<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File No. 33-55254-19
-------------------------------
VIANET TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0434285
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
83 Mercer Street, New York
New York 10012-4437
(Address of principal executive offices, zip code)
(212) 219-7680
(Registrant's telephone number, including area code)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No __
There were 22,544,195 shares of the registrant's Common Stock, par
value $.001 per share, outstanding on May 14, 2000.
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- 1 -
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I Financial Information
- ------
Item 1 Financial Statements
Consolidated Balance Sheets at March 31, 2000 (unaudited) and December 31, 1999
(audited) 3
Consolidated Statements of Operations for the three months ended March 31, 2000 and
1999 (unaudited) 4
Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and
1999 (unaudited) 5-6
Notes to Consolidated Financial Statements (unaudited) 7-9
Item 2 Management's Discussion and Analysis 10-15
Part II Other Information 16
- -------
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
Signatures 18
</TABLE>
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<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
(unaudited) (audited)
---------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 552,904 $ 214,639
Accounts receivable, net of allowance of $6,000 in 2000 175,420 93,955
Receivable from related party 183,423 142,415
Prepaids and other current assets 19,059 75,913
---------- ------------
Total Current Assets 930,806 526,922
---------- ------------
Property and Equipment, less accumulated depreciation
of $495,750 in 2000 and $439,465 in 1999 268,891 274,117
---------- ------------
Other Assets:
Notes receivable from Develcon Electronics Ltd., less allowance of
$1,450,000 in 2000 and $1,000,000 in 1999 961,387 624,828
Intangibles arising from acquisitions, net of accumulated
amortization of $920,871 in 2000 and $340,484 in 1999 5,879,040 6,631,533
Technology licenses, net of accumulated amortization
of $154,162 in 2000 and $112,500 in 1999 832,385 874,047
Other 6,500 6,500
---------- ------------
Total Other Assets 7,679,312 8,136,908
---------- ------------
$8,879,009 $ 8,937,947
========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 22,483 $ 27,799
Accounts payable and accruals 3,095,366 3,635,652
Convertible notes payable 527,500 513,750
Demand notes payable 50,000 50,000
Loans payable - related parties 237,739 2,184,387
---------- ------------
Total Current Liabilities 3,933,088 6,411,588
---------- ------------
Convertible Notes Payable (noncurrent) 1,125,000 1,125,000
---------- ------------
Shareholders' Equity:
Common shares, $0.001 par value; 100,000,000 shares
authorized; 18,909,899 and 14,678,309 shares, issued and
outstanding, respectively 18,910 14,678
Subscription receivable (500) (500)
Additional paid-in capital 23,857,242 19,275,589
Warrants issued 7,105,730 5,001,211
Unearned fees (559,373) (745,830)
Accumulated deficit (26,601,088) (22,143,789)
---------- ------------
Total Shareholders' Equity 3,820,921 1,401,359
---------- ------------
$8,879,009 $ 8,937,947
========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
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<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Revenue:
Sales $ 118,954 $ -
Interest and other income 44,137 34,900
----------- -----------
163,091 34,900
----------- -----------
Costs and Expenses:
Cost of goods sold 14,243 -
Selling, general and administrative 2,463,114 229,750
Research and development 1,139,559 -
Depreciation and amortization 678,336 22,500
Interest 325,138 -
----------- -----------
4,620,390 252,250
----------- -----------
Net Loss $(4,457,299) $ (217,350)
=========== ==========
Loss per share - basic and diluted $ (0.27) $ (0.06)
=========== ==========
Weighted average number of shares outstanding 16,452,109 3,688,054
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
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<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
March 31, 2000 March 31, 1999
----------------- -----------------
<S> <C> <C>
Operating Activities:
Net loss $(4,457,299) $ (217,350)
Adjustments to reconcile net loss to net cash used
in operating activities:
Provision for loss on receivables 456,000 -
Unearned fees 186,457 -
Imputed interest (36,559) -
Depreciation and amortization 678,334 22,500
Issuance of warrants and common stock for services 136,931 -
Increase (decrease) in cash attributable to changes in
operating assets and liabilities:
Accounts receivable (87,465) -
Prepaids and other current assets 56,853 (31,115)
Accounts payable and accruals, and other (354,429) 102,469
----------- -----------
Net Cash Used In Operating Activities (3,421,177) (123,496)
----------- -----------
Investing Activities:
Loans to Develcon Electronics, Ltd. - (1,004,635)
Loans to related parties (41,008) -
Capital expenditures (51,059) -
----------- -----------
Net Cash Used In Investing Activities (92,067) (1,004,635)
----------- -----------
Financing Activities:
Issuance of common stock and warrants 3,603,988 -
Repayment of convertible notes payable - (200,000)
Proceeds from convertible notes payable - 30,000
Subscriptions receivable - 990,000
Principal payments of long term debt (5,316) -
Loans from related parties 252,837 410,000
----------- -----------
Net Cash Provided By Financing Activities 3,851,509 1,230,000
----------- -----------
Net Increase In Cash And Cash Equivalents 338,265 101,869
Cash and Cash Equivalents, beginning 214,639 13,856
----------- -----------
Cash and Cash Equivalents, end $ 552,904 $ 115,725
=========== ===========
Supplemental Disclosures of Cash Flow Information
Cash paid for interest $ 27,432 $ -
=========== ===========
Cash paid for taxes $ 46,211 $ 4,963
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
- 5 -
<PAGE>
VIANET TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Noncash Transactions:
Conversion of notes payable into common stock $2,199,485 $ -
========== ==========
Issuance of warrants to placement agents $2,025,588 $ -
========== ==========
Issuance of Common stock and warrants in return for
loan receivable from Develcon Electronics Ltd. (Develcon) $ 750,000 $ -
========== ==========
Reduction of liabilities assumed
in connection with acquisition $ 172,106 $ -
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
- 6 -
<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.
