<PAGE>
As filed with the Securities and Exchange Commission on August 30, 2000
Registration No. 333-30362
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
Post-Effective Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
VIANET TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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Nevada 7371 87-0434285
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
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83 Mercer Street, 3rd Floor
New York, New York 10012
(212) 219-7680
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
--------------------
Peter Leighton
President and Chief Executive Officer
83 Mercer Street, 3rd Floor
New York, New York 10012
(212) 219-7680
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
Copies to:
Richard A. Friedman, Esq.
SICHENZIA, ROSS & FRIEDMAN LLP
135 West 50th Street, 20th Floor
New York, New York 10020
(212) 664-1200
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Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
================================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(d) under the Securities Act of 1933.
(3) Issuable upon exercise of warrants and options, together with such
indeterminate number of securities as may be issuable by reason of
anti-dilution provisions contained therein.
----------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
Preliminary Prospectus Subject to Completion, Dated August 24, 2000
VIANET TECHNOLOGIES, INC.
10,759,604 Shares of Common Stock
and
22,017,752 Shares of Common Stock
Issuable Upon Exercise of
Common Stock Purchase Warrants
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Vianet Technologies, Inc.: The Offering:
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o Vianet develops, manufactures and sells o This prospectus relates to the possible
computer networking products, electronic sale, from time to time, by certain
communications technologies and value stockholders, the "selling stockholders"
added services. of Vianet of up to 10,759,604 shares of
common stock, and 22,017,752 shares of
common stock underlying common stock
purchase warrants.
o 83 Mercer Street, 3rd Floor o There is no underwriter or coordinating
New York, New York 10012 broker acting in connection with the
(212) 219-7680 offering of common shares by the selling
stockholders.
o NASD OTC Electronic Bulletin Board o Vianet will not receive any proceeds
Symbol: VTNK from sales by the selling stockholders,
except when warrantholders choose to
exercise their warrants, in which case
Vianet will receive the exercise price
of the warrants. See "Plan of
Distribution" for further details
concerning the possible sale of these
shares.
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Your investment in our common stock involves a high degree of risk. Before
investing in our common stock, you should consider carefully the risks described
under "Risk Factors" beginning on page 6.
--------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved our common stock, or determined that this
prospectus is complete or accurate. Any representation to the contrary is a
criminal offense.
--------------------------------------------------
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
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PROSPECTUS SUMMARY
The following is a summary of the more detailed information and financial
statements that appear elsewhere in this prospectus. This summary is not
complete and may not contain all of the information that is important to you. To
understand this offering fully, you should read the entire prospectus carefully,
including the risk factors and financial statements.
References in this prospectus to "Vianet," "We," "Our," and "Us," refer to
Vianet Technologies, Inc., a Nevada corporation, together with its subsidiaries
and their predecessors.
VIANET TECHNOLOGIES, INC.
Our Business
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.
Our Market
Our principal target markets are Internet service providers and
E-commerce enterprises seeking to differentiate themselves from competitors.
Consequently, we believe that our markets are inextricably tied to the progress
and development of the Internet itself. Statistics indicate that this growth is
currently extraordinary, and that it appears to be continuing. We believe that
this tremendous growth will require a similar growth in software and hardware to
support the systems used by Internet service providers, E-commerce businesses
and individual end users, as well as tools to more efficiently communicate over
these systems. We feel our products will fill this role for Internet service
providers, E-commerce enterprises and end-users alike.
2
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Internet , E-commerce and Value Added Services
Our data compression technology provides the foundation for our
Internet, E-commerce and value added services sales. We believe that our
products, by utilizing wavelet technology, provide flexible tools 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/storage value added services.
We also believe that these advanced differentiators have great sales
potential in the burgeoning Internet, E-commerce and value added services
marketplaces.
Network Access
Our products and services provide the foundation for our network access
sales. We intend to focus on Inter-networking companies seeking bandwidth
expansion, high throughput communications and system expansion capability. In
addition, we will continue to service public networks that require high
performance operations and infrastructure expansion.
Our Market Opportunity
As the Internet continues to develop as a communications and business
tool, we believe that both business and home Internet users will adopt enhanced
services that require additional bandwidth and web functionality. We intend to
serve these market segments by providing networking and data compression
technology, as well as value added services to provide our customers with the
competitive edge they need. We believe our products will enable communications
across broadband networks that efficiently combine voice, data, graphics and
video across geographic locations with high throughput, protocol flexibility,
and system expandability.
Our Growth Strategy
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 forum. We intend to utilize our broad market position,
advanced technology, and ability to respond quickly to market changes and become
a leading supplier of integrated voice, video and data communication products
for network access, value-added services, and E-commerce applications.
Our offices are located at 83 Mercer Street, New York, New York 10012;
our telephone number is (212)219-7680.
3
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The Offering
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Common stock offered by the
Selling Shareholders........... 10,759,604 shares of common stock and 22,017,752 shares of common stock
underlying common stock purchase warrants.
Common stock outstanding............ 23,055,000 shares
Use of Proceeds..................... Vianet will not receive any proceeds from the sale of securities by the selling
stockholders, although it could realize as much as $59,776,735 if all of the
common stock purchase warrants being registered hereby are exercised. The proceeds
from the exercise of the warrants will be used for working capital and general
corporate purposes.
Risk factors........................ Investing in these securities involves a high degree of risk and immediate
substantial dilution of your investment. As an investor, you should be able to
bear a complete loss of your investment. See "Risk Factors" for a more detailed
discussion.
NASD OTC Electronic Bulletin
Board Symbol................... VTNK
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The 23,055,000 shares of common stock outstanding excludes:
o 5,000,000 shares of common stock reserved for issuance pursuant to our
Stock Option Plan.
o 19,125,697 shares of common stock issuable upon the exercise of all
class A, B, C and D warrants as well as Placement Agent Warrants, all
of which are currently exercisable.
o 9,316,341 shares of common stock issuable upon the exercise of
additional warrants and options all of which are currently
exercisable.
o 677,316 shares of common stock issuable upon the conversion of
debentures and convertible notes payable.
Our trading symbol does not imply that a liquid and active market for
our securities will be available or sustained upon completion of this offering.
4
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Summary Financial Information
The information set forth below for the year ended December 31, 1999
and for the period from March 20, 1998 (Inception) to December 31, 1998 are
derived from and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements, including the notes thereto and other financial
information, appearing elsewhere in this registration statement. The summary
financial data set forth below for the six months ended June 30, 2000 and
1999 has been prepared from our books and records and reflects, in management's
opinion, all adjustments necessary for a fair presentation of our financial
position, results of operations, and cash flows, as at the periods indicated
therein. The selected interim financial data presented below do not necessarily
indicate the operating results or performance of the Company for the full year.
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Statement of Operations Data:
----------------------------------- ----------------------------------
Six Months Six Months
March 20, 1998 Year Ended Ended
(Inception) to Ended December June 30, 1999 June 30, 2000
December 31, 1998 31, 1999 (Unaudited)
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Operating Revenues $ 66,341 $ 166,142 $ 70,687 $ 748,506
Operating Costs and Expenses (558,198) (13,629,118) (603,736) (11,446,938)
Loss from Continuing Operations (491,857) (13,462,976) (533,049) (10,698,432)
Loss from Discontinued Operations - (8,188,956) (454,619) -
Net Loss (491,857) (21,651,932) (987,668) (10,698,432)
Basic and Diluted Net Loss Per Common
Share:
Continuing Operations (0.20) (2.56) (0.10) (0.56)
Discontinued Operations - (1.56) (0.08) -
Net Loss $ (0.20) $ (4.12) $(0.18) $ (0.56)
Weighted average common shares
outstanding 2,400,000 5,260,193 5,464,285 19,210,859
Balance Sheet Data:
December 31 June 30,
--------------------------------- 2000
1998 1999 (Unaudited)
-------------- --------------- ---------------
Working capital (deficit) $(2,478,532) $(5,884,666) $ 3,085,560
Total assets 2,682,799 8,937,947 13,309,943
Convertible notes payable (non current) - 1,125,000 1,125,000
Shareholders' equity (deficit) (478,857) 1,401,359 8,967,943
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5
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RISK FACTORS
You should carefully consider each of the following risks and all of
the other information set forth in this prospectus before deciding to invest in
shares of our common stock. Some of the following risks relate principally to
our business in general and the industry in which we operate. Other risks relate
principally to the securities markets and ownership of our stock. The risks and
uncertainties described below are not the only ones facing our company.
Additional risks that generally apply to publicly traded companies, that are not
yet identified or that we currently think are immaterial, may also impair our
business operations and adversely affect our business.
If any of the following risks and uncertainties develop into actual
events, our business, financial condition or results of operations could be
materially adversely affected. In such a case, the trading price of our common
stock could decline, and you may lose all or part of you investment.
Our Limited Operating History Makes it Difficult For You to Evaluate
Our Business and Prospects
We have only been engaged in our current and proposed business
operations since March 1998. As a result, we have only a limited operating
history upon which you may evaluate our proposed business and prospects. Our
proposed business operations will be subject to numerous risks associated with
early stage enterprises generally and the development, manufacture, and sale of
enterprise networking products specifically. These risks, expenses and
difficulties apply particularly to us because the markets for data compression
technology and computer networking products are new and rapidly evolving.
We Have a History of Losses and We May Never Achieve Profitability
We had a consolidated net loss of $10,698,432 for the six months ended
June 30, 2000 and net losses of $491,857 and $21,651,932 for the period March
20, 1998 (Inception) to December 31, 1998 and year ended December 31, 1999,
respectively. We expect to continue to incur significant operating losses and to
generate negative cash flow from operating activities during the foreseeable
future as a result of the implementation and operation of our business plan and
from increased marketing expenses as we attempt to expand our customer base.
There can be no assurance that we will achieve or sustain profitability or
positive cash flow from operating activities in the future. If we cannot achieve
operating profitability or positive cash flow from operating activities, we may
not be able to meet our working capital requirements or debt service.
We Are Dependent upon the Continued Availability of Adequate Financing
to Fund Our Operations and Expand Our Business
We have historically funded our business and operations through equity
and debt financings. We do not presently have adequate cash from operations or
financing activities to meet our long-term needs. In order to meet our cash
needs to fund our operations, we must either generate cash from operations or
obtain additional financing. In the event that we are unable to generate
sufficient cash or obtain additional financing, we may be unable to pay our
obligations as they come due or implement our plans to expand our operations. As
a result, our business, financial condition and results of operations may be
materially adversely affected.
We may not be able to obtain the financing and capital required to
maintain and grow our business
6
<PAGE>
We may have difficulty developing and managing our expanding business
operations
Our ability to integrate our interests successfully depends upon, among
other things, our ability to bring to market technologies that are currently in
the development stage coupled with our ability to attract sufficient capital
financing to sustain this process. In addition, growth in the scope of our
business operations would require the expansion of our management, financial and
accounting resources, with consequential demands on the need for qualified
personnel. Our need to manage our growth successfully will require us to
implement appropriate operational, financial and management information systems
and controls. Failure to make such a transition to a larger scale enterprise
would have a material adverse effect on our business, financial condition and
results of operations.
Our Quarterly Financial Results May Fluctuate Significantly
Our quarterly revenues and operating results may vary significantly in
the future due to a number of factors, including:
o the timing and amount of orders for our products and services,
particularly large orders from our key resellers, OEMs and other
significant customers;
o unexpected product returns or the cancellation or rescheduling of
significant orders;
o our ability to develop, introduce, ship and support new products
and product enhancements and manage product transitions;
o announcements and new product introductions by our competitors;
o the expected rapid erosion of the average selling prices of our
products;
o our ability to achieve required cost reductions;
o our ability to obtain sufficient supplies of sole or limited
source components for our products;
o unfavorable changes in the prices of the components we purchase;
o our ability to attain and maintain production volumes and quality
levels for our products;
o the mix of products sold and the mix of distribution channels
through which they are sold;
o costs relating to possible acquisitions and integration of
technologies or businesses; and
o the Internet access market conditions and economic conditions
generally.
7
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We plan to significantly increase our operating expenses to expand our
sales and marketing activities, broaden our customer support capabilities,
develop new distribution channels, fund increased levels of research and
development and build our operational infrastructure. We base our operating
expenses on anticipated revenues and trends, and a high percentage of our
expenses are fixed in the short term. As a result, any delay in generating or
recognizing revenue could cause significant variations in our operating results
and could result in substantial operating losses. Orders at the beginning of
each quarter typically do not equal expected revenue for that quarter and are
generally cancelable at any time. Accordingly, we depend upon obtaining orders
in a quarter for shipment in that quarter to achieve our revenue objectives. In
addition, the timing of product releases, purchase orders and product
availability could result in significant product shipments at the end of a
fiscal quarter. Failure to ship such products by the end of a quarter may
adversely affect our operating results. Furthermore, our customer agreements
typically provide that the customer may delay scheduled delivery dates and
cancel orders within specified time frames without significant penalty.
Due to the foregoing factors, we believe that period-to-period
comparisons of our operating results cannot be relied upon as an indicator of
our future performance. It is likely that in some future quarter, our operating
results may be below the expectations of public market analysts or investors. If
this occurs, the price of our common stock would likely decrease.
We face Intense Competition in the Internet Access Equipment Market
from Larger and more well-established companies and we may not be able to
effectively compete with these companies
The market for Internet access equipment is dominated by a few large
companies, particularly Bay Networks, Cabletron Systems, Cisco Systems and 3Com.
We expect to face increased competition, particularly price competition, from
these and other equipment and technology providers. These vendors may develop
products with functionality similar to our's or provide alternative access
solutions. In addition, our supplier may compete with us with their current
products or products they may develop, and with the products they purchase from
us.
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 customer base,
than us. As a result, these competitors are able to devote greater resources to
the development, promotion, sale and support of their products. In addition,
competitors with a large customer base may have a significant competitive
advantage over us.
Because of the intense competition within the Internet access industry,
the market is subject to frequent product introductions with improved
price/performance characteristics, significant price reductions, rapid
technological change and continued emergence of new industry standards. It is
also common in the Internet access industry for competitors to acquire other
companies as a means of introducing new products or emerging technologies. If a
new technology or product emerges that displaces our product lines, competitors
that have large market capitalizations or cash reserves would be better
positioned than us to acquire such new technology or product. Any failure by us
to effectively introduce new products and enhancements on a timely basis would
materially adversely affect our business, operating results and financial
condition.
Our Market is Subject to Rapid Technological Change, and If We Do Not
Introduce New Products in a Timely Manner Our Products May Become Obsolete
The Internet access equipment market is characterized by rapid
technological change, frequent new product introductions, changes in customer
requirements and evolving industry standards. The introduction of new products,
market acceptance of products based on new or alternative technologies, or the
emergence of new industry standards, could render our existing products
obsolete. We cannot assure you that our technological approach will achieve
broad market acceptance or that other technologies or devices will not supplant
our approach. In addition, when we announce new products or product enhancements
that have the potential to replace or shorten the life cycle of our existing
products, customers may defer purchasing our existing products. These actions
could materially adversely affect our operating results by decreasing sales,
increasing our inventory levels of older products and exposing us to greater
risk of product obsolescence. To remain competitive, we need to introduce
products in a timely manner that incorporate or are compatible with these new
technologies as they emerge.
8
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We are dependent upon the Market Acceptance of Our Technology
Much of the technology developed and acquired by us, particularly
wavelet compression technology is based upon recent advances in technology and
there can be no assurance that this technology will gain broad market
acceptance. Systems integrators, manufacturing partners and other customers may
not adopt our products unless they determine, based on experience, testing and
other factors, that our products are superior alternatives to other available
products. To date, wavelet technology has only been demonstrated in and utilized
by a limited number of applications. An inability to sell commercial quantities
of products using wavelet technology would have a material adverse effect on our
business, financial condition and results of operations. Furthermore, shifts in
market acceptance of our products' performance, cost effectiveness, or our sales
methods could materially adversely affect our business, operating results and
financial condition.
We Expect the Average Selling Prices of Our Products to Erode Rapidly,
Which May Impact Gross Margins Negatively
The Internet access equipment industry has experienced rapid erosion of
average selling prices due to a number of factors, including competitive pricing
pressures and rapid technological change. We may experience substantial
period-to-period fluctuations in future operating results due to the erosion of
our average selling prices. We anticipate that the average selling prices of our
products will decrease in the future in response to competitive pricing
pressures, increased sales discounts, new product introductions by us or our
competitors or other factors. Our failure to develop and introduce new products
and product enhancements on a timely basis while reducing product costs would
materially adversely affect our business, operating results and financial
condition.
Our Products Have a Lengthy Sales Cycle
The timing of our sales revenue is difficult to predict because of our
reliance on indirect sales channels and the length and variability of our sales
cycle. Some of our products have a relatively high sales price per unit, and
often represent a significant and strategic decision by an enterprise regarding
its communications infrastructure. Accordingly, the purchase of some of our
products typically involve lengthy internal procedures associated with the
evaluation, testing, implementation and acceptance of new technologies,
typically ranging from three months to longer than a year. While our customers
are evaluating our products and before they may place an order with us, we may
incur substantial sales and marketing expenses and expend significant management
effort. Consequently, failure to realize forecasted sales from a specific
customer in a fiscal quarter could materially adversely affect our operating
results for that quarter.
Our Products Must Comply with Evolving Industry Standards and
Government Regulations
In the United States, our products must comply with various
regulations and standards defined by the Federal Communications Commission and
Underwriters Laboratories. Internationally, products that we develop may be
required to comply with standards established by telecommunications authorities
in various countries as well as with recommendations of the International
Telecommunication Union. Failure to comply with existing or evolving industry
standards or to obtain timely domestic or foreign regulatory approvals or
certificates could materially adversely affect our business, operating results
and financial condition.
9
<PAGE>
Undetected Software or Hardware Errors Could Have a Material Adverse
Effect on Us
Network products frequently contain undetected software or hardware
errors when first introduced or as new versions are released. We expect that
such errors will be found from time to time in new or enhanced products after
commencement of commercial shipments. These problems may cause us to incur
significant warranty and repair costs, divert the attention of our engineering
personnel from our product development efforts and cause significant customer
relations problems. The occurrence of hardware and software errors, whether
caused by our product or another vendor's products, could result in the delay or
loss of market acceptance of our products, and any necessary revisions may
result in the incurrence of significant expenses. The occurrence of any such
problems would likely have a material adverse effect on our business, operating
results and financial condition.
