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 21, 2000
(Date of report)
VIANET TECHNOLOGIES, INC.
NEVADA 033-55254-19 87-0434285
(State of Incorporation) (Commission File Number) (IRS Employer ID)
83 Mercer Street, New York, New York 10012
(Address of Principle 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 October 27, 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. Acquisition or Disposition of Assets
On October 12, 1999, Vianet Technologies, Inc. (the "Company") consummated its
acquisition of all of the issued and outstanding stock of Infinop Holdings, Inc.
("Infinop"), in exchange for the issuance of up to 1,495,454 shares of Common
Stock of the Company. The transaction was completed in accordance with the terms
of the Agreement and Plan of Merger, dated August 31, 1999, by and among the
Company, Vianet Labs, Inc., a Delaware corporation ("Vianet Labs"), which is a
wholly-owned subsidiary of the Company, Infinop and Paul Fisher, Howard Fisher
and Craig Fisher (collectively, the "Principal Stockholders").
Infinop is engaged, through its subsidiaries, Computer and Information Science,
Inc., and INFinet Op., Inc., in the business of developing and marketing data
compression and pattern recognition software. Its key products, all of which
incorporate its proprietary wavelet technology, are Lightning Strike, a product
designed to effectuate still imagery compression, LSVideoN and LSVideoR,
products designed to effectuate video or moving image processing, LSBio, a
product that facilitates the compression of scanned documents for long-term data
storage, and LSStorm, a product that reduces the bulk of information moving
through a network.
As a result of the completion of this transaction, Infinop has become a
wholly-owned subsidiary of Vianet and all of the outstanding shares of Infinop
Common Stock have been cancelled and converted into shares of Vianet's Class A
Common Stock, par value $0.001 per share (the "Vianet Common Stock"). In
addition, the Infinop shareholders have the right to receive additional
consideration in the form of shares of common stock of the Company (or, upon the
election of the Principal Stockholders, in the form of cash, subject to a
maximum cash limit of $3,200,000) (the "Additional Consideration"). The
Additional Consideration will be based on royalties actually received by Vianet
during the four year period (the "Additional Payment Period") following the
closing of the Merger (the "Closing") under the terms of the following two
Software License Agreements: (i) the Software License Agreement dated June 25,
1998 between Infinop Op, Inc. and Video Stream International (now doing business
as "Teraglobal") (the "Teraglobal Contract"); and (ii) the Software License
Agreement dated October 15, 1998 between Infinop Op, Inc. and Transwire, Inc.
(now doing business as "Prism") (the "Prism Contract").
The Additional Consideration payable in respect of each outstanding share of
Infinop Common Stock will represent each share's pro rata portion of a fixed
percentage of the cumulative royalties in excess of $4 million received by
Vianet during the Additional Payment Period. The percentage upon which those
payments will be based will represent the aggregate of 50% of the royalty
received from the Teraglobal Contract and 40% of the royalties received under
the Prism Contract. All Additional Consideration will be payable in shares of
Vianet Common Stock, unless the Principal Stockholders elect to receive cash
(subject to an aggregate limit of $3.2 million in cash). The Additional
Consideration payable in respect of each share of Infinop Common Stock will be
distributed within 30 days of the end of each annual period during the
Additional Payment Period. For purposes of determining the number of shares of
Vianet Common Stock payable as Additional Consideration, the Vianet Common Stock
will be valued at the average closing price of Vianet Common Stock for the five
trading days immediately preceding the end of the related annual period.
<PAGE>
Adjustment to Merger Consideration; Escrow
If the net worth of Infinop as of the effective date of the Merger is less than
the net worth of Infinop as of June 30, 1999, the consideration received by the
Infinop stockholders in connection with the Merger is required to be reduced by
the amount of such deficit, subject to a maximum adjustment equal to 1.50% of
the aggregate number of shares of Vianet Common Stock (the "Adjustment Escrow
Shares") issued to each Infinop stockholder in exchange for outstanding shares
of Infinop Common Stock upon completion of the Merger. In order to effectuate
any such adjustment, the Adjustment Escrow Shares have been deposited with
CitiBank, N.A., as escrow agent (the "Escrow Agent"), to be held in escrow
pursuant to the Escrow Agreement described below (the "Escrow Agreement"). In
addition, 1.50% of the aggregate number of Vianet Common Stock to which each
holder of a convertible debenture previously issued by Infinop would otherwise
be entitled upon conversion after the closing of the Merger and 1.50% of the
shares of Vianet Common Stock to which each holder of options previously granted
by Vianet would otherwise be entitled to receive upon exercise after the closing
of the Merger have been deposited with the Escrow Agent pursuant to the Escrow
Agreement to hold in escrow as additional Escrow Adjustment Shares. If there is
a deficit between the net worth of Infinop as of the effective date of the
Merger and the net worth of Infinop as of June 30, 1999, the Escrow Agent is
required to deliver to Vianet out of the Adjustment Escrow Shares the number of
Adjustment Escrow Shares having a value equal to such deficit. For this purpose,
the Adjustment Escrow Shares will be valued at $7.00 per share. Any Adjustment
Escrow Shares remaining after such adjustment will be delivered to the former
stockholders of Infinop proportionately.
Escrow Agreement
As a condition to the closing of the Merger, Vianet, the Principal Stockholders,
in their individual capacities, the Principal Stockholders, in their capacity as
Stockholders' Agents, and Citibank, N.A., as the escrow agent, entered into an
Escrow Agreement to provide for, among other things, the escrow of the
Adjustment Escrow Shares. The Adjustment Escrow Shares will be held in escrow
until any adjustment required by the Merger Agreement to the consideration
received by the Infinop stockholders in connection with the Merger is finally
determined. Pursuant to the terms of the Escrow Agreement, Citibank, N.A. will
hold and safeguard the Adjustment Escrow Shares and, after any adjustment is
finally determined, deliver to the former Infinop stockholders that number of
Adjustment Escrow Shares held in escrow in excess of any shares which are
required to satisfy any adjustment.