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. 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.
Fees and expenses:
In the three months ended March 31, 2000, the Company paid $42,750 to WorldCorp
Management Group, Inc., an affiliated entity, for services rendered.
Employment / Consulting Agreements:
Effective January 1, 2000, the Company' President and the Company's Chairman
entered into three year Consulting Agreements through affiliated entities, which
provide for aggregate annual consulting fees of $400,000. Fees of $66,666 were
paid to these affiliated entities in the first quarter.
3. Common Stock
Financings:
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.
- 7 -
<PAGE>
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
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 common stock purchase warrants. 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. The
placement agents associated with this offering will receive warrants to purchase
approximately 1.63 units (or approximately 32,667 shares of common stock and
approximately 49,000 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.
In addition, the Company 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. The net
present value of the receivable as presented on the balance sheet is $750,000,
less a valuation allowance of $450,000.
4. Subsequent Events
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.
Financing:
In April 2000, pursuant to a private placement offering the Company sold
1,667,861 shares of common stock and 2,501,791 common stock purchase
warrants. The private placement offering resulted in the sale of an
aggregate of 82.01 units to accredited investors for net proceeds to Vianet
of approximately $4,418,013. The placement agents associated with this
offering will receive warrants to purchase approximately 8.34 units (or
approximately 166,786 shares of common stock and approximately 250,179
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.
In April 2000, pursuant to stock purchase agreements, the Company issued
1,899,999 shares of common stock and 2,849,998 five-year common stock purchase
warrants, exercisable at $4.50 per share for net proceeds to Vianet of
approximately $5,130,000.
- 8 -
<PAGE>
Pro Forma Capitalization:
The following table sets forth the Company's Pro Forma Capitalization as of
March 31, 2000 giving effect to the private placement offering and stock
purchase agreement detailed above:
<TABLE>
<CAPTION>
March 31, 2000
---------------------------------------------------------
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, 18,909,899
shares issued and outstanding (actual),
22,477,759 shares issued and outstanding
(Pro Forma (1)) 18,910 3,567 22,477
Additional Paid-In Capital 23,857,242 9,544,446 33,401,688
Subscription receivable (500) - (500)
Warrants issued 7,105,730 - 7,105,730
Unearned fees (559,373) - (559,373)
Accumulated Deficit (26,601,088) - (26,601,088)
------------- ---------- -------------
Total Shareholders' Equity 3,820,721 9,548,013 13,368,934
============= ========== =============
Total Capitalization $ 4,945,721 $9,548,013 $ 14,493,934
============= ========== =============
</TABLE>
(1) Gives effect to issuance of 3,567,860 shares of common stock at $3.00 per
share in private placement offerings completed in April 2000 yielding net
proceeds to the Company of approximately $9,548,013.
- 9 -
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2000
This quarterly report on Form 10-QSB 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.
The following information has not been audited. You should read this information
in conjunction with the condensed financial statements and related notes to
financial statements included in this report. In addition, please see our
Management Discussion and Analysis of Financial Condition and Results of
Operations and audited financial statements and related notes included in our
Annual Report on Form 10-KSB for the year ended December 31, 1999. Vianet
Technologies, Inc. is referred to as "we," "us" or "our" in this report.
DESCRIPTION OF BUSINESS.
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.
