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Novi-Net, http://www.novi-net.hr/, has been providing WBA in five counties in northern Croatia under a regional license since 2006. Novi-Net currently owns a data center, a network core and 11 base transceiver stations (BTS) to provide WBA and related services to approximately 1,900 subscribers. The Republic of Croatia granted Novi-Net a nationwide license to provide wireless broadband access (WBA) and related telecommunication services. The license grants the use of 42 MHz of radio frequency spectrum in the 3.5 GHz bandwidth to serve Croatia’s 4.5 million citizens with state of the art 4G LTE services.

Status

~ Under applicable customs import laws in both Croatia and Montenegro, Novi-Net and Montenegro Connect were required to pay value added tax upon delivery of the ZTE equipment to each country totaling approximately €350,000 ($482,000). Additionally, the cost to install the equipment and other expansion of operations was budgeted to cost in excess of €1,000,000 ($1,377,000). As time progressed, the equipment, which employed Wi-MAX technology, became less technologically competitive as major providers of mobile telecommunications services upgraded to LTE technology. The cost to upgrade the equipment from Wi-MAX to LTE was also projected to cost in excess of €1,000,000 ($1,377,000). During the same time, VelaTel encountered difficulties obtaining financing to deploy the Croatia and Montenegro networks. After payment of the ZTE down payment and shipping described above, the Company paid directly to Herlong in various installments and on various dates €117,651 ($207,238) through November 7, 2013. The Company also invoiced Herlong $164,344 for technical services provided during 2012 to design the Croatia and Montenegro Networks.

~ The Company recently determined it would not invest further in the Croatia and Montenegro network projects. As of December 31, 2013, the Company determined to impair its entire investment in Herlong. On January 16, 2014, 7L declared a forfeiture of all 75% of the Company’s equity interest in Herlong’s common stock covered by the stock pledge. The Company maintains its interest in 1,028,086 Redeemable Preference Shares issued at closing of the BCA, and has exchanged notices with 7L that are a prerequisite to commencement of arbitration under the BCA for issuance of additional Redeemable Preference Shares for other amounts the Company invested in Herlong, as well as adjustment of equities based on breach of representations and warranties made by 7L in connection with the BCA.

Learn More About Novi-Net at http://www.novi-net.hr/