<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999 Commission File No. 033-55254-19
Vianet Technologies, Inc.
-------------------------
(Name of Small Business Issuer in Its Charter)
Nevada 87-0434285
- ------------------------------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
83 Mercer Street, New York, New York 10012
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(212) 219-7680
--------------
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.001 Par Value Per Share
Check whether the Issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days:
Yes [X] No
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The Company's revenues for its most recent fiscal year were $166,142.
The aggregate market value of the voting stock held by non-affiliates of the
Company was $71,977,971 as of April 7, 2000 based on the average bid and asked
prices of such stock as of that date.
As of April 7, 2000, there were 21,292,444 shares of Common Stock, $.001 par
value.
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS.
Overview
We design and market advanced data compression technology and computer
networking products that allow our customers to deliver integrated voice, video
and data communication services to be used for network access, value-added
services, and E-commerce applications.
Our data compression products are designed to utilize patented wavelet
compression techniques that allow for the delivery of high quality video,
multimedia content and data over the Internet with less expense, delay and
bandwidth usage. We believe that this technology allows us to provide our
customers with a competitive advantage by providing high quality desktop video
applications at high data transfer rates. We intend to utilize this technology
as the foundation for our value added services, Internet and E-commerce
business, and we expect this technology to serve as our main focus for future
expansion. Our objective is to become a leading provider of enabling technology
and applications that allow customers to capitalize on the Internet's rapid
growth as a commercial and entertainment forum.
We also develop, manufacture and sell computer fiber optic networking
products, communications technologies. Our networking products use proprietary
technology that enable efficient inter- and intra- networking with
high-throughput communications, and they provide a global customer base in our
targeted network access markets.
We believe that our combined product portfolio will allow us to excel
in the network access, Internet, E-commerce, and value added services market
segments. We intend to continue our development as a serious competitor in these
and other niche market segments in the burgeoning communications marketplace.
Compression Technology Products, E-Commerce and Value Added Services
We develop and sell data compression technologies for software and
hardware applications, utilizing a patented wavelet compression technique.
Wavelet based technologies deliver data, video and multimedia content faster
than conventional compression techniques. Furthermore, wavelet compression uses
dramatically less bandwidth, costs less and yields higher quality Internet video
and still imagery than conventional techniques. In addition, this technology is
flexible enough to be used in a variety of compression products for many types
of data. Our key products include the Lightning Strike suite of products that
include the following:
o LS Video Messenger - a product that enables users to send V-Mail, which
consist of the E-mailing of a video file;
o LS Video Interactive - a Video Conferencing product;
o LS Power Zoom - a product that allows a user to zoom and pan on still
images; and
o LS Video Stream - a streaming video product that allows users to view
video on demand.
-2-
<PAGE>
All of these products utilize our wavelet technology, and offer
customers high quality desktop video applications at high speeds. Our technology
will serve as the foundation for our value added services and E-commerce
business.
We intend to market these products to the Internet, E-Commerce and
value added services market segments in unique applications such as video mail,
video on demand streaming, real time streaming video and IP video conferencing.
We believe that these value added services afford customers a distinct
competitive edge by allowing high quality desktop video applications to be
delivered at high speeds.
Networking and Communications Products
We also design, manufacture and sell networking products and systems.
We produce fiber optic access equipment and specialize in the application of
access and exchange technologies to improve network efficiency and reliability.
We focus on the commercial multimedia communications and telecommunications
markets by providing equipment that interfaces carrier access and enterprise
fiber optic networks. Our current product lines, including the Starpoint fiber
optic multiplexer, offer communications companies high bandwidth technology to
reach consumer markets more efficiently. We market these technologies to
communications companies seeking to interface carrier access and enterprise
fiber optic networks. In the future, we plan to integrate our proprietary
technology and technology exclusively licensed from our former subsidiary,
Develcon, to expand our network access product lines.
Industry Background
In the last several years, personal computers have become a mainstay in
the home and workplace. This growth has increased the need to share information
among users and has given rise to a rapidly expanding data networking and
communications industry.
Our data networking products supply multiprotocol information transport
platforms that manage and distribute voice, data and video streams across fiber
optic networks. These types of products are typically utilized by public
networks, telecommunications and cable companies, but are the future for all
business and home data, voice and video communication.
Our data compression products include hardware and software designed to
allow high quality transmission of data using less bandwidth. Data compression
techniques use mathematical and processing routines to reduce the amount of data
required to represent an image. In compression, the pixels of an image are
decorrelated from each other, coded using a mathematical set of values and
decoded back to the original image. Data compression products aim to rapidly
obtain maximum compression with minimum loss of data upon restoration. Efficient
data compression is increasingly important as transmissions include more still
and moving images. This is compounded in an E-commerce environment that is
dependant upon the detail of images and customers' ability to manipulate images
for a "virtual" shopping experience.
Our Strategy
We intend to develop a global company that focuses in three key areas
of public and private networks:
-3-
<PAGE>
o Network Access;
o Value-added services, and
o E-Commerce applications.
We have built, and continue to build, a foundation to support these key
objectives through our acquisitions of Vianet Access, Inc. and Vianet Labs, Inc.
These acquisitions have provided us with advanced technologies that help access
networks and exchange networks operate and interact efficiently and reliably. In
addition, they have positioned us to supply the emerging commercial
telecommunications with innovative and cost effective integrated access device
(IAD) solutions to public access providers and private network and enterprise
network operators.
Our short term plans focus on the following key areas:
o integrating our subsidiaries' operations into our overall
operations;
o completing to delivery of an initial product line; and
o increasing the market penetration of our Internet access, video and
bandwidth products.
Our long-term plans focus on the following key areas:
o integrating product development, manufacturing and marketing between
our subsidiaries;
o seeking and identifying potential acquisition targets; and
o raising additional capital to fund our proposed activities.
As the portfolio of our products and technologies evolves, we will
focus on potential acquisition targets to provide enabling technologies for
video server companies, multimedia integrators and developers, as well as
additional access technologies.
Products and Services
The following is a summary of the products and services that we are
currently provide, or are developing, in our target markets of network access,
value added services and E-commerce:
<TABLE>
<CAPTION>
Vianet Product and Service Areas By Market Segment
- --------------------------------------------------------------------------------------------------------------------
Network Access Value Added Services E-Commerce
- --------------------------------------- -------------------------------------- -------------------------------------
<S> <C> <C> <C>
Fiber Access Nodes Image Compression Image Zooming
Voice over IP Voice and Data Streaming Image Compression
ADSL, ISDN Real Time Streaming Video Voice and Data Streaming
T1, E1, V.35 Video Mail Real Time Streaming Video
Facial Recognition Video Mail
</TABLE>
In addition to the foregoing, we have an exclusive license to market
products and source code for the product lines of our former subsidiary,
Develcon. Such license covers the Athena product lines to Fortune 100 companies
based in the United States, as well as a non-exclusive license to market all of
Develcon's product lines to other customers worldwide. In the future, we plan to
integrate our proprietary technology and the technology that we have exclusively
licensed from our former subsidiary, Develcon, to expand our network access
product lines.
-4-
<PAGE>
Compression Technologies and Products
Our patented wavelet compression techniques deliver video, multimedia
and data at higher compression ratios, increased transmission speeds, improved
image quality rate and lower cost than similar products currently on the market.
Wavelet technology provides a flexible tool for the following applications:
o E-retail zooming;
o real time streaming video;
o IP video conferencing;
o video mail;
o image compression; and
o multimedia communication and storage value added services.
We believe that these value added services afford customers a
competitive edge by allowing unparalleled desktop video applications to be
delivered at high speeds.
We currently provide the following visual and compression technologies
for bandwidth-conscious multimedia enterprises seeking efficient Inter- and
Intranets for their business:
Visual and Compression Technology Products
------------------------------------------------------------------------------
Store and Forward Video Video Conferencing- Imagery-
Mail and Visual Notification o IP-based wavelet o 24 Bit Color
Facial Recognition o 323 video conferencing o Grey
Enhanced Zooming o Real Time Video o Non-Uniform
Our key products include the Lightning Strike suite of products that
include the following:
o LS Video Messenger - a product that enables users to send V-Mail,
which consist of the E-mailing of a video file;
o LS Video Interactive - a Video Conferencing product;
o LS Power Zoom - a product that allows a user to zoom and pan on
still images; and
o LS Video Stream - a streaming video product that allows users to
view video on demand.
These product lines serve as the foundation for our value added
services, Internet and E-commerce business, and are currently our main focus for
future expansion. We intend to develop similar video and data compression
products to differentiate customers from their competitors and capitalize on the
Internet's commercial potential.
-5-
<PAGE>
We design and sell fiber optic networking products that carry a myriad
of voice, data and video streams. We offer a full line of multiprotocol
information transport platforms for SDH/SONET optical backbones in public and
private networks. These products include add-drop multiplexers ranging from
STM-4/OC-12 to STM-1/OC-3 bandwidths, as well as Digital Loop Carriers (DLC's).
Starpoint
Our main fiber optic networking products is the "Starpoint," a
full-feature DLC that incorporates a Cross Connect and add/drop multiplexer
functionality in one unit. This fiber optic multiplexer allows efficient
transmission of voice, data and video channels from backbone equipment to
network users. The product will incorporate the latest V5.2 standards, as
established by the International Telecommunications Union, and offers more
network node locations than any other competitor, at a significantly lower
price. Starpoint supports communication using Bellcore and ITU-T standard voice
and data interfaces over fiber optic T1 and E1 connections and has the ability
to add interfaces, such as ISDN, BRI/PRI, xDSL, Ethernet, POTS (voice), Payphon
and video, with an upgrade path to a full SONET/SDH compliance. In addition, its
small footspace permits installation in more confined areas than normally
required for such units.
Our product line serves as the foundation for our public and private
network access business. We intend to expand this business, particularly in
foreign markets where we believe demand for such products is increasing.
Computer Networking Products
Stargate Product Lines - Edge and Central Site Communications and
Multi-Protocol Access.
We have an exclusive license from Develcon, our former subsidiary, to
market Athena products and the source code for the Athena product line to
Fortune 100 companies based in the United States. We are marketing these
products under the Stargate name.
The Stargate platform, introduced in 1994, is an edge and central site
communications system that offers a flexible, scalable platform for the
integration of switching, routing and network access services. Stargate supports
various computing environments and networking technologies and allows clients to
optimize and expand existing networks cost effectively. Stargate can
simultaneously support Ethernet and Token Ring LAN interfaces, IP/IPX routing,
transparent bridging, legacy protocols and services such as Frame Relay, X.25,
PPP and ISDN. Network carriers often adopt Stargate as an Edge Switch for the
periphery of existing higher-speed networks, including branch office networks
supporting mission critical applications.
Stargate Access, released in 1998, is a voice/data communication
product for branch office access. Stargate Access utilizes advanced voice
compression technologies to transport voice traffic over public frame relay
networks, or IP networks such as the Internet. The product affords clients
exceptional voice clarity and significant long distance cost savings over public
telephone networks. Like all Stargate products, Stargate Access has integrated
routing functionality, frame relay switching, X.25 switching, legacy protocol
access and ISDN capabilities.
-6-
<PAGE>
Manufacturing
We intend to manufacture our products through a full service
manufacturing partner with facilities and daily operations employing Bellcore
reliability standards. Our engineering is responsible for interpreting all
specifications for products built by the manufacturing subcontractors and
resolves all manufacturing issues with customers. Our Quality Assurance is
responsible for the certification of all our operations and our subcontractor's
quality standards. We establish workmanship specifications, certify personnel,
and maintain the necessary audits to monitor total compliance. In addition, we
determine the best methods to monitor quality indices and will implement closed
loop corrective actions. This monitoring extends to all levels of our company.
Customers
While our subsidiaries do not currently share customers, we plan to
create a national accounts organization to represent all of our product lines to
distribution channels.
Our customers include Internet Service Providers, Competitive local
Exchange Carriers (CLEC's), Video Conferencing Providers and Specialized Service
Providers. These customers employ our technology to provide multi-media services
and I/P videoconferencing to broadband ISP customers.
We plan to use a combination of distribution channels, including
value-added OEM Integration, private label agreements, high volume distribution
and high-end direct account sales.
Competition
We expect to face increased competition, particularly price
competition, from other telecommunications equipment and technology providers.
These vendors may develop products with functionality similar to our products or
may provide alternative network solutions. Our OEMs may also compete with us by
selling their own current products or products that they may develop, as well as
selling products that they purchase from us. In addition, current and potential
competitors may establish cooperative relationships among themselves or with
third parties to develop and offer competing products.
Many of our current and potential competitors have longer operating
histories and substantially greater financial, technical, sales, marketing and
other resources, as well as greater name recognition and a larger installed
customer base, than us. Consequently, these competitors can devote greater
resources to the development, promotion, sale and support of their products. In
addition, competitors with a large installed customer base may have a
significant competitive advantage over us. Accordingly, these potential
customers may not consider or evaluate our products.
We believe that we must invest significant resources in developing new
products, enhancing current products and maintaining customer satisfaction to
remain competitive. If we fail to do so, our products may not compete favorably
with our competitors' products, and our business could be materially adversely
affected.
-7-
<PAGE>
It is also common in the networking industry for competitors to acquire
companies to introduce new products or emerging technologies. Consequently,
competitors with larger market capitalizations or cash reserves than us will be
better positioned to acquire new technology or products capable of displacing
our product lines. If we fail to effectively introduce new products and
enhancements on a timely basis, our business may be materially adversely
affected.
Marketing and Sales
We market our compression technology products to the following market
segments:
o high speed quality image delivery in closed or open (Java)
environments;
o enhanced zooming to E-Commerce enterprises, particularly retail
merchandise companies selling products in an electronic commerce
environment; and
We have a direct sales and marketing force of seven persons. We intend
to increase this number in the first two quarters of 2000 as we release our
products.
We utilize five in-house sales specialists to develop sales through
distribution network channels and direct accounts. Our initial sales strategy
focuses sales coverage to key accounts in the following principal target market
segments:
o Asia Pacific telecommunications companies,
o power utilities,
o metropolitan fiber optic networks,
o private business, and
o military facilities.
We believe that deregulation in the Asia Pacific and Latin American
countries will play a key role in our sales in the years 1999 and 2000. As these
countries update and upgrade their telecommunications systems we believe digital
loop carrier products will be essential to deliver services to end users. In
addition, we are currently cultivating customer relationships through customer
funding programs and development projects with an Asian Pacific
telecommunications provider.
Distribution
We utilize a multi-channel strategy in distributing our products and
services. In general, these channels include:
o Value-Added OEM Integration;
o Private Label Agreements;
o High Volume Distribution; and
o High-End Direct Account Sales.
-8-
<PAGE>
We currently have distribution channels in North America and Asia, and
are seeking additional distribution channels in Western Europe, Mexico and South
America.
We intend to sell our compression technology products using partners,
joint ventures, OEM arrangements, integrators and direct sales.
We are currently positioning ourselves internationally through OEM,
Private Label and High Volume Distribution partners. To that end, we have
partnered with the following distribution outlets:
o Opicom Co., Ltd., a major supplier of telecommunications and DLC
test equipment in Korea;
o BOCOM, a major supplier of telecommunications and DLC test equipment
in China;
o Customer Premise Equipment (CPE) suppliers of T1, voice and data
interface equipment; and
o Large System suppliers such as Harris, TRW, Hughes, SAIC, Phillips
and Singapore Technologies.
We are also pursuing relationships with distribution channels in
Australia, Mexico and Malaysia/Singapore. Domestically, we intend to target
Inter-Exchange Carriers and suppliers of wireless communications equipment.
Product Liability Insurance
We carry product liability insurance coverage on its products in the
amount of $2,000,000.
Employees
As of March 30, 2000, we employed 45 full-time employees, three
part-time employee and ten consultants.
-9-
<PAGE>
Item 2. DESCRIPTION OF PROPERTY.
Our executive offices are located at 83 Mercer Street, 3rd Floor, New
York, NY 10012. Rent for this facility equates to approximately $6,500 per
month.
An additional leased facility is located in Dallas, Texas. Vianet's
lease on the facility ends in June 2000. Rent for this facility equates to
approximately $3,690 per month.
Vianet Labs' headquarters are located at a 9,000 square foot leased
facility in Denton, Texas. Vianet Labs' lease on the facility ends in June 2000.
Rent for this facility equates to approximately $4,000 per month.
Vianet Access is headquartered in Plano, Texas, and leases a 5,000
square foot facility. Vianet Access' lease on the facility ends on December 31,
2000. Currently, rent for this facility equates to approximately $4,300 per
month.
Vianet plans on consolidating the company's activities in Texas into a
single location by third quarter 2000.
Item 3. LEGAL PROCEEDINGS.
We are not a party to any material legal proceeding.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
Not Applicable.
-10-
<PAGE>
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Prior to the consummation of the Vianet Merger, there was no trading
market for Vianet's common stock. Vianet's Common Shares, $0.001 par value per
share, are currently traded on the NASD OTC Electronic Bulletin Board (the
"Bulletin Board") under the symbol "VNTK."