We May Not Adequately Protect Our Intellectual Property, and Our
Products May Infringe on the Intellectual Property Rights of Third Parties
We rely on a combination of patent, copyright, trademark and trade
secret laws and restrictions on disclosure to protect its intellectual property
rights. We have filed a U.S. patent application relating to compression
technology. There can be no assurance that this application will be approved,
that any issued patent will protect our intellectual property or that we will
not be challenged by third parties. Furthermore, there can be no assurance that
others will not independently develop similar or competing technology or design
around any patent that we may be issued.
We also enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and control access to and
distribution of our software, documentation and other proprietary information.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use our products or technology.
Monitoring unauthorized use of our products is difficult, and we cannot be
certain that the steps we have taken will prevent misappropriation of our
technology, particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States.
The Internet access industry is characterized by the existence of a
large number of patents and frequent claims and related litigation regarding
patent and other intellectual property rights. From time to time, third parties
may assert exclusive patent, copyright, trademark and other intellectual
property rights to technologies that are important to us. Although we have not
been party to any claims alleging infringement of intellectual property rights,
we cannot assure you that we will not be subject to such claims in the future.
In addition, there can be no assurance that third parties will not assert claims
or initiate litigation against us or our manufacturers, suppliers or customers
with respect to existing or future products. Any such claims, with or without
merit, could result in costly litigation and diversion of technical and
management personnel or require us to develop non-infringing technology or enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on acceptable terms, if at all. In the event of a
successful claim of infringement and our failure or inability to develop
non-infringing technology or license the infringed or similar technology on a
timely basis, our business, operating results and financial condition could be
materially adversely affected.
10
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We Need to Expand Our Sales and Support Organizations to Increase
Market Acceptance of Our Products
We have recently expanded our sales force and plan to hire additional
sales personnel. Competition for qualified sales personnel is intense, and we
might not be able to hire the kind and number of sales personnel we are
targeting. In addition, we currently have a small customer service and support
organization and will need to increase our staff to support new customers and
the expanding needs of existing customers. The employment market for customer
service and support personnel in this industry is very competitive, and we may
not be able to hire the kind and number of customer service and support
personnel we are targeting. Our inability to hire qualified sales, customer
service and support personnel may materially adversely affect our business,
operating results and financial condition.
We Depend on Key Personnel Who May Leave us at any Time
Our success substantially depends on the continued employment of our
executive officers and key employees, particularly, Peter Leighton, our chairman
of the board and chief executive officer. The loss of services of Mr. Leighton
or any of our other executive officers or key employees could harm our business.
Limitations on Director Liability
Our Certificate of Incorporation provides, pursuant to Nevada law, that
our directors shall not be personally liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director, with certain
exceptions. These provisions may discourage stockholders from bringing suit
against a director for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by stockholders on behalf of us against any
director. In addition, our By-Laws provide for indemnification of directors and
officers to the fullest extent permitted by Nevada law.
We are Currently Unable to Have Our Common Shares Listed on Nasdaq
Stock Market
Our Common Shares are currently traded on the OTCBB. In order for
Common Shares to be listed on the Nasdaq SmallCap Market, we will be required to
have, among other things, all of the following:
o either net tangible assets (i.e., assets, net of goodwill, less
liabilities) of $4,000,000, or market capitalization of
$50,000,000, or net income in latest fiscal year or two of the
last three fiscal years of $750,000;
o minimum market value of public float of $5,000,000; and
o minimum bid price of $4.00 per share.
Nasdaq also requires that we have at least two independent directors
and an Audit Committee, a majority of whose members must also be independent
directors.
In order to obtain a Nasdaq listing, we are required to file an
application. Vianet has been made aware that in connection with applications by
entities to list their securities for quotation on Nasdaq, Nasdaq has been
reviewing sales of securities by entities prior to the entity offering its
securities to the public to determine if the potential returns to be received by
the investors in such sale is "reasonable" to the risk such investors undertook
in purchasing such securities. Although Nasdaq, as of the date hereof, has not
issued any interpretive release, notice to members or quantitative standard to
determine reasonableness, Nasdaq has informally indicated that reasonableness
will be determined (until further notice) on a case by case basis. It is our
current intention to apply, in the future, to have our Common Stock approved for
listing on Nasdaq. During the application process, Nasdaq, in all likelihood
will review the potential returns of investors in our recent private placement
offerings. In the event that Nasdaq determines that the returns to investors in
prior offerings were unreasonable, Nasdaq may refuse to approve our securities
for listing.
No assurance can be given that an application for listing of our common
stock on Nasdaq will be approved. Further, in the event our shares trade below
$4.00 per share before we are accepted by Nasdaq, we will cease to meet the
Nasdaq minimum bid price criteria. Accordingly, the higher level of liquidity
and accuracy of price quotations afforded by a Nasdaq listing may not be
available for an extended period of time.
11
<PAGE>
The market for our securities may not be sustained
Prior to this offering our common stock has been quoted on the OTCBB, a
regulated quotation service that captures and displays real-time quotes and/or
indications of interest in securities not listed on Nasdaq or any U.S. exchange.
Although our securities are currently eligible for quotation on the OTCBB, there
can be no assurance that an active market for the securities will be sustained.
If a trading market is not maintained, holders of our common stock may
experience difficulty in reselling such common stock or may be unable to resell
them at all. Any such market may be discontinued at any time. In addition, there
is no assurance that the price of the common stock in the market will be equal
to or greater than the offering price hereof.
"Penny Stock" Regulations May Impose Certain Restrictions on
Marketability of Stock, which may affect the ability of holders of our common
stock to sell their shares
The Securities and Exchange Commission (the "SEC") has adopted
regulations that generally define "penny stock" to be any equity security that
has a market price of less than $5.00 per share. Our common shares may be
subject to rules that impose additional sales practice requirements should the
price of our common shares fall below $5.00 per share. For transactions covered
by these rules, the broker-dealer must make a special suitability determination
for the purchase of the common shares and must have received the purchaser's
written consent to the transaction prior to the purchase. The "penny stock"
rules also require the delivery, prior to the transaction, of a risk disclosure
document mandated by the SEC relating to the penny stock market. The
broker-dealer must also disclose:
o the commission payable to both the broker-dealer and the
registered representative,
o current quotations for the securities, and
o if the broker-dealer is the sole market maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control
over the market.
Finally, monthly statements must be sent disclosing recent price information for
the penny stock held in the account and information on the limited market in
penny stocks.
These rules apply to sales by broker-dealers to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse), unless our common shares trade above $5.00 per share.
Consequently, the "penny stock" rules may restrict the ability of broker-dealers
to sell our common shares, and may affect the ability to sell the common shares
in the secondary market as well as the price at which such sales can be made.
Also, some brokerage firms will decide not to effect transactions in "penny
stocks" and it is unlikely that any bank or financial institution will accept
"penny stock" as collateral.
Potential Dilutive Effects of Issuance of Additional Shares and
warrants to Purchasers of Securities in Our Recent Private Placement Offerings
Resulting from the Inability of Vianet to Have its Registration Statement
Declared Effective.
From December 1999 through February 2000, we completed a private
placement offering in which we sold an aggregate of approximately 34.5 units,
consisting 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. In addition, in February 2000, we completed a private placement offering
in which we sold an aggregate of approximately 18 units, consisting 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 sold in the two offerings are exercisable at $2.00, $2.50 and
$3.00, respectively.
Vianet agreed with the purchasers of the securities in each of the
above offerings to cause a registration statement registering all the securities
purchased by them to become effective within 120 days of final closing of each
such offering. In the event that the registration statement is not effective by
such date, Vianet will pay to the holders an aggregate of 1% of all the
securities sold in the offering for the first 30 days after the 120 day period
following the final closing and 2% of such securities for every 30 day period
thereafter. To date, an aggregate of 104,760 shares and 104,760 class A, B and C
warrants have been issued. An additional 69,840 shares and 69,840 class A, B and
C warrants will be issued for every 30 day period after June 26, 2000.
In addition to the foregoing, in April 2000, we completed a private
placement offering in which we sold an aggregate of approximately 1,899,999
shares of common stock and 2,849,999 class D warrants to purchase shares of
common stock. The class D warrants sold in the two offerings are exercisable at
$4.50.
Vianet agreed with the purchasers of the securities in the April 2000
offering to cause a registration statement registering all the securities
purchased by them to become effective within 90 days of closing. In the event
that the registration statement is not effective by such date, Vianet will pay
to the holders an aggregate of 85,000 shares.
12
<PAGE>
Potential Dilutive Effects of Adjustments of the Number of Shares
Issued in Our Recent Private Placements Resulting From a Decrease in the
Price of Vianet's Common Stock.
From December 1999 through February 2000, we completed a private
placement offering in which we sold an aggregate of approximately 34.5 units,
consisting 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. In addition, in February 2000, we completed a private placement offering
in which we sold an aggregate of approximately 18 units, consisting 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 sold in the two offerings are exercisable at $2.00, $2.50 and
$3.00, respectively.
In the event that the closing price of the common stock falls below
$2.14 per share on certain measuring dates, the purchasers of the shares in the
above described private placement offerings shall be entitled to receive
additional shares. The number of additional shares shall, in no event, exceed
100% of the number of shares originally issued to such persons. Thus, in the
event that the price of the common stock falls to a price of $1.07 or lower,
Vianet shall be required to issue 100% of the number of shares originally
issued to such persons, or an additional 3,501,336 shares. For a complete
description of the terms and operation of provisions requiring an adjustment of
the number of shares issued to the purchasers of the shares in the above
described private placement offerings, see "Description of Capital Stock --
Rights of Holders of Securities Purchased in Our Recent Private Placements."
The purchasers of our issued and outstanding shares of common stock may
have acquired their shares at a cost less than that which the investors pursuant
to this offering may purchase their securities. The issuance of additional
shares as a result of a decrease in the price of Vianet's common stock may
result in a lowering of the cost at which the purchasers acquired their shares.
Therefore, the investors pursuant to this offering may bear a substantial
portion of the risk of loss, and may experience immediate and substantial
dilution.
13
<PAGE>
Potential Dilutive Effects of Adjustments of the Exercise Prices of the
Warrants Issued in Our Recent Private Placements Resulting From a Decrease in
the Price of Vianet's Common Stock.
In the event that the closing price of our common stock is less than $2.00 on
the date of this prospectus, then the exercise prices of the class A, B and C
warrants issued in our recent private placement offerings will be adjusted so as
to reflect the closing price of the common stock on that day, which shall be
deemed the new exercise price. The adjusted exercise prices shall be calculated
as follows:
Class A Warrants = Market Price;
Class B Warrants = Market Price x 1.25;
Class C Warrants = Market Price x 1.5.
Any such readjustment in the exercise prices of the class A, B and C Warrants
shall only apply to the unexercised portion of the class A, B and C Warrants.
The lowering of the exercise price of the class A, B and C Warrants and
the sale of the underlying shares of common stock (or even the potential of such
exercise or sale) may have a depressive effect on the market price of our
securities. Moreover, the terms upon which we will be able to obtain additional
equity capital may be adversely affected since the holders of outstanding class
A, B and C warrants can be expected to exercise them, to the extent they are
able, at a time when we would, in all likelihood, be able to obtain any needed
capital on terms more favorable to us than those provided in the class A, B and
C warrants.
Effect of Issuance of Common Stock Upon Exercise Price of Our Warrants
We have an aggregate of approximately 23,055,000 shares of common stock
outstanding and 29,609,038 shares of common stock reserved for issuance upon
exercise of outstanding warrants or options. The exercise of the warrants or
options and the sale of the underlying shares of common stock (or even the
potential of such exercise or sale) may have a depressive effect on the market
price of our securities. Moreover, the terms upon which we will be able to
obtain additional equity capital may be adversely affected since the holders of
outstanding warrants or options can be expected to exercise them, to the extent
they are able, at a time when we would, in all likelihood, be able to obtain any
needed capital on terms more favorable to we than those provided in the warrants
or options.
14
<PAGE>
We May Issue of Additional Securities in connection with Future
Acquisitions, which may have the effect of diluting the equity interest and
voting power of holders of our common stock
Our Board of Directors will have authority to issue further common
stock or other securities without the consent or vote of our shareholders. The
issuance of additional common stock by our management, whether in respect of a
transaction involving a business opportunity or otherwise, may have the effect
of further diluting the proportionate equity interest and voting power of
holders of common stock, including investors under this offering.
In addition, as part of our business strategy, we expect to review
acquisition prospects that would complement our current product offerings,
augment our market coverage or enhance our technical capabilities, or that may
otherwise offer growth opportunities. We acquired Develcon in May 1999 and a
license for SPS technology in September 1998. In addition, we acquired Vianet
Labs (formerly known as Infinop Holdings, Inc.) and Vianet Access, in October
and December of this year, respectively. We may acquire other businesses,
products or technologies in the future. In the event of such future
acquisitions, we could:
o issue equity securities which would dilute current stockholders'
percentage ownership;
o incur substantial debt; or
o assume contingent liabilities.
Such actions by us could materially adversely affect our operating
results and/or the price of our common stock. Acquisitions also entail numerous
risks, including:
o difficulties in the assimilation of acquired operations,
technologies or products;
o unanticipated costs associated with the acquisition;
o diversion of management's attention from other business concerns;
o adverse effects on existing business relationships with suppliers
and customers;
o risks associated with entering markets in which we has no or limited
prior experience; and
o potential loss of key employees of acquired organizations.
We cannot assure you that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future, and our failure to do so could materially adversely affect our business,
operating results and financial condition.
15
<PAGE>
Risk of Loss Greater for Investors Pursuant to This Offering Than For
Present Owners of Shares
Most of the present owners of shares of our issued and outstanding
common stock have acquired a controlling interest in us at a cost substantially
less than that which the investors pursuant to this offering may purchase their
securities. Therefore, the investors pursuant to this offering will bear a
substantial portion of the risk of loss, while control of Vianet will remain in
the hands of our current management.
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements that address, among other
things, our expansion and acquisition strategy, business development, use of
proceeds, projected capital expenditures, liquidity, and our development of
additional revenue sources. These statements may be found in the sections of
this Prospectus entitled "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and in this Prospectus generally. The
forward-looking statements are based on our current expectations and are subject
to risks, uncertainties and assumptions, including those described in the "Risk
Factors" and under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business." We base these forward-looking
statements on information currently available to us, and we assume no obligation
to update them. Our actual results may differ materially from the results
anticipated in these forward-looking statements, due to various factors,
including all of the risks discussed in "Risk Factors" and elsewhere in this
Prospectus.
16
<PAGE>
WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission. Those reports, proxy statements and other
information may be obtained:
o At the public reference room of the Commission, Room 1024 -
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549;
o At the public reference facilities at the Commission's
regional offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 or Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661;
o By writing to the Commission, Public Reference Section,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549;
o At the offices of The Nasdaq Stock Market, Reports Section,
1735 K Street, N.W., Washington, D.C. 20006; or
o From the Internet site maintained by the Commission at
http://www.sec.gov, which contains reports, proxy and
information statements and other information regarding
issuers that file electronically with the Commission.
We have filed with the Commission a registration statement under the
Securities Act of 1933, as amended, with respect to the common stock offered
hereby. This prospectus, which is a part of the registration statement, does not
contain all the information set forth in, or annexed as exhibits to, such
registration statement, certain portions of which have been omitted pursuant to
rules and regulations of the Commission. For further information with respect to
Vianet and the common stock, reference is made to such registration statement,
including the exhibits thereto, copies of which may be inspected and copied at
the aforementioned facilities of the Commission. Copies of such registration
statement, including the exhibits, may be obtained from the Public Reference
Section of the Commission at the aforementioned address upon payment of the fee
prescribed by the Commission. Information regarding the operation of the
Commission's public reference facilities may be obtained by calling the SEC at
1-800-SEC-0330.
We intend to distribute to our stockholders annual reports containing
financial statements audited and reported upon by our independent public
accountants after the close of each fiscal year, and will make such other
periodic reports as we may determine to be appropriate or as may be required by
law. Our fiscal year ends December 31st of each year.
17
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of securities by the
selling stockholders. We intend to use the proceeds received from the exercise
of any common stock purchase warrants or options for working capital and general
corporate purposes. The maximum amount of proceeds that we could receive upon
the exercise of all common stock purchase warrants or options included in this
Prospectus is $59,776,735. There can be no assurance that any or all of the
common stock purchase warrants or options will be exercised and that Vianet will
receive any proceeds therefrom. This is our best estimate of the use of proceeds
generated from the possible exercise of common stock purchase warrants or
options based on the current state of our business operations, our current plans
and current economic and industry conditions. Any changes in the projected use
of proceeds will be made at the sole discretion of our Board of Directors.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Vianet as of
June 30, 2000. This table should be read in conjunction with our historical
consolidated financial statements, including the notes thereto, included
elsewhere herein. See "Index to Financial Statements and Other Financial
Information."
<TABLE>
<CAPTION>
June 30, 2000
-------------
<S> <C>
Convertible notes payable (noncurrent) 1,125,000
------------
Shareholders' Equity:
Common Shares, $0.001 par value,
100,000,000 shares authorized,
22,839,813 shares issued and outstanding 22,839
Additional Paid-In Capital 31,443,290
Subscription receivable (500)
Warrants issued 10,717,050
Unearned fees (372,915)
Accumulated Deficit (32,842,221)
------------
Total Shareholders' Equity 8,967,543
============
Total Capitalization $ 10,092,543
============
</TABLE>
19
<PAGE>
MARKET FOR SECURITIES
Prior to the consummation of the Vianet Merger, there was no trading
market for Vianet's common stock. Vianet's Common Shares, $0.001 par value per
share, are currently traded on the NASD OTC Electronic Bulletin Board (the
"Bulletin Board") under the symbol "VNTK."
