<PAGE>
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
January 7, 2000
(Date of report)
VIANET TECHNOLOGIES, INC.
NEVADA 33-55254-19 87-0434285
(State of Incorporation) (Commission File Number) (IRS Employer ID)
83 MERCER STREET, NEW YORK, NEW YORK 10012
(Address of Principal Executive Offices)
(212) 219-7680
(Registrant's Telephone Number)
Vianet Technologies, Inc. (the"Company") initially filed a Current Report on
Form 8-K with the Securities and Exchange Commission on June 2, 1999, which is
hereby amended by this Form 8-K/A to comply with Item 7 of Form 8-K and the
provisions of Rule 3-05 of Regulation S-X.
<PAGE>
ITEM 2. Business Combination
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 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, a lender of
Develcon was granted warrants to purchase 150,000 shares of Vianet stock at
$6.00 per share. Since such debt had not been repaid by June 30, 1999, these
warrants were issued August 1, 1999, and are exercisable through June 2002. 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 onward.
As a result of the closing of the Arrangement, the former shareholders and
creditors of Develcon hold 2,585,488 shares of the Company's outstanding common
stock.
The acquisition was accounted by the purchase method of accounting. Assets
acquired and liabilities assumed have been recorded at their estimated fair
values. The excess of cost over the estimated fair value of the net assets
acquired was allocated to goodwill and will be amortized on a straight-line
basis over six years.
The purchase price of Develcon was determined by the number of shares issued by
the Company to effect the acquisition and the amount of loans provided to
Develcon. The total acquisition amounted to $7,034,000 including $6,015,000 for
goodwill.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
The Company acquired 100% of the outstanding shares of capital stock of
Develcon Electronics Ltd. on May 17, 1999. The financial statements of
Develcon Electronics Ltd filed (in Canadian dollars) herein as Addendum
I include:
(1) Consolidated Balance Sheets (Unaudited) at May 17, 1999 and May 31,
1998
(2) Consolidated Statements of Opertions (Unaudited) for the periods
September 1, 1998 to May 17, 1999 and September 1, 1997 to May 31,
1998
<PAGE>
(3) Consolidated Statements of Accumulated Deficit (Unaudited) for the
periods September 1, 1998 to May 17, 1999 and September 1, 1997 to
May 31, 1998
(4) Consolidated Statements of Cash Flows (Unaudited) for the periods
September 1, 1998 to May 17, 1999 and September 1, 1997 to May 31,
1998
(5) Audited financial statements of Develcon Electronics Ltd. and the
related Auditors Report as of and for the years ended August 31,
1998 and 1997
(6) Supplemental Disclosure regarding reconciliation of Canadian GAAP
to US GAAP
(b) Pro Forma Financial Information filed (in US dollars) herein as
Addendum II are as follows:
(1) Consolidated Balance Sheet of Vianet Tehnologies, Ltd. as of June
30, 1999.
(2) Pro Forma Consolidated Statement of Operations for the six months
ended June 30, 1999
(3) Pro Forma Consolidated Statement of Operations for the twelve
months ended December 31, 1998
(c) Exhibits (Previously filed as an exhibit to the Company's Form 8-K,
filed on June 2, 1999).
Arrangement Agreement
Plan of Arrangement
Securityholders' Resolution
Debentureholders' Resolution
<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)
January 5, 2000 /s/ Vincent Santivasci
----------------------------
Vincent Santivasci, CFO
<PAGE>
Addendum I
DEVELCON ELECTRONICS LIMITED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Canadian Dollars)
-------------------------------
(Unaudited) (Unaudited)
May 17, May 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Trade accounts receivable $1,983,453 $3,027,000
Prepaids and other receivbles 358,517 621,000
Investment tax credits receivable 76,017 476,000
Inventory 3,734,113 5,362,000
----------- -----------
Total Current Assets 6,152,100 9,486,000
----------- -----------
Property and Equipment (net of accumulated depreciation of
$12,481,000 and $11,754,000) 3,790,675 4,078,000
----------- -----------
Deferred charges 849,549 303,000
----------- -----------
$10,792,324 $13,867,000
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICENCY)
Current Liabilities:
Bank indebtedness (1) $645,452 $778,000
Other loans payable 56,050 1,300,000
Current portion of long-term debt 5,833,453 6,369,000
Accounts payable and accruals 5,558,436 2,930,000
Demand loans payable - related parties 4,938,722 -
----------- -----------
Total Current Liabilities 17,032,113 11,377,000
----------- -----------
Long-Term Debt 189,109 479,000
----------- -----------
Shareholders' Equity (Deficiency):
Capital Stock 25,534,124 25,534,000
Other paid in capital 950,000 950,000
Accumulated deficit (32,913,022) (24,473,000)
----------- -----------
Shareholders' Equity (Deficiency) (6,428,898) 2,011,000
----------- -----------
$10,792,324 $13,867,000
----------- -----------
</TABLE>
(1) Under Canadian GAAP and in the statement above, cash, cash overdrafts and
short-term bank debt are combined on the balance sheet. For presentation
purposes these items are classified separately under US GAAP.
(The accompanying notes are an integral part of these financial statements)
<PAGE>
DEVELCON ELECTRONICS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
(Canadian Dollars)
September 1, 1998 September 1, 1997
May 17, 1999 May 31, 1998
----------------- ------------------
<S> <C> <C>
Revenue:
Net sales $10,112,677 $14,900,000
----------- -----------
Interest and other income 89,610 -
----------- -----------
$10,202,287 $14,900,000
Costs and Expenses:
Cost of goods sold 7,147,779 7,907,000
Selling and administrative 5,304,897 5,452,000
Research and development 2,330,872 2,479,000
Revaluation of assets 513,068 -
Depreciation and amortization 727,127 1,020,000
Interest 406,221 602,000
----------- -----------
16,429,964 17,460,000
----------- -----------
Net Loss $(6,227,677) $(2,560,000)
----------- -----------
</TABLE>
DEVELCON ELECTRONICS LTD.