The following table sets forth the high and low closing bid prices for
Vianet's Common Shares for each quarter since the Vianet Merger as reported by
the Bulletin Board for the periods indicated:
Closing Trading Prices
Quarter High ($) Low ($)
------------------------------------------------------------------
March 31, 1999 11.25 7.75
June 30, 1999 11.6875 6.5
September 30, 1999 7.75 4.75
December 31, 1999 4.75 1.25
March 30, 2000 8.4375 3.8125
As of April 7, 2000, there were 21,292,444 shares of Common Stock
outstanding, there were approximately 1,000 registered holders of our Common
Stock.
-11-
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The statements contained herein are not purely historical statements,
but rather include what we believe are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended. These include statements
about our expectations, beliefs, intentions or strategies for the future, which
are indicated by words or phrases such as "anticipate," "expect," "intend,"
"plan," "will," "we believe," "the company believes", "management believes" and
similar words or phrases. The forward-looking statements are based on our
current expectations and are subject to certain risks, uncertainties and
assumptions, including factors set forth in the following discussion and in the
discussions under "Business." Our actual results could differ materially from
results anticipated in these forward-looking statements. All forward-looking
statements included in this document are based on information available to us on
the date hereof, and we assume no obligation to update any such forward-looking
statements.
General
We design and market advanced data compression technology and computer
networking products that allow our customers to deliver integrated voice, video
and data communication services to be used for network access, value-added
services, and E-commerce applications.
Compression Technology Products, E-Commerce and Value Added Services
We develop and sell data compression technologies for software and
hardware applications, utilizing a patented wavelet compression technique.
Wavelet based technologies deliver data, video and multimedia content faster
than conventional compression techniques. Furthermore, wavelet compression uses
dramatically less bandwidth, costs less and yields higher quality Internet video
and still imagery than conventional techniques. Our key products include the
Lightning Strike suite of products, which include LS Video Messenger, LS Video
Interactive, LS Power Zoom and LS Video Stream. All of these products utilize
our wavelet technology, and offer customers high quality desktop video
applications at high speeds. Our technology will serve as the foundation for our
value added services and E-commerce business.
Networking and Communications Products
We design, manufacture and sell networking products and systems. We
produce fiber optic access equipment and specialize in the application of access
and exchange technologies to improve network efficiency and reliability. We
focus on the commercial multimedia communications and telecommunications markets
by providing equipment that interfaces carrier access and enterprise fiber optic
networks. Our current product lines, including the Starpoint fiber optic
multiplexer, offer communications companies high bandwidth technology to reach
consumer markets more efficiently. We market these technologies to
communications companies seeking to interface carrier access and enterprise
fiber optic networks. In the future, we plan to integrate our proprietary
technology and technology exclusively licensed from our former subsidiary,
Develcon, to expand our network access product lines.
-12-
<PAGE>
Background
Our predecessor, Vianet Technologies, Inc., was formed as a Delaware
corporation in March 1998 ("Vianet Delaware"). In March 1999, Vianet Delaware
merged with and into Radar Resources, Inc., a Nevada corporation ("Radar"). Upon
completion of Vianet Delaware's merger with Radar, Radar changed its name to
Vianet Technologies, Inc ("Vianet").
From its inception until March 1999, Radar did not engage in any
business and had no operational history. Radar was incorporated originally under
the name Radar, Inc. in the state of Utah on April 11, 1986. In December 1993,
Radar reorganized under the laws of Nevada, changing its domicile and forming a
new corporation in Nevada named Radar Resources, Inc. This new corporation
acquired the contractual obligations, shareholder rights and identity of the
original Utah Corporation, and the Utah Corporation was dissolved.
Prior to the Vianet Delaware's merger with Radar, Vianet Delaware's
business activities consisted primarily of planning to acquire Develcon
Electronics Limited, an Ontario, Canada corporation ("Develcon"). Develcon
specializes in networking products and systems. Vianet acquired Develcon on May
17, 1999.
Shortly thereafter, in October 1999, Vianet consummated a plan of
merger with Infinop Holdings, Inc., a Delaware corporation specializing in data
compression technology. Simultaneous with the merger, Infinop was renamed Vianet
Labs, Inc.
In December 1999, Vianet acquired PSI Communications Inc. ("PSI"), a
privately held Delaware corporation, pursuant to an option agreement they had
entered into earlier that year. In conjunction with the acquisition, PSI merged
into a wholly owned Delaware subsidiary of Vianet, and changed its name to
Vianet Access, Inc ("Vianet Access").
In December 1999, we sold our Develcon subsidiary to Thorpe Bay
Corporation, an Ontario company. As part of the agreement, we retained an
exclusive license to market Develcon's Athena product lines to Fortune 100
companies based in the United States, as well as a non-exclusive license to
market all of Develcon's product lines to other customers.
In Process Research and Development
On acquisition, the Vianet Labs products were in the form of CODECS
(COmpressor/DECompressor) representing mathematical algorithms that had been
utilized in a "proof of concept" suite of products known as LS Interactive, LS
Messenger, LS Video Streaming, LS Power Zoom and LS Facial recognition. These
products were in "pre alpha" form, worked only on one limited platform and were
extremely "buggy" causing computer lock-ups and worse. Since the acquisition,
Vianet's engineering effort has consisted of the design of professional Graphic
User Interfaces (GUI), debugging and the integration across multiple platforms
as well the further enhancement and development of the basic CODECS.
On acquisition of Vianet Access, the Starpoint product was also in a
"proof of concept" form. In February, the product reached alpha stage and the
main engineering effort since then has focused on the development of a voice
card and the application of a Simple Network Management Protocol (SNMP)
software management system and related GUI that is required for the initial
order in Korea.
As part of the acquisitions of Infinop and PSI, we acquired projects
that had not reached technological feasibility; specifically the uncompleted
development of the LS Video Messenger, LS Video Messenger Pro, LS Video
Interactive, LS Power Zoom and Starpoint products. As of the date of this
report, the LS Video Messenger, LS Video Messenger Pro and LS Video Interactive
products are in general release. LS Power Zoom is currently still under
development and we anticipate a further three months before general release.
Our Starpoint product is currently being developed to include a voice
card and an SNMP management system. We currently expect to complete the
necessary development for the initial release of this product within three
months of this report.
No assurance can be given that these developments will be completed on
schedule or that a market will exist for the products once the development is
completed.
Results of Operations
Period March 20, 1998 (inception) to December 31, 1998
For the period ended December 31, 1998, we had no revenues and we had
not completed any of our acquisitions, although we had made a loan to Develcon.
Our operating expenses were $558,198 consisting primarily of legal and due
diligence costs, thereby resulting in an operating loss of $558,198. Interest
income of $66,341 earned on our loan to Develcon and cash deposits, resulted in
a net loss of $491,857 or $(0.20) per share for the period March 20, 1998
(inception) to December 31, 1998.
-13-
<PAGE>
Year ended December 31, 1999
Operating revenues, consisting primarily of engineering fees charged by
Infinop, amounted to $55,752. Selling, general and administrative charges
amounted to $5,208,109, research and development costs totaled
$412,404,depreciation and amortization amounted to $454,421, and interest
expense was $269,897.
In-process research and development totaled $7,263,000, which was
comprised of a charge of $4,957,000 recorded upon the acquisition of Vianet
Labs, Inc. and a charge of $2,306,000 recorded upon the acquisition of Vianet
Access, Inc. The In-process research and development is primarily related to
development of Labs' and Access' products and technologies including but not
limited to the compression technologies and the fiber optic networking products.
Net loss during 1999 amounted to $21,651,932 or $(4.12) per share.
Weighted average shares outstanding amounted to 5,260,193. The net loss was
comprised of $13,462,976 from continuing operations, $8,188,956 from
discontinued operations (including $4,557,151 from loss on sale of Develcon).
Liquidity and Capital Resources
Historical Sources of Capital
We have sustained our operations from the inception of our predecessor,
Vianet Technologies, Inc, a Delaware corporation (March 1998), primarily from
the sale of equity and borrowings. Specifically, we have completed the following
financings:
o In December 1998, Vianet Delaware sold 250,000 shares of Series A
convertible preferred stock for an aggregate of $1,000,000 in cash to
accredited investors. In December 1998, $10,000 was received for the stock,
the remaining subscription receivable outstanding, $990,000, was paid
subsequent to December 31, 1998. In March 1999, pursuant to the terms and
conditions of the Merger Agreement between Radar Resources, Inc. and Vianet
Technologies, Inc., the shareholders of Old Vianet were issued four shares
of fully paid and nonassessable shares of the company's common stock, $.001
par value ("Common Stock") per share in exchange for each share of Old
Vianet's outstanding common stock. The existing common shareholders of Old
Vianet received 1,400,000 shares of common stock of the Merged Company in
exchange for the 350,000 shares then outstanding. All shares of Old Vianet's
Series A Convertible Preferred Stock issued and outstanding immediately
prior to the Merger were deemed to have been converted into an aggregate of
250,000 shares of Old Vianet's common stock and the Series A Convertible
Preferred shareholders received 1,000,000 shares of Common Stock of the
Company;
o In July, 1999 we issued 100,000 common shares and 55,000 common stock
purchase warrants, exercisable at $6.60 per share to certain non-US
investors for cash of $550,000;
o In July 1999, we entered into a credit facility (the "Facility") with an
entity that, at the time, Peter Leighton, our President and Chief Executive
Officer was a Director and Officer. The Facility was in the amount of
$3,000,000, of which approximately $2,146,000 had been drawn down as of
December 31, 1999. The Facility bore interest at 10% per annum and monthly
fees of $15,000. We issued 300,000 warrants exercisable at price of $2.375
in consideration for the Facility. The Facility was secured by all of our
major assets, including the shares of Vianet Labs and Vianet Access, and was
repayable on March 31, 2000. In March 2000, we converted the Facility into
1,430,559 shares of common stock at $1.50 per share in exchange for the
retirement of the $2,145,839 outstanding under the Facility. This
transaction included the issuance of 1,430,559 each of Class A, Class B and
Class C warrants at $2.00, $2.50 and $3.00.
-14-
<PAGE>
o In September 1999, we borrowed $500,000 from a private investor at an
interest rate of 11%. The loan is repayable on September 30, 2000 and can be
converted at the option of the holder into common shares at an exchange rate
of $3.75 per share. Separately, we issued to the noteholder a two year
option to purchase 50,000 shares of common stock at $5.00 per share.
o We assumed convertible debentures (the "Debentures") as part of the
acquisition of Vianet Labs in the amount of $1,125,000. The Debentures bear
interest ranging from 6% to 8%, are convertible into a maximum of 370,170
shares of common stock through September 30, 2002.
o In December 1999 we sold our subsidiary, Develcon, thereby effectively
eliminating approximately $4,200,000 of debt.
o From December 1999 through February 2000, we completed a private placement
offering, with Aegis Capital, Inc. (Aegis) as placement agent, in which we
sold an aggregate of approximately 34.5 units for gross proceeds of
approximately $3,450,000. The units consisted of an aggregate of (1)
2,302,282 shares of common stock, and (2) 2,302,282 class A, B and C
warrants, respectively, to purchase shares of common stock. The class A, B
and C warrants are exercisable at $2.00, $2.50 and $3.00, respectively. In
connection with such offering, Aegis Capital received warrants to purchase
an aggregate of approximately 3.45 Units (or an aggregate of 230,215 shares
of common stock and 230,215 class A, B and C warrants, respectively), which
warrants are exercisable at a price of $100,000 per unit.
o In February 2000, Vianet completed a private placement offering in which we
sold an aggregate of approximately 18 units for gross proceeds of
approximately $1,800,000. The units consisted of an aggregate of (1)
1,199,054 shares of common stock, and (2) 1,199,054 class A, B and C
warrants, respectively, to purchase shares of common stock. The class A, B
and C warrants are exercisable at $2.00, $2.50 and $3.00, respectively. In
connection with such offering, Donald & Co. received warrants to purchase an
aggregate of approximately 1.25 Units (or an aggregate of 83,649 shares of
common stock and 83,649 class A, B and C warrants, respectively), which
warrants are exercisable at a price of $100,000 per unit.
o In March 2000, we issued an aggregate of 250,000 shares of common stock in
exchange for a note receivable from Develcon of $1,000,000.
o In March and April 2000, we completed a private placement in which we sold
an aggregate of approximately 98 units for gross proceeds to Vianet of
approximately $5,883,000. The units consisted of an aggregate of 1,961,123
shares of common and 2,941,684 common stock purchase warrants, which
warrants are exercisable at $4.50. In connection with such offering, the
Placement Agents will receive warrants to purchase an aggregate of
approximately 6.8 units (or an aggregate of approximately 136,000 shares of
common stock and approximately 204,000 class D warrants), which warrants are
exercisable at a price of $60,000 per unit.
o In April 2000, we sold an aggregate of 1,900,000 shares of common stock and
2,850,000 common stock purchase warrants for gross proceeds of $5,700,000.
The warrants are exercisable at $4.50.
-15-
<PAGE>
Reference is made to Note 18, Consolidated Financial Statements
"Subsequent Notes" included hereunder which shows to pro forma effect of the
financings completed subsequent to December 31, 1999.
Contingent Liability
We have guaranteed a term loan from Royal Bank of Canada ("RBCC") to
Develcon in the amount of approximately $1,000,000 (CDN$1,500,000), which is due
and payable in three installments on or before December 31st of 2000, 2001 and
2002, respectively. There can be no assurance that Develcon will be able to
repay RBCC, which could cause us to be liable to pay RBCC. RBCC are shareholders
and warrant holders of the Company.
Potential Future Sources of Capital
In addition to the financings completed in the first quarter of 2000 we
have the following sources of future capital:
o An amount of $1,288,125 has been included in accounts payable at December
31, 1999 representing an accrual for the issuance of shares for services
rendered. $1,085,000 of this liability will be discharged in April 2000
through the issuance of 270,000 shares at an average price of $4.02 to
WorldCorp Capital Management Group, Inc. (WCMG). The remaining $202,500 will
be discharged upon the issuance of shares to R. Bailey, D. Elliot and P.
Whitlock, three Directors of the Company. Each of the three Directors will
receive 20,000 shares for services rendered during 1999.
o We are in discussions with Wells Fargo (the "Bank") regarding obtaining
financing for accounts receivable and work in progress based upon
irrevocable letters of credit at a rate of LIBOR plus a margin. No
assurances can be given that an arrangement will be reached or that, if
reached, such arrangement will be converted into actual lending although we
believe that it is the intent of the Bank to extend financing under the
stated terms.
o We had a total of 21,703,296 warrants outstanding as at the date of this
filing at an average issue price of $3.03. In the event that these warrants
are all exercised we would receive approximately $65,700,000 in cash
proceeds. The exercise of these warrants will depend on, amongst other
things, the liquidity and price for our common shares. We do not control the
exercise of these warrants and therefore no assurances can be given that any
warrants will be exercised.
We have used and intend to continue to use the proceeds from the
financings described above to consolidate and build our sales and marketing team
and to purchase inventory and capital equipment. Our ability to become a serious
competitor in the network access, Internet, E-commerce, and value-added services
markets may be dependent upon obtaining additional financing.
Future Sources of Revenue
As of the date of this filing we have received completed the following
transactions that could generate future revenues:
-16-
<PAGE>
o We have received an initial purchase order for in excess of $5,000,000
for our Stargate product for delivery in the third and fourth quarter
of 2000;
o We have signed contracts with several customers, including a
substantial ISP (Internet Service Provider), calling for revenue
sharing and other forms of direct revenues. These customers are
anticipating acceptance for their service offerings, which will
generate revenues for us. However, actual revenues will depend on our
customers' success in marketing their services that include our
products;
o Texas Instruments (TI), the largest Digital Signal Processor (DSP)
manufacturer in the world, has confirmed that it will include two of
our products, LS Interactive and LS Messenger, in the reference design
being sent to camera manufacturers worldwide intending to use TI's chip
sets for the manufacture of the new Fire Wire camera in April 2000. We
expect a significant number of these manufacturers to bundle our
products with their cameras under terms of which we will generate
revenues although there is no guarantee that we generate any.
While we anticipate significant revenues from these contracts and
others that we will complete, there can be no guarantees these revenues will be
realized. Should the contracts be cancelled or if our customers do not generate
revenues utilizing our products, our future expected revenues could be adversely
affected.
Summary
Our best estimate is that we have sufficient cash to fund our
operations for twelve months. After this period we may require additional funds
unless we generate revenues to fund our expenses. As of the date of this filing
our cash balances amounted to approximately $10,337,000 and our cash
expenditures amount to approximately $700,000 per month.
We have no current arrangements in place with respect to financing
other than those described above. Although we have sufficient capital to fund
our current operations, we are currently seeking additional financing
arrangements to provide the additional capital to expand our scope of operations
and our business strategy. To this end we have engaged Gruntal & Co. as our
investment bankers to assist is sourcing appropriate capital. Our management
believes that upon full implementation of our business plan, sufficient revenues
will be generated to meet operating requirements. However, no assurance can be
given that such goal will be obtained or that our expected revenues will be
realized at sufficient levels and profitability to fund our operations without
additional capital. Such inability could have a materially adverse effect on our
business, operating results and financial condition. Moreover, the estimated
cost of the proposed expansion of our production and marketing activities is
subject to numerous uncertainties, including the problems, expenses,
difficulties, complications and delays, many of which are beyond our control,
frequently encountered in connection with the establishment and development of
new business activities, and may be affected by the competitive environment in
which we are operating. Accordingly, there can be no assurance that we will
complete the proposed expansion of our production and marketing activities
described herein.