The following table sets forth the high and low closing bid prices for
Vianet's Common Shares as reported by the Bulletin Board for the periods
indicated:
Closing Trading Prices
Month High ($) Low ($)
------------------------------------------------------------
March, 1999 11.25 10.125
April, 1999 9.25 6.5
May, 1999 11.6875 7.875
June, 1999 9.25 7.375
July, 1999 7.75 6.125
August, 1999 6.5625 5.4375
September, 1999 6.75 4.75
October, 1999 4.75 3
November, 1999 3.5625 1.25
December, 1999 4.4688 2
January, 2000 8.375 3.8125
February, 2000 7.875 5.125
March, 2000 8.4375 5.875
April, 2000 6.0625 3.25
May, 2000 4.125 2.375
June, 2000 3.9375 2.6875
July, 2000 3.125 2.0625
August, 2000(1) 2.4688 1.5938
---------------
(1) Through August 18, 2000.
On August 18, 2000, the closing sale price for our Common Shares, as
reported by the Bulletin Board, was $1.5938 per share.
As of August 18, 2000, there were 23,055,000 shares of Common Stock
outstanding, there were approximately 1,000 registered holders of our Common
Stock.
20
<PAGE>
DIVIDEND POLICY
We have never paid any cash dividends on its capital stock and do not
anticipate paying any cash dividends on the Common Stock in the foreseeable
future. We intend to retain future earnings to fund ongoing operations and
future capital requirements of its business. Any future determination to pay
cash dividends will be at the discretion of the Board and will be dependent upon
our financial condition, results of operations, capital requirements and such
other factors as the Board deems relevant.
21
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for the period from March
20, 1998 (Inception) to December 31, 1998 and the year ended December 31, 1999
are derived from and should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements, including the notes thereto and other
financial information, appearing elsewhere in this Prospectus. The summary
financial data set forth below for the interim periods ended June 30, 2000 and
1999 has been prepared from our books and records and reflects, in Management's
opinion, all adjustments necessary for a fair presentation of our financial
position, results of operations, and cash flows, as at the periods indicated
therein. The selected interim financial data presented below do not necessarily
indicate the operating results or performance of the Company for the full year.
<TABLE>
<CAPTION>
Statement of Operations Data:
----------------------------------- ----------------------------------
March 20,
1998
(Inception) Year Six Months Ended
to December Ended December June 30, 1999 June 30, 2000
31, 1998 31, 1999 (Unaudited)
--------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Operating Revenues $ 66,341 $ 166,142 $ 70,687 $ 748,506
Operating Costs and Expenses (558,198) (13,629,118) (603,736) (11,446,938)
Loss from Continuing Operations (491,857) (13,462,976) (533,049) (10,698,432)
Loss from Discontinued Operations -- (8,188,956) (454,619) --
Net Loss (491,857) (21,651,932) (987,668) (10,698,432)
Basic and Diluted Net Loss Per Common
Share:
Continuing Operations (0.20) (2.56) (0.10) (0.56)
Discontinued Operations -- (1.56) (0.08) --
Net Loss $ (0.20) $ (4.12) $ (0.18) $ (0.56)
Weighted average common shares
outstanding 2,400,000 5,260,193 5,464,285 19,210,859
Balance Sheet Data:
December 31
June 30
--------------------------------- 2000
1998 1999 (Unaudited)
--------------- -------------- -----------------
Working capital (deficit) $ (2,478,532) $ (5,884,666) $ 3,085,560
Total assets 2,682,799 8,937,947 13,309,943
Convertible notes payable (non current) -- 1,125,000 1,125,000
Shareholders' equity (deficit) (478,857) 1,401,359 8,967,943
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Prospectus contains forward-looking statements that are subject to
risks and uncertainties, which could cause actual results to differ materially
from those expressed or implied in the statements. Forward-looking statements
(including oral representations) are statements about future performance or
results, and include any statements using the words "believe," "expect,"
"anticipate" or similar words. All forward-looking statements are only
predictions or statements of current plans, which we are constantly reviewing.
All forward-looking statements may differ from actual future results due to, but
not limited to, changes in the local and overall economy, the nature and pace of
technological changes, the number and effectiveness of competitors in the
Company's markets, success in overall strategy, changes in legal and regulatory
policy, relations with ILECs and their ability to provide delivery of services
including interoffice trunking, implementation of back office service delivery
systems, the Company's ability to identify future markets and successfully
expand existing ones and the mix of products and services offered in the
Company's target markets. You should consider these important factors in
evaluating any statement contained in this report and/or made by us or on our
behalf. We have no obligation to update or revise 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.
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").
23
<PAGE>
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 June 2000, the Company reincorporated under the laws of the state of
Delaware.
In Process Research and Development
On acquisition, the Vianet Labs products were in the form of CODECS
(COmpressor/DECompressors) 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's), debugging and the integration across multiple platforms
as well the further enhancement and development of the basic CODECS.
LS Messenger has moved from a proof of concept to a product phase. LS Messenger
and LS Messenger Pro have been tested on Windows 98, Windows NT, and Windows
2000. Vianet has started marketing these products with a positive response.
LS Video Interactive point to point has moved past the alpha stage into beta.
Beta customers have started using LS Video Interactive in a limited fashion.
Vianet Technologies continues to develop and improve this product. Vianet has
started development of LS Video Interactive Multipoint. This product is in the
proof of concept stage.
Vianet Technologies launched major codec improvement initiatives in mid April
2000. The result of this research initiative is a codec with improved video
quality, as well as, the prototype version of Vianet's Pure Wavelet codec. The
Pure Wavelet codec has the capability of streaming video at multiple bandwidths
from the same file. As of the date of this filing, the image quality of the Pure
Wavelet codec is not as good as our traditional codecs. Additionally, the Pure
Wavelet codec requires more processor resources than our current codec
technology. Research continues with Vianet's Wavelet and Pure Wavelet codec
technologies.
Since March of this year, Vianet has resumed development of Power Zoom. Power
Zoom gives Web Developers the capability to server high-resolution images over
the Internet. By using a Power Zoom server, hosting sites give users the
capability to zoom in on the details of a high resolution image not seen with
traditional serving techniques. This product is entering its beta phase.
On acquisition of Vianet Access, the Starpoint product was also in a "proof of
concept" form. In February 2000, 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.
Our Starpoint product has been developed to include a voice card and an SNMP
management system. The first version of the Starpoint product was released in
June of 2000. The initial release includes T1, E1, and V.35 interfaces in
addition to the Voice Interface.
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.
24
<PAGE>
Results of Operations
The following is a discussion of the financial condition and results of
operations of the Company for the six months ended June 30, 2000 and 1999,
respectively. This discussion should be read in conjunction with the Company's
Consolidated Financial Statements, the notes related thereto, and the other
financial data included elsewhere in this Registration Statement. A comparison
of the financial condition and results of operations of the Company for the year
ended December 31, 1999 and the period March 20, 1998 (inception) to December
31, 1998 has not been included in this discussion because the Company believes
that such a comparison would not be meaningful to investors due to the Company's
limited operations during the period March 20, 1998 to December 31, 1998.
Six-month periods ended June 30, 2000 and June 30, 1999
Revenues
Revenues for the six-month period ended June 30, 2000 increased $677,819 to
$748,506, as compared to interest and other income of $70,687 during the
six-month period ended June 30, 1999. $169,358 of this increase was attributable
to sales of our Starpoint product prototypes, while approximately $74,334 was
attributable to OEM sales. $390,000 was generated from software licensing of our
Lightning Strike Suite of Products in the Korean market. The remaining $114,814
was attributable to interest and other income.
Operating Expenses
Operating expenses for the six-month period ended June 30, 2000 increased
$9,228,949 to $9,729,530, as compared to operating expenses of $500,581 during
the six-month period ended June 30, 1999. The increase in operating expenses was
attributable to a $157,556 increase in cost of goods and services sold, a
$5,032,566 increase in selling, general and administrative expenses, a
$1,652,441 increase in research and development costs and a $2,386,386 provision
for loss-Develcon. Selling, general and administrative expenses include a
one-time settlement for $191,000 and increased salaries and administrative
costs. This increase relates to the costs associated with the operations of the
Company's newly acquired subsidiaries, Labs and Access. The Company currently
has over 59 employees as compared to less than 10 during the six-month period
ended June 30, 1999.
Depreciation and Amortization Expenses
Depreciation and Amortization expenses for the six-month period ended June 30,
2000 increased $1,314,011 to $1,359,011, as compared to amortization expense of
$45,000 during the six-month period ended June 30, 1999. The increase was
attributable to amortization of intangibles arising from acquisitions during
1999, depreciation of property and equipment and amortization of technology
licenses.
Interest Expense and Other Financing Charges
Interest expense and other financing charges for the six-month period ended June
30, 2000 was $358,397, as compared to $58,155 during the six-month period ended
June 30, 1999. The year 2000 expense was primarily attributable to interest on
convertible notes and the credit facility (including amortization of debt
discount), while the 1999 expense primarily relates to interest on notes
payable.
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.
Year ended December 31, 1999
Operating revenues, consisting primarily of engineering fees charged by
Infinop, amounted to $55,752. Selling, general and administrative expenses
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.
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<PAGE>
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. 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 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).
Inflation
Vianet has experienced minimal impact from inflation and changing
prices on its net sales and on its income from continuing operations for the
periods it has been engaged in business.
Liquidity And Capital Resources
For the six-month period ended June 30, 2000, the Company's cash position
increased by $5,402,226 from $214,639 to $5,616,865. The principal source of
cash was $13,374,385 that was generated from the Company's private placement
offerings. $7,156,680 of these funds were used in operating activities, $71,008
in loans to related parties, $402,137 in purchases of capital assets during the
period, $350,000 in security deposits, as well as, approximately $20,000 in
principal payments of long-term debt.
From January 1, 2000 through the date of this report, we have completed the
following financings:
o From January 2000 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 15 units for
gross proceeds of approximately $1,508,000. The units consisted of an
aggregate of (1) 1,005,311 shares of common stock, and (2) 1,005,311
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, as well a
the December 1999 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 1999, the Company entered into a $3,000,000 secured credit facility
(the "Facility") with an entity that, at that time, was 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.
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 purchased a $1,000,000 (face amount) note receivable
from Develcon Electronics, Ltd. (a former Subsidiary) from a creditor
of Develcon Electronics, Ltd. in exchange for the issuance of 250,000
shares of common stock issued at $3.00 per share and 375,000 Class D
three year common stock purchase warrants, which are exercisable at
$4.50 per share.
o In March and April 2000, we completed a private placement in which we
sold an aggregate of approximately 98.98 units for gross proceeds to
Vianet of approximately $5,938,000. The units consisted of an aggregate
of 1,932,861 shares of common and 2,899,291 common stock purchase
warrants, which warrants are exercisable at $4.50.
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<PAGE>
o In April 2000, pursuant to stock purchase agreements, we issued an
aggregate of 1,899,999 shares of common stock and 2,849,998 common
stock purchase warrants for gross proceeds of $5,700,000. The warrants
are exercisable at $4.50. In connection with such offering, the
Placement Agents will receive warrants to purchase an aggregate of
approximately 9.5 units (or an aggregate of approximately 190,000
shares of common stock and approximately 285,000 class D 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.
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. At June 30, 2000, the entire $1,000,000
liability has been included in Bank Notes Payable on Vianet's consolidated
balance sheet.
Potential Future Sources of Capital
In addition to the financings completed in the second quarter of 2000, we had a
total of 29,609,038 warrants and options outstanding as at the date of this
filing at an average issue price of $3.01. In the event that these warrants and
options are all exercised we would receive approximately $90,721,000 in cash
proceeds. The exercise of these warrants and options will depend on, among other
things, the liquidity and price for our common shares. We do not control the
exercise of these warrants and options 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 completed several distribution agreements
and trial sales that could generate future revenues. While we anticipate
significant revenues from these agreements and others that we will complete in
the future, 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. In June, a major customer effectively cancelled a purchase order for
our Starpoint product destined for the Korean market. Vianet expects that future
sales will be made to this same customer although no assurances can be given
that this will occur.
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<PAGE>
Summary
As of August 10, 2000 our cash balances amounted to approximately $3,400,000.
Our best estimate is that we have sufficient cash to fund our operations for
five months assuming that no revenues are generated and commensurate expense
reductions are made. After this period we may require additional funds unless we
generate revenues to fund our expenses.
We have no current arrangements in place with respect to financing other than
those described above. We are currently seeking additional financing
arrangements to provide the additional capital in order to fund our current
operations, expand our scope of operations and our business strategy. 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.
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HISTORY OF VIANET
Our business began as Vianet Technologies, Inc., a Delaware corporation
formed in March 1998 ("Vianet Delaware"). In March 1999, Vianet Delaware merged
with and into Radar Resources, Inc., a Nevada corporation ("Radar"). Radar was
incorporated in the state of Utah under the name Radar, Inc. n April 1986. In
December 1993, Radar reorganized as a Nevada corporation named Radar Resources,
Inc., retained the contractual obligations, shareholder rights and identity of
the original Utah corporation and dissolved the Utah corporation. From its
inception until March 1999, Radar had no business operations or history. Upon
completion of Vianet Delaware's merger with Radar, Radar changed its name to
Vianet Technologies, Inc ("Vianet") and began operating as our company.
Prior to 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
subsequent on May 17, 1999.
Shortly thereafter, in October 1999, Vianet consummated a plan of
merger with Infinop Holdings, Inc., a Texas 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 June 2000, the Company reincorporated under the laws of the
state of Delaware.
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<PAGE>
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 forum.
We also develop, manufacture and sell computer fiber optic networking
products, communications technologies. Our networking products use proprietary
technology as well as technology licensed from our former subsidiary, Develcon
Electronics, Ltd. These products 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.
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.
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<PAGE>
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:
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.
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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>
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
Voice over IP Video Mail
Facial Recognition Voice over IP
</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.
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.
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We currently provide the following visual and compression technologies
for bandwidth-conscious multimedia enterprises seeking efficient Inter- and
Intranets for their business:
<TABLE>
<CAPTION>
Visual and Compression Technology Products
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Store and Forward Video Video Conferencing- Imagery-
Mail and Visual Notification IP-based wavelet 24 Bit Color
Facial Recognition 323 video conferencing Grey
Enhanced Zooming Real Time Video Non-Uniform
-----------------------------------------------------------------------------------------------------------------
</TABLE>
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.
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 V5.2 compliance, 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 uses 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, because
it is the first SONET/SDH/V5.2 compliant product to use cross-connects and slick
96 based DLC architecture, its small footspace permits installation in more
confined areas than normally required for such units.
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<PAGE>
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
Athena Product Lines - Edge and Central Site Communications and
Multi-Protocol Access
We have an exclusive license to market Athena products and the source
code for the Athena product line to Fortune 100 companies based in the United
States.
The Athena 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. Athena supports
various computing environments and networking technologies and allows clients to
optimize and expand existing networks cost effectively. Athena 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 Athena as an Edge Switch for the
periphery of existing higher-speed networks, including branch office networks
supporting mission critical applications.
Athena Access, released in 1998, is a voice/data communication product
for branch office access. Athena 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 Athena products, Athena Access has integrated routing
functionality, frame relay switching, X.25 switching, legacy protocol access and
ISDN capabilities.
Orbiter Product Lines - Ethernet Access Routers
We also have a non-exclusive license to market the Orbiter product
lines worldwide. Develcon's Orbitor family of Ethernet Access Routers provides
routing solutions for small- to medium-sized offices.
The Orbitor 500 allows small office and home office users to combine
data and voice traffic over a single ISDN access line for cost-effective access
to the Internet, corporate Intranets and remote corporate computing facilities.
The Orbitor 530 provides the full-featured performance and
functionality of large office access routers in a compact platform priced for
small office budgets. The Orbitor 530 provides access to both frame relay and IP
networks such as the Internet.
The Orbitor 5100 is modular access router designed to provide safe,
secure, and reliable network access for branch office locations. The Orbitor
5100 offers advanced link management features to deliver maximum performance and
uptime in critical network environments.
The Orbitor 6100 Central Site Router is a central office router that
supports up to fourteen lines using any combination of frame relay, leased line
or ISDN services.
We plan to integrate our proprietary technology with the technology
exclusively licensed from our former subsidiary, Develcon, to expand our network
access product lines.
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Manufacturing
We intend to manufacture our products through a full service
manufacturing partner with facilities and daily operations employing Bellcore
reliabilty 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, 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.
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, Sales and Distribution
Sales
We market our compression technology products to the following market
segments:
o high speed quality image delivery in closed or open (Java)
environments;
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<PAGE>
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.
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, the subsidiary
has 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 in 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.
36
<PAGE>
Product Liability Insurance
We carry product liability insurance coverage on its products in the
amount of $2,000,000.
Employees
As of June 30, 2000, we employed 59 full-time employees, 2
part-time employees and 8 consultants.
Facilities
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. In connection with this activity, the
Company has entered into a 5 year lease agreement for office space in Plano,
Texas. The annual rent for this facility is approximately $183,400 for the
initial lease year, $220,000 in year 2, $239,200 in years 3 and 4, and $258,300
in year 5, plus the tenant's proportional share of operating and other expenses.
The terms of the lease require 200,000 shares of registered common stock to be
placed in escrow as a security deposit. The shares will be released from escrow
and returned to Vianet for cancellation at a rate of 20% per annum.
Legal Proceedings
We are not a party to any material legal proceedings.
37
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers, directors and key executives of Vianet, and their ages
as of January 1, 1999, are as follows.
NAME AGE POSITION
---- --- --------
Jeremy T.G. Posner 53 Chairman of the Board
Peter Leighton 46 President, Chief Executive Officer,
Director
Vincent Santivasci 28 Chief Financial Officer
Robert H. Bailey 56 Director
Darrell J. Elliot 49 Director
F. Paul Whitlock 56 Director
Timothy P. Sullivan 58 Director
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. He is also a Director of
Thermacell Technologies, Inc. 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 form York University,
Toronto Canada, and a Bachelors of Law from the University of Birmingham,
England.
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.
Timothy P. Sullivan has been a Director of Vianet since June 2000. Mr.
Sullivan is currently Vice President and General Manager, Optical Area
Networking for Lucent Technologies, Inc. Previously he held senior management
positions with Connectware, Inc., Nortel and IBM. Mr. Sullivan has a BSEE degree
from the University of Notre Dame, South Bend, Indiana.
38
<PAGE>
Robert H. Bailey has been a Director of Vianet since inception. 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 inception. Mr.