Treatment of Options to Purchase Infinop Common Stock
In addition to the foregoing, in accordance with the provisions of the Merger
Agreement, Vianet has agreed to issue option to purchase an aggregate of 598,284
shares of its Common Stock in exchange for options to purchase an aggregate of
2,727,410 shares of Infinop common stock which were issued pursuant to the
Infinop Stock Option Plan. Each such option so assumed by Vianet under the
Merger Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in Infinop's Stock Option Plan and the applicable stock
option agreement immediately prior to the Effective Time, except that (i) such
option will be exercisable for a number of shares of Vianet Common Stock equal
to the product of the number of shares of Infinop Common Stock that were
issuable upon exercise of such option immediately prior to the Effective Time
multiplied by 0.21936 (as adjusted as described below, the "Option Exchange
Ratio") and rounded to the nearest whole number of shares of Vianet Common
Stock, and (ii) the per share exercise price for the shares of Vianet Common
Stock issuable upon exercise of such assumed option will be equal to the
quotient determined by dividing the exercise price per share of Infinop Common
Stock at which such option was exercisable immediately prior to the Effective
Time by the Option Exchange Ratio. If Adjustment Escrow Shares are delivered to
Vianet as a result of a deficit in net worth (as described under "Adjustment to
Merger Consideration; Escrow") then the Option Exchange Ratio will be adjusted
to equal the actual rate at which Infinop Common Stock is converted into Vianet
Common Stock after such adjustment.
<PAGE>
Treatment of Convertible Debentures
In addition, Vianet has agreed to issue 312,587 shares of its Common Stock to
the holders of an aggregate of $950,000 principal amount outstanding convertible
debentures previously issued by Infinop, should such holders elect to convert
such convertible debenture (on the terms and conditions specified in each such
convertible debenture). Such number of shares is subject to adjustment for
interest payable on the convertible debentures and to subsequent adjustment as
provided in each of such convertible debentures. If Adjustment Escrow Shares are
delivered to Vianet as a result of a deficit in net worth (as described under
"Adjustment to Merger Consideration; Escrow") then the Debenture Conversion
Ratio will be adjusted to equal the actual rate at which Infinop Common Stock is
converted into Vianet Common Stock after such adjustment.
Restrictions on Transferability of Vianet Common Stock; Registration Rights
Agreement
Initially, the shares of Vianet Common Stock to be issued in connection with the
Merger or issuable upon exercise of Infinop stock options or upon conversion of
convertible debentures will not be registered or freely tradable securities.
Pursuant to the Merger Agreement, no Vianet Common Stock received by the Infinop
stockholders in the Merger will be transferable during the first six months
after the Merger. Thereafter, the restrictions on transfer of the Vianet Common
Stock received by the Infinop stockholders in connection with the Merger will be
phased out as follows: (a) 25% of the Vianet Common Stock received will be
transferable without reference to the restrictions on transferability in the
Merger Agreement six months after the effective date of the Merger; (b) an
additional 25% of the Vianet Common Stock received will be transferable without
reference to the restrictions on transferability in the Merger Agreement twelve
months after the effective date of the Merger; and (c) the remainder of the
Vianet Common Stock received will be transferable without reference to the
restrictions on transferability in the Merger Agreement 24 months after the
effective date of the Merger; provided, however, that the restrictions on
transfer applicable to Vianet Common Stock received by the holders of Infinop's
8% convertible debentures due August 17, 1999 converted prior to the Merger and
who vote in favor of the Merger will be phased out as follows: (1) 50% of such
shares of Vianet Common Stock will be transferable without reference to such
restrictions six months after the effective date of the Merger and (2) the
remaining 50% of such shares of such Vianet Common Stock will be transferable
without reference to such restriction twelve months after the effective date of
the Merger. Vianet has entered into a Registration Rights Agreement with Paul
Fisher, Craig Fisher and Howard Fisher whereby Vianet has agreed to register the
resale of the Vianet Common Stock issued in connection with the Merger,
including any shares issued upon the exercise of any options issued by Infinop
assumed by Vianet and any shares issued upon the conversion of any convertible
debenture previously issued by Infinop, under the Securities Act of 1933, as
amended, and applicable state securities laws, within 180 days of the closing
and also upon the demand by the holders of at least 25% of such shares of Vianet
Common Stock. However, Vianet is obligated to effect only four such demand
registrations. Vianet is also obligated (x) to register the Vianet Common Stock
in connection with any offering initiated by Vianet, subject to limitation to
the extent that the inclusion of such shares would jeopardize the success of
Vianet's offering, (y) register for resale all Vianet Common Stock issuable upon
the exercise of any Infinop options assumed by Vianet on Form S-8 as soon as
Vianet is eligible to use such form, and (z) register for resale all Vianet
Common Stock issued in connection with the Merger on Form S-3 within 30 days
after Vianet becomes eligible to use such form. All costs of any registration
will be borne by Vianet. However, the selling stockholders will be required to
pay all underwriting and sales discounts and commissions. Vianet will be
obligated to pay certain liquidated damages in the event that it fails to honor
its registration obligations under the Registration Rights Agreement.
<PAGE>
Board Representation
Vianet has agreed that for so long as the Principal Stockholders continue to own
at least 10 percent of the issued and outstanding Vianet Common Stock, at each
annual meeting of shareholders of Vianet, Vianet's nominating committee shall
nominate one candidate for director selected by the nominating committee from a
list of three candidates proposed by the Principal Stockholders, and that
management shall recommend the election of such candidate.
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 Infinop Holdings, Inc.("Infinop ") on October 12,
1999. The financial statements of Infinop filed herein as
Addendum I include:
(1) Independent Auditor's Report
(2) Consolidated Balance Sheets at June 30, 1999 and June 30, 1998-
(Audited)
(3) Consolidated Statements of Operations for the years ended June 30, 1999
and June 30, 1998- (Audited)
(4) Consolidated Statements of Deficiency in Shareholders' Equity for the
years ended June 30, 1999 and June 30, 1998- (Audited)
(5) Consolidated Statements of Cash Flows for the years ended June 30, 1999
and June 30, 1998- (Audited)
(6) Notes to Consolidated Financial Statements - Years ended June 30, 1999
and 1998- (Audited)
(7) Consolidated Balance Sheets at September 30, 1999 and September 30,
1998- (Unaudited)
(8) Consolidated Statements of Operations for the three months ended
September 30, 1999 and September 30, 1998- (Unaudited)
(9) Consolidated Statements of Cash Flows for the three months ended
September 30, 1999 and September 30, 1998- (Unaudited)
(b) Pro Forma Financial Information filed herein as Addendum II are as
follows:
(1) Pro Forma Consolidated Balance Sheets (Unaudited) as of September 30,
1999.
