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 Incorporation) (Commission File Number) (IRS 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. Except for the fact that
this report includes the opinion of our principal accountants, the
financial 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
<PAGE>
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: September 7, 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 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.
New York, New York
July 26, 1999
/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 100,000
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>
<CAPTION>
Vianet Technologies, Inc.
Statement of Cash Flows
For the period from March 20, 1998 (inception) to December 31, 1998
<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.