Elliot is also the President and Chief Executive Officer of Isuma Strategies
Inc., a financial consulting firm. 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 inception. 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.
The following table sets out annual compensation, long-term
compensation and all other compensation awarded to Vianet's Chief Executive
Officer, Chairman of the Board and Chief Operating Officer, for services
rendered in all capacities (the "Named Executive Officers"), during its fiscal
year ended December 31, 1999. Other than as listed below, Vianet had no other
executive officers whose total salary and bonus exceeded $100,000 for that
fiscal year.
39
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
-----------------------------------------------
Awards Payouts
-----------------------------------------------
Restricted Securities LTIP All Other
Other Stock Underlying Payouts Compen-
Compen- Award(s) Options/ ($) sation
Name Position Year Salary(1) sation Bonus ($) SARs ($)
(#)(2)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Peter Leighton President 1999 $125,000 $---- $---- ---- ---- ---- ----
and Chief
Executive
Officer
------------------------------------------------------------------------------------------------------------------------
Jeremy Posner Chairman 1999 $75,000 $---- $---- ---- ---- ---- ----
------------------------------------------------------------------------------------------------------------------------
Bruce Arnstein(3) Chief 1999 $101,000 $---- $---- ---- 150,000 ---- ----
Operating
Officer
------------------------------------------------------------------------------------------------------------------------
</TABLE>
----------------
(1) As of December 31, 1999, Mr. Leighton's annual salary from Vianet is
$250,000, Mr. Posner's annual salary from Vianet is $150,000 and Mr.
Arnstein's annual salary from Vianet is $250,000.
(2) The number of securities under options granted reflects the number of
Vianet Shares that may be purchased upon the exercise of such options.
(3) Mr. Arnstein became the Chief Operating Officer of Vianet in the second
quarter of 1999. Effective as of June 2000, Mr. Arnstein ceased to be the
Chief Operating Officer of Vianet.
STOCK OPTIONS GRANTS AND EXERCISES
The following table shows the value at December 31, 1999 of unexercised
options held by the named executive officers:
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option Values
-----------------------------------------------------------------------------------------------------------------------
Number of securities Value of unexercised
underlying unexercised in-the-money optionsat
options at fiscal fiscal year-end
year-end (#) ($)
-----------------------------------------------------------------------------------------------------------------------
Name Shares acquired on Value Realized
exercise (#) ($) Exercisable/unexercisable Exercisable/unexercisable
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter Leighton, Nil Nil 200,000 / Nil (1) $612,500 / Nil (2)
President and Chief
Executive Officer
-----------------------------------------------------------------------------------------------------------------------
Jeremy Posner, Nil Nil 200,000/ Nil (1) $612,500 / Nil (2)
Chairman
-----------------------------------------------------------------------------------------------------------------------
Bruce Arnstein, Nil Nil 66,667 / 83,333 (1) $170,834 / 213,541 (2)
Chief Operating
Officer(3)
-----------------------------------------------------------------------------------------------------------------------
</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.
(3) Mr. Arnstein ceased to be the Chief Operating Officer of Vianet
effective in June 2000.
40
<PAGE>
Employment Agreements
In April 2000, Vianet entered into three-year consulting agreements
with CFM Capital Limited, an entity owned and controlled by Peter Leighton, and
Xelix Capital Limited., 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.
41
<PAGE>
Stock Option Plans
The 1999 Option Plan was adopted by the Board of Directors in March
1999, and was approved by the shareholders in June 2000. The Plan provides for
the issuance of up to 5,000,000 options.
Over the period from March 1, 1999, to the date of this Prospectus, the
Company has granted options to purchase an aggregate of 1,167,000 shares of
Common Stock under the 1999 Option Plan, including options to purchase a total
of 610,000 shares of Common Stock issued to officers and directors of the
Company. The following table sets forth the number of options granted to the
Company's officers and directors under the 1999 Option Plan:
NAME AND POSITION NUMBER OF OPTION SHARES
----------------- -----------------------
Peter Leighton, President, Chief
Executive Officer and Director 200,000
Jeremy T.G. Posner, Chairman 200,000
Vincent Santivasci, Chief Financial Officer 50,000
Elizabeth Disiere, Secretary 40,000
Darrell Elliott, Director 40,000
Robert Bailey, Director 40,000
Paul Whitlock, Director 40,000
Under the Plan, options may be granted which are intended to qualify as
Incentive Stock Options ("ISOs") under Section 422 of the Internal Revenue Code
of 1986 (the "Code") or which are not ("Non-ISOs") intended to qualify as
Incentive Stock Options thereunder. The 1999 Option Plan and the right of
participants to make purchases thereunder are intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code of
1986, as amended (the "Code"). The 1999 Option Plan is not a qualified deferred
compensation plan under Section 401(a) of the Internal Revenue Code and is not
subject to the provisions of the Employee Retirement Income Security Act of 1974
("ERISA").
PURPOSE
The primary purpose of the 1999 Option Plan is to attract and retain
the best available personnel for the Company in order to promote the success of
the Company's business and to facilitate the ownership of the Company's stock by
employees. The ability of a company to offer a generous stock option program has
now become a standard feature in the industry in which the company operates. In
the event that the 1999 Option Plan is not adopted the Company may have
considerable difficulty in attracting and retaining qualified personnel,
officers, directors and consultants.
42
<PAGE>
ADMINISTRATION
The 1999 Option Plan, is administered by the Company's Board of
Directors, as the Board of Directors may be composed from time to time. All
questions of interpretation of the 1999 Option Plan are determined by the Board,
and its decisions are final and binding upon all participants. Any determination
by a majority of the members of the Board of Directors at any meeting, or by
written consent in lieu of a meeting, shall be deemed to have been made by the
whole Board of Directors.
Notwithstanding the foregoing, the Board of Directors may at any time,
or from time to time, appoint a committee (the "Committee") of at least two
members of the Board of Directors, and delegate to the Committee the authority
of the Board of Directors to administer the Plan. Upon such appointment and
delegation, the Committee shall have all the powers, privileges and duties of
the Board of Directors, and shall be substituted for the Board of Directors, in
the administration of the Plan, subject to certain limitations.
Members of the Board of Directors who are eligible employees are
permitted to participate in the 1999 Option Plan, provided that any such
eligible member may not vote on any matter affecting the administration of the
1999 Option Plan or the grant of any option pursuant to it, or serve on a
committee appointed to administer the 1999 Option Plan. In the event that any
member of the Board of Directors is at any time not a "disinterested person", as
defined in Rule 16b-3(c)(3)(i) promulgated pursuant to the Securities Exchange
Act of 1934, the Plan shall not be administered by the Board of Directors, and
may only by administered by a Committee, all the members of which are
disinterested persons, as so defined.
ELIGIBILITY
Under the 1999 Option Plan, options may be granted to key employees,
officers, directors or consultants of the Company, as provided in the 1999
Option Plan.
TERMS OF OPTIONS
The term of each Option granted under the Plan shall be contained in a
stock option agreement between the Optionee and the Company and such terms shall
be determined by the Board of Directors consistent with the provisions of the
Plan, including the following:
(a) Purchase Price. The purchase price of the Common Shares subject to each
ISO shall not be less than the fair market value, or in the case of the
grant of an ISO to a Principal Stockholder, not less that 110% of fair
market value of such Common Shares at the time such Option is granted.
The purchase price of the Common Shares subject to each Non-ISO shall
be determined at the time such Option is granted, but in no case less
than 85% of the fair market value of such Common Shares at the time
such Option is granted.
(b) Vesting. The dates on which each Option (or portion thereof) shall be
exercisable and the conditions precedent to such exercise, if any,
shall be fixed by the Board of Directors, in its discretion, at the
time such Option is granted.
(c) Expiration. The expiration of each Option shall be fixed by the Board
of Directors, in its discretion, at the time such Option is granted;
however, unless otherwise determined by the Board of Directors at the
time such Option is granted, an Option shall be exercisable for ten
(10) years after the date on which it was granted (the "Grant Date").
Each Option shall be subject to earlier termination as expressly
provided in the 1999 Option Plan or as determined by the Board of
Directors, in its discretion, at the time such Option is granted.
(d) Transferability. No Option shall be transferable, except by will or the
laws of descent and distribution, and any Option may be exercised
during the lifetime of the Optionee only by him. No Option granted
under the Plan shall be subject to execution, attachment or other
process.
43
<PAGE>
(e) Option Adjustments. The aggregate number and class of shares as to
which Options may be granted under the Plan, the number and class
shares covered by each outstanding Option and the exercise price per
share thereof (but not the total price), and all such Options, shall
each be proportionately adjusted for any increase decrease in the
number of issued Common Shares resulting from split-up spin-off or
consolidation of shares or any like Capital adjustment or the payment
of any stock dividend.
Except as otherwise provided in the 1999 Option Plan, any Option
granted hereunder shall terminate in the event of a merger,
consolidation, acquisition of property or stock, separation,
reorganization or liquidation of the Company. However, the Optionee
shall have the right immediately prior to any such transaction to
exercise his Option in whole or in part notwithstanding any otherwise
applicable vesting requirements.
(f) Termination, Modification and Amendment. The 1999 Option Plan (but not
Options previously granted under the Plan) shall terminate ten (10)
years from the earlier of the date of its adoption by the Board of
Directors or the date on which the Plan is approved by the affirmative
vote of the holders of a majority of the outstanding shares of capital
stock of the Company entitled to vote thereon, and no Option shall be
granted after termination of the Plan. Subject to certain restrictions,
the Plan may at any time be terminated and from time to time be
modified or amended by the affirmative vote of the holders of a
majority of the outstanding shares of the capital stock of the Company
present, or represented, and entitled to vote at a meeting duly held in
accordance with the applicable laws of the State of Nevada.
STOCK APPRECIATION RIGHTS
The 1999 Option Plan also permits the granting of one or more Stock
Appreciation Rights to eligible participants. Such Stock Appreciation Rights may
be granted either independent of or in tandem with Options granted to the same
participant. Stock Appreciation Rights granted in tandem with Options may be
granted simultaneously with, or, in the case of Non-Qualified Stock Options,
subsequent to, the grant to the participant of the related Options; provided,
however, that: (i) any Option shall expire and not be exercisable upon the
exercise of any Stock Appreciation Right with respect to the same share, (ii)
any Stock Appreciation Right shall expire and not be exercisable upon the
exercise of any Option with respect to the same share, and (iii) an Option and a
Stock Appreciation Right covering the same share of Common Stock may not be
exercised simultaneously. Upon exercise of a Stock Appreciation Right with
respect to a share of Common Stock, the participant shall be entitled to receive
an amount equal to the excess, if any, of (A) the fair market value of a share
of Common Stock on the date of exercise over (B) the exercise price of such
Stock Appreciation Right.
FEDERAL INCOME TAX ASPECTS OF THE 1999 OPTION PLAN
THE FOLLOWING IS A BRIEF SUMMARY OF THE EFFECT OF FEDERAL INCOME
TAXATION UPON THE PARTICIPANTS AND THE COMPANY WITH RESPECT TO THE PURCHASE OF
SHARES UNDER THE 1999 OPTION PLAN. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE
AND DOES NOT ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES TO TAXPAYERS WITH
SPECIAL TAX STATUS. IN ADDITION, THIS SUMMARY DOES NOT DISCUSS THE PROVISIONS OF
THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE
PARTICIPANT MAY RESIDE, AND DOES NOT DISCUSS ESTATE, GIFT OR OTHER TAX
CONSEQUENCES OTHER THAN INCOME TAX CONSEQUENCES. THE COMPANY ADVISES EACH
PARTICIPANT TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES
OF PARTICIPATION IN THE 1999 OPTION PLAN AND FOR REFERENCE TO APPLICABLE
PROVISIONS OF THE CODE.
The 1999 Option Plan and the right of participants to make purchases
thereunder are intended to qualify under the provisions of Sections 421, 422 and
423 of the Code. Under these provisions, no income will be recognized by a
participant prior to disposition of shares acquired under the 1999 Option Plan.
44
<PAGE>
If the shares are sold or otherwise disposed of (including by way of
gift) more than two years after the first day of the offering period during
which shares were purchased (the "Offering Date"), a participant will recognize
as ordinary income at the time of such disposition the lesser of (a) the excess
of the fair market value of the shares at the time of such disposition over the
purchase price of the shares or (b) 15% of the fair market value of the shares
on the first day of the offering period. Any further gain or loss upon such
disposition will be treated as long-term capital gain or loss. If the shares are
sold for a sale price less than the purchase price, there is no ordinary income
and the participant has a capital loss for the difference.
If the shares are sold or otherwise disposed of (including by way of
gift) before the expiration of the two-year holding period described above, the
excess of the fair market value of the shares on the purchase date over the
purchase price will be treated as ordinary income to the participant. This
excess will constitute ordinary income in the year of sale or other disposition
even if no gain is realized on the sale or a gift of the shares is made. The
balance of any gain or loss will be treated as capital gain or loss and will be
treated as long-term capital gain or loss if the shares have been held more than
one year.
In the case of a participant who is subject to Section 16(b) of the
Exchange Act, the purchase date for purposes of calculating such participant's
compensation income and beginning of the capital gain holding period may be
deferred for up to six months under certain circumstances. Such individuals
should consult with their personal tax advisors prior to buying or selling
shares under the 1999 Option Plan.
The ordinary income reported under the rules described above, added to
the actual purchase price of the shares, determines the tax basis of the shares
for the purpose of determining capital gain or loss on a sale or exchange of the
shares.
The Company is entitled to a deduction for amounts taxed as ordinary
income to a participant only to the extent that ordinary income must be reported
upon disposition of shares by the participant before the expiration of the
two-year holding period described above.
RESTRICTIONS ON RESALE
Certain officers and directors of the Company may be deemed to be
"affiliates" of the Company as that term is defined under the Securities Act.
The Common Stock acquired under the 1999 Option Plan by an affiliate may be
reoffered or resold only pursuant to an effective registration statement or
pursuant to Rule 144 under the Securities Act or another exemption from the
registration requirements of the Securities Act.
45
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding ownership of the
Company's Common Stock as of August 24, 2000, by (i) each person known by the
Company to beneficially own more than five percent (5%) of Vianet's outstanding
shares of common stock, (ii) each director of the Company, and (iii) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Number of Shares Approximate
Beneficially Percentage of
Name** Owned Common Stock***
------ ----------- -------------
<S> <C> <C>
Jeremy T.G. Posner 2,280,829 (1) 9.8%
Peter Leighton 2,000,000 (2) 8.6%
WorldCorp Management Group, Inc. 2,330,000 (3) 9.3%
6245 North Federal Highway, Suite
400, Fort Lauderdale, Florida 33308.
John E. Shaunfield 1,373,984 (6) 5.8%
3225 Monette Lane
Plano, TX 75025
Seneca Capital International, Ltd. 3,500,000 (7) 13.9%
527 Madison Ave, 11th Floor
New York, NY 10022
Discovery International Limited 3,833,996 (8) 14.8%
P.O. Box HM2006
Hamilton HMHX, Bermuda
Union Development Corp. 1,518,140 (9) 6.3%
P.O. Box HM1437
Hamilton HMFX, Bermuda
Tehan Oh 1,303,984 (10) 5.5%
431 East Grand Ave.
El Segundo, CA 90245
Robert H. Bailey 20,470 (4) *
Darrell J. Elliot 20,000 (4) *
F. Paul Whitlock 20,000 (4) *
Officers and Directors as a Group
(8 persons) 4,422,487 (1)(2)(4)(5) 18.8%
------------------------------------------------------------------------------------------------
</TABLE>
* Less than one percent.
** Except as noted above, the address for the above identified officers and
directors of the Company is c/o Vianet Technologies, Inc., 83 Mercer Street, New
York, New York, 10012.
*** Percentages are based upon the assumption that the stockholder has exercised
all of the currently exercisable warrants and options he or she owns which are
currently exercisable or exercisable within 60 days and that no other
stockholder has exercised any options he or she owns.
(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) Includes 370,000 shares and 1,960,000 common stock purchase warrants.
(4) Does not include 40,000 shares which may be issued under outstanding stock
options, approximately 1/2 of which shares are not exercisable and subject
to a 1.5 year vesting period.
(5) Does not include 50,000 shares which may be issued under outstanding
options, which is subject to vesting periods ranging from 1 to 3 years.
(6) Includes 550,000 shares held by John E. Shaunfield; 137,331 shares and
137,331 Class A, B and C common stock purchase warrants, respectively, held
by John Shaunfield Family Limited Partnership; and 68,665 shares and 68,665
Class A, B and C Common Stock purchase warrants, respectively, held by J.E.
Shaunfield Limited Partnership.
(7) Includes 896,000 shares and 1,344,000 Class D common stock purchase
warrants held by Seneca Capital International Limited; and 504,000 shares
and 756,000 Class D common stock purchase warrants held by Seneca Capital
L.P.
(8) Includes 958,499 shares and 958,499 Class A, B and C common stock purchase
warrants, respectively.
(9) Includes 379,535 shares and 379,535 Class A, B and C common stock purchase
warrants, respectively.
(10) Includes 685,996 shares and 205,996 class A, B and C common stock purchase
warrants, respectively.
46
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information regarding beneficial
ownership of Vianet at August 24, 2000 on a pro forma basis adjusted to reflect
the issuance of (i) 12,006,150 shares upon the exercise of outstanding class A,
B, C and D common stock purchase warrants and (ii) 10,011,602 shares upon the
exercise of other outstanding warrants and options, all of which shares are
included in this prospectus.