(2) Pro Forma Consolidated Statements (Unaudited) of Operations for the
nine months ended September 30, 1999
(3) Pro Forma Consolidated Statements (Unaudited) 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 October 27, 1999).
Agreement and Plan of Merger
Escrow Agreement
<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 21, 2000
/s/ Vincent Santivasci
Vincent Santivasci
Chief Financial Officer
<PAGE>
Addendum I
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
FINANCIAL STATEMENTS:
<S> <C>
Independent Auditors' Report 1
Consolidated Balance Sheets - June 30, 1999 and 1998 2
Consolidated Statements of Operations - Years Ended June 30, 1999 and 1998 3
Consolidated Statements of Deficiency in Shareholders' Equity -
Years Ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows - Years Ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-13
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Infinop Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Infinop
Holdings, Inc. and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of operations, deficiency in shareholders' equity, and
cash flows for the years then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about 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
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Infinop Holdings,
Inc. and subsidiaries as of June 30, 1999 and 1998, and the consolidated results
of their operations and cash flows for the years then ended, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has sustained significant
operating losses, is unable to pay its creditors within normal trade terms and
has a significant working capital deficiency. 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 2. The consolidated
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
New York, New York
December 18, 1999
- 1 -
<PAGE>
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------------------------
ASSETS
Current Assets:
<S> <C> <C>
Cash ........................................................... $ -- $ 116,234
Accounts receivable ............................................ 146,127 --
Prepaids and other current assets .............................. 4,407 --
----------- -----------
Total Current Assets ......................................... 150,534 116,234
Property and Equipment .......................................... 152,878 110,358
----------- -----------
$ 303,412 $ 226,592
=========== ===========
LIABILITIES AND DEFICIENCY IN SHAREHOLDERS' EQUITY
Current Liabilities:
Cash overdraft ................................................. $ 19,374 --
Current portion of long-term debt .............................. 70,975 28,127
Accounts payable and accrued liabilities ....................... 876,772 901,605
Payable to Vianet Technologies, Inc. ........................... 350,000 --
Convertible debentures ......................................... 750,000 --
Demand loans payable ........................................... 50,000 50,000
----------- -----------
Total Current Liabilities .................................... 2,117,121 979,732
----------- -----------
Long-Term Debt .................................................. 15,796 46,796
----------- -----------
Convertible Debentures - noncurrent ............................. 1,125,000 875,000
----------- -----------
Deficiency in Shareholders' Equity:
Preferred stock, $0.01 par value, 200,000 shares authorized;
none, issued or outstanding ................................... -- --
Common stock, $0.01 par value, 100,000,000 shares authorized;
6,025,000 and 5,925,000 shares, issued and outstanding ........ 60,250 59,250
Additional paid-in capital ..................................... 565,750 556,750
Accumulated deficit ............................................ (3,580,505) (2,290,936)
----------- -----------
Total Deficiency in Shareholders' Equity ..................... (2,954,505) (1,674,936)
----------- -----------
$ 303,412 $ 226,592
=========== ===========
</TABLE>
See Independent Auditors' Report and notes to financial statements.
- 2 -
<PAGE>
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------------------------
Revenue:
<S> <C> <C>
Services .................... $ 1,087,563 $ 223,279
----------- -----------
Costs and Expenses:
Cost of services ............ 493,060 54,256
Research and development .... 1,135,817 946,567
Selling and marketing ....... 178,737 --
General and administrative .. 324,127 402,182
Depreciation and amortization 94,851 129,861
Interest .................... 150,540 23,794
----------- -----------
2,377,132 1,556,660
----------- -----------
Net Loss .................. $(1,289,569) $(1,333,381)
============ ===========
</TABLE>
See Independent Auditors' Report and notes to financial statements.
-3-
<PAGE>
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF DEFICIENCY IN SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Total
Additional Deficiency in
Common Stock Paid-In Accumulated Shareholders'
Shares Amount Capital Deficit Equity
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at July 1, 1997 4,100,000 $ 41,000 $ -- $ (957,555) $ (916,555)
Issuance of common stock 300,000 3,000 97,000 -- 100,000
Conversion of debt ...... 1,525,000 15,250 459,750 -- 475,000
Net loss for year
-- -- -- (1,333,381) (1,333,381)
----------- ---------- -------- ----------- -----------
Balances at June 30, 1998 5,925,000 59,250 556,750 (2,290,936) (1,674,936)
Issuance of common stock 100,000 1,000 9,000 -- 10,000
Net loss for year
-- -- -- (1,289,569) (1,289,569)
----------- ---------- -------- ----------- -----------
Balances at June 30, 1999 6,025,000 $ 60,250 $ 565,750 $(3,580,505) $(2,954,505)
=========== ========== ======== =========== ===========
</TABLE>
See Independent Auditors' Report and notes to financial statements.
