of the Company, four shares of fully
paid and nonassessable shares of Radar common
stock, $.001 par value ("Radar Common Stock") per
share in exchange for each share of the Company's
outstanding common stock. The then existing
common shareholders of the Company received 1.4
million shares of common stock of the Merged
Company in exchange for the 350,000 shares then
outstanding. All shares of the Company'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 the Company's common stock
and the Series A Convertible Preferred
shareholders received 1 million shares of common
stock of the Merged Company. Further, the
convertible demand notes payable holders received
2,729,242 shares of common stock of the Merged
Company.
<PAGE>
NOTES TO FINANCIAL STATEMENTS:
For the Period from March 20, 1998 (inception) to
December 31, 1998
3. Merger Agreement with Radar Resources, Inc.
(Continued)
Radar was a public company subject to reporting
obligations under Section 15(d) of the Securities
Exchange Act of 1933, as amended, and has not
previously been engaged in any business activity
or had no assets or liabilities. Radar's
authorized capital is 100,000,000 shares of par
value $0.001 per share, of which 1,000,000 shares
were issued and outstanding at the date of the
Merger. After completion of the Merger and the
issuance of shares contemplated in the Merger
Agreement, the Company was merged with Radar so
that Radar was the surviving company. Radar had
approximately 6.1 million shares outstanding
after the transactions described above. As a
result of the Merger, the former shareholders of
the Company held approximately 84% of the
outstanding common shares of the Merged Company.
As a result, the Company is considered to be the
accounting acquirer in a reverse acquisition
accounted for as a purchase and its financial
statements will become the historical financial
statements of the combined company.
As part of the transaction, Radar changed its
name to Vianet Technologies, Inc. (OTC: VNTK).
4. Acquisition of Develcon
On February 12, 1999 the Company entered into an
Arrangement Agreement (the "Arrangement") to
acquire all the outstanding shares of Develcon.
The Arrangement required approval of the Supreme
Court of British Columbia, the Securityholders
and Debentureholders of Develcon. Develcon, as
noted in its most recent audited financial
statements as of and for the year ended August
31, 1998, has incurred significant losses, had a
cash deficiency and its existing line of credit
was required to be repaid by May 31, 1999.
Develcon was also in violation of certain
covenants with respect to its long-term debt and
had classified its long-term debt as current
thereby resulting in a working capital
deficiency.
The following information is summarized from
Develcon's financial statements as of and for the
years ended August 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
(Thousands of
Canadian Dollars)
<S> <C> <C>
Total Assets $ 13,147 $ 15,545
Total Liabilities 13,348 11,055
Working Capital (Deficiency) (4,349) 5,042
Shareholders' Equity
(Deficiency) (201) 4,490
Sales 19,158 18,907
Net Loss (4,773) (12,460)
</TABLE>
Develcon's working capital shortages have led to a
continued deterioration in its financial condition and
have prevented it from delivering product orders.
<PAGE>
NOTES TO FINANCIAL STATEMENTS:
For the Period from March 20, 1998 (inception) to
December 31, 1998
4. Acquisition of Develcon (Continued)
The Arrangement provides for Develcon
shareholders to receive one share of common stock
of the Company for every 30.75 shares of
Develcon. The Arrangement also provides 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 which has been accrued on the
convertible notes payable but not paid shall be
forgiven. These shares will also convert into
Vianet shares in the ratio of one share of the
Company for every 30.75 shares of Develcon.
Additionally, effective upon closing, certain
other creditors of Develcon have 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. Upon completion of
the Arrangement, defaults under long-term debt
agreements are expected to be cured.
As a result of the closing the Arrangement, the
former shareholders and creditors of Develcon,
excluding the Company, will hold approximately 2
million shares of the approximate 8.4 shares of
common stock the Company expects to have
outstanding.
Loans to Develcon (the "Loans") at December 31,
1998 are comprised of:
Convertible notes payable, due on demand,
with interest at Royal Bank of Canada
prime rate plus 2% $ 530,000
Convertible notes payable of C$1,500,000,
due on April 30, 1999, with interest at
10% per annum 976,800
------------
$1,506,800
The loans are secured by substantially all of
Develcon's assets.