CONSOLIDATED STATEMENTS OF ACCUMULATED DEFICIT
UNAUDITED
(Canadian Dollars)
<TABLE>
<CAPTION>
September 1, 1998 September 1, 1997
May 17, 1999 May 31, 1998
----------------- ------------------
<S> <C> <C>
Balance, August 31 $(26,685,345) $(21,913,000)
Net loss for period (6,227,677) (2,560,000)
------------ ------------
Balance, end of period $(32,913,022) $(24,473,000)
============ ============
</TABLE>
(The accompanying notes are an integral part of these financial statements)
<PAGE>
DEVELCON ELECTRONICS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
(Canadian Dollars)
Septmber 1, 1998 Septmber 1, 1997
May 17,1999 May 31, 1998
----------------- ----------------
<S> <C> <C>
Operating Activities:
Net loss for period $(6,227,677) $(2,560,000)
----------- -----------
Items not requiring an outlay for cash:
Revaluation of assets 513,068 -
Depreciation and amortization 727,127 1,020,000
Non cash portion of convertible debenture interest 86,000 110,000
Non cash portion of other finance charges 14,000 40,000
----------- -----------
(4,887,482) (1,390,000)
Changes in other non-cash operating assets and liabilities 3,861,336 (362,000)
----------- -----------
Cash (used in) operating activities (1,026,146) (1,752,000)
----------- -----------
Financing Activities:
Issue of other loans - 1,473,000
Proceeds of interim financing 2,150,785 1,500,000
Principal payments of long-term debt - (329,000)
Repayment of other loans - (173,000)
Retirement of long-term debt (52,000) -
Issue of share capital 86,000
Expenses related to issues (40,221) (118,000)
Reduction of deferred revenues - (699,000)
----------- -----------
Cash provided by financing activities 2,058,564 1,740,000
----------- -----------
Investing Activities:
Disposal of investment - 223,000
Purchase of property, plant and equipment (847,870) (401,000)
----------- -----------
Cash used in investing activities (847,870) (178,000)
----------- -----------
Increase/(Decrease) in cash position 184,548 (190,000)
Cash position at beginning of period (830,000) (588,000)
----------- -----------
Cash position at end of period $(645,452) $(778,000)
----------- -----------
</TABLE>
(Cash positions consist of cash less bank indebtedness)
(The accompanying notes are an integral part of these financial statements)
<PAGE>
DEVELCON ELECTRONICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Periods Ended May 17,
1999 and May 31, 1998 (all amounts stated in Canadian dollars)
1. NATURE OF OPERATIONS
The Company designs, manufactures and markets a sophisticated range of
products, systems and services that are designed to provide efficient and
cost effective enterprise network solutions. The Company focuses on
delivering end-to-end networking solutions that seamlessly integrate a
broad range of business applications, diverse computing environments and
communication technologies. The Company has made a strategic decision to
function as a global enterprise, operating its core business functions with
an international perspective, developing solutions for global markets and
establishing sales and support offices around the world.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements are prepared in
accordance with accounting principles generally accepted in Canada.
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the 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. A summary of the significant accounting policies adopted
by the Company is set out below.
Measurement Uncertainty: The Company operates in a market which is price
competitive and subject to rapid technological advancement. The Company
assesses the net realizable value of its inventory and goodwill assets
based on current market assessments. Significant changes in the market for
the Company's products may result in an impairment in value of these
assets.
Consolidation: The consolidated financial statements include the accounts
of Develcon Electronics Ltd. ("Develcon") and its wholly-owned
subsidiaries, Develcon Electronics Inc. and EDA Instruments Inc. ("EDA"),
after elimination of all material intercompany accounts and transactions.
Foreign Exchange: Monetary assets and liabilities of the wholly-owned US
subsidiary are translated to Canadian currency at the exchange rate
prevailing at year end. Non-monetary assets are translated to Canadian
currency at exchange rates in effect when they were acquired. Revenues and
expenses are translated at the approximate average rate of exchange for the
year, except that provisions for depreciation and amortization are
translated at the rates used to translate related assets. The resulting
gains or losses on translation are included in the consolidated statement
of operations.
Depreciation and Amortization: The Company depreciates its plant on a
straight-line basis over a 15-year period and furniture and equipment on a
straight-line basis over a 5-year period. Product support service
replacement parts are depreciated on a straight-line basis over the
estimated product life cycle.
<PAGE>
Deferred Charges: Deferred Charges include legal and other professional and
transaction costs associated with long-term debt financing and costs
relating to the acquisition of Develcon Electronics Ltd by Vianet
Technologies, Inc. A portion of these costs are being amortized over the
life of the related loans and charged to other finance charges.
Research and Development Costs: Research costs are expensed in the year
incurred. The Company expenses development costs as incurred unless the
Company believes the development costs meet generally accepted accounting
principles for deferral and amortization. In the opinion of management, no
development costs incurred to date meet all criteria for deferral and
amortization. Therefore, all development costs to date have been expensed
as incurred. Research and development grants, when earned, and investment
tax credits where there is a reasonable assurance they will be realized,
are offset against the applicable costs incurred.
Deferred Revenue: EDA entered into an agreement with one of its customers
whereby monies were received in advance for future shipment of goods. The
revenue under this agreement is recognized upon shipment of goods. This
liability was discounted and recorded at fair value, based on anticipated
future product delivery dates, upon acquisition of EDA. The amount of the
discount is charged as a financing expense as the product is delivered.