- 4 -
<PAGE>
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------------- -----------------
Operating Activities:
<S> <C> <C>
Net loss .............................................. $(1,289,569) $(1,333,381)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ........................ 94,851 129,861
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Accounts receivable ................................ (146,127) 16,642
Prepaids and other current assets .................. (4,407) 12,709
Accounts payable, accruals and other ............... (14,833) 316
----------- -----------
Net Cash Used In Operating Activities ................ (1,360,085) (1,173,853)
----------- -----------
Cash Used In Investing Activities:
Capital expenditures ................................... (137,371) (27,507)
----------- -----------
Financing Activities:
Cash overdraft ........................................ 19,374 (6,709)
Principal payments of long-term debt .................. (28,152) (190,697)
Loans from Vianet Technologies, Inc. .................. 350,000
P roceeds from long-term debt ......................... 40,000 90,000
Proceeds from convertible debentures .................. 1,000,000 1,325,000
Issuance of common stock .............................. -- 100,000
----------- -----------
Net Cash Provided By Financing Activities ............ 1,381,222 1,317,594
----------- -----------
Net (Decrease) Increase In Cash ........................ (116,234) 116,234
Cash Beginning of Year ................................. 116,234 --
----------- -----------
Cash End of Year ....................................... $ -- $ 116,234
=========== ===========
Supplemental Disclosure of Cash Flow information:
=========== ===========
Interest paid ......................................... $ 60,498 $ 23,794
=========== ===========
Noncash Transactions:
Issuance of common stock for consulting services ...... $ 10,000 --
=========== ===========
Conversion of notes payable into common stock ......... $ -- $ 475,000
=========== ===========
</TABLE>
See Independent Auditors' Report and notes to financial statements.
-5-
<PAGE>
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
1. Organization and Business
Infinop Holdings, Inc. ("Infinop") was incorporated in the State
of Delaware, U.S. on November 26, 1997 initially to acquire Infinet
Op, Inc. ("Infinet") and Computer and Information Sciences, Inc.
("CIS"), which were companies under common ownership and control.
Infinet and CIS develop advanced compression technologies for a wide
range of software and hardware applications. Infinet and CIS are
considered to be predecessor businesses of Infinop (collectively the
"Company").
Merger with Infinet Op, Inc. and Computer and Information
Sciences, Inc.:
On November 26, 1997, Infinop entered into an agreement with
Infinet and CIS under the terms of which Infinop acquired, Infinet and
CIS through an exchange of shares (the "Acquisition"). Subject to the
terms and conditions of this agreement, Infinop issued to the
shareholders of Infinet and CIS, 4,100,000, shares of fully paid and
nonassessable shares of the Infinop's common stock, $.01 par value
("Common Stock") per share in exchange for each share of Infinet and
CIS outstanding common stock. The acquisition has been accounted for
in a manner similar to a pooling of interests since the shareholders
of Infinet and CIS were related parties to the shareholders of
Infinop. These financial statements reflect the transactions of
Infinet and CIS prior to the formation of Infinop.
2. Going Concern
The Company has sustained significant operating losses, is unable
to pay its creditors within normal trade terms and has a significant
working capital deficiency. Additionally, the Company will continue to
incur operating losses and negative cash flows for the forseeable
future until it completes development of its technologies and can
generate significant revenues. On October 12, 1999, the Company merged
into Vianet Technologies, Inc. ("Vianet") (see Note 4). The Company is
dependent on Vianet's ability to obtain additional sources of
financing to fund its working capital requirements. There is no
assurance that Vianet will be able to continue to obtain adequate
funding on acceptable terms and there is no assurance that once
obtained such additional funding will result in the Company's
profitable operation.
3. Significant Accounting Policies
Basis of Consolidation:
The consolidated financial statements include the accounts of
Infinop and its wholly-owned subsidiaries, Infinet and CIS. All
significant intercompany accounts and transactions have been
eliminated.
Property and Equipment:
Property and equipment are stated at cost and depreciated over
their estimated useful lives, which range from two to seven years.
Leasehold improvements are amortized over the shorter of their useful
lives or the terms of applicable leases. Long-lived assets are
reviewed for impairment whenever the facts and circumstances indicate
that the carrying amount may not be recoverable.
- 6 -
<PAGE>
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
3. Significant Accounting Policies (Continued)
License and Royalty Agreements:
The Company in the normal course of business has entered into
several license and royalty agreements which generally provide for the
Company to receive payments from customers to develop certain
software. Payments are recognized as revenue when associated services
are performed. The agreements also provide for the collection of
royalties in the event software development is successful, however,
the agreements do not contain provisions for minimum royalty payments.
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. Significant
estimates include management's determination of cost of services
performed. Actual results could differ from those estimates.
Stock Option Plan:
The Company accounted for stock options issued to employees in
accordance with SFAS No. 123, Accounting for Stock-Based Compensation,
which permits entities to continue to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25 and provide pro
forma net income disclosures for employee stock option grants as if
the fair value based method, as defined in SFAS No. 123, had been
applied. The Company has elected to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure required by SFAS
No. 123.
Fair Value of Financial Instruments:
Statement of Financial Accounting Standards ("SFAS") No.107,
Disclosures About Fair Value of Financial Instruments, requires
disclosure of the fair value of certain financial instruments for
which it is practicable to estimate fair value. For purposes of the
disclosure requirements, the fair value of a financial instrument is
the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or
liquidation. Fair value of financial instruments classified as current
assets or liabilities (except Convertible Debentures) approximates
carrying value due to the short-term maturity of underlying financial
instruments. It was not practical to estimate the fair value of the
Company's Convertible Debentures because quoted market prices do no
exist and comparable securities were not available.
- 7 -
<PAGE>
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
3. Significant Accounting Policies (Continued)
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.
Research and Development:
Research and development costs are expensed as incurred.
Segment Reporting:
Effective July 1, 1998, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131). SFAS No. 131 superceded FASB
Statement No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards for the way that
public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports. SFAS No. 131 also establishes standards for
related disclosures about products and services, geographic areas, and
major customers. The adoption of SFAS No. 131 did not effect the
results of operations, financial position, or the disclosure of
segment information because the Company operates only in one segment.
4. Acquisition by Vianet Technologies, Inc.
On May 19, 1999, the Company entered into a letter of intent to
sell 100% of the Company's shares to Vianet Technologies, Inc.
("Vianet"), in exchange for common shares of Vianet. As part of the
agreement, the Company received advances from Vianet aggregating
$784,000 ($350,000 was advanced as at June 30, 1999, and the balance
was advanced subsequently). On October 12, 1999, pursuant to the
Agreement and Plan of Merger, Vianet Labs, Inc. ("Labs") a
wholly-owned subsidiary of Vianet, effected a tax-free reverse
subsidiary merger of Labs into Infinop, which resulted in Vianet
owning all of the issued and outstanding shares of Infinop and the
shareholders of Infinop receiving 1,495,454 shares of Vianet in
exchange for their Infinop shares. The Agreement also provides for
additional consideration based on future royalties earned from two
existing agreements, other post closing adjustments and assumption of
the Company's stock option plans.