<TABLE>
<CAPTION>
Shares Shares
beneficially beneficially
owned owned
prior to Shares after
Selling stockholders the offering offered the offering
-------------------- -------------- ------- -------------
<S> <C> <C> <C>
Discovery International Limited(1) 3,833,996 3,833,996 --
WorldCorp Management Group, Inc.(2) 2,330,000 2,330,000 --
Union Development Corp.(4) 1,518,140 1,518,140 --
Tehan Oh 1,303,984 1,303,984 --
Georgetown Vianet Partnership(6) 1,098,652 1,098,652 --
Thorpe Bay Corporation(7) 1,052,324 1,052,324 --
Robert Eide*(45) 996,960 996,960 --
Peter Ianace 655,988 655,988 --
Gruntal & Co.(9) 644,958 644,958 --
Simmonds Capital Limited(5) 625,000 625,000 --
Midas Finance, Inc.(4) 574,662 574,662 --
John E. Shaunfield(44) 550,000 550,000 --
John Shaunfield Family Limited Partnership(44) 549,324 549,324 --
Todd Grassi 534,928 534,928 --
John E. Shaunfield, Jr 480,000 480,000 --
AJC Equities(11) 400,000 400,000 --
Paul Fisher 372,912 372,912 --
Royal Bank Capital Corporation(13) 345,000 345,000 --
William Bossung 343,324 343,324 --
Odyssey Capital LLC(14) 334,596 334,596 --
S.G.H. Ludwig Von Baden 274,662 274,662 --
Chris Chon 274,660 274,660 --
J.E. Shaunfield Limited Partnership(44) 274,660 274,660 --
Leslie C. Quick, III* 274,660 274,660 --
Vincent Testaverde 274,660 274,660 --
Nancy Harvard 274,660 274,660 --
Austrian Oil, Ltd.(15) 270,872 270,872 --
Craig Fisher 269,812 269,812 --
Howard Fisher 269,812 269,812 --
Howard Lorber*(46) 234,516 234,516 --
Harvey Bibicoff 205,988 205,988 --
Vianet Technologies, Inc.(12) 200,000 200,000 --
Anthony Heller 192,260 192,260 --
Clinton T. Rubin 192,260 192,260 --
David Manning Pate 192,260 192,260 --
Malcolm Basner*(47) 181,456 181,456 --
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Shares Shares
beneficially beneficially
owned owned
prior to Shares after
Selling stockholders the offering offered the offering
-------------------- -------------- ------- -------------
<S> <C> <C> <C>
Socordia Ltd(7) 180,000 180,000 --
German Brokers AG(20) 155,000 155,000 --
Dick Snyder 153,552 153,552 --
Jennifer Flink 153,552 153,552 --
Bruce Arnstein 153,056 153,056 --
Boris Volman 151,060 151,060 --
Neil M. Jamieson 147,966 147,966 --
A.G. Edwards C/F Michael S. Weber 137,328 137,328 --
Bear, Stearns Securities Corp.F.B.O. Phyllis Charash 137,328 137,328 --
E.C.G. Pension Plan(22) 137,328 137,328 --
Eric Fessler 137,328 137,328 --
Harry Adjmi c/o One Step Up 137,328 137,328 --
Holzer Family Trust 137,328 137,328 --
L.C. Quick Jr. Descendants Trust, Under Agreement Dated
March 11, 1993, F.B.O. Peter Quick, Raymond A. Vogel
Trustee* 137,328 137,328 --
R.P. Associates, LLC(23) 137,328 137,328 --
Richard Hahn & Birget Feldman Hahn JTWROS 137,328 137,328 --
Steve Rotter 137,328 137,328 --
Susan Zoref 137,328 137,328 --
Thomas Barnett Revocable Trust U.A.D. 3/18/7 137,328 137,328 --
Kerry Propper* 137,320 137,320 --
Louis Calderone* 137,320 137,320 --
Marc Berger* 137,320 137,320 --
Matthew Silverman; Susan A. Silverman 137,320 137,320 --
Richard Rostholder 137,320 137,320 --
Hostales de Mercosur S.A.(15) 135,436 135,436 --
Renfroe-Olena, Ltd.(15) 135,436 135,436 --
Anthony Philip Towell 123,588 123,588 --
Benjamin Brafman 123,588 123,588 --
David L. Stetson* 123,588 123,588 --
SGJ Limited(24) 123,588 123,588 --
Lester Levine 123,588 123,588 --
David Lowenstein 123,588 123,588 --
Mark Slezak 115,886 115,886 --
Fairthorne Trading Limited(19) 109,860 109,860 --
Kenneth J. McLeod 109,860 109,860 --
Blvd. Anesthesia Associates P.C. Pension
Plan DTD 1/1/89 FBO Dr. Alex Weingarten 102,988 102,988 --
Blvd. Anesthesia Associates P.C. Pension
Plan DTD 1/1/89 FBO Dr. Stuart Wollman 102,988 102,988 --
Herbert Spielman* 102,988 102,988 --
Keith W. Abell 102,988 102,988 --
Michael Pearson 100,800 100,800 --
Mull & Paige Associates, L.L.C.(25) 100,000 100,000 --
Shelton Communications Group(27) 100,000 100,000 --
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Shares Shares
beneficially beneficially
owned owned
prior to Shares after
Selling stockholders the offering offered the offering
-------------------- -------------- ------- -------------
<S> <C> <C> <C>
Lawrence and Ellen Newman JTWROS 98,868 98,868 --
Sichenzia, Ross & Friedman LLP 96,666 96,666 --
Todd Viegut 95,422 95,422 --
Philip Tang Yiu Cheong 87,500 87,500 --
Charles P. Adkins 82,388 82,388 --
Chris K. Kim 82,388 82,388 --
James Favia 82,388 82,388 --
Marc Freeman* 82,388 82,388 --
Vivian Ingrassia 82,388 82,388 --
Richard Arnstein 70,660 70,660 --
Amy Kuriloff 68,660 68,660 --
Bear Stearns Securities Corp F.B.O
Vincent G. Chase IRA* 68,660 68,660 --
Bear, Stearns Securities Corp.F.B.O. Norman Basner 68,660 68,660 --
Bear, Stearns Securities Corp.F.B.O. Robert Frome 68,660 68,660 --
Blvd. Anesthesia Associates P.C. Pension Plan DTD
1/1/89(28) 68,660 68,660 --
Blvd. Anesthesia Associates P.C. Pension Plan DTD
1/1/89 FBO Dr. Chunil Ruder 68,660 68,660 --
Hallman and Lorber Profit Sharing Plan 68,660 68,660 --
Jeffrey S. Podell Retirement Plan 68,660 68,660 --
John Romano* 68,660 68,660 --
Keith Kantowitz 68,660 68,660 --
Kenard G. Strauss 68,660 68,660 --
Kenneth Perlman* 68,660 68,660 --
Kenneth T. Lurich, Jr. and Madolyn Lurich, JT TEN 68,660 68,660 --
Leonard Novick 68,660 68,660 --
Louis Perlman 68,660 68,660 --
Mark D. Bosses 68,660 68,660 --
Roger Fisher 68,660 68,660 --
Ruth Greenwald* 68,660 68,660 --
Seong K. Kim 68,660 68,660 --
Stacey Cohen 68,660 68,660 --
Ted Grassi 68,660 68,660 --
Thomas F. Grassi 68,660 68,660 --
Young-kon Lee 68,660 68,660 --
David Turnbull 65,808 65,808 --
Richard Snyder 65,808 65,808 --
Albert H. LeBlanc 62,500 62,500 --
J.G. King 61,788 61,788 --
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Shares Shares
beneficially beneficially
owned owned
prior to Shares after
Selling stockholders the offering offered the offering
-------------------- -------------- ------- -------------
<S> <C> <C> <C>
Richard Etra and Kenneth Etra, JTWROS 61,788 61,788 --
Mark Honigsfeld Revocable Living Trust 61,788 61,788 --
Geoffrey Bennett 57,350 57,350 --
E.B.M. Associates, Inc.(29) 55,596 55,596 --
Dermot Grady 54,928 54,928 --
Jin-soo In 54,928 54,928 --
Louis Libin 53,548 53,548 --
Paul G. Tonon 53,548 53,548 --
Freeride.com LLC(33) 50,000 50,000 --
Ron Evangelista 50,000 50,000 --
Accurate Office Supply, Inc.(30) 41,188 41,188 --
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Shares Shares
beneficially beneficially
owned owned
prior to Shares after
Selling stockholders the offering offered the offering
-------------------- -------------- ------- -------------
<S> <C> <C> <C>
Andrew Finkelstein 41,188 41,188 --
Dana Stetson 41,188 41,188 --
Eileen Freeman 41,188 41,188 --
Lori A. Bonaldi 41,188 41,188 --
Melissa Mason 41,188 41,188 --
Ronald I. Wagner 41,188 41,188 --
Susanne Tierney 41,188 41,188 --
William A. Tollestrup 41,188 41,188 --
Andrew Kurkulis 41,130 41,130 --
Hongyang Chao 37,471 37,471 --
Cleopas Angaye 35,185 35,185 --
Adrienne Grossman 34,328 34,328 --
Blvd. Anesthesia Associates P.C. Pension Plan DTD
1/1/89 FBO Dr. C.B. Ruder 34,328 34,328 --
Fred Greco and Marcia Greco JTWROS 34,328 34,328 --
Julie Assael 34,328 34,328 --
Martin Orenstein and Marjorie Orenstein JTWROS 34,328 34,328 --
Michele Pesner 34,328 34,328 --
MKB Associates Inc.*(37) 34,328 34,328 --
Robert T. Martin 34,328 34,328 --
Mikhail A. Filimonov 32,948 32,948 --
Murray H. Gross 32,948 32,948 --
Mort Meyerson 32,904 32,904 --
Shelton Stillman 32,904 32,904 --
Jeremy Posner 32,520 32,520 --
Frederic Greenwald*(48) 32,084 32,084 --
Siyuan Chen 30,232 30,232 --
C2, LLC(38) 28,963 28,963 --
Vision Capital Partners LLC(39) 28,963 28,963 --
Ming Wei 28,548 28,548 --
Valtrie Marketing Inc(40) 27,551 27,551 --
Dimitri Sogoloff 27,460 27,460 --
Lee Richardson 27,460 27,460 --
Natalia Oblonsky 27,460 27,460 --
Vincent Santivasci 27,460 27,460 --
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Shares Shares
beneficially beneficially
owned owned
prior to Shares after
Selling stockholders the offering offered the offering
-------------------- -------------- ------- -------------
<S> <C> <C> <C>
Dick Laible 26,323 26,323 --
HK Partners*(41) 24,708 24,708 --
Steven & Lise Shankman JTWROS* 24,708 24,708 --
Hongbing Lian 22,155 22,155 --
Patrick McClain 21,936 21,936 --
Otto R. Kozak 20,588 20,588 --
Darrell Elliott 20,000 20,000 --
Paul Whitlock 20,000 20,000 --
Robert Bailey 20,000 20,000 --
Hua Chai 19,244 19,244 --
Albinias Kurkulis 16,452 16,452 --
Richard Berg 16,452 16,452 --
Elizabeth Disiere 13,728 13,728 --
Lisa Jasicob 13,728 13,728 --
Vadim M. Iosilevich 13,728 13,728 --
Hong Chen 13,360 13,360 --
Martin Bier*(49) 11,064 11,064 --
Wanlong Li 10,293 10,293 --
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Shares Shares
beneficially beneficially
owned owned
prior to Shares after
Selling stockholders the offering offered the offering
-------------------- -------------- ------- -------------
<S> <C> <C> <C>
Clint Miller 9,871 9,871 --
John Senko 8,774 8,774 --
Gary T. Elkins 8,226 8,226 --
Carl Chaleff 8,226 8,226 --
Daniel Murphy 8,226 8,226 --
Robert Reilly 8,226 8,226 --
Stephen Libowsky 8,226 8,226 --
Ascom Zelcom AG(43) 7,500 7,500 --
Paul Taube 5,484 5,484 --
Michael S. Webber 4,387 4,387 --
Lei Xuan 3,292 3,292 --
Hongyu Li 3,290 3,290 --
Cheng Ni 2,194 2,194 --
Justine B. Mattos 2,194 2,194 --
Marcus Butler 2,194 2,194 --
Mat Fisher 2,194 2,194 --
Xaiodong Wu 2,194 2,194 --
Nancy Miracle 2,000 2,000 --
Ann Bingham 548 548 --
Chris Brooks 548 548 --
Jennifer Hamlet 548 548 --
----------- ----------- ------
32,777,356 32,777,356 --
=========== =========== =======
</TABLE>
* The selling stockholder is either a broker-dealer or an affiliate of a
registered broker-dealer. Accordingly, such selling stockholder is an
underwriter as that term is defined under the Securities Act of 1933.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Khiatana Gibbons may be deemed the control person of the shares owned by
such entity.
(2) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Richard Ginsberg may be deemed the control person of the shares owned by
such entity.
(3) Intentionally left blank.
(4) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Renee Morris may be deemed the control person of the shares owned by such
entity.
(5) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
David O'Kell may be deemed the control person of the shares owned by such
entity.
(6) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Charles B. Holzer may be deemed the control person of the shares owned by
such entity.
(7) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Geoffrey Bennett may be deemed the control person of the shares owned by
such entity.
(8) Intentionally left blank.
(9) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
William McCluskey may be deemed the control person of the shares owned by
such entity. Gruntal & Co. is a broker-dealer.
53
<PAGE>
(10) Intentionally left blank.
(11) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Adam Cohen may be deemed the control person of the shares owned by such
entity.
(12) The Company has entered into a 5 year lease agreement for office space in
Plano, Texas. The terms of the lease require 200,000 shares of registered
common stock to be placed in escrow as a security deposit. The shares will
be released from escrow and returned to Vianet for cancellation at a rate
of 20% per annum.
(13) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Peter Von Schilling may be deemed the control person of the shares owned
by such entity.
(14) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Lori Freeman may be deemed the control person of the shares owned by such
entity. Consists of 334,596 shares issuable upon exercise of common stock
purchase warrants issued as compensation for services rendered in
connection with the Company's Private Placement Offerings.
(15) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Gordon Hill may be deemed the control person of the shares owned by such
entity.
(16) Intentionally left blank.
(17) Intentionally left blank.
(18) Intentionally left blank.
(19) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Edward Harman may be deemed the control person of the shares owned by such
entity.
(20) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Sven Josting may be deemed the control person of the shares owned by such
entity.
(21) Intentionally left blank.
(22) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Stephen Weschler may be deemed the control person of the shares owned by
such entity.
(23) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Richard Propper may be deemed the control person of the shares owned by
such entity.
(24) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Andrew Jewson may be deemed the control person of the shares owned by such
entity.
(25) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
John Mull may be deemed the control person of the shares owned by such
entity.
(26) Intentionally left blank.
(27) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Kathy Grittner may be deemed the control person of the shares owned by
such entity.
(28) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Chunil B. Ruder may be deemed the control person of the shares owned by
such entity.
(29) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Edward Martin may be deemed the control person of the shares owned by such
entity.
54
<PAGE>
(30) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Hadar Sieradsky may be deemed the control person of the shares owned by
such entity.
(31) Intentionally left blank.
(32) Intentionally left blank.
(33) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Ira Belsky may be deemed the control person of the shares owned by such
entity.
(34) Intentionally left blank.
(35) Intentionally left blank.
(36) Intentionally left blank.
(37) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Marc Berger may be deemed the control person of the shares owned by such
entity.
(38) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Terrance Peck may be deemed the control person of the shares owned by such
entity.
(39) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Lowell Kraft may be deemed the control person of the shares owned by such
entity.
(40) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Sherman Cunningham may be deemed the control person of the shares owned by
such entity.
(41) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Kathy Finneran may be deemed the control person of the shares owned by
such entity.
(42) Intentionally left blank.
(43) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
G. Seewer may be deemed the control person of the shares owned by such
entity.
(44) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
John E. Shaunfield, Sr. may be deemed the control person of the shares
owned by such entity.
(45) Includes (i) 91,164 shares and 273,492 shares issuable upon exercise of
common stock purchase warrants purchased in the Company's Private
Placement Offerings, and (ii) 632,304 shares issuable upon exercise of
common stock purchase warrants issued as compensation for services
rendered in connection with the Company's Private Placement Offerings.
(46) Includes (i) 15,668 shares and 47,004 shares issuable upon exercise of
common stock purchase warrants purchased in the Company's Private
Placement Offerings, and (ii) 171,844 shares issuable upon exercise of
common stock purchase warrants issued as compensation for services
rendered in connection with the Company's Private Placement Offerings.
(47) Includes (i) 24,766 shares and 74,298 shares issuable upon exercise of
common stock purchase warrants purchased in the Company's Private
Placement Offerings, and (ii) 82,392 shares issuable upon exercise of
common stock purchase warrants issued as compensation for services
rendered in connection with the Company's Private Placement Offerings.
(48) Includes (i) 1,640 shares and 4,920 shares issuable upon exercise of
common stock purchase warrants purchased in the Company's Private
Placement Offerings, and (ii) 25,524 shares issuable upon exercise of
common stock purchase warrants issued as compensation for services
rendered in connection with the Company's Private Placement Offerings.
(49) Includes (i) 567 shares and 1,701 shares issuable upon exercise of common
stock purchase warrants purchased in the Company's Private Placement
Offerings, and (ii) 8,796 shares issuable upon exercise of common stock
purchase warrants issued as compensation for services rendered in
connection with the Company's Private Placement Offerings.
55
<PAGE>
PLAN OF DISTRIBUTION
Sales of the shares may be effected by or for the account of the
selling stockholders from time to time in transactions (which may include block
transactions) on the NASD OTC Electronic Bulletin Board, in negotiated
transactions, through a combination of such methods of sale, or otherwise, at
fixed prices that may be changed, at market prices prevailing at the time of
sale or at negotiated prices. The selling stockholders may effect such
transactions by selling the shares directly to purchasers, through
broker-dealers acting as agents of the selling stockholders, or to
broker-dealers acting as agents for the selling stockholders, or to
broker-dealers who may purchase shares as principals and thereafter sell the
shares from time to time in transactions (which may include block transactions)
on the NASD OTC Electronic Bulletin Board, in negotiated transactions, through a
combination of such methods of sale, or otherwise. In effecting sales,
broker-dealers engaged by a selling stockholder may arrange for other
broker-dealers to participate. Such broker-dealers, if any, may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders and/or the purchasers of the shares for whom such
broker-dealers may act as agents or to whom they may sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
The selling stockholders and any broker-dealers or agents that
participate with the selling stockholders in the distribution of the shares may
be deemed to be "underwriters" within the meaning of the Securities Act of 1933.
Any commissions paid or any discounts or concessions allowed to any such
persons, and any profits received on the resale of the shares purchased by them
may be deemed to be underwriting commission or discounts under the Securities
Act of 1933.