3. INVENTORY
Work-in-progress and finished goods are valued at the lower of cost or
estimated net realizable value. Raw materials are valued at the lower of
cost or replacement cost. Cost is determined on a first-in, first-out basis
and includes materials, labour and manufacturing overhead where applicable.
May 17, May 31,
1999 1998
---- ----
(thousands of
Canadian dollars)
Raw materials............................. $983 $1,084
Work-in-progress.......................... 700 1,281
Finished goods............................ 2,051 2,997
----------------------
$3,734 $5,362
4. DEBT
The Company is in default on certain debt agreements, including nonpayment
of principal and interest, and in violation of financial covenants, which
allow the lenders to demand repayment. During August 1999, the Company
modified its banking arrangement with RBC. The company is also in violation
of its agreement with respect to a note payable with a Canadian government
entity (CDN$344,087). The lender has the option to demand that the entire
outstanding balance become immediately due and payable. No such demand has
been made. Management believes that its operating losses are primarily due
to inadequate financing and is dependent on its ability to obtain
additional sources of financing to fund its working capital requirements.
The Company is considering several alternatives to fund these requirements.
There is no assurance the Company will be able to obtain continuing
adequate funding on acceptable terms and no assurance that once obtained
such additional funding will result in the Company's profitable operation.
2
<PAGE>
5. CAPITAL STOCK
(a) Authorized
An unlimited number of Common Shares.
4,600,000 Series A 1% Preferred Shares. Each Series A Share carries
the right to one vote at meetings of shareholders.
955,500 Series B 10.5% Convertible Cumulative Preferred Shares. Each
Series B Share carries the right to one vote at meetings of
shareholders. The Series B Shares are convertible on a one-for-one
basis into 955,500 Common Shares.
At the annual meeting of shareholders on February 8, 1995, a special
resolution was passed reducing the stated capital of the Company by
$29,877,443.
(b) Issued
On March 6, 1998, interest payable on the convertible promissory note
was converted into 342,328 Common Shares at $0.25 per share. No changes
in capital stock occurred during the period September 1, 1998 through
May 17, 1999.
6. LOSS PER SHARE
Loss per share amounts are calculated using the monthly average number of
Common Shares outstanding during the respective fiscal years less
repurchased shares. The weighted monthly average number of shares
outstanding, after deducting shares repurchased and held by the Company,
was 44,865,270 at May 17, 1999 and 44,808,215 at May 31, 1998. The loss per
share as at May 17, 1999 was $(0.14) and as at May 31, 1998 was $(0.06).
7. RELATED PARTY TRANSACTIONS
Demand Loans Payable consist of a $1,500,000 loan from Vianet Technologies,
Inc. bearing interest at 10% per annum in addition to other shareholder
loans approximating $3,439,000. Interest expense for the nine months ended
May 17, 1999 and May 31, 1998 relating to the $1,500,000 loan from Vianet
Technologies, Inc. approximated $87,000 and $18,000, respectively.
8. CHANGE IN OPERATING WORKING CAPITAL
Cash provided by (utilized by) operating working capital is computed as
follows:
May 17, May 31,
1999 1998
---- -----
(thousands of
Canadian dollars)
Trade accounts receivable............................ $1,362 $972
Prepaids and other receivables....................... 128 (204)
Investment tax credits receivable.................... 114 51
Inventory............................................ 866 90
Accounts payable and accrued liabilities............. 1,391 (1,271)
------- ------
$3,861 $(362)
======= ======
<PAGE>
9. FINANCIAL INSTRUMENTS
The Company has significant sales outside Canada, all of which are in US
dollars, so it is exposed to currency fluctuations. The Company has not
hedged its currency risk through the purchase of foreign exchange
contracts. However, the risk associated with foreign currency fluctuations
is mitigated to some extent by the purchase of a significant portion of its
raw materials and certain labour costs in US dollars.
The fair value of the Company's financial assets and liabilities has been
determined as follows:
The carrying value of trade accounts receivable, other receivables,
investment tax credit receivable, bank indebtedness and accounts payable
and accrued liabilities approximate fair value due to their short term
nature.
Due to the current financial position of the Company, it is not possible to
approximate the fair value of the long-term debt.
<PAGE>
KPMG LLP
Chartered Accountants
600-129 Fourth Avenue South
Saskatoon SK S7K 1M8
Auditors' Report to Shareholders
We have audited the consolidated balance sheets of Develcon Electronics
Ltd. as at August 31, 1998 and 1997 and the consolidated statements of
operations, deficit and changes in financial position for the years then
ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. We conducted
our audits in accordance with generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statements presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of Develcon Electronics Ltd.
as at August 31, 1998 and 1997 and the results of its operations and the
changes in its financial position for the years then ended in accordance
with generally accepted accounting principles.
/s/KPMG LLP
Chartered Accountants
Saskatoon, Canada
January 25, 1999
<PAGE>
DEVELCON ELECTRONICS LTD.
CONSOLIDATED BALANCE SHEETS
August 31, 1998 and 1997
(thousands of Canadian dollars)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets
Current Assets
Trade accounts receivable $3,346 $3,999
Prepaids and other receivables 486 417
Investment tax credits receivable 190 527
Inventory (note 4) 4,600 5,452
------- -------
Total current assets 8,622 10,395
------- -------
Property, Plant and Equipment (note 5) 4,182 4,697
------- -------
Investment, at cost * 223
------- -------
Deferred Financing Costs 343 230
------- -------
$13,147 $15,545
------- -------
Liabilities and Shareholders' Equity (Deficiency)
Current Liabilities
Bank indebtedness, secured $830 $588
Interim financing, secured 2,952 ?