- 8 -
<PAGE>
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
5. Property and Equipment
Property and equipment consists of:
1999 1998
--------- --------
Furniture and equipment ...... $491,774 $379,706
Leasehold improvements ....... 27,476 2,173
-------- --------
519,250 381,879
Less: Accumulated depreciation 366,372 271,521
-------- --------
$152,878 $110,358
======== ========
6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consists of:
1999 1998
-------- ---------
Accounts payable ............ $484,826 $347,300
Accrued compensation ........ 222,762 234,823
Accrued litigation settlement -- 250,000
Accrued interest ............ 90,042 --
Other accruals .............. 79,142 69,482
-------- --------
$876,772 $901,605
======== ========
7. Long-Term Debt
Long-term debt consists of:
1999 1998
------- -------
12% note payable to bank in equal monthly
installments, of $2,999, inclusive of interest,
maturing November 2000 ........................ $46,796 $74,923
10% note payable to bank, originally due
October 1998, extended and repaid in
in August 1999 ................................ 39,975 --
------- -------
86,771 74,923
Less: Current maturities ......................... 70,975 28,127
------- -------
$15,796 $46,796
======= =======
- 9 -
<PAGE>
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
8. Convertible Debentures
Convertible debentures consist of notes, with interest ranging from 6%
to 8%, which are convertible into common stock at various conversion
rates through September 30, 2004. During the year ended June 30, 1998,
$475,000 of the convertible debentures were converted into 1,525,000
shares of common stock and $50,000 of the debentures were reclassified
to demand loans payable upon reaching the expiration of conversion.
Outstanding debentures at June 30, 1999 are convertible at a ratio of
one share for every $1 of principal and accrued interest. In October
1999, $750,000 of convertible debentures (plus accrued interest) were
converted into 792,364 shares of common stock.
9. Related Party Transactions
Compensation Payable:
Compensation payable to two shareholders of the Company of $103,521 is
included in accounts payable and accrued liabilities at June 30, 1999
and 1998, respectively.
Other:
Receivables from a shareholder and a related company of $85,144 are
currently in dispute. At June 30, 1999 and 1998, the Company has
provided a reserve for the entire amount.
10. Retirement Plan
The Company maintains a defined contribution plan (SARSEP) for its
employees under which eligible employees can contribute up to 15% of
earnings, as defined, up to specified IRS allowable limits. There were
no employer contributions under the plan.
11. Income Taxes
For Federal income tax purposes, Infinop has unused net operating loss
carryforwards of approximately $3,500,000 expiring through year 2019.
The availability of the net operating loss carryforwards to offset
income in the future years, if any, may be limited by Internal Revenue
Code Section 382 as a result of certain ownership changes.
- 10 -
<PAGE>
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
11. Income Taxes (Continued)
The tax effects of the temporary differences that give rise to
significant portions of deferred tax assets at June 30, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- ----------
Deferred Tax Assets:
<S> <C> <C>
Federal net operating loss carryforwards $ 1,200,000 $ 422,000
Accounts payable and accrued liabilities - 283,000
Depreciation - 12,000
Receivables 49,000
------------ --------------
1,200,000 776,000
Less: Valuation allowance (1,200,000) (776,000)
------------- --------------
Deferred Tax Asset $ -- $ --
=============== ==============
</TABLE>
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 the net operating loss carryforwards and other
deferred tax assets. During the year ended June 30, 1999, the valuation
allowance increased by $424,000.
There was no provision for income taxes for years ended June 30, 1999
and 1998 due to the offset of the increase in the valuation allowance
against the related tax benefit for each of the periods.
The income tax provision varied from the statutory rate as follows for
each of the years ended June 30:
<TABLE>
<CAPTION>
1999 1998
--------- -------
<S> <C> <C>
U.S. statutory rate (34.0)% (34.0)%
Valuation allowance 34.0 34.0
------- --------
0.0% 0.0%
======= ========
</TABLE>
12. Stock Option Plan
On January 1, 1998, the Company adopted the 1998 Stock Option Plan of
Infinop Holdings, Inc. (the Plan). The Plan permits the issuance of
stock options to purchase up to 2,025,000 shares of common stock to
selected employees, consultants and directors of the Company. Options
granted may be either nonqualified or incentive stock options. Unless
terminated by the board of directors, the Plan is scheduled to
terminate on December 31, 2007.
- 11 -
<PAGE>
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
12. Stock Option Plan (Continued)
The following table summarizes stock option activity (including options
issued outside the plan) for the years ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Number of Weighted
Shares Subject Average Exercise
Stock Option Activity to Option Price Per Share
Outstanding, July 1, 1997
<S> <C> <C>
Granted 2,140,787 $ .06
Forfeited (45,045) $ .05
-------------
Outstanding, June 30, 1998 2,095,742 $ .06
Granted 677,500 $ .10
Exercised (a) (100,000) $ .10
--------------
Outstanding, June 30, 1999 2,673,242 $ .07
=============
</TABLE>
(a) Issuance of common stock upon exercise was for consulting services
provided.
The following table summarizes information about stock options outstanding
and exercisable at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
Weighted Weighted
Average Average
Exercise Remaining Exercise
Price Number of Contractual Price
Per Share Shares Life (Years) Per Share
<S> <C> <C> <C> <C>
$ .05 1,795,742 8.5 $.05
$ .10 877,500 8.5 .10
-------------
2,673,242 8.5 $.07
=============
</TABLE>
The Company did not recognize any compensation expense relative to the
options for the period ended June 30, 1999 and 1998 since the option
price was in excess of fair value at the date of grant. As the Company
was only recently formed, 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.
Subsequent to June 30, 1999, the Company issued options to purchase
55,000 shares at an average price of $1.20 per share and 20,832 options
with an exercise price of $.10 per share were forfeited.