-17-
<PAGE>
Item 7. FINANCIAL STATEMENTS.
The response to this item is set forth at the end of this report.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
In May 1999, Vianet and KPMG LLP mutually agreed to terminate their
business relationship. The agreement to terminate the business relationship was
determined to be final and effective as of June 30, 1999 only after discussions
between the parties, which were completed on or about July 8, 1999. Vianet
subsequently engaged Edward Isaacs & Company LLP as auditors. The Company's
independent Audit Committee and Board of Directors unanimously approved the
decision to retain Edward Isaacs & Company.
KPMG was the principal accountants for Vianet from April 28, 1999 until
June 30, 1999. During the time that KPMG was the Company's principal
accountants, KPMG never issued a report on the financial statements of Vianet.
Furthermore, during the time that KPMG was the Company's principal accountants,
there were no disagreements with KPMG on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of KPMG, would have caused
them to make reference in connection with their opinion to the subject matter of
the disagreement in connection with any report KPMG might have issued, except
that the Form 8-K filed by the Company on June 7, 1999 did not include the
opinion of the Company's principal accountants, and KPMG notified the Company
that such report did not include disclosures regarding the fact that they
believed that there was substantial doubt about the ability of Vianet to
continue as a going concern. On August 17, 1999, Vianet filed a Form 8-K which
included the audited historical financial statements for Vianet and the report
of Edward Isaacs & Company LLP, the new principal accountants for Vianet, which
report stated that there was substantial doubt about the ability of Vianet to
continue as a going concern.
-18-
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Executive Officers and Directors
The executive officers, directors and key executives of Vianet, and
their ages as of March 30, 2000, are as follows.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Jeremy T.G. Posner 54 Chairman of the Board, Vianet
Peter Leighton 47 President, Chief Executive Officer, Director, Vianet
Bruce Arnstein 44 Chief Operating Officer, Vianet
Vincent Santivasci 29 Chief Financial Officer, Vianet
Robert H. Bailey 57 Director, Vianet
Darrell J. Elliot 53 Director, Vianet
F. Paul Whitlock 59 Director, Vianet
</TABLE>
Set forth below is a biographical description of each director and
senior executive officer of Vianet based on information supplied by each of
them.
Peter Leighton, a co-founder of Vianet, has been President and Chief
Executive Officer of Vianet since its inception. From 1989 to 1997, he was the
Chief Executive Officer of Intelect Communications, Inc. While he was with the
company, he and Mr. Posner oversaw a series of restructurings, acquisitions,
financings and dispositions that transitioned Intelect from the firearms
industry to the technology sector. He has over fifteen years of experience
working with companies in the US, Europe and South America. He holds a Chartered
Accountant of the Canadian Institute of Chartered Accountants and has a B.Sc.
Engineering Science degree from Exeter University in England.
Jeremy Posner, a co-founder of Vianet, has been the Chairman of Vianet
since its inception. From 1988 to 1997, Mr. Posner was a Senior Vice President
and Director of Intelect Communications Inc. During this period, Mr. Posner
worked closely with Mr. Leighton to reposition the company in the technology
sector. Prior to joining Intelect, Mr. Posner headed an international investment
group where he assisted emerging companies, raised venture capital and assisted
with the development of companies. Mr. Posner holds a MBA from York University,
Toronto Canada, and a Bachelor of Laws from the University of Birmingham,
England.
Bruce M. Arnstein joined Vianet as Chief Operating Officer in May 1999.
From 1988 to 1999 Mr. Arnstein managed the Business and Information Consulting
Divisions of the following accounting firms; Edward Isaacs & Company LLP,
Mahoney Cohen & Company and David Berdon & Co LLP. Prior to that Mr. Arnstein
was the Director of Operations of the Goelet Corporation, an investment company,
and managed the Consulting Practice for one of Arthur Andersen's offices. He
holds a Bachelor of Science in Industrial Engineering from Lehigh University.
-19-
<PAGE>
Vincent Santivasci joined Vianet as Chief Financial Officer in August
1999. He is a member of the American Institute of Certified Public Accountants
and is registered with the National Association of Securities Dealers in the
United States of America as a General Securities Representative and a General
Securities Principal. Mr. Santivasci acted as Director, Officer and General
Securities Principal for three international investment companies while serving
as an Account Manager for Leeds Management Services Limited in Bermuda from July
1997 to July 1999. Prior to his employment at Leeds Management, Mr. Santivasci
held a supervisory audit position with Arthur Andersen LLP. Arthur Andersen LLP
employed him in 1993, upon completion of his Bachelor of Science in Accounting
from the University at Albany.
Robert H. Bailey has been a Director of Vianet since March 1999. For
more than ten years, Mr. Bailey has been Vice President of AMS Planning &
Research Corporation, a consulting firm specializing in the planning and
development of arts and entertainment facilities, market research and strategic
and long range planning.
Darrell J. Elliot has been a Director of Vianet since March 1999. Mr.
Elliot is also the Senior Vice President of MDS Capital Corp., a venture capital
fund. Previously, Mr. Elliott was Vice President of Western Region of Royal Bank
Capital Corporation, a venture capital subsidiary of the Royal Bank of Canada.
F. Paul Whitlock has been a Director of Vianet since March 1999.. Mr.
Whitlock is the founder and Director of NetGain Consulting Limited, a UK based
firm providing management consulting and project management services to the
telecommunications industry. He was previously a Director of Consultancy
Services, Nortel Europe and Business Planning Manager for Nortel Integrated
Networks.
Director and Executive Compensation
Each Director's term of office lasts until the next annual meeting of
stockholders where a successor is elected and qualified or until the Director's
earlier death, resignation or removal from office. Executive Officers hold
office until their successors are chosen and qualified, subject to earlier
removal by the Board of Directors.
During the fiscal year ended December 31, 1998, no remuneration was
paid by Radar to any of its officers or directors, except that they were
entitled to receive reimbursement for actual, demonstrable out-of-pocket
expenses, including travel expenses if any, made on Radar's behalf in the
investigation of business opportunities. None of the individuals who were
officers or directors of Radar prior to the Vianet/Radar Merger are currently
officers or directors of Vianet.
As compensation for Directors' services in 1999, we have agreed to
issue 20,000 shares of common stock to each of the following individuals: R.
Bailey; D. Elliot; and P. Whitlock. Such payment has been accrued for in the
December 31, 1999 financial statements included herein.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to the Company during fiscal year 1999, the Company is not aware of
-20-
<PAGE>
any director, officer or beneficial owner of more than ten percent of the
Company's Common Stock that, during fiscal year 1999, failed to file on a timely
basis reports required by Section 16(a) of the Securities Exchange Act of 1934.
Item 10. EXECUTIVE COMPENSATION.
The following table sets forth certain summary information with respect
to the compensation paid to the Company's Chief Executive Officer, and the
Company's Chairman, for services rendered in all capacities to the Company for
the fiscal period ended December 31, 1999. Other than as listed below, the
Company had no executive officers whose total annual salary and bonus exceeded
$100,000 for that fiscal year:
Summary Compensation Table
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term
Compensation
- -------------------------------------------------------------------------------------------------------------------------
Securities under
Year Ended Other Annual Options Granted, All Other
Name and Principal Position December 31 Salary Bonus Compensation (#) (2) Compensation
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Peter Leighton, 1999 $125,000 $ ------ $ ------ ------- ------
President and Chief
Executive Officer
- -------------------------------------------------------------------------------------------------------------------------
Jeremy Posner, 1999 $ 75,000 $ ------ $ ------ ------- ------
Chairman
- -------------------------------------------------------------------------------------------------------------------------
Bruce Arnstein, 1999 $ 101,000 $ ------ $ ------ 150,000 ------
Chief Operating Officer
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As of January 1, 2000 through entities controlled by Mr. Leighton and Mr.
Posner (CFM Capital Limited and Xelix Capital Limited, respectively)
compensation for employment will be $250,000 and $150,000, respectively.
Mr. Arnstein's annual salary from Vianet is $250,000 (See Executive
Compensation - Employment Agreements).
(2) The number of securities under options granted reflects the number of
Vianet Shares that may be purchased upon the exercise of such options.
-21-
<PAGE>
Option Grants in Last Fiscal Year
(Individual Grants)
The following table shows the option grants to the named executive
officers during fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
Market Value of
Securities % of Total Securities
Under Options Granted Underlying Options
Options to Employees in Exercise Price on the Date of Grant
Name Granted Financial Year ($/Security) ($/Security) Expiration Date
- ------------------- -------------- ------------------- ---------------- --------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Bruce Arnstein 150,000 18.3% $1.50 $1.50 11/24/2003
</TABLE>
Aggregated Option Exercises in Last Fiscal Year
And Fiscal Year-end Option Values
The following table shows the value at December 31, 1999 of unexercised
options held by the named executive officers:
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Shares Unexercised In-the-Money Options at
Acquired Value Options at Fiscal Year-end ($)
On Realized Fiscal Year-end (#) Exercisable Exercisable /
Name Exercise (#) ($) / Unexercisable(1) Unexercisable(2)
- ------------------------- --------------- --------------- --------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Peter Leighton NIL NIL 200,000/NIL $612,500
Jeremy Posner NIL NIL 200,000/NIL $612,500
Bruce Arnstein NIL NIL 66,667 / 83,333 $170,834
- ----------------
</TABLE>
(1) Represents presently exercisable options to purchase 200,000 shares of
common stock at $1.00 per share
(2) Assumes a fair market value of $4.0625 per share of common stock, which is
the closing price for the Company's common stock on December 31, 1999.
EMPLOYMENT AGREEMENTS
In March 2000, Vianet's Board of Directors approved a two-year
employment agreement with Bruce Arnstein, effective as of November 24, 1999,
pursuant to which Mr. Arnstein has been retained as Chief Operating Officer of
the Company at an annual salary of $250,000. Mr. Arnstein is entitled to a bonus
pursuant to his employment agreement at the discretion of the Board of Directors
or compensation committee. In addition, the employment agreement provides that
Vianet shall issue four year options to purchase an aggregate of 150,000 shares
of common stock at an exercise price equal to the Closing Bid price for the
common stock on November 24, 1999, 100,000 of which options shall May 1, 2000
and the remaining 50,000 options of which shall vest November 1, 2000. Such
options shall also have piggy-back registration rights. The employment agreement
contains a covenant not to compete whereby Mr. Arnstein agrees, for the term of
the employment agreement, not to (i) directly or indirectly solicit any customer
or known prospective customer who has contracted with Vianet to purchase
products or services during the then preceding twelve month period. The
employment agreement is terminable at will by either party upon sixty days
written notice to the other after the initial two-year term. In the event that
Vianet and Mr. Arnstein mutually agree to terminate the employment agreement
prior to the expiration of the term of the employment agreement, Mr. Arnstein
shall be paid through the term of the employment agreement, and any stock
options that have not vested by the effective date of termination shall become
vested.
In April 2000, Vianet entered into three-year consulting agreements
with CFM Capital Limited, an entity owned and controlled by Peter Leighton, and
Xelix Corp., an entity owned and controlled by Jeremy Posner, effective as of
January 1, 2000. The consulting agreements provide for base fees to CFM Capital
Limited of $250,000 and base fees to Xelix Capital Limited of $150,000 per year
(the "Base Fee"). In addition, consulting agreements provide that Vianet shall
pay such additional compensation as shall be determined from time to time by the
Board of Directors based upon the attainment of specific criteria as agreed to
from time to time. The consulting agreements also provide for reimbursement of
reasonable costs and expenses incurred. The consulting agreement are terminable
(i) by either party in the event the other party fails to perform in accordance
with the provisions of this Agreement, or (ii) by Vianet, at any time, upon
thirty (30) days written notice. Upon termination the consultant shall cease all
provision of services and no invoice shall be made for services performed after
notice of suspension or termination. Upon termination, for any reason except
breach of this agreement by consultant, Vianet shall pay to consultant an amount
equal to or a change in control of Vianet, in addition to earned but unpaid
COnsulting Fees payable in accordance with Section 3, Vianet shall pay to
Consultant severance in the amount equal to two times the Base Fee. The
severance amount shall be payable in quarterly installments with the first
payment due not later than thirty (30) days after termination. Except for the
foregoing terms, Vianet has not entered into other employment or consulting
agreements with any of the Named Executive Officers.
-22-
<PAGE>
In connection with the Vianet Access acquisition, the company entered
into two-year employment agreements with certain principal shareholders of
Vianet Access, which provides for aggregate annual compensation of $675,000. In
connection with the Vianet Labs acquisition, the company entered into two-year
employment agreements with certain principal shareholders of Vianet Labs, which
provides for aggregate annual compensation of $706,400 and bonuses up to
$400,000.
Stock Option Plans
Our Board of Directors has adopted, subject to shareholder approval, an
Employee Stock Incentive Program (the "Program"), which will be administered by
our Board of Directors. The Program provides for the granting of options to key
employees, directors and officers of Vianet to purchase shares of common stock
of Vianet at prices equal to the market value of the Vianet's common stock on
the business day immediately preceding the date on which an option is granted or
at any other price the Board of Directors of Vianet may determine. The Program
provides for the granting of options as incentive stock options under the United
States Internal Revenue Code.
The Employee Stock Incentive Program (the "Program") is administered by
the Board of Directors. The Program provides for the granting of options to key
employees, directors and officers of Vianet to purchase shares of common stock
of Vianet at prices equal to the market value of the Vianet's common stock on
the business day immediately preceding the date on which the option is granted
or at any other price the Board of Directors of Vianet may determine. The
Program provides for the granting of options as incentive stock options under
the United States Internal Revenue Code.
As a result of the Vianet Delaware's merger with Radar, the outstanding
options to purchase shares of Vianet became options to purchase an aggregate of
560,000 shares of Vianet's common stock. Such options were outstanding and held
by an aggregate of six directors and employees at the time of the Vianet Merger.
Nominal consideration was received by Vianet Delaware for the granting of the
options. In addition, during 1999, we granted 350,000 common stock purchase
options to employees of the company under the Program. To date, none of the
options to purchase Vianet shares have been exercised under the Program. The
options require that the exercise price be paid in full at the time of exercise.
Other Employee Stock Options
The Company has assumed options granted under Develcon's and Infinop
Option Plans (Acquired Options). The Acquired Options were assumed by the
Company outside of its stock option plan, and they are administered as if issued
under their original plans. All of the Acquired Options have been adjusted to
effectuate the conversion under the terms of the acquisitions between the
Company, Develcon and Infinop. The Acquired Options generally become exercisable
over a three-year period and generally expire ten years from the date of grant.
No additional options will be granted under Develcon's or Infinop's plans. As
part of the sale of Develcon, all unexercised options assumed from Develcon or
granted to Develcon employees have been cancelled.
-23-
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the beneficial ownership of the Common
Stock of Vianet, as of April 7, 2000, for (a) each person who is known by Vianet
to beneficially more than five percent (5%) of Vianet's Common Stock; (b) each
of Vianet's directors; and (c) all directors and executive officers as a group:
<TABLE>
<CAPTION>
Outstanding Common Stock Beneficially Owned
- --------------------------------------------------------------------------------------------------------------
Number of Shares of
Name and Address of Beneficial Owner** Common Stock Percentage of Voting Stock
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jeremy T.G. Posner 2,280,829(1) 10.7%
Peter Leighton 2,000,000(2) 9.4%
Bruce Arnstein 48,899(4) *
Vincent Santivasci 6,666(5) *
Elizabeth Disiere 40,000(6) *
Robert H. Bailey 20,470(3) *
Darrell J. Elliot 20,000(3) *
F. Paul Whitlock 20,000(3) *
Georgetown Vianet Partnership (7) 1,066,656(7) 5.0%
WorldCorp Mgt Group, Inc. (8) 2,230,000(8) 10.5%
</TABLE>
* Less than one percent.
** The address for each director and officer is c/o Vianet Technologies, Inc.,
83 Mercer Street, 3rd Floor, New York, N.Y. 10012.
(1) Includes (i) an aggregate of 2,046,391 shares owned by entities controlled
by Jeremy Posner, (ii) 232,520 shares which may be issued pursuant to
warrants and options owned by Mr. Posner, which options are currently
exercisable, and (iii) 1,918 shares owned by Mr. Posner's wife, as to which
he disclaims beneficial ownership.
(2) Includes (i) 1,800,000 shares owned by entities controlled by Peter
Leighton and his wife, and (ii) 200,000 shares that may be issued pursuant
to warrants and options owned by Mr. Leighton, which options are currently
exercisable.
(3) Does not include 40,000 shares which may be issued under outstanding stock
options, which shares are not exercisable and subject to a three year
vesting period.
(4) Does not include 150,000 shares which may be issued under outstanding stock
options, which shares are not exercisable and subject to a three year
vesting period.
(5) Does not include 50,000 shares which may be issued under outstanding stock
options, which shares are not exercisable and subject to a three year
vesting period.
(6) Includes 40,000 shares which may be issued under outstanding stock options.
These outstanding options are fully vested.
(7) Includes 266,664 shares and 266,664 class A, B and C common stock purchase
warrants, respectively. Georgetown Vianet Partnership c/o Charles R.