Accounts payable and accrued liabilities 4,167 4,201
Current portion of deferred revenue ? 100
Current portion of long-term debt 5,022 464
------- -------
Total current liabilities 12,971 5,353
------- -------
Deferred Revenue * 599
Long-term Debt (note 6) 377 5,103
Shareholders' Equity (Deficiency)
Capital stock (note 7) 25,535 25,453
Other paid in capital (note 6) 950 950
Deficit (26,686) (21,913)
------- -------
(201) 4,490
------- -------
$13,147 $15,545
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
DEVELCON ELECTRONICS LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended August 31, 1998 and 1997
(thousands of Canadian dollars except per share amounts)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Sales $19,158 $18,907
Cost of sales 10,419 9,623
------- --------
Gross margin 8,739 9,284
------- --------
Expenses
Selling and administration 7,437 6,250
Research and development 3,472 3,393
------- --------
10,909 9,643
(2,170) (359)
------- --------
Depreciation and finance charges
Amortization and impairment of goodwill (note 9) * 9,972
Depreciation and amortization 1,362 1,194
Interest on long-term debt 650 499
Other finance charges 591 436
------- --------
2,603 12,101
Net loss $(4,773) $(12,460)
------- --------
Loss per share (note 11) $(.11) $(.28)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
DEVELCON ELECTRONICS LTD.
CONSOLIDATED STATEMENTS OF DEFICIT
Years Ended August 31, 1998 and 1997
(thousands of Canadian dollars)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance, beginning of year $(21,913) $(9,453)
Net loss (4,773) (12,460)
-------- -------
Balance, end of year $(26,686) $(21,913)
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
DEVELCON ELECTRONICS LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
Years Ended August 31, 1998 and 1997
(thousands of Canadian dollars)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Operating Activities
Net loss $(4,773) $(12,460)
Items not requiring an outlay of cash
Amortization and impairment in value of goodwill * 9,972
Depreciation and amortization 1,362 1,194
Non-cash portion of convertible debenture interest 169 121
Non-cash portion of other finance charges 55 43
------- --------
(3,187) (1,130)
Cash provided by (utilized by) operating working capital (note 16) 1,739 (995)
------- --------
Cash utilized by operating activities (1,448) (2,125)
------- --------
Financing Activities
Proceeds of interim financing 2,952 *
Issues of long-term debt * 4,064
Retirement of long-term debt (337) (421)
Reduction of deferred revenue (699) (183)
Issue of share capital 86 *
Expenses related to issues (173) (377)
------- --------
Cash provided by financing activities 1,829 3,083
------- --------
Investing Activities
Disposal of investment 223 *
Purchase of property, plant and equipment (846) (1,387)
Disposal of equipment * 193
------- --------
Cash utilized by investing activities (623) (1,194)
------- --------
Decrease in cash position (242) (236)
Cash position, beginning of year (588) (352)
------- --------
Cash position, end of year $(830) $(588)
------- --------
</TABLE>
Cash position consists of bank indebtedness.
See accompanying notes to consolidated financial statements.
<PAGE>
DEVELCON ELECTRONICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended August 31, 1998 and 1997
(all amounts stated in Canadian dollars)
1. NATURE OF OPERATIONS
The Company designs, manufactures and markets a sophisticated range of
products, systems and services that are designed to provide efficient and
cost effective enterprise network solutions. The Company focuses on
delivering end-to-end networking solutions that seamlessly integrate a
broad range of business applications, diverse computing environments and
communication technologies. The Company has made a strategic decision to
function as a global enterprise, operating its core business functions with
an international perspective, developing solutions for global markets and
establishing sales and support offices around the world.
2. GOING CONCERN
The Company has incurred significant operating losses over the past four
years. At August 31, 1998 the Company has a cash deficiency, is unable to
pay its suppliers within normal trade terms and has a significant working
capital deficiency. The Company's ability to pay its obligations will be
further restricted by its bank's requirement that the existing line of
credit be repaid by May 31, 1999. The Company is in default of certain
covenants, including non-payment of principal and interest, on long-term
debt which allows the lenders to demand repayment of existing debt.
The Company is negotiating a transaction with another company which will
provide cash to the Company and would result in the conversion of
approximately $6.0 million of existing debt into equity of the other
company. The Company hopes to finalize these arrangements in the near
future to avoid a demand for repayment of its debt, restore normal payment
term relationships with its suppliers and remedy defaults under debt
agreements. The Company must obtain approval from the majority of its
shareholders and its lenders as a condition of this financing.
These financial statements have been prepared on the going concern basis,
which assumes the realization of assets and liquidation of liabilities in
the normal course of business. The application of the going concern concept
is dependent on the Company's ability to complete the required financing
and restore and maintain profitable operations. A failure to continue as a
going concern would then require that stated amounts of assets and
liabilities be reflected on a liquidation basis which could differ
significantly from the going concern basis.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements are prepared in
accordance with accounting principles generally accepted in Canada.
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the 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. A summary of the significant accounting policies adopted
by the Company is set out below.
<PAGE>
Measurement Uncertainty: The Company operates in a market which is price
competitive and subject to rapid technological advancement. The Company
assesses the net realizable value of its inventory and goodwill assets
based on current market assessments. Significant changes in the market for
the Company's products may result in an impairment in value of these
assets.
Consolidation: The consolidated financial statements include the accounts
of Develcon Electronics Ltd. ("Develcon") and its wholly-owned
subsidiaries, Develcon Electronics Inc. and EDA Instruments Inc. ("EDA"),
after elimination of all material intercompany accounts and transactions.