On October 12, 1999 Vianet, pursuant to its Agreement and Plan of Merger
(the "Agreement") with the Company (see Note 4), assumed options granted
under the Company's Plan. These options were assumed by Vianet outside
its stock option plan, and they will be administered as if under their
original plans. All of these options have been adjusted to effectuate
the conversion under the Agreement with the Company and Vianet.
- 12 -
<PAGE>
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
13. Concentration of Credit Risk
At June 30, 1998, revenues from two major customers represented
approximately 61% of the Company's revenues. At June 30, 1999,
receivables from two major customers constitute 89% of total
receivables.
14. Commitments and Contingencies
Leases:
The Company leases office space along with equipment under
operating leases extending to September 2000. The leases provide for
payment by the Company of other expenses. The lease for office space
which expires June 30, 2000 has no renewal option.
Minimum rental payments under noncancellable leases are $50,050
and $513 in 2000 and 2001, respectively.
Rent expense for the years ended June 30, 1999 and 1998 was
$19,967 and $29,750, respectively.
Settlement of Lawsuit:
In June 1999, the Company settled a lawsuit arising from a
potential merger. The settlement of $250,000 and related legal costs
of approximately $400,000 had been fully accrued as of June 30, 1997.
- 13 -
<PAGE>
Consolidated Balance Sheets
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
September 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
----------------------- ------------------------
ASSETS
Current Assets:
<S> <C> <C>
Accounts receivable $ 29,168 $ -
Prepaid and other current assets 17,656 -
---------------------- ------------------------
Total Current Assets 46,824 -
Property and Equipment 240,551 86,358
----------------------- ------------------------
$ 287,375 $ 86,358
======================= ========================
LIABILITIES AND DEFICIENCY IN SHAREHOLDERS' EQUITY
Current Liabilities:
Cash Overdraft $ 22,278 $ 2,610
Current portion of long-term debt 23,326 37,049
Demand notes payable 50,000 50,000
Accounts payable and accruals 928,423 915,758
Payable to Vianet Technologies, Inc. 724,000 -
Convertible Debentures 750,000 -
---------------------- ------------------------
Total Current Liabilities 2,498,027 1,005,417
---------------------- ------------------------
Long-Term Debt 15,796 70,884
----------------------- ------------------------
Convertible Debentures (Noncurrent) 1,125,000 875,000
---------------------- ------------------------
Deficiency in Shareholders' Equity:
Common shares 60,250 59,250
Additional paid-in capital 565,750 556,750
Accumulated Deficit (3,977,448) (2,480,943)
---------------------- ------------------------
Total Deficiency in Shareholders' Equity (3,351,448) (1,864,943)
----------------------- ------------------------
$ 287,375 $ 86,358
======================= ========================
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------------------- --------------------------
Revenue:
<S> <C> <C>
Services $ 331,841 $ 319,153
------------------------- --------------------------
Costs and Expenses:
Cost of services 145,140 97,854
Selling, general and administrative 214,255 144,452
Research and development 331,750 223,667
Interest 37,639 43,187
------------------------- --------------------------
728,784 509,160
------------------------- --------------------------
Net Loss $ (396,943) $ (190,007)
========================= ==========================
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Operating Activities: 1999 1998
---------------------- --------------------
<S> <C> <C>
Net loss $ (396,943) $ (190,007)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 32,211 24,000
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Prepaids and other current assets (13,249) -
Accounts receivable 116,959 -
Accounts payable, accruals and other 51,651 14,153
---------------------- --------------------
Net Cash Used In Operating Activities (209,371) (151,854)
---------------------- --------------------
Cash Used In Investing Activities:
Capital expenditures (119,884) -
---------------------- --------------------
Financing Activities:
Proceeds from of long-term debt - 40,000
Principal payments of long-term debt (47,649) (6,990)
Cash overdraft 2,904 2,610
Loans from Vianet Technologies, Inc. 374,000 -
---------------------- --------------------
Net Cash Provided By Financing Activities 329,255 35,620
---------------------- --------------------
Net Decrease In Cash And Cash Equivalents - (116,234)
Cash, beginning - 116,234
---------------------- --------------------
Cash, end $ - $ -
====================== ====================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFINOP HOLDINGS, INC. AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1. Basis of Presentation
The accompanying consolidated financial statements have been
prepared by the Company without audit in accordance with generally
accepted accounting principles for interim financial statements. In
the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have
been included.
The accompanying consolidated financial statements do not include
certain footnotes and financial presentations normally required under
generally accepted accounting principles and, therefore, should be
read in conjunction with the audited financial statements included
herein as at June 30, 1999.
The consolidated financial statements include the accounts of
Infinop Holdings, Inc. and Subsidiaries, Infinet OP, Inc. and Computer
and Information Sciences, Inc., (collectively, the "Company"). All
significant intercompany accounts and transactions have been
eliminated.
2. Property and Equipment
Property and equipment consists of:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Furniture and equipment $ 589,225 $ 379,706
Leasehold improvements 49,909 2,173
------------- --------------
639,134 381,879
Less: Accumulated depreciation 398,583 295,521
------------ ------------
$ 240,551 $ 86,358
=========== ============
</TABLE>
3. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consists of:
<TABLE>
<CAPTION>
1999 1998
-------------- ---------
<S> <C> <C>
Accounts payable $ 678,553 $ 347,300
Accrued compensation 205,161 234,823
Accrued litigation settlement - 250,000
Accrued interest 21,999 37,708
Other accruals 22,710 45,927
------------- -----------
$ 928,423 $ 915,758
=========== ===========
</TABLE>
<PAGE>
Addendum II
In October 1999, the Company acquired all of the outstanding capital
stock of Infinop Holdings, Inc. ("Infinop") for approximately $12.9 million
including acquisition costs. The purchase was accounted for as a purchase.
A significant portion of the purchase price was identified in an appraisal
as intangible assets, including approximately $11.5 million of acquired
in-process research and development. The in-process research and
development was calculated taking in consideration the expected future
revenues over the life of the technology acquired, the estimated selling
and other costs to market the products and a net present value discount
rate determined to be appropriate to the associated risks of the business.