Holzer, 23 E. 74th Street, New York, NY 10021.
(8) Includes 270,000 shares and 1,960,000 common stock purchase warrants.
WorldCorp Management Group is located at 6245 North Federal Highway, Suite
400, Fort Lauderdale, Florida 33308.
-24-
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On March 23, 1999, convertible demand notes payable of $2,909,272 to
entities controlled by two officers and directors of the Company (Jeremy Posner
and Peter Leighton) were converted into 2,739,272 shares of common stock at a
ratio of one share for every $1 of principal amount. During the six months ended
June 30, 1999, the Company repaid $200,000 and additional convertible demand
notes of $30,000 were issued.
In March 1999, we agreed to issue warrants to purchase 760,000 shares
of common stock to WorldCorp Management Group, Inc. (WCMG) at $1.10 to $1.72 per
share.
In July 1999, we entered into a credit facility (the "Facility") with
an entity that at the time, Peter Leighton, our President and Chief Executive
Officer was a Director and Officer. The Facility is in the amount of $3,000,000,
of which approximately $2,146,000 had been drawn down as of December 31, 1999.
The Facility bears interest at 10% per annum and monthly fees of $15,000. We
issued 300,000 warrants exercisable at price of $2.375 in consideration for the
Facility. The Facility is secured by all of our major assets, including the
shares of Vianet Labs and Vianet Access, and is repayable on March 31, 2000. In
March 2000 we converted the Facility into 1,430,559 shares of common stock at
$1.50 per share exchange for the retirement of the $2,145,839 outstanding under
the Facility. This transaction included the issuance of 1,430,559 each of Class
A, Class B and Class C warrants at $2.00, $2.50 and $3.00.
In March 2000, we agreed to issue 270,000 shares of common stock to
WCMG, as consideration for services rendered during 1999 in connection with the
acquisition of Vianet Labs and Vianet Access. In addition, during the month of
March 2000, the Company agreed to issue warrants to purchase 1,200,000 shares of
common stock to WCMG at $3.00 to $12.00 per share, exercisable through 2004 with
effective dates throughout 1999.
-25-
<PAGE>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits are listed on the Index to Exhibits included in this
report. The Exhibits required by Item 601 of Regulation S-B are listed on such
Index in response to this Item and are incorporated herein by reference.
(1) Financial Statements required by Regulation S-X are listed
in response to this Item and are set forth at the end of this report and are
incorporated herein by reference.
(2) Financial Statement Schedules
Report of Independent Auditors
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are not required or the
required information is included in the Consolidated Financial Statements or
Notes thereto.
(b) Reports on Form 8-K:
On March 14, 2000, the registrant filed a report on Form 8-K.
-26-
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Consolidated Financial Statements of
Vianet Technologies, Inc. and Subsidiaries:
o Independent Auditors' Report F-2
o Consolidated Balance Sheets - December 31, 1999 and 1998 F-3
o Consolidated Statements of Operations - Year Ended December 31, 1999 and
for the Period March 20, 1998 (Inception) to December 31, 1998 F-4
o Consolidated Statements of Shareholders' Equity - for the Period
March 20, 1998 (Inception) to December 31, 1999 F-5
o Consolidated Statements of Cash Flows - Year Ended December 31, 1999 and for
the Period March 20, 1998 (Inception) to December 31, 1998 F-6-7
o Notes to Consolidated Financial Statements F-8-24
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Vianet Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Vianet
Technologies, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related statements of consolidated operations, shareholders' equity, and cash
flows for the year ended December 31, 1999 and the period from March 20, 1998
(inception) to December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vianet Technologies, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and cash flows for the year ended December 31, 1999 and the period
from March 20, 1998 (inception) to December 31, 1998, in conformity with
generally accepted accounting principles.
/s/EDWARD ISAACS & COMPANY LLP
New York, New York
March 24, 2000, except Note 18 as to
which the date is April 13, 2000
F-2
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS 1999 1998
------------ ------------
Current Assets:
Cash and cash equivalents $ 214,639 $ 13,856
Marketable securities - 669,268
Accounts receivable 93,955 -
Receivable from related party 142,415 -
Prepaids and other current assets 75,913 -
------------ ------------
Total Current Assets 526,922 683,124
------------ ------------
Property and Equipment 274,117 -
------------ ------------
Other Assets:
Note receivable from Develcon Electronics Ltd., less
$1,000,000 allowance in 1999 624,828 1,506,800
Intangibles arising from acquistions, net of
accumulated amortization of $364,432 in 1999 6,631,533 -
Technology licenses, net of accumulated amortization
of $112,500 in 1999 and $22,500 in 1998 874,047 427,500
Other 6,500 65,375
------------ ------------
Total Other Assets 8,136,908 1,999,675
------------ ------------
$ 8,937,947 $ 2,682,799
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Current portion of long-term debt $ 27,799 $ -
Accounts payable and accruals 3,635,652 252,384
Convertible notes payable 513,750 2,909,272
Demand notes payable 50,000 -
Loans payable - related parties 2,184,387 -
------------ ------------
Total Current Liabilities 6,411,588 3,161,656
------------ ------------
Convertible Notes Payable (noncurrent) 1,125,000 -
------------ ------------
Shareholders' Equity (Deficiency):
Series A convertible preferred shares, 250,000 shares authorized;
250,000 shares issued and outstanding in 1998 - 1,000,000
Common shares, $0.001 par value; 100,000,000 shares
authorized; 14,678,309 and 1,400,000 shares, issued and
outstanding, respectively 14,678 1,400
Subscription receivable (500) (990,500)
Additional paid-in capital 19,275,589 2,100
Warrants issued 5,001,211 -
Unearned fees (745,830) -
Accumulated deficit (22,143,789) (491,857)
------------ ------------
Total Shareholders' Equity (Deficiency) 1,401,359 (478,857)
------------ ------------
$ 8,937,947 $ 2,682,799
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-3
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
March 20, 1998
Year Ended (Inception) to
December 31,1999 December 31,1998
----------------- -----------------
<S> <C> <C>
Revenue:
Sales and services $ 55,752 $ -
Interest and other income 110,390 66,341
------------- -----------
166,142 66,341
------------- -----------
Costs and Expenses:
Cost of goods and services sold 21,604 -
Selling, general and administrative 5,208,109 558,198
Research and development 412,404 -
In-process research and development 7,262,683 -
Depreciation and amortization 454,421 -
Interest 269,897 -
------------- -----------
13,629,118 558,198
------------- -----------
Loss From Continuing Operations (13,462,976) (491,857)
------------- -----------
Discontinued Operations:
Operating loss (3,631,805) -
Loss on disposal (4,557,151) -
------------- -----------
Loss From Discontinued Operations (8,188,956) -
------------- -----------
Net Loss $ (21,651,932) $ (491,857)
============= ===========
Loss per share - basic and diluted:
Continuing operations $ (2.56) $ (0.20)
Discontinued operations (1.56) -
------------- -----------
Net loss $ (4.12) $ (0.20)
============= ===========
Weighted average number of shares outstanding 5,260,193 2,400,000
============== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional
---------------------- ------------------------ Paid-In
Shares Amount Shares Amount Capital
---------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock - - 1,400,000 1,400 2,100
Issuance of Series A Convertible
Preferred Stock 250,000 $ 1,000,000 - - -
Net loss - - - - -
---------- ----------- ------------ ----------- -------------
Balances at December 31, 1998 250,000 $ 1,000,000 1,400,000 $ 1,400 $ 2,100
Issuance of common stock in
connection with Radar merger - - 1,000,000 1,000 -
Conversion of preferred stock (250,000) (1,000,000) 1,000,000 1,000 999,000
Issuance of common stock and warrants
for services - - 216,166 216 498,263
Issuance of common stock in
connection with Develcon merger - - 2,585,488 2,586 3,453,186
Issuance of common stock in
connection with restructuring of debt - - 120,000 120 352,755
Exercise of stock options - - 1,626 2 5,201
Issuance of common stock and warrants in
connection with Develcon disposition - - 183,332 183 312,317
Conversion of notes payable - - 2,739,272 2,739 2,736,533
Convertible debt issued with warrants - - - - -
Issuance of common stock and options in
connection with Vianet Labs, Inc. merger - - 1,535,454 1,535 6,063,537
Issuance of common stock in connection
with Vianet Access, Inc. merger - - 2,500,000 2,500 3,175,947
Issuance of common stock and warrants -
private placements - - 1,396,971 1,397 1,676,750
Net loss - - - - -
---------- ----------- --------- -------- -------------
Balances at December 31, 1999 - $ - 14,678,309 $ 14,678 $ 19,275,589
========== =========== ========== ======== ============
</TABLE>
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Total
Warrants Unearned Subscription Accumulated Shareholders'
Issued Fees Receivable Deficit Equity
------------ ----------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock - - (500) - 3,000
Issuance of Series A Convertible
Preferred Stock - - (990,000) - 10,000
Net loss - - - (491,857) (491,857)
------------ ----------- ----------- -------------- -------------
Balances at December 31, 1998 $ - $ - $ (990,500) $ (491,857) $ (478,857)
Issuance of common stock in
connection with Radar merger - - - - 1,000
Conversion of preferred stock - - 990,000 - 990,000
Issuance of common stock and warrants
for services 3,332,486 (745,830) - - 3,085,135
Issuance of common stock in
connection with Develcon merger - - - - 3,455,772
Issuance of common stock in
connection with restructuring of debt - - - - 352,875
Exercise of stock options - - - - 5,203
Issuance of common stock and warrants in
connection with Develcon disposition 968,292 - - - 1,280,792
Conversion of notes payable - - - - 2,739,272
Convertible debt issued with warrants 254,080 - - - 254,080
Issuance of common stock and options in
connection with Vianet Labs, Inc. merger - - - - 6,065,072
Issuance of common stock in connection
with Vianet Access, Inc. merger - - - - 3,178,447
Issuance of common stock and warrants -
private placements 446,353 - - - 2,124,500
Net loss - - - (21,651,932) (21,651,932)
------------ ----------- ----------- -------------- -------------
Balances at December 31, 1999 $ 5,001,211 $ (745,830) $ (500) $ (22,143,789) $ 1,401,359
============ =========== =========== ============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
March 20, 1998
Year Ended (Inception) to
December 31,1999 December 31,1998
---------------- ----------------
<S> <C> <C>
Operating Activities:
Net loss $ (21,651,932) $ (491,857)
Adjustments to reconcile net loss to net cash used
in operating activities:
Loss from discontinued operations 3,631,805 -
Loss on sale of Develcon Electronics Ltd 4,557,151 -
Purchased in-process research and development 7,262,683 -
Depreciation and amortization 454,521 22,500
Unrealized loss from foreign currency transactions - 73,200
Gain on sale of marketable securities (70,687) -
Issuance of common stock and warrants for services 2,892,862 2,500
Increase (decrease) in cash attributable to changes in
operating assets and liabilities:
Prepaids and other current assets (3,187) -
Accounts receivable (43,827) -
Accounts payable and accruals, and other 778,759 186,009
-------------- -----------
Net Cash Used In Operating Activities (2,191,852) (207,648)
-------------- -----------
Investing Activities:
Loans to Develcon Electronics, Ltd. - (225,000)
Purchase of Vianet Labs, net of cash acquired (745,102) -
Purchase of Vianet Access, net of cash acquired (392,432) -
Purchase of SPS Technology License - (450,000)
Proceeds from sale of marketable securities 739,955 -
Capital expenditures (39,015) -
Security deposits (6,500) -
-------------- -----------
Net Cash Used In Investing Activities (443,094) (675,000)
-------------- -----------
Financing Activities:
Issuance of common stock 2,129,703 1,500
Loans from related parties 1,977,646 -
Repayment of convertible notes payable (200,000) -
Principal payments of long term debt (8,591) -
Proceeds from convertible notes payable 530,000 885,004
Issuance of convertible preferred shares - 10,000
Proceeds from subscriptions receivable 990,000 -
-------------- -----------
Net Cash Provided By Financing Activities 5,418,758 896,504
-------------- -----------
Net Cash Used In Discontinued Operations (2,583,029) -
-------------- -----------
Net Increase In Cash And Cash Equivalents 200,783 13,856
Cash and Cash Equivalents, beginning 13,856 -
-------------- -----------
Cash and Cash Equivalents, end $ 214,639 $ 13,856
============== ===========
Supplemental Disclosures of Cash Flow Information
Interest paid $ 227,578 $ -
============== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
March 20, 1998
Year Ended (Inception) to
December 31,1999 December 31,1998
---------------- -----------------
<S> <C> <C>
Noncash Transactions:
Conversion of notes payable into common stock $ 2,739,272 $ -
============= ============
Conversion of Series A Convertible Preferred Stock
into common stock $ 1,000,000 $ -
============= ============
Issuance of warrants to creditor $ 254,080 $ -
============= ============
Issuance of warrants for unearned fees $ 745,830 $ -
============= ============
Acquisition of Vianet Labs, Inc.:
Fair value of assets acquired, net of cash $ 10,145,650 -
Liabilities assumed (3,335,476) -
Common stock (6,065,072) -
------------- ------------
Cash paid for acquisition $ 745,102 $ -
============= ============
Acquisition of Vianet Access, Inc.:
Fair value of assets acquired, net of cash $ 4,405,669 -
Liabilities assumed (834,790) -
Common stock and options (3,178,447) -
------------- ------------
Cash paid for acquisition $ 392,432 $ -
============= ============
Acquisition and disposition of Develcon Electronics, Ltd.:
Investment and advances $ 7,141,124 -
Common stock, warrants and options issued (4,558,095) -
------------- ------------
Cash used in discontinued operations $ 2,583,029 $ -
============= ============
Issuance of Common stock for debt (Develcon creditors) $ 921,878 $ -
============= ============
Issuance of convertible demand notes payable in return for
marketable equity securities $ - $ 669,268
============= ============
Issuance of convertible demand notes payable in return for
loan receivable from Develcon $ - $ 1,355,000
============= ============
Issuance of warrants for technology license acquired
from Develcon $ 536,547 $ -
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-7
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1998
1. Organization and Business
Vianet Technologies, Inc. ("Old Vianet") was incorporated in the State
of Delaware, U.S. on March 20, 1998 initially to acquire Develcon
Electronics, Ltd. ("Develcon") (see Note 3) and a license to utilize
SPS Technology ("SPS") developed by NewCom Technologies, Inc. SPS is a
technology developed to exploit the convergence of telecommunications
and data transmission methods. In 1999, through the merger and
acquisitions described below, Vianet is a publicly owned company
engaged in the business of designing, manufacturing and marketing
advanced data compression technologies and computer networking products
that allow customers to deliver integrated voice, video and data
communication services to be used for network access, value-added
services, and E-commerce applications.
Merger with Radar Resources, Inc.:
In March 1999, Old Vianet, entered into a Merger Agreement with Radar
Resources, Inc., a Nevada Corporation ("Radar"), under the terms of
which Radar and Old Vianet merged through an exchange of shares (the
"Merger"). Radar was a public company subject to reporting obligations
under Section 15(d) of the Securities Exchange Act of 1933, as amended,
and had not previously been engaged in any business activity or had any
assets or liabilities. Radar's authorized capital is 100,000,000 shares
of par value $0.001 per share, of which 1,000,000 shares were issued
and outstanding at the date of the merger. Subject to the terms and
conditions of the Merger Agreement, Radar issued to the shareholders of
Old Vianet, four shares of fully paid and nonassessable shares of the
company's common stock, $.001 par value ("Common Stock") per share in
exchange for each share of Old Vianet's outstanding common stock. The
existing common shareholders of Old Vianet received 1,400,000 shares of
common stock of the Merged Company in exchange for the 350,000 shares
then outstanding. All shares of Old Vianet's Series A Convertible
Preferred Stock issued and outstanding immediately prior to the Merger
were deemed to have been converted into an aggregate of 250,000 shares
of Old Vianet's common stock and the Series A Convertible Preferred
shareholders received 1,000,000 shares of Common Stock of the Company.
Further, holders of Old Vianet convertible notes payable received
2,739,272 shares of common stock. For accounting purposes, Old Vianet
was considered to be the acquirer in a reverse acquisition accounted
for as a purchase. All share amounts have been retroactively restated
to reflect the reverse acquisition. Upon completion of the merger,
Radar changed its name to Vianet Technologies, Inc. References
hereinafter to "Vianet" or "the Company," refer to Vianet Technologies,
Inc., a Nevada corporation, together with its subsidiaries.
2. Significant Accounting Policies
Basis of Consolidation:
The consolidated financial statements include the accounts of Vianet
Technologies, Inc. (Vianet) and in 1999 its wholly-owned subsidiaries,
Vianet Labs, Inc. (Labs), Vianet Access, Inc. (Access) and Develcon and
its subsidiaries (collectively, the "Company"). All significant
intercompany accounts and transactions have been eliminated. On
December 31, 1999, Vianet sold Develcon (see Note 3), accordingly, the
financial statements have been restated to reflect Develcon as a
discontinued operation.
F-8
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1998
2. Significant Accounting Policies (Continued)
Foreign Currency:
Gains and losses from foreign currency transactions, such as those
resulting from the settlement of foreign receivables or payables, are
included in the consolidated statements of operations. For the period
March 20, 1998 (inception) to December 31, 1998, the Company recorded
$3,906 in realized foreign exchange transaction gains and $73,200 in
unrealized foreign exchange transaction losses, which were realized in
1999.