- 10 -
<PAGE>
Background
Our predecessor, Vianet Technologies, Inc., was formed as a Delaware
corporation in March 1998 ("Vianet Delaware"). In March 1999, Vianet Delaware
merged with and into Radar Resources, Inc., a Nevada corporation ("Radar"). Upon
completion of Vianet Delaware's merger with Radar, Radar changed its name to
Vianet Technologies, Inc ("Vianet").
From its inception until March 1999, Radar did not engage in any
business and had no operational history. Radar was incorporated originally under
the name Radar, Inc. in the state of Utah on April 11, 1986. In December 1993,
Radar reorganized under the laws of Nevada, changing its domicile and forming a
new corporation in Nevada named Radar Resources, Inc. This new corporation
acquired the contractual obligations, shareholder rights and identity of the
original Utah Corporation, and the Utah Corporation was dissolved.
Prior to the Vianet Delaware's merger with Radar, Vianet Delaware's
business activities consisted primarily of planning to acquire Develcon
Electronics Limited, an Ontario, Canada corporation ("Develcon"). Develcon
specializes in networking products and systems. Vianet acquired Develcon on May
17, 1999.
Shortly thereafter, in October 1999, Vianet consummated a plan of
merger with Infinop Holdings, Inc., a Delaware corporation specializing in data
compression technology. Simultaneous with the merger, Infinop was renamed Vianet
Labs, Inc.
In December 1999, Vianet acquired PSI Communications Inc. ("PSI"), a
privately held Delaware corporation, pursuant to an option agreement they had
entered into earlier that year. In conjunction with the acquisition, PSI merged
into a wholly owned Delaware subsidiary of Vianet, and changed its name to
Vianet Access, Inc ("Vianet Access").
In December 1999, we sold our Develcon subsidiary to Thorpe Bay
Corporation, an Ontario company. As part of the agreement, we retained an
exclusive license to market Develcon's Athena product lines to Fortune 100
companies based in the United States, as well as a non-exclusive license to
market all of Develcon's product lines to other customers.
In Process Research and Development
On acquisition, the Vianet Labs products were in the form of CODECS
(COmpressor/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.
On acquisition of Vianet Access, the Starpoint product was also in a
"proof of concept" form. In February, the product reached alpha stage and the
main engineering effort since then has focused on the development of a voice
card and the application of a Simple Network Management Protocol (SNMP) software
management system and related GUI that is required for the initial order in
Korea.
Our Starpoint product is currently being developed to include a voice
card and an SNMP management system. We currently expect to complete the
necessary development for the initial release of this product within two months
of this report.
- 11 -
<PAGE>
No assurance can be given that these developments will be completed on
schedule or that a market will exist for the products once the development is
completed.
Results of Operations
Three-month periods ended March 31, 2000 and March 31, 1999
Revenues
Revenues for the three-month period ended March 31, 2000 increased
$128,191 to $163,091, as compared to revenues of $34,900 during the three month
period ended March 31, 1999. $44,620 of this increase was attributable to sales
of our Starpoint product prototypes, while approximately $74,334 was
attributable to OEM sales. The remaining $44,137 was attributable to interest
and other income.
Operating Expenses
Operating expenses for the three-month period ended March 31, 2000
increased $3,387,166 to $3,616,916, as compared to operating expenses of
$229,750 during the three months period ended March 31, 1999. The increase in
operating expenses was attributable to a $14,243 increase in cost of goods and
services sold, a $2,463,113 increase in selling, general and administrative
expenses, and research and development costs of $1,139,559. Selling, general and
administrative include $450,000 of additional valuation allowances in addition
to 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 40 employees as compared to less
than 10 during the three months ended March 31, 1999.
Depreciation and Amortization Expenses
Depreciation and Amortization expenses for the three-month period ended
March 31, 2000 increased $655,836 to $678,336, as compared to amortization
expense of $22,500 during the three months period ended March 31, 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 three-month period
ended March 31, 2000 was $325,138, as compared to nil during the three month
period ended March 31, 1999. The year 2000 expense was primarily attributable to
interest on convertible notes and the credit facility (including amortization of
debt discount).
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 three month period ended March 31, 2000, the Company's cash
position increased by $338,265 from $214,639 to $552,904. The principal source
of cash was $3,603,988 that was generated from the Company's private placement
offerings and $252,937 in loans from related parties. This was offset by
$3,421,177 of cash used in operating activities, $92,067 in loans to related
parties and purchases capital assets during the period, as well as, $5,316
principal payments of long-term debt.