Foreign Exchange: Monetary assets and liabilities of the wholly-owned US
subsidiary are translated to Canadian currency at the exchange rate
prevailing at year end. Non-monetary assets are translated to Canadian
currency at exchange rates in effect when they were acquired. Revenues and
expenses are translated at the approximate average rate of exchange for the
year, except that provisions for depreciation and amortization are
translated at the rates used to translate related assets. The resulting
gains or losses on translation are included in the consolidated statement
of operations.
Depreciation and Amortization: The Company depreciates its plant on a
straight-line basis over a 15-year period and furniture and equipment on a
straight-line basis over a 5-year period. Product support service
replacement parts are depreciated on a straight-line basis over the
estimated product life cycle.
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the
estimated life of such goodwill. The net book value of goodwill would be
written down if the value of goodwill were permanently impaired. The
Company assesses impairment by determining whether the unamortized goodwill
balance can be recovered through undiscounted future operating cash flows
of the acquired operation over its remaining life.
Deferred Financing Costs: Deferred financing costs are the legal and other
professional and transaction costs associated with long-term debt
financing. These costs are being amortized over the life of the related
loans and charged to other finance charges.
Research and Development Costs: Research costs are expensed in the year
incurred. The Company expenses development costs as incurred unless the
Company believes the development costs meet generally accepted accounting
principles for deferral and amortization. In the opinion of management, no
development costs incurred to date meet all criteria for deferral and
amortization. Therefore, all development costs to date have been expensed
as incurred. Research and development grants, when earned, and investment
tax credits where there is a reasonable assurance they will be realized,
are offset against the applicable costs incurred.
Deferred Revenue: EDA entered into an agreement with one of its customers
whereby monies were received in advance for future shipment of goods. The
revenue under this agreement is recognized upon shipment of goods. This
liability was discounted and recorded at fair value, based on anticipated
future product delivery dates, upon acquisition of EDA. The amount of the
discount is charged as a financing expense as the product is delivered.
<PAGE>
4. INVENTORY
Work-in-progress and finished goods are valued at the lower of cost or
estimated net realizable value. Raw materials are valued at the lower of
cost or replacement cost. Cost is determined on a first-in, first-out basis
and includes materials, labour and manufacturing overhead where applicable.
1998 1997
---- ----
(thousands of
Canadian dollars)
Raw materials........................................ $1,005 $1,206
Work-in-progress..................................... 902 1,331
Finished goods....................................... 2,693 2,915
--------------------
--------------------
$4,600 $5,452
5. PROPERTY, PLANT AND EQUIPMENT
1998 1997
---- ----
(thousands of
Canadian dollars)
Property............................................. $275 $275
Plant................................................ 254 250
Leasehold improvements............................... 44 44
Equipment and furniture.............................. 12,428 12,058
Product support service equipment.................... 2,294 1,630
Equipment under capital leases....................... 641 867
15,936 15,124
Less accumulated depreciation........................ 11,754 10,427
$4,182 $4,697
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
---- ----
(thousands of
Canadian dollars)
<S> <C> <C>
Convertible debentures with an effective interest rate of 14% are due November 15, 2001 and are convertible $2,987 $2,817
at the option of the holders into 10,135,135 Common Shares at $.37 per share...............................
Convertible promissory note with interest at 8.5% per annum, calculated and payable monthly. The principal 1,500 1,500
amount is repayable on November 30, 1998, November 30, 1999, and November 30, 2000 in installments of
$150,000, $300,000 and $1,050,000, respectively............................................................
Government contribution toward eligible market development costs. Repayable in monthly installments of 448 431
$11,648. Interest is due on delinquent payments............................................................
Agreement for sale entered into with a shareholder with respect to the Saskatoon office. Payable in monthly 430 468
installments of $7,250 to February 1, 2000 and the balance of the principal amount on that date. Interest
rate is 10.5%..............................................................................................
Capital leases with respect to equipment. The leases have terms expiring up to May 1999. Monthly payments are 34 351
$4,302 with varying interest rates until November 1998 and then reduce as the leases expire................
-------------------
5,399 5,567
Less current portion......................................................................................... 5,022 464
-------------------
$377 $5,103
-------------------
</TABLE>
<PAGE>
On November 15, 1996, the Company issued five-year convertible debentures
for proceeds of $3,750,000 to shareholders of the Company. The debentures
bear interest at 6%, are due November 15, 2001 and will be convertible at
the option of the holders into Common Shares at an effective conversion
price of $0.37 per Common Share, subject to adjustment in certain
circumstances. These debentures were recorded, on a discounted basis, in
the amount of $2,696,000 calculated using an estimated fair value interest
rate of 14%, the rate of interest that would have been applicable to
non-convertible debt at the date of issue. Amortization of the debenture
discount to August 31, 1998 was $291,000 and $121,000 to August 31, 1997.
The amount attributable to the value of the conversion right on the
debentures in the amount of $1,054,000, net of issue costs of $104,000, is
reflected in shareholders' equity as "other paid in capital".
The debentures are secured by a general security interest on all assets of
the Company subordinate to the holder of the promissory note.
The promissory note, which bears interest at 8.5%, is secured by a general
security interest on all assets of the Company subject to a $500,000 charge
relating to the bank operating line of credit. The principal amount of the
promissory note is convertible into Common Shares at $1.00 per share. The
note holder is a shareholder of the Company.
Estimates of principal payments required in each of the next two years are:
(thousands of
Canadian
dollars)
1999.................................................... $5,022
2000.................................................... 377
-------
$5,399
At August 31, 1998, the Company was in violation of certain covenants with
respect to the convertible debentures and promissory note including unpaid
interest in the amount of $440,000. Because a default has occurred, lenders
have the option to demand the entire balance become immediately due and
payable. As such the full amount of the convertible debentures and
promissory note have been included in the current portion of long-term
debt.