Cash and Cash Equivalents:
Cash and cash equivalents include cash held in banks and time deposits
having original maturities of three months or less.
Investment in Marketable Equity Securities:
The Company accounts for its investments in equity securities that have
readily determinable fair values under the provisions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Marketable equity securities consist of shares of common stock and are
stated at market value. Management has identified the Company's
marketable equity securities as trading securities and, accordingly,
unrealized gains and losses on such securities are recorded in the
statement of operations.
Property and Equipment:
Property and equipment are stated at cost and depreciated over their
estimated useful lives, which range from two to seven years. Long-lived
assets are reviewed for impairment whenever the facts and circumstances
indicate that the carrying amount may not be recoverable.
Technology Licenses:
Technology licenses consist of purchased technology and are being
amortized on a straight-line basis over their estimated useful lives of
five years.
Goodwill:
The excess of the cost over the fair value of net assets acquired in
the purchases of businesses is recorded as goodwill and is amortized on
a straight-line basis over their estimated useful lives of three to six
years.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
F-9
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1998
2. Significant Accounting Policies (Continued)
Significant Estimates - Fair Value of Common Stock and Warrants:
Management has determined the fair value of the Company's common stock
and warrants issued in connection with the acquisitions of Labs and
Access, the acquisition and disposition of Develcon, and the
consideration for certain services performed based upon good faith
estimates which consider the quoted market value of the Company's
common stock, the restrictions on the securities and the dilution and
impact on the market, if all such stock and warrants were registered
and fully tradeable.
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.
Net Loss Per Share:
Basic loss per share is computed using the weighted average number of
common shares outstanding during the period. Diluted loss per share is
computed giving effect to all dilutive potential common shares that
were outstanding during the period. Dilutive potential common shares
consists of incremental common shares issuable upon exercise of stock
options and warrants. Computation of diluted loss per share is not
reflected, because including potential common shares will result in an
anti-dilutive per share amount due to the loss in the periods.
Comprehensive Income:
The Company reports and presents comprehensive income and its
components in accordance with SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 requires only additional disclosures in the
financial statements; it does not affect the Company's financial
position or results of operations.
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 notes payable) approximates
carrying value due to the short-term maturity of underlying financial
instruments. The carrying value of the convertible notes payable
outstanding at December 31, 1998 are reasonable estimates of their fair
value since they were convertible into the Company's common stock at a
conversion price equivalent to the conversion rights of the Company's
Series A convertible preferred shares. The company believes it is not
practical to estimate a fair value of the noncurrent convertible notes
payable at December 31, 1999 different from its carrying value as the
fair value is not readily determinable.
F-10
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1998
2. 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.
3. Acquisition and Subsequent Disposition of Develcon Electronics, Ltd.
Acquisition:
On February 12, 1999, the Company entered into an Arrangement Agreement
(the "Arrangement") to acquire all the outstanding shares 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 or restructure
the repayment schedule.
F-11
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1998
3. Acquisition and Subsequent Disposition of Develcon Electronics, Ltd.
(Continued)
Acquisition: (Continued)
The Arrangement became effective on May 17, 1999. Accordingly, the
assets and liabilities have been consolidated as of the date of
acquisition and the results of operations have been included from May
17, 1999 to December 31, 1999. The former shareholders and creditors of
Develcon were issued 2,585,488 shares of the Company's 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.
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.
Unaudited pro forma consolidated results of operations as if the
acquisition had been made at the beginning of the periods ended
December 31, 1999 and 1998 are omitted due to the subsequent
disposition of Develcon described below.
Disposition:
On December 31, 1999, the Company completed the sale of Develcon to an
entity controlled by the President of Develcon, Thorpe Bay Corporation
(Thorpe Bay). Under the terms of the agreement Thorpe Bay acquired all
the issued and outstanding shares of Develcon for $2,500,000. The
$2,500,000 is payable by Develcon at the end of five years without
interest (present value with interest imputed at 9% of $1,624,828). The
Company is contingently liable for bank debt of Develcon of
CDN$1,500,000 (approximately US$1,000,000) and issued 183,332 common
shares and warrants to purchase 400,000 common shares with an aggregate
fair value of $744,245 to Develcon's President. Separately, the Company
entered into a technology license agreement ("License Agreement") with
Develcon for royalty free future use of certain Develcon technology.
Consideration for the License Agreement was the issuance by the Company
of warrants to purchase 650,000 common shares with a fair value of
$536,547.
There exists significant doubt regarding Develcon's ability to continue
as a going concern. Management has evaluated the possible impairment of
the receivable from Develcon and based upon the estimated realizability
of Develcon's assets, on a liquidation basis, at December 31, 1999,
adjusted for significant transactions through March 24, 2000, a
$1,000,000 valuation allowance has been recorded.
The statements of operations and cash flows for the year ended December
31, 1999 reflect Develcon as a discontinued operation. The
extraordinary loss on extinguishment of debt of $352,875, which was
previously reported as an extraordinary item, is included as part of
the loss from discontinued operations. The valuation allowance of
$1,000,000 with respect to the receivable from Develcon is included in
the loss on sale of the discontinued operation.
F-12
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1998
4. Acquisition of Infinop Holdings, Inc. and PSI Communications, Inc.
Acquisition of Infinop Holdings, Inc.:
On May 19, 1999, the Company entered into a letter of intent to acquire
100% of Infinop Holdings, Inc. ("Infinop") of Denton, Texas, a
privately held corporation, in exchange for common shares of Vianet.
Upon completion of the acquisition on October 12, 1999, the Company
issued 1,495,454 common shares to Infinop's shareholders and issued
options to purchase an aggregate of 598,467 shares of its common stock
upon assumption of Infinop's Stock Option Plan. In connection with the
acquisition, 40,000 shares of common stock were issued to a shareholder
and 180,000 shares of common stock are to be issued to an entity
related in ownership to the Company in exchange for services rendered.
In addition, $1,125,000 of convertible debentures previously issued by
Infinop are convertible into 370,170 shares of the Company's common
stock, should the holders each elect to convert such debentures. The
agreement further provides for possible adjustment to the number of
shares issued if the net worth of Infinop at the date of the merger is
less than its net worth at June 30, 1999. As of December 31, 1999, the
amount of such adjustment has not been fully determined. Finally, the
Infinop shareholders have the right to receive additional consideration
in the form of shares of common stock or cash based upon the royalties
earned with respect to certain software licensing agreements.
Concurrent with the acquisition, Infinop was renamed Vianet Labs, Inc.
("Labs"). The acquisition was accounted for as a purchase.
The total purchase price of Labs and its allocation among the tangible
and intangible assets and liabilities acquired (including in-process
research and development) is summarized as follows:
Total purchase price:
Value of stock issued to shareholders of Infinop $ 3,292,000
Value of stock issued for services 898,000
Value of stock options assumed 2,685,000
Transaction costs 323,000
Advances to Infinop 774,000
-----------
$ 7,972,000
===========
Purchase price allocation:
Tangible assets $ 315,000
Intangible assets - Goodwill 4,903,000
In-process research and development 4,957,000
Tangible liabilities (2,203,000)
-----------
$ 7,972,000
===========
F-13
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1998
4. Acquisition of Infinop Holdings, Inc. and PSI Communications, Inc.
(Continued)
The Company recorded a charge of $4,957,000 upon consummation of the
acquisition for acquired in-process research and development related to
development projects that had not reached technological feasibility,
had no alternative future use, and for which successful development was
uncertain. The conclusion that each in-process development effort, or
any material sub-component, had no alternative future use was reached
in consultation with engineering personnel from both the Company and
Labs. The value was determined by estimating the costs to develop the
acquired in-process technology into commercially viable products,
estimating the resulting net cash flows from such projects, discounting
the net cash flows back to their present value and then applying a
percentage of completion to the calculated value. The discount rate
includes a factor that takes into account the uncertainty surrounding
the successful development of the acquired in-process technology. If
these projects are not successfully developed, future revenue and
profitability of the Company will be adversely affected.
Acquisition of PSI Communications, Inc.:
In July 1999, the Company entered into an agreement whereby it would
provide PSI Communications, Inc. (PSI) with $500,000 of interim
financing in exchange for an option to acquire PSI.
On December 30, 1999, the Company exercised its option and completed
the acquisition for consideration consisting of 2,500,000 common shares
issued to PSI's shareholders and additional payments or issuance of
common stock based on PSI's performance. In connection with the
acquisition, 90,000 shares will be issued to an entity related in
ownership to the Company for services rendered. Concurrent with the
acquisition, PSI was renamed Vianet Access, Inc., ("Access"). The
acquisition was accounted for as a purchase.
The total purchase price of Access and its allocation among the
tangible and intangible assets and liabilities acquired (including
in-process research and development) is summarized as follows:
Total purchase price:
Value of stock issued to shareholders of PSI $ 3,178,000
Value of stock issued for services 276,000
Transactions costs 63,000
Advances to PSI 492,000
-----------
$ 4,009,000
===========
Purchase price allocation:
Tangible assets $ 131,000
Intangible assets - Goodwill 2,069,000
In-process research and development 2,306,000
Tangible liabilities (497,000)
-----------
$ 4,009,000
===========
F-14
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1998
4. Acquisition of Infinop Holdings, Inc. and PSI Communications, Inc.
(Continued)
The Company recorded a charge of $2,306,000 upon consummation of the
acquisition for purchased in-process research and development related
to development projects that had not reached technological feasibility,
had no alternative future use, and for which successful development was
uncertain. The conclusion that each in-process development effort, or
any material sub-component, had no alternative future use was reached
in consultation with engineering personnel from both the Company and
Access. The value was determined by estimating the costs to develop the
acquired in-process technology into commercially viable products,
estimating the resulting net cash flows from such projects, discounting
the net cash flows back to their present value and then applying a
percentage of completion to the calculated value. The discount rate
includes a factor that takes into account the uncertainty surrounding
the successful development of the acquired in-process technology. If
these projects are not successfully developed, future revenue and
profitability of the Company will be adversely affected.
Pro forma Financial Information:
The following unaudited pro forma consolidated results of continuing
operations are presented as if the acquisitions had been made at the
beginning of the periods presented:
<TABLE>
<CAPTION>
Period from
Year Ended March 20, 1998 to
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Sales $ 2,149,000 $ 1,023,000
Loss from continuing operations (11,181,000) (3,865,000)
Loss per share - continuing operations $ (1.17) $ (0.38)
</TABLE>
The pro forma consolidated results of operations include adjustments to
give effect to the amortization of goodwill and exclude the charges for
purchased in-process research and development.
The unaudited pro forma information is not necessarily indicative of
the results of operations that would have occurred had the purchase
been made at the beginning of the period presented or the future
results of the combined operations.
5. SPS Technology License
The Company purchased a license for the SPS technology from NewCom
Technologies, Inc. (the "Licensor") for $450,000. The license entitles
the Company to use certain intellectual property rights. This "right to
use" includes any patents associated with the SPS technology along with
the current preferred embodiment of the patent. Royalty payments of
2.5% of Net Cash Received, as defined in the license agreement, on
products manufactured and sold, licensed or services rendered by Vianet
during the term of the license are due to the licensor. The Company
may, at its option, pay a one-time royalty fee of $2.1 million at any
time during the term. If such one time payment is made, the license
shall become perpetual and no further royalties will be due under the
license.
F-15
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1998
5. SPS Technology License (Continued)
The license provides the Company with all the source code and
documentation required to allow the Company to integrate the technology
into its products. The license provides for quarterly updates from
NewCom of the hardware/firmware for the initial five-year term of the
agreement.
6. Property and Equipment
Property and equipment at December 31, 1999 consists of:
Furniture and equipment $ 663,672
Leasehold improvements 49,909
----------
713,581
Less: Accumulated depreciation 439,464
----------
$ 274,117
==========
7. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consists of:
1999 1998
----------- ---------
Accounts payable $ 1,285,061 $ 252,384
Accrued compensation and related costs 656,059 -
Liability for unissued shares 1,288,125 -
Other accruals 406,407 -
----------- ---------
$ 3,635,652 $ 252,384
=========== =========
8. Current Portion of Long-Term Debt
Current portion of long-term debt at December 31, 1999 consists of a
12% note payable to bank in equal monthly installments of $2,999,
inclusive of interest, through November 2000.
9. Demand Notes Payable
Demand notes payable at December 31, 1999 consists of two notes for
$25,000 each with interest at 8%.
10. Convertible Notes Payable
The convertible note payable consists of a 11% note payable, with a
principal balance of $500,000 and $13,750 of interest accrued through
December 31, 1999. Repayment of the note has been extended to
September, 2000 and is convertible at the holder's option, at the rate
of one share of the Company's common stock for every $3.75 of principal
outstanding.
Separately, the Company issued the noteholder a two year option to
purchase 50,000 shares of common stock at $5 per share.
F-16
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1998
11. Convertible Notes Payable (Noncurrent)
Upon acquisition by the Company of Infinop (see Note 4), the Company
assumed convertible notes payable of $1,125,000, with interest ranging
from 6% to 8%, which are convertible into a maximum of 370,170 shares
of common stock through September 30, 2002.
12. Series A Convertible Preferred Stock
The authorized Series A convertible preferred stock of the Company
consists of 1,000,000 shares, of which 250,000 shares were issued and
outstanding at December 31, 1998. Such shares were issued at $4 per
share. Of the issued and outstanding shares, 2,500 were fully paid at
December 31, 1998, the remaining subscription receivable outstanding,
$990,000, was paid subsequent to December 31, 1998. On March 23, 1999,
the Series A preferred stock was converted into common stock at a rate
of four for one. As a result, the Series A preferred shareholders
received 1,000,000 shares of common stock of the Company.
13. Common Stock and Warrants
In July 1999, pursuant to a private placement offering, the Company
issued 100,000 shares of common stock and 55,000 common stock purchase
warrants, exercisable at $6.60 per share for $550,000. The placement
agent received $50,000 and 10,000 shares of common stock, with a fair
value of $38,750, in connection with the transaction.
In August 1999, a modification of Develcon's banking facilities with
Royal Bank Capital Corporation (RBCC) was completed which resulted in
the Company issuing RBCC 120,000 shares of common stock and warrants to
purchase an additional 150,000 common shares, exercisable at $6.00 per
share, with a fair value of $352,875.
In December 1999, pursuant to a private placement offering for the sale
of units with Aegis Capital Corp. (Aegis), as placement agent, the
Company sold an aggregate of 1,274,972 shares of common stock and
3,824,916 common stock purchase warrants resulting from the sale of an
aggregate of 19.125 units to accredited investors for net proceeds to
Vianet of approximately $1,575,000. Each unit, with an offering price
of $100,000 per unit, consisted of 66,666 shares of common stock and
66,666 Class A, 66,666 Class B and 66,666 Class C common stock purchase
warrants, which are exercisable for five years at $2.00, $2.50 and
$3.00 per share, respectively. A portion of Aegis' commission of
$33,000 relating to this closing was reinvested into 0.33 units (21,999
shares of common stock and 65,997 common stock purchase warrants).
During 1999, the Company issued 206,166 shares of common stock, with a
fair value of $459,730, in exchange for services rendered. Subsequent
to December 31, 1999, the Company issued 270,000 shares of common stock
to WorldCorp Capital Management Group, Inc. (WCMG), an affiliated
entity, in payment for services rendered in connection with the
acquisition of Labs and Access (see Note 4).
During 1999, in addition to the warrants issued in connection with the
Company's various financing transactions, the Company issued warrants
to purchase 3,067,350 shares of common stock at $0.01 to $12.00 per
share, exercisable through 2004. The warrants which were issued for
services, include warrants to purchase 1,960,000 shares issued to WCMG.
F-17
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1998
14. Related Party Transactions
Convertible Notes Payable (Current):
On March 23, 1999, convertible notes payable of $2,909,272 to entities
controlled by two officers and directors of the Company were converted
into 2,739,272 shares of common stock at a ratio of one share for every
$1 of principal amount. During the year ended December 31, 1999,
additional convertible notes of $30,000 were issued and the Company
repaid $200,000.
Loans:
At December 31, 1999, loans payable to shareholders and related parties
of the Company were $229,108 and loans receivable from related party
were $142,415. One loan payable to shareholder in the amount of $50,000
bears interest at the rate of 15%. Other such loans are noninterest
bearing.
Credit Facility:
During 1999, the Company entered into a $3,000,000 secured credit
facility (the "Facility") with an entity controlled by the President
and Chief Executive Officer. The terms of the facility provided for
interest at 10%, monthly fees of $15,000, the issuance of warrants for
300,000 shares of common stock exercisable at prices of $3.00 to $5.00
over five years, and the lender to have the option to convert the
amount due into 1,430,539 shares of common stock and 4,291,617 warrants
to purchase common stock at prices ranging from $1.50 to $3.00 per
share. The conversion option was exercised in March, 2000.
At December 31, 1999, there was $1,955,279 outstanding under the
Facility consisting of the amount borrowed of $2,145,839 less $190,560,
the unamortized portion of the debt discount ascribed to the warrants
issued as initial consideration for the Facility.