We have agreed to bear all expenses of registration of the shares other
than legal fees and expenses, if any, of counsel or other advisors of the
selling stockholders. The selling stockholders will bear any commissions,
discounts, concessions or other fees, if any, payable to broker-dealers in
connection with any sale of their shares.
We have agreed to indemnify the selling stockholders, or their
transferees or assignees, against certain liabilities, including liabilities
under the Securities Act of 1933 or to contribute to payments the selling
stockholders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect thereof.
56
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Vianet
On March 23, 1999, convertible demand 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 six months ended June 30, 1999, the Company repaid
$200,000 and additional convertible demand notes of $30,000 were issued.
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.
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 was retained as Chief Operating Officer of the
Company at an annual salary of $250,000. In addition, the employment agreement
provided for Vianet to 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 vested
as of 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. Effective
as of June 2000, Mr. Arnstein ceased to be the Chief Operating Officer of
Vianet. Notwithstanding the foregoing, Mr. Arnstein shall continue to be
employed as a consultant to Vianet through July 31, 2001, for which he will
receive an aggregate of $225,000. In addition, Mr. Arnstein shall be entitled to
retain the 150,000 options granted to him under his employment agreement, which
options shall vest according to their original terms. Further, Mr. Arnstein has
agreed not to directly or indirectly (i) solicit any employees of Vianet, or
(ii) compete with the business of Vianet, during the period of his consultancy.
In April 2000, Vianet entered into three-year consulting agreements
with CFM Capital Limited, an entity owned and controlled by Peter Leighton, and
Xelix Capital Limited., 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.
57
<PAGE>
Vianet Delaware
On December 31, 1998, Peter Leighton of Hamilton, Bermuda (formerly a
director and officer of Vianet Delaware) transferred to Vianet Delaware
ownership of 83,333 common shares of Take Two Interactive Software Inc. (having
an original acquisition cost of US$458,332) at their market value as of that
date of US$469,272. In consideration, Mr. Leighton received a Convertible Demand
Promissory Note from Vianet of equal value. The Convertible Demand Promissory
Note was convertible into Vianet Shares (after taking into consideration the
Vianet/Radar Merger) at a price of US$1.00 per share (after taking into
consideration the Vianet/Radar Merger) and, effective March 25, 1999, was
converted into Vianet Shares.
On December 31, 1998 Jeremy Posner of Jerusalem, Israel (formerly a
director and officer of Vianet Delaware) transferred to Vianet Delaware
ownership of a Promissory Note issued by Develcon on December 12, 1997 in the
amount of US$530,000. In consideration, Mr. Posner received a Convertible Demand
Promissory Note from Vianet of equal value. The Convertible Demand Promissory
Note was convertible into Vianet Shares (after taking into consideration the
Vianet/Radar Merger) at the price of US$1.00 per share and, effective March 25,
1999, was converted into Vianet Shares.
Develcon
On December 2, 1997, Neil M. Jamieson, at the time a director of
Develcon, loaned Develcon the amount of $750,000 and, on December 12, 1997,
Jeremy Posner, at the time a director of Develcon, loaned Develcon the amount of
US$530,000, in each case to provide funds required by Develcon to finance
working capital to fund expected growth in revenues. Each such loan had an
original term of one year, bears interest at the rate of prime plus 1.5%
annually and is secured by a charge against all present and after-acquired
personal property of Develcon. Develcon may, at any time commencing five months
after the date of the advance of such loans, repay all or any part of the loans
without penalty.
58
<PAGE>
In consideration for providing these loans, Develcon issued to each of
Mr. Jamieson and Mr. Posner Develcon Warrants exercisable to purchase an
aggregate of 1,000,000 Develcon Shares, at a price of $0.25 per share, for a
period of five years. Develcon has the right to require the holders of these
warrants to exercise such warrants in the event that the closing price of the
Develcon Shares on the TSE exceeds $0.50 per share on each day of any period of
20 consecutive trading days. In addition, in the event that, at any time within
six months after the date of the advance of the loans, Develcon raises aggregate
gross proceeds of at least $2,000,000 in one or more financings and repays the
full amount then outstanding under the loans, 500,000 of the Develcon Warrants
held by each of the lenders will be cancelled.
Effective December 2, 1998, Mr. Posner and Develcon entered into a debt
extension agreement pursuant to which, among other things, Mr. Posner agreed to
the postponement of Develcon's obligation to repay the US$530,000 debt owed to
him by Develcon from December 12, 1998 to the earlier of January 5, 1999 and the
demand by Mr. Posner for repayment of such debt.
On December 31, 1998, Mr. Posner assigned to Vianet Delaware his loan
to Develcon. Mr. Posner did not demand the repayment of such loan prior to its
assignment and neither Vianet Delaware nor Vianet has demanded the repayment of
such loan since its assignment, pending the completion of a business combination
between Develcon and Vianet. The original terms of the loan from Mr. Posner to
Develcon were not formally amended when the loan was assigned to Vianet
Delaware.
Effective December 7, 1998, Mr. Jamieson and Develcon entered into a
debt extension agreement pursuant to which, among other things, Mr. Jamieson
agreed to the postponement of Develcon's obligation to repay the balance of
approximately $634,000 (including principal in the amount of $575,000) then
owing to him by Develcon from December 2, 1998 to January 5, 1999.
By agreement dated January 10, 1999, Mr. Jamieson agreed to the further
postponement of the repayment of the amount owing to him by Develcon from
January 5, 1999 to April 30, 1999, provided that Mr. Jamieson is satisfied,
acting reasonably, that either Develcon and Vianet are working to enter into a
merger agreement or Develcon makes principal payments to Mr. Jamieson of
$150,000 at the time of the advance of the Loan, $200,000 on March 15, 1999 and
$225,000 on April 30, 1999. Develcon made the required payments of $150,000 and
$200,000. In connection with the further postponement of the repayment of
Develcon's debt to Mr. Jamieson, Vianet agreed, subject to the completion of its
business combination with Develcon, to grant Mr. Jamieson warrants to purchase
75,000 Vianet Shares at a price of US$4.00 per share for a period of two years.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The company has an authorized capital stock consisting of 100,000,000
Common Shares, $.001 par value, of which 23,055,000 shares are issued and
outstanding.
Common Shares
The holders of common stock are entitled to one vote for each share
held of record on all matters to be voted on by the shareholders. The holders of
common stock are entitled to receive dividends ratably, when, as and if declared
by the Board of Directors, out of funds legally available. See "Dividend
Policy." In the event of a liquidation, dissolution or winding-up of the
Company, the holders of common stock are entitled to share equally and ratably
in all assets remaining available for distribution after payment of liabilities
and after provision is made for each class of stock, if any, having preference
over the common stock.
The holders of shares of common stock, as such, have no conversion,
preemptive, or other subscription rights and there are no redemption provisions
applicable to the common stock. All of the outstanding shares of common stock
are validly issued, fully-paid and nonassessable.
Class A, B, and C Warrants
As of August 22, 2000, Vianet had fully vested and exercisable
outstanding class A, B, and C warrants to acquire a total of approximately
10,947,321 shares of common stock, which warrants are exercisable for a five
year period. The class A warrants are exercisable at a price of $2.00 per share;
the class B warrants are exercisable at a price of $2.50 per share; and the
class C warrants are exercisable at a price of $3.00 per share. The exercise
prices of the class B warrants and class C warrants are equal to 125% and 150%
respectively, of the class A exercise price ($2.00). The exercise price and the
number of shares issuable upon exercise of the class A, B and C warrants are
subject to adjustment upon the occurrence of certain events, including:
o subdivisions or combinations of the common stock;
o reclassifications, consolidations or mergers;
o the issuance of common stock as a dividend on shares of common stock.
In addition, the exercise price of the class A, B and C warrants is subject to
readjustment in the event that the closing price of the common stock on the date
of this prospectus is less than $2.00 per share. The adjusted exercise prices
resulting from the price of the common stock dropping below $2.00 per share on
the date of this prospectus shall be calculated as follows:
Class A Warrants = Market Price
Class B Warrants = Market Price x 1.25;
Class C Warrants = Market Price x 1.5.
Any readjustment in the number of the exercise price of the class A, B and C
warrants shall only apply to the unexercised portion of the warrants.
The class A, B and C warrants may be exercised upon surrender of the
warrant certificates on or prior to the expiration date at Vianet's offices,
with the exercise form completed and executed as indicated, accompanied by full
payment of the exercise price to Vianet for the number of warrants being
exercised. The warrants do not confer upon the holder any voting rights or any
other rights as a stockholder.
In addition, Vianet has placement agent warrants to purchase up to
approximately 5.1 units, each unit consisting of 66,666 shares of common stock
and a like number of class A, B, and C warrants. The placement agent warrants
are exercisable for a period of five years at a price of $100,000 per unit. The
class A, B and C warrants issuable upon exercise of the placement agents
warrants are identical to the class A, B and C warrants described above.
60
<PAGE>
Class D Warrants
As of August 22, 2000, Vianet had fully vested and exercisable
outstanding class D warrants to acquire a total of approximately 5,949,286
shares of common stock. The class D warrants are exercisable until April 14,
2003, at a price of $4.50 per share. The exercise price and the number of shares
issuable upon exercise of the class D warrants are subject to adjustment upon
the occurrence of certain events, including:
o subdivisions or combinations of the common stock;
o reclassifications, consolidations or mergers;
o the issuance of common stock as a dividend on shares of common stock.
Any readjustment in the number of the exercise price of the class A, B and C
warrants shall only apply to the unexercised portion of the warrants.
The class D warrants may be exercised upon surrender of the warrant
certificates on or prior to the expiration date at Vianet's offices, with the
exercise form completed and executed as indicated, accompanied by full payment
of the exercise price to Vianet for the number of warrants being exercised. The
warrants do not confer upon the holder any voting rights or any other rights as
a stockholder.
The holders of the class D warrants have granted a power-of-attorney to
a duly authorized officer of Vianet to negotiate the terms and conditions of any
lock-up agreement or any other restrictions on the right of such holder to sell
his or its shares of common stock that may be imposed by any underwriter in
connection with any proposed public offering or by Nasdaq in connection with any
application for listing made by Vianet to Nasdaq.
Other Warrants and Options
As of August 22, 2000, Vianet had other outstanding warrants and
options to acquire approximately 12,712,431 shares of common stock, exercisable
at prices ranging between $0.01 and $12.00.
61
<PAGE>
Recent Financings
Since December 1999, we have completed several offerings of securities.
The following sets forth a summary of each such offering:
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.
The purchasers of the securities in each of the above referenced
offerings received certain rights to receive additional shares and to have the
exercise prices of their warrants adjusted in certain events. For a complete
description of such rights, see "Rights of Holders of Securities Purchase in Our
Recent Private Placements" below.
In addition to the foregoing, the Company agreed with the purchasers of
the in each of the above referenced offerings to cause a registration statement
registering all the securities purchase by them (including the common stock
underlying the warrants which were purchased) to become effective within 120
days of the final closing of each such offering. In the event that the
Registration Statement is not effective by such date, the Company will pay to
the holders an aggregate of 1% of all the securities sold in the offering for
the first 30 days after the 120 day period following the final closing and 2% of
such securities for every 30 day period thereafter. To date, an aggregate of
104,760 shares and 104,760 class A, B and C warrants have been issued. An
additional 69,840 shares and 69,840 class A, B and C warrants will be issued for
every 30 day period after June 26, 2000.
Finally, the Company granted the purchasers of the securities in all of
the above referenced offerings piggy-back registration rights.
o In 1999, the Company entered into a $3,000,000 secured credit facility
(the "Facility") with an entity that, at that time, was 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.
o In March 2000, we purchased a $1,000,000 (face amount) note receivable
from Develcon Electronics, Ltd. (a former Subsidiary) from a creditor
of Develcon Electronics, Ltd. in exchange for the issuance of 250,000
shares of common stock issued at $3.00 per share and 375,000 class D
three year common stock purchase warrants, which are exercisable at
$4.50 per share.
o In March and April 2000, we completed a private placement in which we
sold an aggregate of approximately 98.98 units for gross proceeds to
Vianet of approximately $5,938,000. The units consisted of an aggregate
of 1,932,861 shares of common and 2,899,291 common stock purchase
warrants, which warrants are exercisable at $4.50.
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<PAGE>
The Company granted the purchasers of the securities in the above
referenced offering piggy-back registration rights.
o In April 2000, pursuant to stock purchase agreements, we issued an
aggregate of 1,899,999 shares of common stock and 2,849,998 common
stock purchase warrants for gross proceeds of $5,700,000. The warrants
are exercisable at $4.50. In connection with such offering, the
Placement Agents will receive warrants to purchase an aggregate of
approximately 9.5 units (or an aggregate of approximately 190,000
shares of common stock and approximately 285,000 class D 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.
The purchasers of the securities in the April 2000 private placement
offering received certain rights to participate in an additional financing
transaction with Vianet on the same terms and conditions (but only to the extent
of 25% of value of such third-party financing transaction) as the completed
third-party financing transaction. Such right shall be available to the
purchasers in the event that, at any time during the two year period from the
date of their purchase, Vianet shall (i) effectuate any financing, loan, debt
offering or other financing transaction, (ii) issue any additional shares or any
warrants or other convertible securities, other than shares issued pursuant to
exercise of any outstanding convertible securities or options under any stock
option plan, (iii) enter into any contracts, commitments or agreements of any
kind to effectuate any of the forging transactions with any person, entity or
other association other than Purchaser for a transaction with a value in excess
of $4 million.
In addition to the foregoing, Vianet agreed with the purchasers of the
April 2000 private placement offering to cause a registration statement
registering all the securities purchase by them (including the common stock
underlying the warrants which were purchased) to become effective within 90 days
of the final closing of such offering. If the registration statement covering
the securities is not declared effective by on or before such date, then, as
relief for the damages to the purchaser by reason of any such delay in or
reduction of their ability to sell the securities, Vianet shall issue and
deliver to the purchasers an additional warrant (containing the same terms and
conditions as the warrants delivered to the purchasers) to purchase an aggregate
of 2,500 shares of common stock for each month during which the registration
statement is not declared effective. Such amount shall be prorated for any
additional portion of a month.
Rights of Holders of Securities Purchased in Our Recent Private Placements
Rights of Shareholders
From December 1999 through February 2000, we completed a private
placement offering in which we sold an aggregate of approximately 34.5 units,
consisting 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. In addition, in February 2000, we completed a private placement offering
in which we sold an aggregate of approximately 18 units, consisting 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 sold in the two offerings are exercisable at $2.00, $2.50 and
$3.00, respectively.
The number of shares issued to the purchasers in the above described
private placement offerings is subject to adjustment in the event that the
closing price of the common stock falls below a price of $2.14 per share on the
following dates:
(i) At the time that 50% of the common stock sold in the private placement
offerings becomes publicly saleable, or because a registration
statement filed under the Securities Act of 1933 covering such shares
is declared effective by the Securities and Exchange Commission; and
(ii) At the expiration of any agreed upon lock-up period.
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<PAGE>
If such event occurs, the purchasers shall be entitled to receive
additional shares. The number of additional shares shall, in no event, exceed
100% of the number of shares originally issued to such persons. This will result
in a lowering of the actual cost at which the purchasers acquired their shares
of common stock.
The number of additional shares shall, in no event, exceed 100% of the
number of shares originally issued to such persons.
Our Common Shares are currently traded on the NASD OTC Electronic
Bulletin Board under the symbol "VNTK". On August 18, 2000, the closing sale
price for our common stock, as reported by the OTCBB, was $1.5938 per share.
Thus, the adjustment provisions will be triggered in the event that the price
per share on the measuring dates remains below $2.14 per share.
For example, if on either measuring date the price of the common stock
is $1.5938 (the per share closing price on August 18, 2000), then the investors
will receive such number of shares of common stock so as to make the assumed
offering price per share approximately $1.12 (a 30% discount $1.5938).
Specifically, the investors will be entitled to receive an aggregate of
approximately 1,187,953 additional shares of common stock.
In the event that the price of the common stock falls to a price of
$1.53 or lower, Vianet shall be required to issue 100% of the number of shares
originally issued to such persons, or an additional 3,501,336 shares. For a
complete description of the terms and operation of provisions requiring an
adjustment of the number of shares issued to the purchasers of the shares in the
above described private placement offerings, see "Description of Capital Stock
-- Rights of Holders of Securities Purchased in Our Recent Private Placements."
In addition to the foregoing, in April 2000, we completed a private
placement offering in which we sold an aggregate of approximately 1,899,999
shares of common stock, and 2,849,998 class D warrants to purchase shares of
common stock. The class D warrants sold in the two offerings are exercisable at
$4.50.
Vianet agreed with the purchasers of the securities in the April 2000
offering to cause a registration statement registering all the securities
purchased by them to become effective within 90 days of closing. In the event
that the registration statement is not effective by such date, Vianet will pay
to the holders an aggregate of 85,000 shares.
The purchasers of our issued and outstanding shares of common stock may
have acquired their shares at a cost less than that which the investors pursuant
to this offering may purchase their securities. The issuance of additional
shares as a result of a decrease in the price of Vianet's common stock may
result in a lowering of the cost at which the purchasers acquired their shares.
Therefore, the investors pursuant to this offering may bear a substantial
portion of the risk of loss, and may experience immediate substantial dilution.
Rights of Warrantholders
In addition to the foregoing, in the event that the closing price of
our common stock is less than $2.00 on the effective date of this registration
statement, then the exercise prices of the class A, B and C Warrants issued in
our recent private placement offerings will be adjusted so as to reflect the
closing price of the common stock on that day, which shall be deemed the new
exercise price. The adjusted exercise prices shall be calculated as follows:
Class A Warrants = Market Price;
Class B Warrants = Market Price x 1.25;
Class C Warrants = Market Price x 1.5.
Our Common Shares are currently traded on the NASD OTC Electronic
Bulletin Board under the symbol "VNTK". On August 18, 2000 the closing sale
price for our common stock, as reported by the OTCBB, was $1.5938 per share.