<PAGE>
7. CAPITAL STOCK
(a) Authorized
An unlimited number of Common Shares.
4,600,000 Series A 1% Preferred Shares. Each Series A Share carries
the right to one vote at meetings of shareholders.
955,500 Series B 10.5% Convertible Cumulative Preferred Shares. Each
Series B Share carries the right to one vote at meetings of
shareholders. The Series B Shares are convertible on a one-for-one
basis into 955,500 Common Shares.
At the annual meeting of shareholders on February 8, 1995, a special
resolution was passed reducing the stated capital of the Company by
$29,877,443.
(b) Issued
<TABLE>
<CAPTION>
Common Shares Number Thousands Number Thousands
of Shares of Dollars of Shares of Dollars
--------- ---------- --------- ----------
1998 1997
---- ----
<S> <C> <C> <C> <C>
Balance, beginning of year.......................................... 44,743,776 $25,453 44,743,776 $25,453
Issued during the year.............................................. 342,328 86 - -
Expenses related to issue........................................... - (4) - -
---------------------------------------------------------
ance, end of year................................................ 45,086,104 $25,535 44,743,776 $25,453
- - - -
Series A 1% Preferred Shares........................................
Series B 10.5% Preferred Shares..................................... - - - -
</TABLE>
During the year ended August 31, 1998, interest payable on the convertible
promissory note was converted into 342,328 Common Shares at $0.25 per
share.
8. STOCK OPTIONS/WARRANTS
During 1986 the Company adopted a Key Executive Stock Option Plan (KESOP).
The plan provides for the granting of options to purchase Common Shares at
an exercise price equal to the fair market value of the shares at the close
of business on the business day immediately preceding the date on which the
option is granted. Options may not have a term of more than ten years and
may be granted by the Compensation Committee of the Board of Directors to
eligible employees at any time in such numbers and at such times as the
Committee may determine.
During 1987 the Board of Directors adopted the Directors' Stock Option Plan
(DSOP). The plan provides for the granting of options to purchase Common
Shares to be granted to each eligible board member at a price equal to the
market value of the Common Shares on the business day immediately preceding
the date on which the option is granted. Directors who are employees or
officers of Develcon or its subsidiaries or who own more than 1% of the
outstanding Common Shares of Develcon are not eligible to receive options
under this plan. Stock option grants to directors are at the discretion of
the Compensation Committee of the Board of Directors and may not exceed
100,000 per director.
<PAGE>
A summary of stock option transactions follows:
<TABLE>
<CAPTION>
Option Activity Shares Available Outstanding
for Grant Options
--------- -------
<S> <C> <C>
Balance August 31, 1996................................................................. 426,750 1,830,000
Authorized KESOP and DSOP............................................................. 2,625,000 -
Granted KESOP and DSOP................................................................ (1,130,000) 1,130,000
Cancelled KESOP and DSOP.............................................................. 501,900 (501,900)
Balance August 31, 1997................................................................. 2,423,650 2,458,100
Granted KESOP and DSOP................................................................ (1,045,000) 1,045,000
Cancelled KESOP and DSOP.............................................................. 393,500 (393,500)
Balance August 31, 1998................................................................. 1,772,150 3,109,600
</TABLE>
The Company has a total of 10,170,503 warrants for the purchase of one
Common Share per warrant outstanding as of August 31, 1998 at the following
prices per Common Share and expiry dates:
Number of Warrants Price Expiry Date
- ------------------ ----- -----------
2,306,451.................................. $0.62 November 20, 1998
3,614,052.................................. $1.43 February 22, 1999
1,000,000.................................. $0.25 December 2, 2002
1,000,000.................................. $0.25 December 12, 2002
2,250,000.................................. $0.25 April 30, 2003
9. GOODWILL
1998 1997
---- ----
(thousands of
Canadian dollars)
Goodwill, beginning of year.......................... $ - $9,972
Amortization......................................... - (1,050)
Impairment in value.................................. - (8,922)
Goodwill, end of year................................ $ - $ -
The value of goodwill at August 31, 1997 was assessed based on the expected
undiscounted future operating cash flows from product lines acquired
through the EDA acquisition. The market for the Company's products is
highly competitive and is characterized by rapidly changing technology,
frequent new product introductions and evolving industry standards. Due to
the rapid changes in product lines and changes to the operation of the
Company, which have resulted in a merger of operations and technology of
Develcon and EDA, the future expected cash flows which are distinguishable
as being solely from product technology acquired from EDA indicated
impairment in the net realizable value of goodwill at August 31, 1997.
10. INCOME TAXES
The potential income tax benefits associated with operating losses incurred
by the Company are not recognized in the accounts.
<PAGE>
As of August 31, 1998, the Company has unrecorded tax loss carryforwards
available to reduce future years' income tax payable, which expire as
follows:
Canada USA Total
------ --- -----
(thousands of Canadian dollars)
2001................................ $- $1,041 $1,041
2002................................ - 3,062 3,062
2003................................ 139 3,097 3,236
2004................................ 4,068 712 4,780
2005................................ 1,391 - 1,391
2009................................ - 189 189
2010................................ - 877 877
2011................................ - 1,030 1,030
2012................................ - 1,452 1,452
Indefinitely........................ 11,572 - 11,572
----------------------------------
$17,170 $11,460 $28,630
---------------------------------
Investment tax credits available for application against future income taxes
payable, but not recognized for accounting purposes, will expire if not utilized
by:
(thousands of
Canadian dollars)
-----------------
1999................................ $12
2000................................ 29
2001................................ 12
2002................................ 287
2003................................ 311
2004................................ 376
2005................................ 266
2006................................ 525
2007................................ 622
---------------
$2,440
---------------
11. LOSS PER SHARE
Loss per share amounts are calculated using the monthly average number of
Common Shares outstanding during the respective fiscal years less
repurchased shares. The weighted monthly average number of shares
outstanding, after deducting shares repurchased and held by the Company,
was 44,865,270 for fiscal 1998 and 44,694,106 for fiscal 1997.