Fees and Expenses:
The Company paid consulting and management fees of approximately
$53,000 in 1999 and $133,000 in 1998 to affiliated entities. In 1998,
the Company also incurred legal expenses of $116,000 for work performed
by a law firm that employed an officer of the Company.
Effective July 1, 1999, the Company's President and Chief Executive
Officer and another executive are compensated through a management
agreement with an affiliated entity. Management fees of $185,000 were
paid to the affiliate in 1999.
F-18
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1998
15. Income Taxes
The difference between the statutory Federal income tax rate and the
Company's effective tax rate for the periods ended December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Income tax benefit computed at statutory federal rate $ 7,362,000 $ 167,000
State income taxes, net of federal impact 1,299,000 29,000
Permanent nondeductible merger related costs
(principally amortization of goodwill and
write-off of purchased in-process research and
development) (3,065,000) -
Valuation allowance (5,596,000) (196,000)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
For Federal income tax purposes, the Company has unused net operating
loss carryforwards of approximately $18,705,000 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 the
Internal Revenue Code Section 382 as a result of certain ownership
changes. The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets at December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 6,859,000 $ 166,500
Valuation allowance - receivable from Develcon 400,000 -
Unrealized foreign exchange loss - 29,500
----------- -----------
7,259,000 196,000
Less: Valuation allowance (7,259,000) (196,000)
----------- -----------
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 Federal net operating loss carryforwards.
16. Stock Incentive Plan
The Company adopted a Stock Incentive Plan for employees (the Plan).
The Plan permits the issuance of stock options to selected employees,
officers and directors of the Company. Options granted may be either
nonqualified or incentive stock options.
F-19
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1998
16. Stock Incentive Plan (Continued)
The Company adopted a Stock Incentive Plan for employees (the Plan).
The Plan permits the issuance of stock options to selected employees,
officers and directors of the Company. Options granted may be either
nonqualified or incentive stock options.
The Company has assumed options granted under Develcon's and Infinop
Option Plans (Acquired Options). The Acquired Options were assumed by
the Company outside of its stock option plan, and they are administered
as if issued under their original plans. All of the Acquired Options
have been adjusted to effectuate the conversion under the terms of the
acquisitions between the Company, Develcon and Infinop. The Acquired
Options generally become exercisable over a three-year period and
generally expire ten years from the date of grant. No additional
options will be granted under Develcon's or Infinop's plans. As part of
the sale of Develcon, all unexercised options assumed from Develcon or
granted to Develcon employees have been cancelled.
The following table summarizes stock option activity for the year ended
December 31, 1999:
<TABLE>
<CAPTION>
Number of Weighted
Shares Subject Average Exercise
Stock Option Activity to Options Price Per Share
--------------------- ------------------------- --------------------------
<S> <C> <C>
Outstanding, December 31, 1998 440,000 $ 1.00
Granted 820,000 4.57
Assumed from Develcon plans 61,951 10.30
Assumed from Infinop plan 598,467 0.02
Cancelled (410,325) 8.58
Exercised (1,626) 3.20
----------
Outstanding, December 31, 1999 1,508,467 0.87
==========
</TABLE>
F-20
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1998
16. Stock Incentive Plan (Continued)
The following table summarizes information about stock options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ---------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Remaining Exercise Exercise
Price Number of Contractual Price Number of Price
Per Share Shares Life (Years) Per Share Shares Per Share
-------------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.01 to 0.26 598,467 6.6 $ 0.02 575,693 $ 0.02
$ 1.00 to 1.50 710,000 8.0 $ 1.11 498,956 $ 1.03
$ 2.38 to 2.88 200,000 3.3 $ 2.59 9,512 $ 2.68
--------- ---------
1,508,467 6.8 $ 0.87 1,084,161 $ 0.50
========= =========
</TABLE>
The following table reflects pro forma net loss and loss per share had
compensation cost been determined based on the fair value at the grant
date for awards granted in the year ended December 31, 1999 consistent
with the requirements of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation":
Net loss:
As reported $ (21,651,932)
Pro forma $ (21,965,262)
Basic loss per share:
As reported $ (4.12)
Pro forma $ (4.18)
F-21
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1998
16. Stock Incentive Plan (Continued)
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense
over the vesting period, and additional options may be granted in
future years.
The estimated fair value of each option granted included in the pro
forma results is calculated using the minimum value calculation for the
options issued prior to the Company becoming publicly traded, and the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants subsequent to the Company becoming publicly
traded: no common stock dividends paid; expected volatility of 75%;
risk-free interest rates of 5.0% to 6.14%; and expected lives of 6.9
years. The weighted average fair values of options at their grant date
during 1999 was $2.29.
Management has determined the fair value of options granted in 1998 was
deminimus and, therefore, has not presented the 1998 pro forma
disclosures required by SFAS No. 123 as the effect on reported net loss
is immaterial.
17. Commitments and Contingencies
Employment/Consulting Agreements:
In connection with the Infinop and PSI acquisitions, the Company
entered into two-year employment agreements with the principal
shareholders and key employees which provide for aggregate annual
compensation of $1,380,000.
In November 1999, the Company entered into a two-year employment
agreement with one of its executives which provides for annual
compensation of $250,000.
Effective January 1, 2000, the Company's President and the Company's
Chairman entered into 3 year Consulting Agreements through affiliated
entities, which provide for aggregate annual consulting fees of
$400,000.
Leases:
The Company leases office space and equipment under operating leases
with terms expiring through December 31, 2000. Future minimum payments
under these leases for the year ended December 31, 2000 are
approximately $98,000, plus escalation payment for increases in
operating expenses. In addition, commencing in February 1999, the
Company subleases office space under an informal arrangement with a
related party. Rent expense for the year ended December 31, 1999 was
approximately $69,000.
18. Subsequent Events
Financings:
In January 2000, Vianet completed additional closings of the private
placement offering with Aegis in which 983,314 shares of common stock
and 2,949,942 common stock purchase warrants were sold resulting from
the sale of an aggregate of 14.75 units to accredited investors for net
proceeds to Vianet of approximately $1,333,000. Each unit consisted of
an aggregate of 66,666 shares of common stock and 66,666 Class A,
66,666 Class B and 66,666 Class C common stock purchase warrants, which
are exercisable for five years at $2.00, $2.50 and $3.00 per share,
respectively. A portion of Aegis' commission of $33,000 relating to
these closings was reinvested into 0.33 units (21,997 shares of common
stock and 65,991 common stock purchase warrants). In addition, Aegis
received warrants to purchase an aggregate of 3.45 units
F-22
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
MARCH 20, 1998 (INCEPTION) TO DECEMBER 31, 1998
18. Subsequent Events (Continued)
Financings: (Continued)
(or 230,215 shares of common stock and 230,215 class A, B and C
warrants, respectively), which are exercisable at a price of $100,000
per unit.
In February 2000, pursuant to a private placement offering the Company
sold 1,163,121 shares of common stock and 3,489,363 common stock
purchase warrants. The private placement offering, which was completed
with Donald & Co. (Donald) as placement agent, resulted in the sale of
an aggregate of 17.448 units to accredited investors for net proceeds
to Vianet of approximately $1,610,000. Each unit consisted of an
aggregate of 66,666 shares of common stock and 66,666 Class A, 66,666
Class B and 66,666 Class C common stock purchase warrants, which are
exercisable for five years at $2.00, $2.50 and $3.00 per share,
respectively. Donald received warrants to purchase an aggregate of
approximately 1.25 units (or 83,649 shares of common stock and 83,649
class A, B and C warrants, respectively), which warrants are
exercisable at a price of $100,000 per unit. In addition, Aegis
participated in this closing and a portion of their commissions of
$53,900 was reinvested into 0.539 units (or 35,933 shares of common
stock and 107,799 common stock purchase warrants).
In March and April 2000, pursuant to a private placement offering the
Company sold 1,961,123 shares of common stock and 2,941,684 common
stock purchase warrants. The private placement offering resulted in the
sale of an aggregate of 98 units to accredited investors for net
proceeds to Vianet of approximately $5,295,000. The placement agents
associated with this offering will receive warrants to purchase
approximately 6.8 units (or approximately 136,000 shares of common
stock and approximately 204,000 class D three year common stock
purchase warrants). Each unit consisted of an aggregate of 20,000
shares of common stock and 30,000 Class D three year common stock
purchase warrants, which are exercisable at $4.50 per share.
On April 7, 2000, pursuant to a stock purchase agreement, the Company
issued 1,400,000 shares of common stock and 2,100,000 five year common
stock purchase warrants, exercisable at $4.50 per share for an
aggregate payment of $4,200,000 less offering costs. On April 7, 2000,
the Company received an additional $1,500,000, less offering costs for
the sale of 500,000 shares of common stock and 750,000 common stock
purchase warrants issued on the same terms and conditions.
Pro Forma Capitalization:
The following table sets forth the Company's Pro Forma Capitalization
as of December 31, 1999 giving effect to: private placement offerings
detailed above, issuance of 330,000 shares in satisfaction of
liabilities incurred in 1999, conversion of notes payable of $2,145,839
(inclusive of $190,560 debt discount) into 1,430,559 shares of common
stock, and purchase of $1,000,000 (face amount) of Develcon's debt to
Simmonds Capital Limited in exchange for the issuance of 250,000 shares
of common stock at $3.00 per share. The realizability of the receivable
from Develcon may require a valuation allowance for impairment (see
Note 3).
F-23
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------------------
Pro Forma Pro Forma As
Actual Adjustments (1) Adjusted (1)
-------------------- ------------------- -----------------
<S> <C> <C> <C>
Convertible notes payable (noncurrent) 1,125,000 - 1,125,000
---------- ------------ -------------
Shareholders' Equity:
Common Shares, $0.001 par value,
100,000,000 shares authorized,
14,678,309 shares issued and
outstanding (actual), 22,754,356
shares issued and outstanding
(pro forma (1) 14,678 8,076 22,754
Additional Paid-In Capital 19,275,589 17,543,946 36,819,535
Subscription receivable (500) - (500)
Note receivable for stock - (750,000) (750,000)
Warrants issued 5,001,211 - 5,001,211
Unearned fees (745,830) - (745,830)
Accumulated Deficit (22,143,789) (190,560) (22,334,349)
---------- ------------ -------------
Total Shareholders' Equity 1,401,359 16,611,462 18,012,821
========== ============ ============
Total Capitalization $2,526,359 $ 16,611,462 $ 19,137,821
========== ============ ============
</TABLE>
- -------------------
(1) Gives effect to issuance of (a) 6,065,488 shares of common stock at
$1.50 - $3.00 per share in private placement offerings completed in the
subsequent to December 31, 1999 yielding net proceeds to the Company of
approximately $13,368,000; (b) 330,000 shares issued in satisfaction of
liabilities incurred in 1999; (c) purchase of $1,000,000 (face amount) of
Develcon's debt from Simmonds in exchange for the issuance of 250,000 shares
of common stock issued at $3.00 per share; (d) 1,430,559 shares of common
stock at $1.50 per share exchanged for the retirement of $2,145,839 of a
Secured Credit Facility. This transaction included the issuance of 1,430,559
each of Class A, Class B and Class C warrants at $2.00, $2.50 and $3.00.
F-24
<PAGE>
SIGNATURES
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.
By: /s/ Vincent Santivasci
----------------------------------------------
Vincent Santivasci, Chief Financial Officer
April 14, 2000
Date
Pursuant to the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Jeremy Posner Chairman, April 14, 2000
- ------------------------------------ Vianet Technologies, Inc.
Jeremy Posner
/s/ Peter Leighton President and Chief Executive Officer April 14, 2000
- ------------------------------------ Vianet Technologies, Inc.
Peter Leighton
/s/ Bruce Arnstein Chief Operating Officer, April 14, 2000
- ------------------------------------ Vianet Technologies, Inc.
Bruce Arnstein
/s/ Vincent Santivasci Chief Financial Officer, April 14, 2000
- ------------------------------------ Vianet Technologies, Inc.
Vincent Santivasci
/s/ Elizabeth Disiere Corporate Secretary, April 14, 2000
- ------------------------------------ Vianet Technologies, Inc.
Elizabeth Disiere
/s/ Robert H. Bailey Director, April 14, 2000
- ------------------------------------ Vianet Technologies, Inc.
Robert H. Bailey
/s/ Darrell J. Elliot Director, April 14, 2000
- ------------------------------------ Vianet Technologies, Inc.
Darrell J. Elliot
/s/ F. Paul Whitlock Director, April 14, 2000
- ------------------------------------ Vianet Technologies, Inc.
F. Paul Whitlock
</TABLE>
<PAGE>
INDEX TO EXHIBITS
2.1 Merger Agreement, dated March 16, 1999, between Vianet and Radar
Resources, Inc.(5)
3.1 Articles of Incorporation(7)
3.2 By-laws(7)
4.1 Form of common stock certificate(7)
10.1 1999 Stock Incentive Plan(7)
10.2 Amended and Restated Arrangement Agreement, dated May 11, 1999,
between Vianet and Develcon Electronic Ltd.(3)
10.3 Plan of Arrangement regarding acquisition of Develcon Electronics Ltd.
10.4 Agreement and Plan of Merger, dated August 31, 1999, by and among
Vianet Technologies, Inc. Vianet Labs, Inc., Infinop Holdings, Inc. and
Paul Fisher, Howard Fisher and Craig Fisher.(2)
10.5 Waiver and Agreement, adopted October 12, 1999, by Vianet Technologies,
Inc., Vianet Labs, Inc., Infinop Holdings, Inc. ("Infinop") and Paul,
Craig and Howard Fisher.(2)
10.6 Share purchase agreement as of 12/24/99 among Vianet Technologies,
Inc., Thorpe Bay Corporation and Develcon Electronics Ltd.(4)
10.7 Royalty Free Non-Exclusive Technology License Agreement as of December
31, 1999 between Vianet Technologies, Inc. and Develcon Electronics
Ltd.
10.8 Agreement and Plan of Merger, dated December 30, 1999 between Vianet
and PSI Communication, Inc.(1)
10.9 Consulting Agreement as of April 13, 1999 between CFM Capital Limited
and Vianet Technologies, Inc.
10.10 Consulting Agreement as of April 13, 1999 between XELIX Capital Limited
and Vianet Technologies, Inc.
10.11 Employment Agreement between Bruce Arnstein and Vianet Technologies,
Inc. as of November 24, 1999.
16.1 Letter from KPMG(6)
21.1 List of Subsidiaries
27.1 Financial Data Schedule
- ---------------------
(1) Incorporated by reference to the Form 8-K filed by Vianet with the SEC on
January 7, 2000 under SEC file No. 033-55254-19.
(2) Incorporated by reference to the Form 8-K/A filed by Vianet with the SEC on
October 27, 1999 under SEC file No. 033-55254-19.
(3) Incorporated by reference to the Form 8-K filed by Vianet with the SEC on
June 1, 1999 under SEC file No. 033-55254-19.
(4) Incorporated by reference to the Form 8-K filed by Vianet with the SEC on
March 16, 1999 under SEC file No. 033-55254-19.
(5) Incorporated by reference to the Form 10-QSB filed by Vianet with the SEC on
August 20, 1999 under SEC file No. 033-55254-19.
(6) Incorporated by reference to the Form 8-K/A filed by Vianet with the SEC on
July 15, 1999 under SEC file No. 033-55254-19.
(7) Incorporated by reference to the Form 8-K/A filed by Vianet with the SEC on
July 15, 1999 under SEC file No. 033-55254-19.
To be filed by amendment
<PAGE>
EXHIBIT 10.9
CONSULTING AGREEMENT
--------------------
CONSULTING AGREEMENT dated as of April 13th 2000, by and between VIANET
TECHNOLOGIES, INC. a Nevada corporation with offices at 83 Mercer Street (3rd
floor), New York, NY 10012 and CFM CAPITAL LIMITED, a Bermuda corporation with
offices at Reid House, 31 Church Street, Hamilton, Bermuda HMHX ("Consultant").
W I T N E S S E T H:
- - - - - - - - - - -
WHEREAS, Vianet desires to retain the Consultant as a consultant and Consultant
desires to act as a consultant to Vianet, subject to and upon the terms and
conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing
and the mutual covenants and agreements set forth herein, the parties hereto
agree as follows:
1. Consultancy. Vianet hereby retains consultant and Consultant hereby agrees
to act as a consultant to Vianet. Consultant shall perform such services
for Vianet as agreed with the Board of Directors of Vianet from time to
time (the "Consulting Services"). Consultant agrees to cause Peter Leighton
or such other persons approved by Vianet to perform the Consulting Services
on behalf of the Consultant. The Consultant shall exercise its own
reasonable judgment and employ such means as it, in good faith, determines
are reasonable in performing the Consulting Services, and Vianet will not
exercise any control over the methods or means employed by the Consultant
in performing the Consulting Services. The Consulting Services shall be
performed at such times and at such locations as Consultant shall
determine.
<PAGE>
2. Independent Contract or Status. It is understood and agreed that in the
performance of the Consulting Services by the Consultant hereunder, it is
acting as an independent contractor and not in any way as an employee or
agent of Vianet. The Consultant will determine the hours of work of its
employees and the Consultant's employees are not required to work any
specified number of hours in any week. Any time off, including weekends and
vacation, will be solely and entirely at the discretion of the Consultant.