The following pro forma financial statements have been prepared as if
the acquisition of Infinop Holdings, Inc. and Subsidiaries by the Company
had occurred on the first day of the periods presented in the pro forma
statements of operations and as of September 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 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 (VIANET)
PRO FORMA -CONSOLIDATED BALANCE SHEETS - UNAUDITED
September 30, 1999
<TABLE>
<CAPTION>
VIANET DEVELCON Pro Forma Pro Forma INFINOP
(Historical)(Historical) Adjustments After (Historical) Pro Forma
(1) (2) DEVELCON DEVELCON (13) Adjustments
Disposition Disposition INFINOP
(8) Acquisition Pro Forma
Current Assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 38,981 $ 23,364 $ - $ 15,617 $ - $ - $ 15,617
Accounts receivable, net of
Allowances 1,072,308 1,072,308 - 29,168 29,168
Inventories 2,588,997 2,588,997 - - -
Prepaid and other current assets 378,394 229,022 149,372 17,656 167,028
--------- --------- ---------- -------- ---------- --------- ---------
Total Current Assets 4,078,680 3,913,691 - 164,989 46,824 - 211,813
--------- --------- ---------- -------- ---------- --------- ---------
Property and Equipment 2,174,925 2,174,925 - - 240,551 - 240,551
--------- --------- ---------- -------- ---------- --------- ---------
Other Assets:
Loans to Infinop and PSI 1,024,000 - 1,024,000 - (724,000) (9) 300,000
Communications
Receivable from Develcon - - 1,624,828 (4) 1,624,828 - - 1,624,828
Intangibles 5,813,207 5,055,618 (598,457)(5) 159,132 - 920,111 (10) 1,079,243
Technology licenses 360,000 - 536,547 (7) 896,547 - - 896,547
Other 58,212 - - 58,212 - - 58,212
--------- --------- ---------- -------- ---------- --------- ---------
Total Other Assets 7,255,419 5,055,618 1,562,918 3,762,719 - 196,111 3,958,830
--------- --------- ---------- -------- ---------- --------- ---------
13,509,024 11,144,234 1,562,918 $3,927,708 $ 287,375 $ 196,111 4,411,194
========== ========== ========== ========== =========== ========= =========
Current Liabilities:
Bank line of credit $ 340,135 $ 340,135 $ - $ - $ - $ - $ -
Cash overdraft - - - 22,278 22,278
Current portion of long-term debt 1,999,701 1,999,701 - 23,326 23,326
Note payable to Vianet Tech., Inc. - 4,832,695 4,832,695 (4) - 724,000 (724,000) (9) -
Accounts payable and accruals 4,657,394 3,310,752 1,346,642 928,424 163,688 (11) 2,438,754
Convertible debentures - - - 750,000 (750,000) (14) -
Demand loans payable-related
parties 2,510,215 308,698 2,201,517 50,000 2,251,517
--------- --------- ---------- -------- ---------- --------- ---------
Total Current Liabilities 9,507,445 10,791,981 4,832,695 3,548,159 2,498,028 (1,310,312) 4,735,875
--------- --------- ---------- -------- ---------- --------- ---------
Convertible Debentures (noncurrent) - - - - 1,125,000 - 1,125,000
--------- --------- ---------- -------- ---------- --------- ---------
Long-Term Debt 56,828 56,828 - - 15,796 - 15,796
--------- --------- ---------- -------- ---------- --------- ---------
Shareholders' Equity (Deficit):
Common shares 9,141 - 183 (3) 9,324 60,250 (58,715) (9) 10,859
(6) &(12)
Subscription receivable (500) - (500) - - (500)
Additional paid-in capital 8,561,956 - 1,414,455 (3), 9,976,411 565,750 9,027,663 (9) 19,569,824
(6) &(12)
&(7)
Accumulated deficit (4,624,773) 295,425 (4,684,415)(15) (9,604,613) (3,977,449) (7,462,525)(16)(21,044,587)
Accumulated other comprehensive
income (1,073) - (1,073) - (1,073)
--------- --------- ---------- -------- ---------- --------- ---------
Total Shareholders' Equity
(Deficit) 3,944,751 295,425 (3,269,777) 379,549 (3,351,449) 1,506,423 (1,465,477)
--------- --------- ---------- -------- ---------- --------- ---------
13,509,024 11,144,234 1,562,918 3,927,708 287,375 $ 196,111 4,411,194
========= ========== ========== ========== ========== ========= ==========
</TABLE>
Notes to Pro Forma Balance Sheets:
(1) As reported on the Company's 10-Q as at September 30, 1999.
(2) Elimination of assets and liabilities of Develcon Electronics Ltd
(DEVELCON) as of September 30, 1999 (unaudited)
(3) The Company issued 399,999 warrants valued at $565,591 using the Black
Scholes Model. Common Stock of 133,333 was issued at $1.50 per share.
(4) The receivable from Develcon is secured, interest free, due in December
2004 and subordinate approximately $3,000,000 of other Develcon obligations. The
$2.5 million receivable is recorded at its net present value of $1,624,828 based
upon a 9% discount rate.
(5) Legal costs and other intangible assets associated with the acquisition
of Develcon incurred by Vianet.
(6) 50,000 shares issued to the purchaser at $2.25 per share as a condition
of the Share Purchase Agreement.
(7) Issuance of warrants in consideration for the Technology license valued
at $536,547 using the Black Scholes Model.
(8) As reported on the Company's form 8K filed on January 14, 2000.
(9) Consolidation entries: elimination of intercompany balances and share
capital.
(10) Additional goodwill of $920,111, as a result of the acquisition of
Infinop Holding, Inc.
(11) Additional accrual for $163,688 in legal and accounting costs
associated with the acquisition of Infinop Holdings, Inc.
(12) 1,495,454 Shares of common stock issued as part of merger
consideration and 40,000 shares of common stock issued as part of the
transaction costs.
(13) Infinop Holdings, Inc. and Subsidiaries (INFINOP) historical as of
September 30, 1999 (unaudited).