Subsequent to the period-end, the Company
advanced a further C$1,500,000 to Develcon as
part of the Arrangement agreement described
above.
On May 17, 1999 the Company completed its
acquisition of Develcon as anticipated. The
loans will be converted to common shares of
Develcon contemporaneously with Develcon being a
wholly owned subsidiary of the Company and
accrued interest income in the amount of $65,375
in relation to these loans for the period March
20, 1998 to December 31, 1998 will be forgiven.
The accrued interest, together with the
outstanding balance of these loans will be
constitute a portion of the purchase price.
<PAGE>
NOTES TO FINANCIAL STATEMENTS:
For the Period from March 20, 1998 (inception) to
December 31, 1998
4. Acquisition of Develcon (Continued)
The acquisition shall be accounted for as a
purchase, and is subject to certain conditions
and representations. The purchase price of
Develcon will be determined by the number of
shares issued by the Company to effect the
acquisition and the amount of loans provided to
Develcon.
5. Common Stock
The authorized common stock of the Company
consists of 3,000,000 shares, of which 350,000
shares are currently issued and outstanding. Of
the issued and outstanding shares, 300,000 were
fully paid at December 31, 1998. Such shares
were sold for $0.01 and as of December 31, 1998 a
$500 subscription receivable is outstanding. The
subscription receivable of $1,500 for 150,000
shares was offset against an amount owed to an
officer and director for payment of a prior legal
expense.
On March 23, 1999, in connection with the Merger
Agreement with Radar Resources, Inc. (see Note
3), such shares were exchanged for 1.4 million
shares of the Merged Company.
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 one 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.
In the event of any liquidation or winding up of
the Company, the holders of the Series A
preferred stock were entitled to receive, prior
and in preference to the holders of common stock,
the original price per share of Series A
preferred stock, plus a cumulative dividend at an
annual rate of 7%, computed from the date the
Series A preferred stock was issued.
The holders of the Series A preferred stock were
entitled to vote with holders of shares of common
stock (as a single class) on all matters brought
before the stockholders at one vote for each
share of common stock into which their shares of
Series A preferred stock were convertible.
On March 23, 1999, as part of the Merger
Agreement with Radar Resources, Inc. (Note 3),
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 merged company since the
exchange ratio specified in the Merger Agreement
was for Company common shareholders to receive
four shares of common stock of the Merged Company
for each share of common stock of the Company.
<PAGE>
NOTES TO FINANCIAL STATEMENTS:
For the Period from March 20, 1998 (inception) to
December 31, 1998
7. 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.
8. Income Taxes
The difference between the statutory Federal
income tax rate and the Company's effective tax
rate for the period ended December 31, 1998 is
principally due to the Company incurring net
operating losses for which no tax benefit was
recorded.
For Federal income tax purposes, the Company has
unused net operating loss carryforwards of
approximately $416,500 expiring through year
2018. The availability of the net operating loss
carryforwards to offset income in the future
years, if any, may be limited by the Internal
Revenue Code Section 382 as a result of certain
ownership changes. The tax effects of temporary
differences that give rise to significant
portions of the deferred tax assets at December
31, 1998 are as follows:
Deferred tax assets:
Net operating loss
carryforward - current period $ 166,500
Unrealized foreign exchange loss 29,500
--------
196,000
Less valuation allowance (196,000)
Deferred tax asset $ --
------------
In assessing the realizability of deferred tax
assets, management considers whether it is more
likely than not that some portion or all of the
deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is
dependent upon the generation of future taxable
income during the periods in which those
temporary differences become deductible.
Management considers the projected future taxable
income and tax planning strategies in making this
assessment. The valuation allowance was recorded
due to the uncertainty in the utilization of
Federal net operating loss carryforwards.