Thus, the price per share on the measuring dates must drop in excess of 30% from
the closing sale price on August 18, 2000 in order for the adjustment provisions
to be triggered. The following examples demonstrate the potential dilutive
effects resulting from an adjustment of the exercise prices of the class A, B
and C warrants issued in our recent private placements due to a change in the
market price of our shares:
(i) if on the date of this prospectus the price of the common stock is
$1.5938 (the per share closing price on August 18, 2000), then the exercise
prices of the class A, B and C warrants will be adjusted from $2.00, $2.50 and
$3.00 to $1.5938, $1.99225 and $2.3907, respectively;
(ii) if on the date of this prospectus the price of the common stock is
$0.7969 (a 50% decrease from $1.5938), then the exercise prices of the class A,
B and C warrants will be adjusted from $2.00, $2.50 and $3.00 to $0.7969,
$0.996125 and $1.19535, respectively; and
(iii) if on the date of this prospectus the price of the common stock
is $0.39845 (a 75% decrease from $1.5938), then the exercise prices of the class
A, B and C warrants will be adjusted from $2.00, $2.50 and $3.00 to $0.39845,
$0.4980625 and $0.597675, respectively.
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<PAGE>
Further decreases in the price of our common stock on the date of this
prospectus will result in further lowering of the exercise prices of the class
A, B and C warrants, as there is no minimum price to which such exercise prices
may be lowered.
Any such readjustment in the exercise prices of the class A, B and C
warrants shall only apply to the unexercised portion of the class A, B and C
warrants.
The lowering of exercise of the class A, B and C warrants and the sale
of the underlying shares of common stock (or even the potential of such exercise
or sale) may have a depressive effect on the market price of our securities.
Moreover, the terms upon which we will be able to obtain additional equity
capital may be adversely affected since the holders of outstanding class A, B
and C warrants can be expected to exercise them, to the extent they are able, at
a time when we would, in all likelihood, be able to obtain any needed capital on
terms more favorable to us than those provided in the class A, B and C Warrants.
Transfer Agent
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New
York 10004, will act as transfer agent and registrar for Vianet's securities.
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Shares Outstanding And Freely Tradable After Offering.
The Company currently has 23,055,000 shares of common stock outstanding
of which approximately 2,500,000 shares are currently freely tradable. A further
approximate 708,000 shares are freely tradable but subject to the terms of a
lock up under which 20% become available for resale every six months. The
22,017,752 shares issuable upon the exercise of the warrants and options being
registered in this prospectus by the Selling Shareholders from time to time in
this offering will be freely tradable without restriction or limitation under
the Securities Act, except for any such shares held by "affiliates" of the
Company, as such term is defined under Rule 144 of the Securities Act, which
shares will be subject to the resale limitations under Rule 144. All of the
remaining approximately 19,847,000 outstanding shares are "restricted
securities" within the meaning of Rule 144 and may be publicly sold only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as Rule 144. All of these restricted shares of
common stock will become eligible for resale under Rule 144 one year from the
date that the securities offered herein are declared "effective" by the
Securities & Exchange Commission.
Purchasers of units offered in Vianet's private placements, completed
between December 1999 and February 2000, have agreed not to sell fifty percent
(50%) of the common stock underlying their units for a period of six months from
the effective date of this registration statement or upon Nasdaq listing,
whichever occurs first (the "Lock-Up Period"). In any event, the Lock-Up Period
will expire twelve (12) months from the date the securities offered therein were
issued. Such purchasers may sell the balance of the common stock (fifty percent
(50%)) upon effectiveness of this registration statement or at such time as the
securities are available for resale under Rule 144, whichever occurs first.
Rule 144
In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) who has beneficially owned shares for at
least one year, including an affiliate of the Company, would be entitled to
sell, within any three-month period, that number of shares that does not exceed
the greater of 1% of the then-outstanding shares of common stock and the average
weekly trading volume in the common stock during the four calendar weeks
immediately preceding the date on which the notice of sale is filed with the
Commission, provided certain manner of sale and notice requirements and
requirements as to the availability of current public information about the
Company are satisfied. In addition, affiliates of the Company must comply with
the restrictions and requirements of Rule 144, other than the one-year holding
period requirement, in order to sell shares of common stock. As defined in Rule
144, an "affiliate" of an issuer is a person who, directly or indirectly,
through the use of one or more intermediaries controls, or is controlled by, or
is under common control with, such issuer. Under Rule 144(k), a holder of
"restricted securities" who is not deemed an affiliate of the issuer and who has
beneficially owned shares for at least two years would be entitled to sell
shares under Rule 144(k) without regard to the limitations described above.
Certain United States Federal Income Tax Considerations
The following describes the principal United States federal income tax
consequences of the purchase, ownership and disposition of the common stock and
the warrants and upon the exercise, redemption or expiration of the warrants by
a warrant holder, that is a citizen or resident of the United States or a United
States domestic corporation or that otherwise will be subject to United States
federal income tax. This summary is based on the United States Internal Revenue
Code of 1986, as amended, administrative pronouncements, judicial decisions and
existing and proposed treasury regulations, changes to any of which subsequent
to the date of this prospectus may affect the tax consequences described herein.
This summary discusses only the principal United States federal income tax
consequences to those beneficial owners holding the securities as capital assets
within the meaning of Section 1221 of the Code and does not address the tax
treatment of a beneficial owner that owns 10% or more of the common stock. It
does not address the consequences applicable to certain specialized classes of
taxpayers such as certain financial institutions, insurance companies, dealers
in securities or foreign currencies, or United States persons whose functional
currency (as defined in Section 985 of the Code) is not the United States
dollar. Persons considering the purchase of these securities should consult
their tax advisors with regard to the application of the United States and other
income tax laws to their particular situations. In particular, a U.S. Holder
should consult his tax advisor with regard to the application of the United
States federal income tax laws to his situation.
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LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for the
Company by Sichenzia, Ross & Friedman LLP, New York, New York.
EXPERTS
The financial statements of Vianet Technologies Inc. as of and for the
periods ended December 31, 1998 and 1999 included in this registration statement
have been audited by Edward Isaacs & Company LLP, independent public
accountants, as stated in their report appearing herein and are so included
herein in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
Changes in and Disagreements with Accountants
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.
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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
Unaudited Consolidated Financial Statements
o Consolidated Balance Sheet at June 30, 2000 (Unaudited) F-25
o Consolidated Statements of Operations for the three and
six months ended June 30, 2000 and 1999 (Unaudited) F-26
o Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 1999 (Unaudited) F-27-28
o Notes to Consolidated Financial Statements (Unaudited) F-29-31
</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>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
ASSETS June 30, 2000
---------------
<S> <C>
Current Assets:
Cash and cash equivalents $ 5,616,865
Accounts receivable, net of allowance of $55,000 in 2000 249,942
Receivables from related parties 213,423
Inventory 47,272
Prepaids and other current assets 175,458
---------------
Total Current Assets 6,302,960
---------------
Property and Equipment, less accumulated depreciation
of $564,886 in 2000 550,833
---------------
Other Assets:
Notes receivable from Develcon Electronics Ltd., less allowance of
$2,386,386 -
Intangibles arising from acquisitions, net of accumulated
amortization of $1,490,982 5,308,928
Technology licenses, net of accumulated amortization
of $195,825 790,722
Other 356,500
---------------
Total Other Assets 6,456,150
---------------
$ 13,309,943
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 7,495
Accounts payable and accruals 1,577,873
Convertible notes payable 541,250
Demand notes payable 50,000
Note payable - bank 1,000,000
Loans payable - related parties 40,782
---------------
Total Current Liabilities 3,217,400
---------------
Convertible Notes Payable (noncurrent) 1,125,000
---------------
Shareholders' Equity:
Common shares, $0.001 par value; 100,000,000 shares
authorized; 22,839,813 shares, issued and
outstanding 22,839
Subscription receivable (500)
Additional paid-in capital 31,443,290
Warrants issued 10,717,050
Unearned fees (372,915)
Accumulated deficit (32,842,221)
---------------
Total Shareholders' Equity 8,967,543
---------------
$ 13,309,943
===============
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements
F-25
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Revenue:
Sales $ 633,692 $ -
Interest and other income 114,814 70,687
------------- --------------
748,506 70,687
------------- --------------
Costs and Expenses:
Cost of goods sold 157,556 -
Selling, general and administrative 5,533,147 500,581
Research and development 1,652,441 -
Provision for loss - Develcon 2,386,386 -
Depreciation and amortization 1,359,011 45,000
Interest 358,397 58,155
------------- --------------
11,446,938 603,736
------------- --------------
Loss From Continuing Operations (10,698,432) (533,049)
------------- --------------
Loss From Discontinued Operations - (454,619)
------------- --------------
Net Loss $ (10,698,432) $ (987,668)
============== ==============
Loss per share - basic and diluted:
Continuing operations $ (0.56) $ (0.10)
Discontinued operations - (0.08)
-------------- --------------
Loss per share - basic and diluted $ (0.56) $ (0.18)
============== ==============
Weighted average number of shares outstanding 19,210,859 5,464,285
============== ==============
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements
F-26
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
Six Months Ended
------------------------------------
June 30, 2000 June 30, 1999
---------------- ---------------
<S> <C> <C>
Net Cash Used In Operating Activities $ (7,156,680) $ (711,672)
---------------- ---------------
Investing Activities:
Loans to Infinop Holdings, Inc. - (350,000)
Proceeds from sale of marketable securities - 739,955
Security deposits (350,000) (70,265)
Other acquisition costs - (291,870)
Capital expenditures (402,137) (23,723)
Other (46,008) -
---------------- ---------------
Net Cash (Used In) Provided By Investing Activities (798,145) 4,097
---------------- ---------------
Financing Activities:
Issuance of common stock and warrants 13,374,385 5,203
Repayment of convertible notes payable - (200,000)
Subscriptions receivable - 990,000
Other (17,334) 12,617
---------------- ---------------
Net Cash Provided By Financing Activities 13,357,051 807,820
---------------- ---------------
Effect of exchange rate changes - 20,593
---------------- ---------------
Net Increase In Cash And Cash Equivalents 5,402,226 120,838
Cash and Cash Equivalents, beginning 214,639 13,856
---------------- ---------------
Cash and Cash Equivalents, end $ 5,616,865 $ 134,694
================ ===============
Supplemental Disclosures of Cash Flow Information
Cash paid for interest $ 95,887 $ 81,104
================ ===============
Cash paid for taxes $ 46,422 $ -
================ ===============
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements
F-27
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------------
June 30, 2000 June 30, 1999
---------------- ---------------
<S> <C> <C>
Noncash Transactions:
Conversion of notes payable into common stock $ 2,146,575 $ 2,739,272
================ ===============
Conversion of Series A Convertible Preferred Stock
into common stock $ - $ 1,000,000
================ ===============
Acquisition of Develcon Electronics, Ltd.:
Fair value of assets acquired $ - $ 12,226,306
Liabilities assumed - (9,692,412)
Common stock - (2,533,894)
---------------- ---------------
Cash paid for acquisition $ - $ -
================ ===============
Issuance of common stock and warrants $ 1,288,125 $ -
================ ===============
Issuance of common stock for debt (Develcon creditors) $ - $ 921,878
================ ===============
Issuance of common stock for services $ 90,937 $ 75,000
================ ===============
Issuance of warrants to placement agents $ 5,569,408 $ -
================ ===============
Issuance of common stock and warrants in return for
loan receivable from Develcon Electronics, Ltd. $ 750,000 $ -
================ ===============
Reduction of liabilities assumed in connection with
acquisition $ 172,106 $ -
================ ===============
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Basis of Presentation:
The accompanying consolidated financial statements have been prepared by the
Company without audit in accordance with generally accepted accounting
principles for interim financial statements and with instructions to Form 10-QSB
and Article 10 of Regulation S-X. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included.
The accompanying consolidated financial statements do not include certain
footnotes and financial presentations normally required under generally accepted
accounting principles and, therefore, should be read in conjunction with the
audited financial statements included in the Company's Form 10-KSB as at
December 31, 1999.
The consolidated financial statements include the accounts of Vianet
Technologies, Inc. (Vianet) and its wholly owned subsidiaries, Vianet Labs, Inc.
and Vianet Access, Inc. (collectively, the "Company"). All significant
intercompany accounts and transactions have been eliminated.
In June 2000, the Company reincorporated under the laws of the State of
Delaware.
2. Related Party Transactions:
Credit Facility:
In 1999, the Company entered into a $3,000,000 secured credit facility (the
"Facility") with an entity that during 1999, was controlled by the President and
Chief Executive Officer. In March 2000, the Facility was converted into
1,430,559 shares of common stock and 4,291,617 warrants to purchase common
stock.
Fees and expenses:
For the six months ended June 30, 2000, the Company paid $97,750 to WorldCorp
Management Group, Inc., an affiliated entity, for services rendered.
Employment / Consulting Agreements:
Effective January 1, 2000, Vianet entered into three-year consulting agreements
with CFM Capital Limited, an entity owned and controlled by Vianet's President
and Chief Executive Officer, and Xelix Capital Limited, an entity owned and
controlled by Vianet's Chairman. Fees of $286,666 were paid to these affiliated
entities in the six months ended June 30, 2000.
In March 2000, Vianet's Board of Directors approved a two-year employment
agreement with an executive, effective November 24, 1999. In addition, the
employment agreement provided for Vianet to issue four-year options to purchase
shares of common stock, which fully vest on November 1, 2000. Effective June
2000, the executive ceased his employment with Vianet, but continues as a
consultant to the Company through July 31, 2001 under similar terms and
conditions.
Joint Venture:
In April 2000, Vianet entered into a Joint Venture (the "Venture") with Opicom
Co., Ltd., an entity controlled by a shareholder of Vianet. Vianet contributed
$500,000 as part of its initial investment into the Venture. The Venture
purchased a license from Vianet for certain technology for a single, one-time
fee in the amount of $1,000,000 (subject to withholding tax imposed by the
Korean Government). The Company received a net fee of $890,000. The Company
accounts for its investment under the equity method of accounting and
accordingly, $390,000 has been recorded as income and the balance as a reduction
of the Company's investment in the Joint Venture to reflect the elimination of
F-29
<PAGE>
the intercompany profit. In consideration of the license fee, Vianet provided
the Venture with an unlimited license for Wavelet compression products in the
Korean Market.
3. Inventories:
Inventories consist of finished goods and are valued at the lower of cost
(first-in, first-out) or market.
4. 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 Electronics,
Ltd (Develcon). The Arrangement became effective on May 17, 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.
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 (recorded at present value
with interest imputed at 9% of $1,624,828). The Company recorded an allowance of
$1,000,000 at December 31, 1999. The Company is contingently liable for bank
debt of Develcon of CDN$1,500,000 (approximately US$1,000,000). The statements
of operations and cash flows for the three and six-months ended June 30, 1999
reflect Develcon as a discontinued operation.
Provision for loss:
The Company has re-evaluated the recoverability of its receivables from Develcon
and has determined that an additional allowance is required for the outstanding
balances. The carrying value of such receivables at June 30, 2000, were $661,386
(inclusive of imputed interest of $36,558) pertaining to the disposition and
$275,000 pertaining to the note receivable exchanged for common stock (see
Note 5). In addition, a contingency loss of $1,000,000 has been recored with
respect to the bank debt guaranty and such liability has been reflected as Note
Payable - Bank in the accompanying balance sheet. Accordingly, the provision
for loss was $1,936,386 and $2,386,386 for the three months and six months ended
June 30, 2000, respectively.
5. Common Stock
In January 2000, Vianet completed additional closings of the private placement
offering with Aegis Capital Corp. (Aegis) as placement agent, 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 (or
an aggregate of 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 January 2000, the Company issued 50,000 warrants to purchase common stock for
services. The warrants have a two-year term and each warrant is exercisable at
$5.00. In addition, the Company issued 20,000 common shares in exchange for
legal services.
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 $1,410,000.
Each unit consisted of an aggregate of 66,666 shares of common stock and 66,666
F-30
<PAGE>
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 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. 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 2000, pursuant to a private placement offering the Company sold 326,666
shares of common stock and 489,999 Class D common stock purchase warrants,
exercisable for a three-year period at $4.50 per share. The private placement
offering resulted in the sale of an aggregate of 16.33 units to accredited
investors for net proceeds to Vianet of approximately $861,000.
In addition, the Company purchased a $1,000,000 (face amount) note receivable
from Develcon Electronics, Ltd. (a former Subsidiary) held by a creditor of
Develcon Electronics, Ltd. in exchange for the issuance of 250,000 shares of
common stock issued at $3.00 per share and 375,000 Class D common stock purchase
warrants, exercisable for a three-year period at $4.50 per share.
In April 2000, pursuant to stock purchase agreements, the Company issued
1,899,999 shares of common stock and 2,849,998 common stock purchase warrants,
exercisable for a three-year period at $4.50 per share for net proceeds to
Vianet of approximately $5,130,000. The placement agents associated with this
offering will receive warrants to purchase approximately 9.5 units (or
approximately 190,000 shares of common stock and approximately 285,000 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 common stock purchase
warrants, exercisable for a three-year period at $4.50 per share.
In April 2000, pursuant to a private placement offering the Company sold
1,606,195 shares of common stock and 2,409,292 Class D common stock purchase
warrants, exercisable for a three-year period at $4.50 per share. The private
placement offering resulted in the sale of an aggregate of 82.65 units to
accredited investors for net proceeds to Vianet of approximately $4,640,000.
In June 2000, the Company issued 370,000 shares of common stock to WorldCorp
Capital Management Group, Inc. (WCMG), an affiliated entity, in payment for
services rendered. The payment included 270,000 shares issued in connection with
the acquisitions of Vianet Labs and Vianet Access, which were accrued for in
1999. The Company also issued 40,000 shares of common stock and warrants to
purchase an additional 20,000 shares of common stock to three Directors of
Vianet for services rendered in 1999.
Thereafter, the Company issued 34,920 shares of common stock to shareholders
that participated in the Aegis and Donald private placements. The shares were
issued pursuant to the offering document as consideration for delayed
registration of the underlying securities purchased in the applicable private
placements.
6. Leases:
In April 2000, the Company entered into a lease agreement for office space in
Texas. The term of the lease is sixty-two months. The lease provides for rent,
including operating expenses and taxes, approximating $276,000 per annum. A
security deposit of $350,000 was paid in May 2000.