(14) Conversion of convertible debentures into common stock of INFINOP.
(15) Adjustment to accumulated deficit to resulting from the pro forma
effect of the disposition of DEVELCON.
(16) Adjustment to accumulated deficit to resulting from the pro forma
effect of the acquisition of INFINOP including a one-time non-recurring
transaction attributing $11,503,336 to in-process research and development.
Note: Allocation of Purchase Price
The following table outlines the allocation of Purchase Price for the
acquisition of INFINOP:
Tangible Assets $ 330,000
Intangible Assets (Goodwill) 1,079,000
In-Process Research and Development 11,503,000
------------------
Subtotal 12,912,000
Liabilities Assumed (2,994,000)
------------------
$ 9,918,000
==================
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARY (VIANET)
Pro Forma Statement of Operations
For the Nine Months Ended September 30,1999
Unaudited
<TABLE>
<CAPTION>
(1) (2) Pro Forma Pro Forma (7) Pro Forma
VIANET DEVELCON Adjustments After INFINOP Adjustments Pro Forma
(Historical) (Historical) DEVELCON DEVELCON (Historical) INFINOP
Disposition Disposition Acquisition
-------------- ----------------------------- ----------------------------------------- -------------
Revenue:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales and services ..... $1,912,243 $1,912,243 $ -- $ -- $ 768,553 $ -- $ 768,553
Interest and other income 112,688 2,758 109,675 (4) 219,605 -- -- 219,605
----------- ---------- ---------- ---------- ----------- ----------- -----------
2,024,931 1,915,001 109,675 219,605 768,553 -- 988,158
----------- ---------- ---------- ---------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales and services 1,106,118 1,106,118 -- -- 407,154 -- 407,154
General and administrative 2,233,700 453,989 -- 1,779,771 290,336 -- 2,070,047
Selling and marketing 695,106 695,106 -- -- 209,236 -- 209,236
Research and development 786,556 786,556 -- -- 864,469 -- 864,469
Product support 189,199 189,199 -- -- 66,168 -- 66,168
Depreciation and amortization 566,061 465,147 57,487 (5) 158,401 101,465 289,811 (6) 529,677
Interest 228,232 174,386 -- 53,846 142,195 -- 196,041
----------- ---------- ---------- ---------- ----------- ----------- -----------
5,804,972 3,870,501 57,487 1,991,958 2,081,023 269,811 4,342,792
----------- ---------- ---------- ---------- ----------- ----------- -----------
Loss before extraordinary
item (3,780,041) (1,955,500) 52,188 (1,772,353) (1,312,470) (269,811) (3,354,634)
Extraordinary loss on
extinguishment of debt .... (352,875) -- 352,875 (3) -- -- -- --
----------- ---------- ---------- ---------- ----------- ----------- -----------
Net Loss ................... (4,132,916) $(1,955,500) $ 405,063 (1,772,353) (1,312,470) $ (269,811) (3,354,634)
=========== ========== ========== ========== =========== ============ ===========
Loss per share - basic and diluted
Loss before extraordinary
item .......................$ (0.57) $ (0.22) $ (0.35)
----------- ----------- -----------
Net Loss ............... $ (0.62) $ (0.22) $ (0.35)
----------- ----------- -----------
Weighted average number of
shares outstanding ........ 6,646,293 7,945,465 9,480,919
=========== =========== ===========
</TABLE>
<PAGE>
Notes to Pro Forma Statements of Operations
For the Nine Months Ended September 30, 1999:
(1) As reported on the Company's 10-Q as at September 30, 1999.
(2) Elimination of revenue, costs and expenses of Develcon Electronics
Ltd.(DEVELCON) - unaudited.
(3) Loss arising from the restructuring of debt obligations of DEVELCON.
(4) Interest income on the receivable from DEVELCON.
(5) Amortization of technology license.
(6) Amortization of goodwill as a result of acquiring INFINOP.
(7) Infinop Holdings, Inc. and Subsidiaries (INFINOP) historical
(unaudited).
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARY
(VIANET)
Pro Forma Statements of Operations
For the Year Ended December 31, 1998
Unaudited
<TABLE>
<CAPTION>
(1) Pro Forma Pro Forma (5) Pro Forma
VIANET Adjustments After INFINOP Adjustments Pro Forma
(Historical) DEVELCON DEVELCON (Historical) INFINOP
Disposition Disposition Acquisition
-------------- ------------------ ------------------------------------------------- ---------------
Revenue:
<S> <C> <C> <C> <C> <C> <C>
Services $ -- $ -- $ -- $ 916,733 $ -- $ 916,733
Interest income 66,341 115,769 (2) 182,110 -- -- 182,110
---------- ---------- --------- ----------- ---------- -----------
66,341 115,769 182,110 916,733 -- 1,098,843
---------- ---------- --------- ----------- ---------- -----------
Costs and Expenses:
Cost of services -- -- -- 424,199 424,199
Selling, general and
administrative 557,276 -- 557,276 556,095 -- 1,113,371
Research and development -- 969,597 969,597
Depreciation and
amortization -- 60,681 (3) 60,681 70,103 284,800 (4) 415,584
Interest and other 922 922 95,838 96,760
---------- ---------- --------- ----------- ---------- -----------
558,198 60,681 618,879 2,115,832 284,800 3,019,511
---------- ---------- --------- ----------- ---------- -----------
Net Loss $ (491,857) $ 55,088 (436,769) (1,199,099) (284,800) (1,920,668)
=========== ========== ========== =========== =========== ============
Loss per share - basic and (0.35) (0.07) $ (0.26)
diluted
Weighted average number of
shares outstanding 1,400,000 5,857,430 7,392,884
=========== =========== ============
</TABLE>
Notes to Pro Forma Statements of Operations
Year Ended December 31, 1998:
(1) Statement of Operations as reported in the 8KA filed previously.
(2) Interest income on the receivable from Develcon Electronics Ltd.
(3) Amortization of technology license.
(4) Amortization of goodwill as a result of acquiring INFINOP.
(5) Infinop Holdings, Inc. and Subsidiaries (INFINOP) historical
(unaudited).