From January 1, 2000 through the date of this report, Vianet has completed the
following financings:
- 12 -
<PAGE>
o From January 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 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 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 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 98.3 units for gross proceeds to
Vianet of approximately $5,900,370. The units consisted of an aggregate
of 1,994,527 shares of common and 2,991,790 common stock purchase
warrants, which warrants are exercisable at $4.50. In connection with
such offering, the Placement Agents will receive warrants to purchase
an aggregate of approximately 9.9 units (or an aggregate of
approximately 199,453 shares of common stock and approximately 299,179
class D warrants), which warrants are exercisable at a price of $60,000
per unit.
o In April 2000, we sold an aggregate of 1,899,999 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.
Reference is made to Note 4, Consolidated Financial Statements
"Subsequent Notes" included hereunder which shows to pro forma effect of the
financings completed subsequent to March 31, 2000.
Contingent Liability
We have guaranteed a term loan from Royal Bank of Canada ("RBCC") to
Develcon in the amount of approximately $1,000,000 (CDN$1,500,000), which is due
and payable in three installments on or before December 31st of 2000, 2001 and
2002, respectively. There can be no assurance that Develcon will be able to
repay RBCC, which could cause us to be liable to pay RBCC. RBCC are shareholders
and warrant holders of the Company.
Potential Future Sources of Capital
In addition to the financings completed in the second quarter of 2000
we currently have the following sources of future capital:
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<PAGE>
o We are in discussions with Wells Fargo (the "Bank") regarding obtaining
financing for accounts receivable and work in progress based upon
irrevocable letters of credit at a rate of LIBOR plus a margin. No
assurances can be given the an arrangement will be reached or that, if
reached, such arrangement will be converted into actual lending
although we believe that it is the intent of the Bank to extend
financing under the stated terms.
o We had a total of 29,454,838 warrants and options outstanding as at the
date of this filing at an average issue price of $3.10. In the event
that these warrants and options are all exercised we would receive
approximately $91,448,882 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 received completed the following
transactions that could generate future revenues:
o We have received an initial purchase order for in excess of $5,000,000
for our Starpoint product for delivery in the third and fourth quarter
of 2000;
o We have signed contracts with several customers, including a
substantial ISP (Internet Service Provider), calling for revenue
sharing and other forms of direct revenues. These customers are
anticipating acceptance for their service offerings, which will
generate revenues for us. However, actual revenues will depend on our
customers' success in marketing their services that include our
products;
o Texas Instruments (TI), the largest Digital Signal Processor (DSP)
manufacturer in the world, has confirmed that it will include two of
our products, LS Interactive and LS Messenger, in the reference design
being sent to camera manufacturers worldwide intending to use TI's chip
sets for the manufacture of the new Fire Wire camera in May 2000. We
expect a significant number of these manufacturers to bundle our
products with their cameras under terms of which we will generate
revenues although there is no guarantee that we generate any.
While we anticipate significant revenues from these contracts and
others that we will complete, there can be no guarantees these revenues will be
realized. Should the contracts be cancelled or if our customers do not generate
revenues utilizing our products, our future expected revenues could be adversely
affected.
Summary
Our best estimate is that we have sufficient cash to fund our
operations for twelve months. After this period we may require additional funds
unless we generate revenues to fund our expenses. As of May 11, 2000, our cash
balances amounted to approximately $7,600,000.
We have no current arrangements in place with respect to financing
other than those described above. Although we have sufficient capital to fund
our current operations, we are currently seeking additional financing
arrangements to provide the additional capital to expand our scope of operations
and our business strategy. To this end we have engaged Gruntal & Co. as our
investment bankers to assist is sourcing appropriate capital. Our management
believes that upon full implementation of our business plan, sufficient revenues
will be generated to meet operating requirements. However, no assurance can be
given that such goal will be obtained or that our expected revenues will be
- 14 -
<PAGE>
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.
- 15 -
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
On January 7, 2000 the Company filed a report on Form 8-K/A
regarding the acquisition of Develcon Electronics Ltd.
On January 7, 2000 the Company filed a report on Form 8-K
regarding the acquisition of PSI Communications, Inc.
On January 18, 2000 the Company filed a report on Form 8-K
regarding the sale of Develcon Electronics Ltd.
On January 21, 2000 the Company filed a report on Form 8-K/A
regarding the acquisition of Infinop Holdings, Inc.
On March 14, 2000 the Company filed a report on Form 8-K/A
regarding the acquisition of PSI Communications, Inc.
- 16 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIANET TECHNOLOGIES, INC.
------------------------------
(Registrant)
Date: May 14, 2000 /s/ Vincent Santivasci
------------------ ------------------------------
Vincent L. Santivasci
Chief Financial Officer
- 17 -
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