<PAGE>
NOTES TO FINANCIAL STATEMENTS:
For the Period from March 20, 1998 (inception) to
December 31, 1998
9. Related Party Transactions
Fees and Expenses:
The Company paid consulting fees aggregating
approximately $133,000 to a company owned by two
shareholders who are also officers of the Company
for engineering and other services. The Company
has also incurred legal expenses of $116,000 for
work performed by a law firm that employs an
officer of the Company.
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 $4 of principal 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. Subsequent to December 31, 1998
$200,000 was repaid to one of the lenders and
additional convertible demand notes to $30,000
were issued to two of the lenders.
On March 23, 1999, as part of the Merger
Agreement with Radar Resources, Inc. (see Note 6)
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 $4 of principal
amount and utilizing the exchange rate in the
Merger Agreement, convertible demand notes
payable holders received one share of common
stock of the Merged Company for each $1.00 of
principal amount then outstanding.
Other:
During 1998, an officer and director paid a legal
expense of $2,500 on behalf of the Company. Of
this amount, $1,500 was offset against the
subscription receivable for common shares and
$1,000 remains payable at December 31, 1998.
10. Stock Option Plan
On April 23, 1998, the Board of Directors granted
options to purchase 110,000 shares of the
Company's common stock to certain officers and
directors of the Company at an exercise price of
$4.00 per share. The options vest over a three
year period and have a term of eight years. The
Company did not recognize any compensation
expense relative to the options for the period
ended December 31, 1998 since the option price
was in excess of fair value at the date of grant.
As the Company was only recently formed and had
no operations or significant activities at the
grant date, management has determined that the
fair value of the options granted was deminimus
and, therefore, has not presented the pro forma
disclosures required by SFAS No. 123 as the
effect on reported net loss is immaterial.
<PAGE>
NOTES TO FINANCIAL STATEMENTS:
For the Period from March 20, 1998 (inception) to
December 31, 1998
11. Commitments
On April 12, 1999, Develcon entered into a three-
year agreement with a vendor to provide finished
goods under an exclusive manufacturing
outsourcing arrangement. Develcon has agreed to
minimum purchase commitments of C$5 million, C$6
million and C$7 million in years one, two and
three of the contract, respectively. Cost to
Develcon will be manufacturer's cost plus 25%.
The vendor has also committed, subject to certain
conditions, to a C$1.5 million equity investment
in the common stock of the Company, paid monthly,
of one half of the normal gross margin earned by
the vendor on the manufacturing contract. The
Company's common stock will be priced at 95% of
the average price for the preceding 20 trading
days.
12. Subsequent Events
Acquisition of Infinop Holdings, Inc.:
During May, 1999, the Company entered into an
agreement whereby the Company agreed to acquire
100% of the shares of Infinop Holdings, Inc.
(Infinop), including shares into which the
convertible debt can be converted, in exchange
for 1,573,850 common shares of the Company's
stock. As part of this agreement the Company
agreed to provide Infinop with $640,000 in
interim financing, provide $400,000 to be paid
certain individuals, enter into certain
employment contracts and make certain additional
payments based upon royalties earned from
existing Infinop contracts.
Option to Purchase PSI Communications, Inc.:
During July, 1999 the Company entered into an
agreement whereby it would provide PSI
Communications, Inc. (PSI) with $500,000 of
interim financing in exchange for an option,
expiring December 31, 1999, to acquire PSI for
consideration consisting of 1,200,000 shares of
the Company's common stock, discharge of PSI's
liability for the interim financing, repayment of
certain liabilities to PSI shareholders and
employees, and additional payments and issuance
of stock based upon PSI's performance. If the
Company does not exercise the option it may elect
(1) to receive a non-exclusive indefinite license
to utilize PSI's current and future technology,
subject to a royalty of five percent of revenues;
(2) have the interim financing remain as debt due
from PSI in which case it shall be due on June
30, 2000 with interest payable at 6% per annum
commencing January 1, 2000. If unpaid at June
30, 2000, the Company may elect to convert the
debt to up to 10% of the common equity of PSI
depending on the amount unpaid.