<PAGE>
12. SEGMENT INFORMATION
The Company's activities represent one industry segment, the design and
manufacture of sophisticated electronic data communications equipment. The
Company operates in a worldwide marketplace. The Company's revenues are
from the following areas:
1998 1997
---- ----
(thousands of
Canadian dollars)
Canada................................................. $3,943 $3,215
USA.................................................... 7,926 8,087
Other.................................................. 7,289 7,605
----------------------
$19,158 $18,907
----------------------
For purposes of the following table, other export sales have been
included in the Canadian segment:
<TABLE>
<CAPTION>
Canada
and Other USA Total
--------- --- -----
(thousands of Canadian dollars)
<S> <C> <C> <C>
Year ended August 31, 1998
Segment revenue............................................................... $11,232 $7,926 $19,158
Segment net loss.............................................................. $(3,166) $(1,607) $(4,773)
Total identifiable assets..................................................... $12,795 $352 $13,147
Year ended August 31, 1997
Segment revenue............................................................... $10,820 $8,087 $18,907
Segment net loss before amortization and impairment $(1,701) $(787) $(2,488)
of goodwill.....................................................................
Amortization and impairment of goodwill....................................... $(9,972)
Net loss...................................................................... $(12,460)
Total identifiable assets..................................................... $14,905 $640 $15,545
</TABLE>
Transfers between segments are at cost plus an appropriate mark-up.
13. LEASE COMMITMENTS
The Company has long-term lease agreements for offices and equipment, the
longest of which expires in 2003. Future minimum lease payments under these
operating leases in each of the next five years are:
(thousands of
Canadian dollars)
1999................................................... $603
2000................................................... $524
2001................................................... $499
2002................................................... $283
2003................................................... $5
<PAGE>
14. PENSION PLAN
The Company has a defined contribution pension plan for the benefit of its
employee group. The Company's contribution to the plan amounted to $108,003
in 1998 and $113,315 in 1997 with such contributions expensed as incurred.
15. RELATED PARTY TRANSACTIONS
The Company has long-term debt owing to various shareholders as disclosed
in note 6.
16. CHANGE IN OPERATING WORKING CAPITAL
Cash provided by (utilized by) operating working capital is computed as
follows for the years ended August 31:
1998 1997
---- ----
(thousands of
Canadian dollars)
Trade accounts receivable............................. $653 $911
Prepaids and other receivables........................ (69) 44
Investment tax credits receivable..................... 337 (10)
Inventory............................................. 852 137
Accounts payable and accrued liabilities.............. (34) (2,077)
---------------------
$1,739 $(995)
---------------------
17. FINANCIAL INSTRUMENTS
The Company has significant sales outside Canada, all of which are in US
dollars, so it is exposed to currency fluctuations. The Company has not
hedged its currency risk through the purchase of foreign exchange
contracts. However, the risk associated with foreign currency fluctuations
is mitigated to some extent by the purchase of a significant portion of its
raw materials and certain labour costs in US dollars.
The fair value of the Company's financial assets and liabilities has been
determined as follows:
The carrying value of trade accounts receivable, other receivables,
investment tax credit receivable, bank indebtedness and accounts payable
and accrued liabilities approximate fair value due to their short term
nature.
Due to the current financial position of the Company, it is not possible to
approximate the fair value of the long-term debt.
<PAGE>
18. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digit
rather than four to identify a year. Date sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000. If not addressed,
the impact of the Year 2000 Issue on the Company's products, operations and
financial reporting may range from minor errors to significant systems
failure which could affect the Company's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the Year
2000 Issue affecting the entity, including those efforts of customers,
suppliers, or other third parties, will be fully resolved.
DEVELCON ELECTRONICS LIMITED
SUPPLEMENTAL DISCLOSURE REGARDING RECONCILIATION OF
CANADIAN GAAP TO US GAAP
<TABLE>
<CAPTION>
(Unaudited) (Unaudited) (Unaudited)
(Canadian Dollars) (Canadian Dollars) (Canadian Dollars)
May 17, 1999 August 31, 1998 May 31, 1998
<S> <C> <C> <C>
Net Loss per Canadian GAAP $(6,227,677) $(4,773,000) $(2,560,000)
Accrual of Deferred
Compensation (93,750) (83,000) (52,000)
----------- ----------- -----------
Net Loss per US GAAP $(6,321,427) $(4,856,000) $(2,612,000)
=========== =========== ===========
</TABLE>
Per Canadian GAAP, Deferred Compensation is not recognized until it is actally
paid. Unlike US GAAP, Deferred Compensation is not accrued for but expensed in
the period incurred. There is, however, an exposure draft recommending the
accrual of Deferred Compensation, although it is not currently required under
Canadian GAAP.
Under Canadian GAAP, cash, cash overdrafts and short-term bank debt are combined
on the balance sheet. For presentation purposes these items are classified
separately under US GAAP.
<PAGE>
Addendum II
The following pro forma financial statements have been prepared as if the
acquisition of Develcon Electronics Ltd. by the Company had occurred on the
first day of the periods presented in the pro forma income statements and as of
June 30, 1999 in the pro forma balance sheet. The pro forma financial
information is based on the historical financial statements of the Company and
gives effect to the combination under the purchase method of accounting. The pro
forma financial statements should be read in conjunction with the historical
financial statements of the Company presented herein and should not be
considered to be a representation of actual results that would have occurred if
the transaction had occurred on the dates indicated.
