<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
May 24, 1999
Date of Report (Date of earliest event reported)
8X8, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 333-15627 77-0142404
-------------------------------- ------------------------- --------------------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
</TABLE>
2445 Mission College Blvd.
Santa Clara, California 95054
(Address of principal executive offices)
(408) 727-1885
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 24, 1999, 8x8, Inc. ("8x8) acquired from the holders of the
capital stock of Odisei S.A., a French corporation ("Odisei"), all but six of
their shares of Odisei pursuant to a Stock Exchange Agreement ("Exchange
Agreement"), dated as of May 13, 1999, among 8x8, Odisei, and the Security
Holders (as defined in the Exchange Agreement) (the "Acquisition"). As a result
of the Acquisition, 8x8 became the owner of 99.99% of the issued and outstanding
shares of Odisei common stock and each outstanding share of Odisei common stock
was exchanged for four newly issued shares of 8x8's common stock. 8x8 issued
2,867,976 shares of common stock in the aggregate pursuant to the Acquisition.
8x8 has filed a Registration Statement on Form S-3 to register the
shares.
In addition, 8x8 deposited $2,692,211 into escrow to indemnify the
Odisei stockholders for certain French tax obligations incurred by them in
connection with the exchange of their Odisei shares for 8x8 shares. The escrow
arrangement terminated when the Registration Statement on Form S-3 filed with
respect to the 8x8 shares issued to the Odisei Security Holders became
effective.
The terms of the Exchange Agreement and the other agreements,
instruments and documents contemplated by the Exchange Agreement were the result
of arm's-length negotiations among the parties.
The Exchange Agreement and agreements related thereto are included with
this Current Report on Form 8-K as Exhibit 2.1. The foregoing description of the
Acquisition is qualified in its entirety by reference to such Exhibit. In
addition, copies of 8x8's press releases announcing the signing and closing of
the Exchange Agreement are included as Exhibits 99.1 and 99.2 hereto.
In this Current Report on Form 8-K/A, 8x8 is providing the Financial
Statements of Odisei and certain pro forma financial information.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial statements of Business Acquired. The financial
statements of Odisei have been included as Exhibit 99.3.
(b) Pro Forma Financial Information. The following unaudited pro
forma condensed combined financial statements give effect to the acquisition by
8x8 of Odisei, a company in the development stage, using the purchase method of
accounting in accordance with generally accepted accounting principles. 8x8 is
considered the accounting acquirer. The unaudited pro forma condensed combined
financial statements are based upon the historical financial statements of the
respective companies. The unaudited pro forma condensed combined balance sheet
assumes that the acquisition took place on March 31, 1999 and combines Odisei's
March 31, 1999 historical balance sheet with 8x8's March 31, 1999 historical
consolidated balance sheet. The unaudited pro forma condensed combined
statements of operations for the twelve months ended March 31, 1999 assume the
acquisition took place as of April 1, 1998 and combine 8x8's consolidated
statement of
- 1 -
<PAGE> 3
operations for the year ended March 31, 1999 with Odisei's statement of
operations from April 1, 1998 to March 31, 1999. The unaudited pro forma
condensed combined financial statements are based on the estimates and
assumptions set forth in the notes to such statements. The pro forma adjustments
are based on a preliminary valuation of Odisei, that has yet to be finalized,
made in connection with the development of the pro forma information for
illustrative purposes to comply with the disclosure requirements of the
Securities and Exchange Commission. The pro forma adjustments included in the
unaudited pro forma condensed combined financial statements may be revised upon
the finalization of the valuation of the net assets acquired by 8x8. The
unaudited pro forma condensed combined financial statements do not purport to be
indicative of the results of operations for future periods or the combined
financial position or results that would have been realized had the companies
been a single entity during this period. These unaudited pro forma condensed
combined financial statements should be read in conjunction with the historical
financial statements and related notes thereto of Odisei, which are included
elsewhere herein, and the historical consolidated financial statements of 8x8
included in 8x8's March 31, 1999 Annual Report on Form 10-K previously filed
with the Securities and Exchange Commission.