The Consultant may be required upon request of the Board, to submit to
Vianet written or oral reports regarding its activities. Employees of the
Consultant and others retained by the Consultant are not employees of
Vianet for purposes of worker's compensation, unemployment insurance,
medical, disability and group life insurance and they are not eligible to
participate in any welfare, pension, profit sharing or fringe benefit plan
or arrangement of Vianet.
3. Consulting Fees. During the Term, as full compensation for the Consulting
Services, Vianet shall pay to the Consultant a consulting fee as described
in Appendix A to this document. In addition to the Base Fee, the Consultant
shall be paid such additional compensation as shall be determined from time
to time by the Board of Directors of Vianet and approved by the Board of
Directors of Vianet as provided for in Appendix A. It is understood that
Vianet will not withhold any income taxes, unemployment taxes or other
taxes and that the Consultant is solely responsible for paying and
reporting all taxes, including income taxes and estimates thereof for
itself and all employees, agents or contractors. Vianet will report to the
appropriate tax authorities the amounts paid to the Consultant and, even
though the Consultant is an independent contractor, if Vianet is required
by law, or is advised by its accountants or attorneys that it is required
by law to deduct for withholding, or other taxes, it shall be free to do
so, which taxes if not previously deducted shall be reclaimable from the
consultant.
Page 2
<PAGE>
4. Expenses. In addition to the consulting fees provided for in Section 3
above, Vianet shall reimburse the Consultant for reasonable costs and
expenses incurred by the Consultant in performing the Consulting Services,
subject to review by the Board of Directors of Vianet or a senior officer
of Vianet designated by the Board of Directors of Vianet.
5. Use of Vianet's Facilities. Employees of the Consultant are not required
to use the office facilities of Vianet in performing the Consulting
Services hereunder.
6. Term. The term of this Agreement shall commence as of January 1st 2000 and
shall continue for a period of three (3) years (the "Term"). At the option
of the Consultant, exercisable by written notice delivered by the
Consultant to Vianet not less than thirty (30) days prior to the end of the
Initial Term, this Agreement shall be renewed for an additional two (2)
years (the "Renewal Term").
7. Termination.
7.1 Vianet or Consultant may terminate this Agreement in the event the
other party fails to perform in accordance with the provisions of this
Agreement.
7.2 Vianet may terminate this Agreement, at any time, upon thirty (30)
days written notice, to Consultant for any reason whatsoever.
7.3 Upon termination Consultant shall cease all provision of services and
no invoice shall be made for services performed after notice of
suspension or termination. Upon termination, for any reason except
breach of this agreement by Consultant, of this Agreement or a portion
of the services covered hereunder, Vianet shall pay to Consultant an
amount equal to the Severance Amount as provided in Section 8 of this
Agreement.
Page 3
<PAGE>
7.4 Termination of this Agreement or a portion of any services hereunder
except for breach of this agreement by Consultant shall not prejudice
or affect the rights or remedies of either Vianet or Consultant
against the other in respect of any breach of the Agreement which
occurred before the effective date of termination and shall not
prejudice the rights and remedies of Consultant in respect of any sum
or sums of money owed or owing from Vianet.
8. Severance Payment. Upon termination of this Agreement by Vianet or a change
in control of Vianet, in addition to earned but unpaid Consulting Fees
payable in accordance with Section 3, Vianet shall pay to Consultant
severance in the amount equal to two times the Base Fee as identified in
Appendix A. The severance amount shall be payable in quarterly installments
with the first payment due not later than thirty (30) days after
termination.
9. Disclaimers and Limitations of Liability. It is expressly understood and
agreed that Vianet shall NOT be responsible nor liable for any loss,
damage, penalty, or the like, financial or otherwise, caused by:
(i) failure by any consultant, advisor, contractor, supplier, or any other
persons, individuals or firms NOT employed by Vianet to discharge its
contractual obligations; or
(ii) any delay, modification, or suspension of the time schedule for
performing the services hereunder whether agreed or not agreed with
Consultant, which is NOT the responsibility of Vianet, its agents, or
consultants; or
(iii) any negligent work carried out by the Consultant or by any third
party other than Vianet, its agents, or sub-consultants, or employees; or
(iv) the failure of any person NOT employed or contracted with by Vianet to
discharge any legal duty or obligation whatsoever.
Page 4
<PAGE>
10. Confidentiality. The Consultant hereby agrees that during and after the
term of this Agreement, neither it nor any of its employees nor others
retained by the Consultant to perform some or all of the services to be
performed hereunder, will divulge any confidential or proprietary
information belonging to Vianet or any company associated with Vianet or to
any customer of Vianet and neither the Consultant nor any employee of the
Consultant nor any other person retained by the Consultant will make
available to others any Vianet or account list, price list, business plan,
trade secret, document, file, paper or data of any kind, in whatever form
embodied, concerning the business or financial affairs of Vianet, its
associated companies, or its customers or remove any of the foregoing from
the premises of Vianet.
11. Assignment. Except as otherwise provided herein, the Consultant may not
assign this Agreement or delegate any of its obligations hereunder, without
the prior written consent of Vianet and Vianet may not assign this
Agreement, or delegate any of its obligations hereunder, without the prior
written consent of the Consultant. Any assignment or delegation in
violation of the provisions hereof shall be void and of no effect.
12. Entire Agreement; Modification; Binding Effect. This Agreement constitutes
the entire agreement between the Consultant and Vianet and supersedes all
prior understandings and agreements concerning the subject matter hereof.
This Agreement (including this provision against oral modification) may not
be changed or terminated, and no provision hereof may be waived orally. No
modification, waiver or termination hereof shall be binding upon either
party unless in writing and signed by or on behalf of the party against
which the modification, waiver or termination is asserted. This Agreement
shall be binding upon and shall enure to the benefit of the Consultant and
Vianet, their successors and permitted assigns.
Page 5
<PAGE>
13. Notices. Any notice or other communication required or permitted hereunder
shall be sufficiently given if delivered personally, or, if sent by
registered or certified mail, postage pre-paid, return receipt requested,
addressed to the party intended to receive such notice at the address set
forth above, or such other address as such party may indicate in the manner
provided for notices herein. Any notice or communication shall be deemed to
have been given upon the date personally delivered or, if mailed, the
earlier of the date it is received and three (3) days after the date so
mailed.
14. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date above
written.
VIANET TECHNOLOGIES, INC.
By: __________________________________
Position: __________________________________
CFM CAPITAL LIMITED
By: __________________________________
Position: __________________________________
Page 6
<PAGE>
APPENDIX A
App. 1: The Base Fee for the Term of the Agreement shall be $250,000 per
annum, payable in twelve equal installments on the last day of each
calendar month.
App. 2: In addition to the Base Fee the Consultant shall be paid such
additional compensation as shall be determined from time to time by the
Board of Directors of Vianet and approved by the Board of Directors of
Vianet.
App. 3: In determining the amount of the additional compensation The Board of
Directors will take into consideration the attainment of specific
criteria as agreed with the Consultant from time to time.
Page 7
<PAGE>
EXHIBIT 10.10
CONSULTING AGREEMENT
CONSULTING AGREEMENT dated as of April 13th 2000, by and between VIANET
TECHNOLOGIES, INC. a Nevada corporation with offices at 83 Mercer Street (3rd
floor), New York, NY 10012 and Xelix Capital Limited, a Bermuda corporation with
offices at Reid House, 31 Church Street, Hamilton, Bermuda HMHX ("Consultant").
W I T N E S S E T H:
- - - - - - - - - - -
WHEREAS, Vianet desires to retain the Consultant as a consultant and Consultant
desires to act as a consultant to Vianet, subject to and upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
12. Consultancy. Vianet hereby retains consultant and Consultant hereby agrees
to act as a consultant to Vianet. Consultant shall perform such services
for Vianet as agreed with the Board of Directors of Vianet from time to
time (the "Consulting Services"). Consultant agrees to cause Peter Leighton
or such other persons approved by Vianet to perform the Consulting Services
on behalf of the Consultant. The Consultant shall exercise its own
reasonable judgment and employ such means as it, in good faith, determines
are reasonable in performing the Consulting Services, and Vianet will not
exercise any control over the methods or means employed by the Consultant
in performing the Consulting Services. The Consulting Services shall be
performed at such times and at such locations as Consultant shall
determine.
Page 8
<PAGE>
13. Independent Contract or Status. It is understood and agreed that in the
performance of the Consulting Services by the Consultant hereunder, it is
acting as an independent contractor and not in any way as an employee or
agent of Vianet. The Consultant will determine the hours of work of its
employees and the Consultant's employees are not required to work any
specified number of hours in any week. Any time off, including weekends and
vacation, will be solely and entirely at the discretion of the Consultant.
The Consultant may be required upon request of the Board, to submit to
Vianet written or oral reports regarding its activities. Employees of the
Consultant and others retained by the Consultant are not employees of
Vianet for purposes of worker's compensation, unemployment insurance,
medical, disability and group life insurance and they are not eligible to
participate in any welfare, pension, profit sharing or fringe benefit plan
or arrangement of Vianet.
14. Consulting Fees. During the Term, as full compensation for the Consulting
Services, Vianet shall pay to the Consultant a consulting fee as described
in Appendix A to this document. In addition to the Base Fee, the Consultant
shall be paid such additional compensation as shall be determined from time
to time by the Board of Directors of Vianet and approved by the Board of
Directors of Vianet as provided for in Appendix A. It is understood that
Vianet will not withhold any income taxes, unemployment taxes or other
taxes and that the Consultant is solely responsible for paying and
reporting all taxes, including income taxes and estimates thereof for
itself and all employees, agents or contractors. Vianet will report to the
appropriate tax authorities the amounts paid to the Consultant and, even
though the Consultant is an independent contractor, if Vianet is required
by law, or is advised by its accountants or attorneys that it is required
by law to deduct for withholding, or other taxes, it shall be free to do
so, which taxes if not previously deducted shall be reclaimable from the
consultant.
Page 9
<PAGE>
15. Expenses. In addition to the consulting fees provided for in Section 3
above, Vianet shall reimburse the Consultant for reasonable costs and
expenses incurred by the Consultant in performing the Consulting Services,
subject to review by the Board of Directors of Vianet or a senior officer
of Vianet designated by the Board of Directors of Vianet.
16. Use of Vianet's Facilities. Employees of the Consultant are not required to
use the office facilities of Vianet in performing the Consulting Services
hereunder.
17. Term. The term of this Agreement shall commence as of January 1st 2000 and
shall continue for a period of three (3) years (the "Term"). At the option
of the Consultant, exercisable by written notice delivered by the
Consultant to Vianet not less than thirty (30) days prior to the end of the
Initial Term, this Agreement shall be renewed for an additional two (2)
years (the "Renewal Term").
18. Termination.
7.5 Vianet or Consultant may terminate this Agreement in the event the
other party fails to perform in accordance with the provisions of
this Agreement.
7.6 Vianet may terminate this Agreement, at any time, upon thirty (30)
days written notice, to Consultant for any reason whatsoever.
7.7 Upon termination Consultant shall cease all provision of services and
no invoice shall be made for services performed after notice of
suspension or termination. Upon termination, for any reason except
breach of this agreement by Consultant, of this Agreement or a
portion of the services covered hereunder, Vianet shall pay to
Consultant an amount equal to the Severance Amount as provided in
Section 8 of this Agreement.
Page 10
<PAGE>
7.8 Termination of this Agreement or a portion of any services hereunder
except for breach of this agreement by Consultant shall not prejudice
or affect the rights or remedies of either Vianet or Consultant
against the other in respect of any breach of the Agreement which
occurred before the effective date of termination and shall not
prejudice the rights and remedies of Consultant in respect of any sum
or sums of money owed or owing from Vianet.
19. Severance Payment. Upon termination of this Agreement by Vianet or a change
in control of Vianet, in addition to earned but unpaid Consulting Fees
payable in accordance with Section 3, Vianet shall pay to Consultant
severance in the amount equal to two times the Base Fee as identified in
Appendix A. The severance amount shall be payable in quarterly installments
with the first payment due not later than thirty (30) days after
termination.
20. Disclaimers and Limitations of Liability. It is expressly understood and
agreed that Vianet shall NOT be responsible nor liable for any loss,
damage, penalty, or the like, financial or otherwise, caused by:
(i) failure by any consultant, advisor, contractor, supplier, or any other
persons, individuals or firms NOT employed by Vianet to discharge its
contractual obligations; or
(ii) any delay, modification, or suspension of the time schedule for
performing the services hereunder whether agreed or not agreed with
Consultant, which is NOT the responsibility of Vianet, its agents, or
consultants; or
(iii) any negligent work carried out by the Consultant or by any third
party other than Vianet, its agents, or sub-consultants, or employees; or
Page 11
<PAGE>
(iv) the failure of any person NOT employed or contracted with by Vianet to
discharge any legal duty or obligation whatsoever.
21. Confidentiality. The Consultant hereby agrees that during and after the
term of this Agreement, neither it nor any of its employees nor others
retained by the Consultant to perform some or all of the services to be
performed hereunder, will divulge any confidential or proprietary
information belonging to Vianet or any company associated with Vianet or to
any customer of Vianet and neither the Consultant nor any employee of the
Consultant nor any other person retained by the Consultant will make
available to others any Vianet or account list, price list, business plan,
trade secret, document, file, paper or data of any kind, in whatever form
embodied, concerning the business or financial affairs of Vianet, its
associated companies, or its customers or remove any of the foregoing from
the premises of Vianet.
22. Assignment. Except as otherwise provided herein, the Consultant may not
assign this Agreement or delegate any of its obligations hereunder, without
the prior written consent of Vianet and Vianet may not assign this
Agreement, or delegate any of its obligations hereunder, without the prior
written consent of the Consultant. Any assignment or delegation in
violation of the provisions hereof shall be void and of no effect.
12. Entire Agreement; Modification; Binding Effect. This Agreement constitutes
the entire agreement between the Consultant and Vianet and supersedes all
prior understandings and agreements concerning the subject matter hereof.
This Agreement (including this provision against oral modification) may not
be changed or terminated, and no provision hereof may be waived orally. No
modification, waiver or termination hereof shall be binding upon either
party unless in writing and signed by or on behalf of the party against
which the modification,
Page 12
<PAGE>
waiver or termination is asserted. This Agreement shall be binding upon and
shall enure to the benefit of the Consultant and Vianet, their successors
and permitted assigns.
14. Notices. Any notice or other communication required or permitted hereunder
shall be sufficiently given if delivered personally, or, if sent by
registered or certified mail, postage pre-paid, return receipt requested,
addressed to the party intended to receive such notice at the address set
forth above, or such other address as such party may indicate in the manner
provided for notices herein. Any notice or communication shall be deemed to
have been given upon the date personally delivered or, if mailed, the
earlier of the date it is received and three (3) days after the date so
mailed.
15. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date above
written.
VIANET TECHNOLOGIES, INC.
By:______________________________________
Position:________________________________
XELIX CAPITAL LIMITED
By:______________________________________
Position:________________________________
Page 13
<PAGE>
APPENDIX A
App. 1: The Base Fee for the Term of the Agreement shall be $150,000 per
annum, payable in twelve equal installments on the last day of each
calendar month.
App. 2: In addition to the Base Fee the Consultant shall be paid such
additional compensation as shall be determined from time to time by
the Board of Directors of Vianet and approved by the Board of
Directors of Vianet.
App.3: In determining the amount of the additional compensation The Board of
Directors will take into consideration the attainment of specific
criteria as agreed with the Consultant from time to time.
Page 14
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of November 24 ,
1999 (the "Effective Date") by and between VIANET TECHNOLOGIES, INC., with
offices at 83 Mercer Street, New York, New York 10012 (the "Company") and BRUCE
ARNSTEIN, an individual residing at 15 Bar Beach Road, Pt. Washington, New York
11050 (the "Employee").
WHEREAS, the Employee has been offered the position of Chief Operating
Officer of Company and will begin to serve in such capacities on the Effective
Date;
WHEREAS, the Company wishes to assure itself of the services of the
Employee, and the Employee is willing to serve in the employ of the Company upon
the terms and conditions hereinafter provided; and
WHEREAS, the Company's Board of Directors has determined that the best
interests of the Company and its shareholders would be served by providing for
the terms and conditions of the Employee's employment as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and intending to be legally bound hereby, the Company and the Employee
hereby agree as follows:
Section 1. Definitions. As used herein, the following terms shall have
the meanings set forth below.
"Fiscal Year" means any fiscal year of the Company, as applicable.
"Person" means any individual, sole proprietorship, general or limited
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party, limited liability company or government
(whether territorial, national, federal, state, provincial, county, city,
municipal or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).
Section 2. Employment and Term. The Company hereby employs the Employee
for period of Two Years (2) from the effective date, and the Employee hereby
accepts such employment by the Company, for the purposes and upon the terms and
conditions contained in this Agreement. This Agreement can be terminable at will
by either party upon sixty (60) days written notice to the other party after the
initial Two Year term. The term hereof, until terminated as provided herein, is
referred to herein as the "Employment Period."
Section 3. Employment Capacities and Duties. The Employee shall be
employed throughout the Employment Period as Chief Operating Officer of the
Company. The Employee shall have the duties and responsibilities normally
associated and incumbent with this position.