7. Subsequent Events:
As of August 8, 2000, the Company is obligated to issue 139,882 additional
shares of common stock to shareholders that participated in the Aegis and Donald
private placements. The shares will be issued pursuant to the offering document
as consideration for delayed registration of the underlying securities purchased
in the applicable private placements.
F-31
<PAGE>
================================================================================
Prospective investors may rely only on the information contained in
this prospectus. We have not authorized any dealer, salesperson or any other
person to provide prospective investors with information or representations
different from that contained in this prospectus. Prospective investors should
not rely on any unauthorized information. This prospectus is not an offer to
sell any security other than the common stock and common stock purchase warrants
offered by this prospectus, nor does this prospectus offer to buy or sell any
securities in any jurisdiction where it is unlawful. The information in this
prospectus is current as of the date of this prospectus, regardless of the time
of delivery of this prospectus or any sale of these securities.
TABLE OF CONTENTS
Page
Prospectus Summary......................................
Risk Factors............................................
Use of Proceeds.........................................
Dilution ...............................................
Dividend Policy ......................................
Capitalization..........................................
Market for Securities...................................
Selected Financial Information..........................
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.............................
History of the Company..................................
Business................................................
Management..............................................
Principal Stockholders..................................
Selling Stockholders....................................
Plan of Distribution....................................
Certain Transactions....................................
Description of Securities...............................
Shares Eligible for Future Sale.........................
Underwriting............................................
Legal Matters...........................................
Experts.................................................
Index to Financial Statements........................... F-1
Until _________, 2000 (25 days after date of this prospectus), all
dealers that buy, sell or trade these securities, whether or not participating
in this offering may be required to deliver a prospectus. This is in addition to
the dealer's obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
===============================================================================
<PAGE>
===============================================================================
VIANET
T E C H N O L O G I E S, I N C.
10,759,604
Shares of Common Stock
and
22,017,752 shares of
Common Stock Issuable
Upon Exercise of
Common Stock Purchase Warrants
------------------------------
PROSPECTUS
------------------------------
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Subsection 1 of Section 78.7302 of Chapter 78 of the Nevada General
Corporation Law ("NGCL") provides that a corporation may indemnify any person
who was or is a party, or is threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (except in an action brought by or on behalf of
the corporation) if that person is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by that person in connection with
such action, suit or proceeding, if that person acted in good faith and in a
manner which that person reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, alone, does not
create a presumption that the person did not act in good faith and in a manner
which the person reasonably believed to be in, or not opposed to, the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, the person had reasonable cause to believe his action was unlawful.
Subsection 2 of Section 78.7502 of the NGCL provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit brought
by or on behalf of the corporation to procure a judgment in its favor because
the person acted in any of the capacities set forth above, against expenses,
including amounts paid in settlement and attorneys' fees, actually and
reasonably incurred by that person in connection with the defense or settlement
of such action or suit, if the person acted in accordance with the standard set
forth above, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged by a court of
competent jurisdiction after exhaustion of all appeals therefrom to be liable to
the corporation or for amounts paid in settlement to the corporation unless and
only to the extent that the court in which such action or suit was brought or
other court of competent jurisdiction determines that, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
Section 78.751 of the NGCL provides that unless indemnification is
ordered by a court, the determination to provide indemnification must be made by
the stockholders, by a majority vote of a quorum of the board of directors who
were not parties to the action, suit or proceeding, or in specified
circumstances by independent legal counsel in a written opinion. In addition,
the articles of incorporation, bylaws or an agreement made by the corporation
may provide for the payment of the expenses of a director or officer of the
expenses of defending an action as incurred upon receipt of an undertaking to
repay the amount if it is ultimately determined by a court of competent
jurisdiction that the person is not entitled to indemnification. Section 78.751
of the NGCL further provides that, to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in subsection (1) and (2), or in the
defense of any claim, issue or matter therein, that person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
that person in connection therewith; that indemnification provided for by
Section 78.751 of the NGCL shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled and that the scope of
indemnification shall continue as to directors, officers, employees or agents
who have ceased to hold such positions, and to their heirs, executors and
administrators.
II-1
<PAGE>
Finally, Section 78.752 of the NGCL provides that a corporation may
purchase and maintain insurance on behalf of a director, officer, employee or
agent of the corporation against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such whether or not
the corporation would have the authority to indemnify him against such
liabilities and expenses.
The Registrant's bylaws provide for indemnification of officer,
directors and others to the fullest extent permitted by the laws of the State of
Nevada.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the securities offered hereby.
SEC registration fee...................................... $ 24,480.13
Printing and engraving.................................... 25,000.00
Accountants' fees and expenses............................ 15,000.00
Legal fees................................................ 30,000.00
Transfer agent's and warrant agent's fees and expenses.... 0.00
Blue Sky fees and expenses................................ 0.00
Miscellaneous............................................. 5,519.87
-------------
Total................................. $100,000.00
Item 26. Recent Sales of Unregistered Securities
Except as set forth below, there were no sales of unregistered securities by
Vianet during the past three (3) years:
Securities Issued For Cash Consideration
In August 1999, Vianet issued an aggregate of 110,000 shares of common
stock and warrants to purchase 55,000 shares at an exercise price of $6.60, for
an aggregate consideration of $550,000.
From December 1999 through the date hereof, the Company has completed
four (4) separate offerings solely to accredited investors, all of which were
made under Rule 506 of Regulation D.
The first offering was conducted pursuant to a private placement
memorandum dated October 5, 1999. This offering was completed in January 2000.
The second offering was conducted pursuant to a private placement memorandum
dated January 24, 2000. This offering which was completed in February 2000,
offered units on a per share basis consisting of one share of common stock
valued at $1.50, one class A warrant ($2.00 exercise price, five year term), one
class B warrant ($2.50 exercise price, five year term), and one class C warrant
($3.00 exercise price, five year term). There were an aggregate of 84 purchasers
in this offering, all of whom were "accredited investors". In addition, the
offerings provided for the issuance of "penalty shares" to the investors to the
extent registration of the underlying securities was not completed by specified
dates.
The third offering was conducted pursuant to a private placement
memorandum dated February 7, 2000. This offering which was completed in April
2000, offered units on a per share basis consisting of one share of common stock
valued at $3.00 and one class D warrant ($4.50 exercise price, three year term).
There were an aggregate of 98 purchasers in this offering, all of whom were
"accredited investors". Finally, the fourth offering was conducted and completed
pursuant to stock purchase agreements, dated April 7, 2000 and April 13, 2000.
The purchasers were each given access to the Company's 34 Act filings, as well
as access to management. This offering which was completed in April 2000,
offered units on a per share basis consisting of one share of common stock
valued at $3.00 and one class D warrant ($4.50 exercise price; three year term).
There were an aggregate of 7 purchasers, each of which was an accredited entity.
Of the aggregate 141 investors in the Aegis Capital and Donald & Co.
offerings, 122 of such investors were introduced to the Company through Aegis
Capital or Donald & Co. Such investors were clients of the placement agents
prior to the Company's offerings, and were contacted directly by their
registered representative at such placement agent. The balance of 19 investors
in the two offerings had prior contacts with the Company as vendors or
suppliers, previous investments with the Company, employees or contacts with the
Company's officers or directors. The total number of offerees for the two
offerings was not materially in excess of the actual number of investors.
From December 1999 to February 2000, Vianet completed a private
placement offering, with Aegis Capital, Inc. as placement agent, in which it
sold an aggregate of 34.5 units to a total of 84 accredited investors, who paid
a total of approximately $3,450,000. The units consisted of an aggregate of (1)
2,302,250 shares of common stock, and (2) 2,302,250 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
closings, Aegis Capital received a placement fee equal to 10% of the aggregate
purchase price of the securities sold by it, plus a non-accountable expense
allowance of $50,000, and a warrant, granted by Vianet for $1.00 consideration,
to purchase a number of units equal to 10% of the units sold in the offering at
an exercise price equal to the offering price of the units sold. Additionally,
upon the first closing of the offering, Vianet entered into a two year
consulting agreement pursuant to which Aegis Capital was paid a fee of $60,000.
In February 2000, Vianet completed a private placement offering in
which it sold an aggregate of approximately 18 units to a total of 57 accredited
investors, who paid a total 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 closings, Aegis Capital received warrants and Donald & Co.
received warrants and a fee. In connection with such closings, Donald & Co.
received a placement fee equal to 10% of the aggregate purchase price of the
securities sold by it and a warrant, granted by Vianet for $1.00 consideration,
to purchase a number of units equal to 10% of the units sold in the offering at
an exercise price equal to the offering price of the units sold.
o In March and April 2000, we completed a private placement in which we
sold an aggregate of approximately 98.98 units for gross proceeds to
Vianet of approximately $5,938,000. The units consisted of an aggregate
of 1,932,861 shares of common and 2,899,291 common stock purchase
warrants, which warrants are exercisable at $4.50.
o In April 2000, pursuant to stock purchase agreements, we issued an
aggregate of 1,899,999 shares of common stock and 2,849,998 common
stock purchase warrants for gross proceeds of $5,700,000. The warrants
are exercisable at $4.50. In connection with such offering, the
Placement Agents will receive warrants to purchase an aggregate of
approximately 9.5 units (or an aggregate of approximately 190,000
shares of common stock and approximately 285,000 class D 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.
II-2
<PAGE>
Securities Issued For Services
In 1999, Vianet issued an aggregate of 254,500 shares of common stock
in consideration of services rendered to the company. In addition, Vianet issued
warrants to purchase an aggregate of 1,260,000 shares of common stock at
exercise prices ranging from $1.10 to $4.58.
In 1999, Vianet issued options under its employee stock option plan to
purchase an aggregate of 760,000 shares of common stock at exercise prices
ranging from $1.00 to $2.375. In addition, Vianet issued options outside the
employee stock option plan to purchase an aggregate of 350,000 shares of common
stock at an exercise price of $8.25.
In 2000, Vianet issued warrants to purchase an aggregate of
1,305,000 shares of common stock at exercise prices ranging from $1.50 to
$12.00. Also, Vianet issued 20,000 shares of common stock in exchange for legal
services.
Securities Issued in Exchange For Other Securities
In addition, in 1999, Vianet issued shares of common stock and warrants
to purchase shares of common stock in connection with various mergers and
acquisitions which it completed, as follows:
o In March 1999, the company acquired all of the issued and outstanding
shares of Vianet Technologies, Inc, a Delaware corporation, in exchange
for the issuance of an aggregate of 5,139,272 shares of common stock;
o In May 1999, Vianet acquired all of the issued and outstanding shares
of common Stock of Develcon Electronics, Ltd. in exchange for the
issuance of shares of common stock. Subsequent to the completion of the
acquisition, Vianet settled certain accounts payable by issuing
additional shares of common stock to the creditors. As a result, the
total number of shares issued in connection with the Develcon
acquisition was 2,707,114;
o In October 1999, Vianet acquired of all of the issued and outstanding
stock of Infinop Holdings, Inc. in exchange for the issuance of
1,495,454 shares of common stock and options to acquire 598,467 shares
of common stock at exercise prices ranging from$.01 to $.26. In
addition, Vianet has agreed to issue an additional 177,316 shares of
common stock upon conversion of $1,125,000 principal amount outstanding
debentures;
o In December 1999, Vianet acquired of all of the issued and outstanding
stock of PSI, Inc. in exchange for the issuance of 2,500,800 shares of
common stock; and
o In December 1999, Vianet completed the sale of Develcon for $2,500,000.
In connection with such transaction, Vianet issued 183,332 common
shares and five year warrants to purchase 400,000 shares of common
stock at $2.00-$3.00 per share to Develcon's President. In addition,
Vianet and Develcon entered into a Royalty Free Non-exclusive
Technology License Agreement in consideration of Vianet issuing
warrants to purchase (a) 500,000 shares of common stock at an exercise
price of $2.00 per share: (b) 50,000 shares of common stock at $5.00
per share: (c) 50,000 shares of common stock at $6.00 per share and (d)
50,000 shares of common stock at $7.00 per share.
Each of the foregoing transactions was exempt from registration under
the Act, under either Section 3(10), or Section 4(2) and Rule 506 of Regulation
D, of the Act as not involving a public offering. The recipients of the
securities issued under Section 4(2) and Rule 506 of Regulation D of the Act
represented that such securities were being acquired for investment and not with
a view to the distribution thereof. In addition, restrictive legends were placed
on the certificates evidencing the securities issued under Section 4(2) and Rule
506 of Regulation D of the Act.
II-3
<PAGE>
Item 27. Exhibits
2.1 Merger Agreement, dated December 30, 1999, between Vianet and PSI
Communications, Inc.1
2.2 Merger Agreement, dated August 31, 1999, between Vianet and Infinop
Holdings, Inc.2
2.3 Amended and Restated Arrangement Agreement, dated April 5, 1999,
between Vianet and Develcon Electronic Ltd.3
2.4 Disposition of Develcon4
2.5 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
5.1 Opinion of Sichenzia, Ross & Friedman LLP
10.1 Stock Option Plan 7
10.2 Placement Agency Agreement for Private Placement Offering with Aegis
Capital Corp. **
10.3 Form of Subscription Agreement for Private Placement Offering with
Aegis Capital Corp. **
10.4 Form of Class A, B and C Warrant Agreement**
10.5 Form of Class A Warrant Certificate**
10.6 Form of Class B Warrant Certificate**
10.7 Form of Class C Warrant Certificate**
10.8 Form of Placement Agent Warrant**
10.9 Form of Subscription Agreement for February 2000 Private Placement
Offering**
10.10 Form of Subscription Agreement for March 2000 Private Placement
Offering**
10.11 Form of Class D Warrant Agreement**
10.12 Form of Class D Warrant Certificate**
10.13 Form of Stock Purchase Agreement for April 2000 Private Placement
Offering**
16.1 Letter from KPMG6
21.1 List of Subsidiaries**
23.1 Consent of Edward Isaacs & Company LLP, the Independent Auditors of
Vianet Technologies, Inc.
23.2 Consent of Sichenzia, Ross & Friedman LLP (included in Exhibit 5.1)**
27.1 Financial Data Schedule**
---------------------
** Previously filed
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 10 filed by Vianet after the SEC
on January 26, 2000 under SEC file No. 000-29177
II-4
<PAGE>
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file a post-effective amendment to this Registration Statement during
any period in which offers or sales are being made:
(i) to include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post- effective amendment thereof) which, individually,
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
((S)230.424(b) of this Chapter) if, in the aggregate, the
changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement of any material change to such information in the
Registration Statement.
(2) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
this offering.
(3) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered
in such names as required by the Underwriter to permit prompt delivery to
each purchaser.
(4) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and
this offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(5) That, insofar as indemnification for liabilities arising from the
Securities Act may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(6) That, for purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or Rule 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Company certifies that it
has reasonable grounds to believe that it meets all of the requirement for
filing on Form S-1 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the State of New
York on August 30, 2000.
VIANET TECHNOLOGIES, INC.
By: /s/ Peter Leighton
------------------------------------
Peter Leighton,
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Jeremy Posner
and Peter Leighton, or either of them, his true and lawful attorney-in-fact and
agent, acting alone, with full powers of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, any Amendments thereto and any Registration Statement of the same
offering which is effective upon filing pursuant to Rule 462(b) under the
Securities Act, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Commission, granting unto said
attorney-in-fact and agent, each acting alone, full powers and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intends and purposes as he might or
could do in person, hereby ratifying and confirming all said attorney-in-fact
and agent, acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons on behalf of the
Company in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
/s/ Jeremy Posner Chairman, August 30, 2000
------------------------------------ Vianet Technologies, Inc.
Jeremy Posner
/s/ Peter Leighton President and Chief Executive Officer August 30, 2000
------------------------------------ Vianet Technologies, Inc.
Peter Leighton
/s/ Vincent Santivasci Chief Financial Officer, August 30, 2000
------------------------------------ Vianet Technologies, Inc.
Vincent Santivasci
/s/ Timothy P. Sullivan Director, August 30, 2000
------------------------------------ Vianet Technologies, Inc.
Timothy P. Sullivan
/s/ Robert H. Bailey Director, August 30, 2000
------------------------------------ Vianet Technologies, Inc.
Robert H. Bailey
/s/ Darrell J. Elliot Director, August 30, 2000
------------------------------------ Vianet Technologies, Inc.
Darrell J. Elliot
/s/ F. Paul Whitlock Director, August 30, 2000
------------------------------------ Vianet Technologies, Inc.
F. Paul Whitlock
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
2.1 Merger Agreement, dated December 30, 1999, between Vianet and PSI
Communications, Inc.1
2.2 Merger Agreement, dated August 31, 1999, between Vianet and Infinop
Holdings, Inc.2
2.3 Amended and Restated Arrangement Agreement, dated April 5, 1999,
between Vianet and Develcon Electronic Ltd.3
2.4 Disposition of Develcon4
2.5 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
5.1 Opinion of Sichenzia, Ross & Friedman LLP
10.1 Stock Option Plan 7
10.2 Placement Agency Agreement for Private Placement Offering with Aegis
Capital Corp.**
10.3 Form of Subscription Agreement for Private Placement Offering with
Aegis Capital Corp.**
10.4 Form of Class A, B and C Warrant Agreement**
10.5 Form of Class A Warrant Certificate**
10.6 Form of Class B Warrant Certificate**
10.7 Form of Class C Warrant Certificate 10.8 Form of Placement Agent
Warrant**
10.9 Form of Subscription Agreement for February 2000 Private Placement
Offering**
10.10 Form of Subscription Agreement for March 2000 Private Placement
Offering**
10.11 Form of Class D Warrant Agreement**
10.12 Form of Class D Warrant Certificate**
10.13 Form of Stock Purchase Agreement for April 2000 Private Placement
Offering**
16.1 Letter from KPMG6
21.1 List of Subsidiaries**
23.1 Consent of Edward Isaacs & Company LLP, the Independent Auditors of
Vianet Technologies, Inc.
23.2 Consent of Sichenzia, Ross & Friedman LLP (included in Exhibit 5.1)**
27.1 Financial Data Schedule**
---------------------
** Previously filed
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 10 filed by Vianet after the SEC
on January 26, 2000 under SEC file No. 000-29177