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 134,694
Accounts receivable, net of allowance of $306,000 1,444,687
Inventories 2,461,890
Prepaids and other current assets 188,388
------------
Total Current Assets 4,229,659
------------
Property and Equipment 2,263,658
------------
Other Assets:
Loans due from Infinop Holdings, Inc. 350,000
Intangibles arising from acquisition of business, net of accumulated amortization of $117,500 5,898,161
Technology license, net of accumulated amortization of $67,500 382,500
Security deposits 70,265
------------
Total Other Assets 6,700,926
------------
$ 13,194,243
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank line of credit $ 339,675
Current portion of long-term debt 1,996,983
Accounts payable and accruals 3,942,828
Demand loans payable - related parties 1,029,887
------------
Total Current Liabilities 7,309,373
------------
Long-Term Debt 64,555
------------
Shareholders' Equity:
Common shares, $0.001 par value, 100,000,000 shares authorized;
8,801,386 shares, issued and outstanding 8,801
Subscription receivable (500)
See Independent Auditors' Report and notes to financial statements.
Additional paid-in capital 7,270,946
Accumulated deficit (1,479,525)
Accumulated other comprehensive income 20,593
------------
Total Shareholders' Equity 5,820,315
------------
$ 13,194,243
============
</TABLE>
Note: The June 30, 1999 historical consolidated balance sheet reflects the
accounts of Vianet Technologies, Inc. and its wholly owned subsidiary, Develcon
Electronics Ltd.
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARY
PRO FORMA -CONSOLIDATED STATEMENTS OF OPERATIONS
Assumption: Acquisition of Develcon Electronics Limited at beginning of period
January 1, 1999 - June 30, 1999
UNAUDITED
<TABLE>
<CAPTION>
Vianet Develcon Vianet
Technologies, Electronics Technologies,
Inc. Ltd Inc.
1/1/99-6/30/99 1/1/99-6/30/99 Pro forma Consolidated
Historical Historical Adjustments Pro forma
---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Revenue:
Sales $892,477 $3,109,057 $4,001,534
Interest and other income 106,022 17,080 (A.) (33,701) 89,401
--------------- ---------------- -----------------
998,499 3,126,137 4,090,935
--------------- ---------------- -----------------
Costs and Expenses:
Cost of goods sold 460,720 2,930,535 3,391,255
Research and development 265,519 842,853 1,108,372
Selling, administrative and other 963,656 2,147,056 3,110,712
Write-down of impared assets - 343,935 343,935
Amortization of goodwill 117,500 - (B.) 352,500 470,000
Interest 85,272 280,352 (C.) (152,652) 212,972
Depreciation and amortization 93,500 246,910 (D.) (103,741) 236,669
--------------- ---------------- -----------------
1,986,167 6,791,641 8,873,915
--------------- ---------------- -----------------
Net Loss $(987,668) $(3,665,504) $(4,782,980)
--------------- ---------------- -----------------
Loss per share- basic and diluted $(.80)
-----------------
Weighted average number of shares outstanding 5,965,191
-----------------
</TABLE>
(A.) Represents an adjustment to forgive interest on monies loaned by Vianet
Technologies, Inc. to Develcon Electronics Ltd. amounting to $33,701.
(B.) Represents adjustment to amortize goodwill from the period of January 1,
1999 to May 17, 1999 amounting to $352,500.
(C.) Represents an interest expense decrease on monies loaned by Vianet
Technologies, Inc. to Develcon Electronics Ltd. and interest on convertible
debentures totaling $152,652.
(D.) Represents a reduction of depreciation due to the revaluation of assets
amounting to $103,741.
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARY
PRO FORMA -CONSOLIDATED STATEMENTS OF OPERATIONS
Assumption: Acquisition of Develcon Electronics Limited at beginning of period
January 1, 1998 - December 31, 1998
UNAUDITED
<TABLE>
<CAPTION>
Vianet Technologies, Develcon Vianet
Inc. Electronics Technologies,
Inception-12/31/98 Ltd Inc.
Historical 1/1/98-12/31/98 Pro forma Consolidated
Historical Adjustments Pro forma
--------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Revenue:
Sales $- $12,243,171 $12,243,171
Interest and other income 66,341 - (A.) (65,375) 966
------------------- ---------------- ----------------
66,341 12,243,171 12,244,137
------------------- ---------------- ----------------
Costs and Expenses:
Cost of goods sold - 6,837,246 6,837,246
Research and development - 2,396,341 2,396,341
Selling, administrative and other 558,198 5,492,415 6,050,613
Amortization of goodwill - - (B.) 940,000 940,000
Interest - 433,954 (C.) (348,044) 85,910
Depreciation and amortization - 856,219 (D.) (471,919) 384,300
------------------- ---------------- ----------------
558,198 16,016175 16,694,410
------------------- ---------------- ----------------
Net Loss $(491,857) $(3,773,004) $(4,450,273)
------------------- ---------------- ----------------
Loss per share- basic and diluted $(.78)
----------------
Weighted average number of shares outstanding 5,674,097
</TABLE>
(A.) Represents an adjustment to forgive interest on monies loaned by Vianet
Technologies, Inc. to Develcon Electronics Ltd. amounting to $65,375.
(B.) Represents adjustment to amortize goodwill from the period of January 1,
1998 to December 31, 1998 amounting to $940,000.
(C.) Represents an interest expense decrease on monies loaned by Vianet
Technologies, Inc. to Develcon Electronics Ltd. and interest on convertible
debentures totaling $348,044.
(D.) Represents a reduction of depreciation due to the revaluation of assets
amounting to $471,919.