<PAGE>
Section 4. Employee Performance Covenants. The Employee accepts the
employment described in Section 3 herein and agrees to devote his full working
time and efforts to the business and affairs of the Company and the performance
of the aforesaid duties and responsibilities set forth in Section 3 hereof.
Employee further represents and warrants that his entry into this Employment
Agreement does not violate any other agreement to which he is or has been a
party.
Section 5. Salary. The Employee shall be paid a salary (the "Salary")
at an annual rate of Two Hundred Fifty Thousand Dollars ($250,000.00), payable
in equal installments in accordance with the Company's payroll policies, for the
period commencing on November 1, 1999. The Salary shall be pro-rated for any
Fiscal Year hereunder which is less than a full Fiscal Year.
Section 6. Employee Benefits, Vacations. During the Employment Period,
in addition to any and all compensation and benefits required or permitted to be
made by the Company to the Employee hereunder, the Employee shall receive the
benefits and enjoy the perquisites described below:
a) Vacation. The Employee shall be entitled to Four (4)
weeks paid vacation per annum; the Employee will be paid for unused vacation
at his standard salary rate and
b) Participation in Benefit Plans. The Employee shall be
entitled to participate in any group hospitalization, health, life or other
insurance or death benefit plan, travel or accident insurance, restricted or
stock purchase plan, stock option plan, retirement income or pension plan,
401(k) plan, or other present or future group employee benefit plan or program
of the Company for which Employees are or shall become eligible. Nothing
contained in this Agreement shall prevent the Board from amending or otherwise
altering any such plan, program or arrangement during the Employment Period.
c) Bonus. At management discretion.
Section 7. Termination of Employment. Any termination of the Employee's
employment by the Company or the Employee shall be communicated by written
Notice of Termination to the other party hereto. In the event that the Employer
and Employee mutually agree to terminate employment prior to the term of this
contract, the Employee shall be paid through the term of this employment
contract. Any Stock Options that have not vested by the effective date of
termination shall become vested.
Section 8. Stock Options. The Company shall cause Vianet Technologies,
Inc. to provide to the Employee pursuant to the terms and conditions of the
Stock Option Addendum attached hereto options (the "Stock Options") to purchase
One Hundred and Fifty Thousand (150,000) shares of the common stock of Vianet
Technologies, Inc. (the "Common Shares") at an exercise price equal to the
Closing Bid for the Common Shares on the effective date of this contract,
subject to the following vesting schedule:
2
<PAGE>
Number of Stock Options Vesting Date
----------------------- ------------
100,000 shares 6 Months after the
50,000 shares 12 Months after the Effective
The Stock Options shall be granted under and shall be subject to the
terms and conditions of the Stock Option Addendum. The Stock Options shall be
exercisable for four (4) years from date of grant.
Section 9. Certain Company Protection Provisions. The following
provisions apply for the protection of the Company, and shall survive
indefinitely, beyond the duration of this Agreement:
a) Non-Solicitation. During the Restricted Period (as
hereinafter defined), the Employee shall not directly or indirectly solicit any
customer or known prospective customer who has contracted with the Company to
purchase products or services during the then-preceding twelve month period. As
used herein, the term "Restricted Period" means the Employment Period.
b) Confidentiality. The Employee agrees and acknowledges that,
by reason of the nature of his duties as an officer and employee, he will have
or may have access to and become informed of confidential and secret information
which is a competitive asset of the Company ("Confidential Information"),
including without limitation any lists of customers or subscribers, financial
statistics, research data or any other statistics and plans contained in profit
plans, capital plans, critical issue plans strategic plans or marketing or
operation plans or other trade secrets of the Company and any of the foregoing
which belong to any person or company but to which the Employee has had access
by reason of his employment relationship with the Company. The Employee agrees
faithfully to keep in strict confidence, and not, either directly or indirectly,
to make known, divulge, reveal, furnish, make available or use (except for use
in the regular course of his employment duties) any such Confidential
Information; provided, however, that the Employee will not be deemed to have
violated this provision if he is compelled by valid legal process to disclose
any Confidential Information. The Employee acknowledges that all manuals,
instruction books, price lists, experiment logs or papers, information and
records and other information and aids relating to the Company's business, and
any and all other documents containing Confidential Information furnished to the
Employee by the Company or otherwise acquired or developed by the Employee,
shall at all times be the property of the Company. Upon the Employment
Termination Date, the Employee shall return to the Company any such property or
documents which are in his possession, custody or control, but his obligation of
confidentiality shall survive the Employment Termination Date until and unless
any such Confidential Information shall have become, through no fault of the
Employee, generally known to the public. The obligations of the Employee under
this subsection are in addition to, and not in limitation or preemption of, all
other obligations of confidentiality which the Employee may have to the Company
under general legal or equitable principles.
3
<PAGE>
c) Remedies. It is expressly agreed by the Employee and the
Company that these provisions are reasonable for purposes of preserving for the
Company its business, goodwill and proprietary information. It is also agreed
that if any provision is found by a court having jurisdiction to be unreasonable
because of scope, area or time, then that provision shall be amended to
correspond in scope, area and time to that considered reasonable by a court and
as amended shall be enforced and the remaining provisions shall remain
effective. In the event of any breach of these provisions by the Employee, the
parties recognize and acknowledge that a remedy at law will be inadequate and
the Company may suffer irreparable injury. The Employee acknowledges that the
services to be rendered by him are of a character giving them peculiar value,
the loss of which cannot be adequately compensated for in damages. Accordingly,
the Employee consents to injunctive and other appropriate equitable relief
without the posting of any type of bond or surety upon the institution of
proceedings therefor by the Company in order to protect the Company's rights.
Such relief shall be in addition to any other relief to which the Company may be
entitled at law or in equity.
Section 10. Successors and Assigns. Except as hereinafter expressly
provided, the agreements, covenants, terms and provisions of this Agreement
shall bind the respective heirs, executors, administrators, successors and
assigns of the parties. This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign or transfer this
Agreement or any rights or obligations hereunder, except as provided in this
Section 10. Without limiting the foregoing, the Employee's right to receive
payments hereunder shall not be assignable or transferable, whether by pledge,
creation of a security interest or otherwise, and in the event of any attempted
assignment or transfer in contravention of this Section 10, the Company shall
have no liability to pay to the purported assignee or transferee any amount so
attempted to be assigned or transferred.
Section 11. Notices. All notices and other communications that are
required or may be given under this Agreement shall be in writing and shall be
delivered personally or by certified mail addressed to the party concerned at
the following addresses:
If to the Company: Vianet Technologies, Inc.
83 Mercer Street, 3rd Floor
New York, NY 10018
If to Employee: Bruce Arnstein
15 Bar Beach Rd.
Pt. Washington, New York 11050
4
<PAGE>
All notices shall be effective upon receipt.
Section 12. Waiver: Remedies Cumulative. No waiver of any right or
option hereunder by any party shall operate as a waiver of any other right or
option, or the same right or option as respects any subsequent occasion for its
exercise, or of any legal remedy. No waiver by any party of any breach of this
Agreement or of any agreement or covenant contained herein shall be held to
constitute a waiver of any other breach or a continuation of the same breach.
All remedies provided by this Agreement are in addition to all other remedies
provided under this Agreement or applicable law.
Section 13. Governing Law: Severability. A substantial portion of
negotiations, anticipated performance and execution of this Agreement occurred
or shall occur in New York, New York and the various terms, provisions,
covenants and agreements, and the performance thereof, shall be construed,
interpreted and enforced under and with reference to the substantive laws of the
State of New York. It is the intention of the Company and the Employee to comply
fully with all laws and matters of public policy relating to employment
agreements and restrictive covenants, and this Agreement shall be construed
consistently with such laws and public policy to the extent possible. If and to
the extent any one or more covenants, agreements, terms and provisions of this
Agreement or any portion or portions thereof shall be held invalid or
unenforceable by a court of competent jurisdiction, then such covenants,
agreements, terms and provisions (or portions thereof) shall be deemed separable
from the remaining covenants, agreements, terms and provisions of this Agreement
and such holding shall in no way affect the validity or enforceability of any of
the other covenants, agreements, terms and provisions hereof.
Section 14. Miscellaneous. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof.
This Agreement may not be modified, changed or amended except in a writing
signed by each of the parties hereto. This Agreement may be signed in
counterparts, both of which shall be deemed an original hereof. The captions of
the several sections and subsections of this Agreement are not a part of the
context hereof, are inserted only for convenience in locating such subsections
and shall be ignored in construing this Agreement.
Section 15. Jurisdiction and Venue. The parties acknowledge that a
substantial portion of negotiations, anticipated performance and execution of
this Agreement occurred or shall occur in New York, New York and that,
therefore, without limiting the jurisdiction or venue of any other federal or
state courts, each of the parties irrevocably and unconditionally (a) agrees
that any suit, action or legal proceeding must be brought in New York, New York;
(b) consents to the jurisdiction of such court in any suit, action or
proceeding; (c) waives any objection which it may have to the laying of venue of
any such suit, action or proceeding in any of such courts; and (d) agrees that
service of any court paper may be effected on such party by mail, as provided in
this Agreement, or in such other manner as may be provided under applicable laws
or court rules in the State of New York.
5
<PAGE>
IN WITNESS WHEREOF, the Company and Employee have executed this
Agreement as of the Effective Date.
EMPLOYEE:
Bruce Arnstein
________________________________________
COMPANY:
Vianet Technologies, Inc.
By:_____________________________________
Name: Peter Leighton
Title: President
6
<PAGE>
STOCK OPTION ADDENDUM
to
Employment Agreement
between
Vianet Technologies, Inc.
and
Bruce Arnstein
As of November 24, 1999
A Stock Option (the "Option") is hereby granted by Vianet Technologies,
Inc., a Nevada corporation (the "Company"), to Bruce Arnstein (the "Optionee")
for and with respect to the common stock of the Company, $0.001 par value per
share ("Common Stock"), subject to the following terms and conditions, and the
terms and conditions set forth in the Employment Agreement (the "Employment
Agreement") of even date herewith by and between Vianet Technologies, Inc., and
the Optionee. All capitalized terms that are not defined herein shall have the
meaning ascribed to them in the Employment Agreement.
Name of Optionee: Bruce Arnstein
Number of Shares Subject to Option: 150,000
Option Price Per Share: Closing Bid on November 24, 1999
Date of Grant: First Date of Employment
1. Grant of Option. The Company hereby grants to the Optionee an option
to purchase from the Company the number of shares of Common Stock set forth
above.
2. Term of Option. The term of the Option shall be four (4) years. In
accordance with the terms and conditions of the Employment Agreement.
<PAGE>
3. Exercise Schedule. The Option shall become vested and exercisable
according to the following schedule:
Exercise Period
Number of Shares ------------------------------------------------
Subject to Option Vesting Date Expiration Date
----------------- ------------ ---------------
100,000 6 Months after the 4th Anniversary of
50,000 12 Months after the 4th Anniversary of
4. Piggy-back Registration Rights. If the Company at any time proposes
to register any of its securities under the Act or pursuant to the Securities
Exchange Act of 1934, as amended (the "1934 Act"), collectively referred to as
the "Securities Acts," whether or not for sale for its own account, it will each
such time give prompt written notice to the Optionee of its intention to do so
(the "Registration Notice"). Upon the written request of the Optionee, made
within fifteen (15) business days after the receipt of the Registration Notice,
the Company shall use its best efforts to effect the registration under the
Securities Acts of such amount of the Option Shares as the Optionee requests, by
inclusion of such Option Shares in the registration statement that relates to
the securities which the Company proposes to register, provided that if, at any
time after giving the Registration Notice and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason either not to register or to delay registration
of such securities, the Company may, at its election, give written notice of
such determination to the Optionee (the "Refusal Notice") and, thereupon, (i) in
the case of a determination not to register, shall be relieved of its obligation
to register the Option Shares in connection with such terminated registration
(but not from its obligation to pay the Registration Expenses (as defined
herein) in connection therewith), and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering the Option Shares,
for the same period as the delay in registering such other securities.
(b) Registration Expenses. The Company shall pay all
Registration Expenses (as defined herein) in connection with each registration
of the Option Shares to this Section 4. For the purposes hereof, the phrase
"Registration Expenses" shall include all expenses incident to the Company's
performance of, or compliance with, this Section 4, including, without
limitation, (i) all registration, filing and NASD fees, (ii) all fees and
expenses of complying with securities or blue sky laws, (iii) all printing
expenses, (iv) the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits or
"cold comfort" letters required by or incident to such performance and
compliance, (v) the fees and disbursements of any one counsel and any one
accountant retained by the Optionee, (vi) premiums and other costs of policies
of insurance against liabilities arising out of the public offering of the
Option Shares being registered if the Company desires such insurance, and (vii)
any fees and disbursements of underwriters customarily paid by issuers or
sellers of securities, but excluding underwriting discounts and commissions and
transfer taxes, if any.
2
<PAGE>
5. Acceptance by the Optionee. The exercise of the Option is
conditioned upon the acceptance by the Optionee of the terms and conditions set
forth herein as evidenced by his execution of this agreement and the return of
an executed copy hereof to the address set forth in Section 5 hereof.
6. Notice of Exercise. Written notice of an election to exercise any
portion of the Option, specifying the portion thereof being exercised, shall be
delivered by personal delivery or by certified mail, return receipt requested,
by the Optionee to:
Vianet Technologies, Inc.
83 Mercer Street, 3rd Floor
New York, NY 10018
Attn: Bruce Arnstein
7. Exercise; No Transfer of Option. The Option may be exercised only by
the Optionee during his lifetime and may not be transferred other than by will
or the applicable laws of descent or distribution. The Option shall not
otherwise be transferred, assigned, pledged or hypothecated for any purpose
whatsoever and is not subject, in whole or in part, to execution, attachment or
similar process. Any attempted assignment, transfer, pledge or hypothecation or
other disposition of the Option, other than in accordance with the terms set
forth herein, shall be void and of no effect.
3
<PAGE>
8. Manner of Exercise. The Option shall be exercised by written notice
to the Company prior to the expiration of the Option. The Option Price Per Share
upon exercise of the Option shall be paid in full in cash by the Optionee or
payment in accordance with a cashless exercise program under which the Option
Shares may be issued directly to the Optionee's broker or dealer upon receipt by
the Company of irrevocable instructions to that effect
9. Effect on Employment. The Option does not confer on the Optionee any
right to employment by the Company, nor does it interfere in any way with (i)
any right which Vianet Labs, Inc. may have to terminate the employment or alter
the duties of the Optionee at any time; or (ii) any right which the Optionee may
have to terminate his employment at any time.
10. Cancellation; Change. In the event the Option shall be exercised in
whole, this agreement shall be surrendered to the Company for cancellation. In
the event the Option shall be exercised in part, or a change in the number of
designation of the Common Stock shall be made, this agreement shall be delivered
by the Optionee to the Company for the purpose of making appropriate notation
thereon, or of otherwise reflecting, in such manner as the Company shall
determine, the partial exercise or the change in the number or designation of
the Common Stock.
11. New York Law Governs. The Option and this agreement shall be
construed, administered and governed in all respects under and by the laws of
the State of New York without regard to its conflicts of law principles.
VIANET TECHNOLOGIES, INC.
By:___________________________
Name: Peter Leighton
Title: President and CEO
The undersigned hereby
accepts the foregoing
Option and the terms and
conditions hereof.
______________________________
Bruce Arnstein
4
<PAGE>
EXHIBIT 21.1
List of Subsidiaries of the Registrant
--------------------------------------
1. Vianet Labs, Inc.
2. Vianet Access, Inc.
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Board of Directors of
Vianet Technologies, Inc. and Subsidiaries
Our audits of the consolidated financial statements referred to in our report
dated March 24, 2000, included an audit of the related financial statement
schedule as of December 31, 1999 and 1998. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financials statements.
/s/ EDWARD ISAACS & COMPANY LLP
New York, New York
March 24, 2000
<PAGE>
VIANET TECHNOLGIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE
PERIOD MARCH 28, 1998 (INCEPTION) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Column A Column C Column D Column E
Additions
--------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
of Period Expenses Accounts (1) Deductions Period
---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Description
Valuation Allowance - Note
Receivable - Develcon
Electronics, Ltd.
Period from March 28, 1998
(Inception) to December 31,
1998 $ - $ - $ - $ - $ -
======= ======= ======= ======= =======
Year ended December 31,
1999 $ - $ - $ 1,000,000 $ - $ 1,000,000
======= ======= =========== ======= ===========
</TABLE>
(1) Valuation allowance on note receivable which was received as consideration
for sale of discontinued operation. Charged to loss on disposal of
discontinued operation.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 215
<SECURITIES> 0
<RECEIVABLES> 236
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 527
<PP&E> 714
<DEPRECIATION> 439
<TOTAL-ASSETS> 8,938
<CURRENT-LIABILITIES> 6,412
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 1,386
<TOTAL-LIABILITY-AND-EQUITY> 8,938
<SALES> 56
<TOTAL-REVENUES> 166
<CGS> 22
<TOTAL-COSTS> 13,359
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 270
<INCOME-PRETAX> (13,463)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,463)
<DISCONTINUED> (8,189)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,652)
<EPS-BASIC> (4.12)
<EPS-DILUTED> (4.12)
</TABLE>