- 2 -
<PAGE> 4
8X8, INC
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
8X8, INC. ODISEI S.A. ADJUSTMENTS COMBINED (C)
<S> <C> <C> <C> <C>
Product revenues $ 26,189 $ -- $ -- $ 26,189
License and other revenues 5,493 -- -- 5,493
-------- -------- -------- --------
Total revenues 31,682 -- -- 31,682
-------- -------- -------- --------
Cost of product revenues 24,199 -- -- 24,199
Cost of license and other revenues 82 82
-------- -------- -------- --------
Total cost of revenues 24,281 -- -- 24,281
-------- -------- -------- --------
Gross profit 7,401 -- -- 7,401
-------- -------- -------- --------
Operating expenses:
Research and development 9,922 444 -- 10,366
Selling, general and administrative 17,712 120 -- 17,832
Compensation expenses related to grants of stock options -- 741 -- 741
Amortization of intangibles -- -- 746(a) 746
-------- -------- -------- --------
Total operating expenses 27,634 1,305 746 29,685
Loss from operations (20,233) (1,305) (746) (22,284)
Other income/(expense), net 1,009 (1) -- 1,008
-------- -------- -------- --------
Loss before income taxes (19,224) (1,306) (746) (21,276)
(Benefit) provision for income taxes -- -- -- --
-------- -------- -------- --------
Net loss $(19,224) $ (1,306) $ (746) $(21,276)
======== ======== ======== ========
Net loss per share:
Basic and diluted $ (1.28) $ (1.20)
Shares used in per share calculations:
Basic and diluted 15,018 17,705(b)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined
Financial Statements
- 3 -
<PAGE> 5
8X8, INC
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1999
(In thousands)
<TABLE>
<CAPTION>
ODISEI PRO FORMA PRO FORMA
8X8, INC. S.A. ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,810 $ 3 $ -- $ 15,813
Accounts receivable, net 5,886 9 -- 5,895
Inventory 3,915 -- -- 3,915
Prepaid expenses and other current assets 878 2 -- 880
-------- -------- -------- --------
Total current assets 26,489 14 -- 26,503
Property and equipment, net 2,163 33 -- 2,196
Intangible assets -- -- 3,597(a) 3,597
Deposits and other assets 57 8 -- 65
-------- -------- -------- --------
$ 28,709 $ 55 $ 3,597 $ 32,361
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,917 $ 18 -- $ 1,935
Accounts payable to related parties -- 80 -- 80
Accrued compensation 1,236 65 -- 1,301
Accrued warranty 1,043 -- -- 1,043
Deferred revenue 4,089 100 -- 4,189
Other accrued liabilities 1,190 91 112(b) 1,393
Income taxes payable 411 -- -- 411
Current portion of capital lease obligations -- 8 -- 8
-------- -------- -------- --------
Total current liabilities 9,886 362 112 10,360
Capital leases obligations, less current portion -- 11 -- 11
-------- -------- -------- --------
Total liabilities 9,886 373 112 10,371
-------- -------- -------- --------
13,267(d)
(10,100)(c)
318(e)
Total stockholders' equity 18,823 (318) 3,485 21,990
-------- -------- -------- --------
$ 28,709 $ 55 $ 3,597 $ 32,361
======== ======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined
Financial Statements
- 4 -
<PAGE> 6
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. The Acquisition
The pro forma condensed combined financial statements reflect the
acquisition of Odisei on May 24, 1999 for 2,868,000 shares of 8x8
Common Stock. In addition, 8x8 issued approximately 154,000 8x8
options in exchange for certain Odisei options outstanding. The purchase
price of the acquisition of $13,379,000, which includes $112,000 of
estimated acquisition related costs and $648,000 for the exchange of
Odisei options for 8x8 options, was used to acquire the net assets of
Odisei. The purchase price for pro forma purposes has been allocated to
tangible assets acquired and liabilities assumed based on the book value
of Odisei's current assets and liabilities, which management believes
approximates their fair value. In addition, 8x8 management has engaged
an independent appraiser to value the intangible assets, including
amounts allocated to Odisei's in-process research and development. The
in-process research and development relates to Odisei's initial product
for which technological feasibility has not been established and has
been estimated utilizing a stage of completion approach. The resulting
estimated net cash flows have been discounted at a rate of 27%. This
discount rate was based on the estimated cost of capital plus an
additional discount for the increased risk associated with in-process
technology. The appraisal process is currently underway and, based on
the preliminary appraisal, the value of the acquired Odisei in-process
research and development, which will be expensed immediately, is $10.1
million. The actual amount of acquired in-process research and
development may differ from this estimate. The excess of the purchase
price over the net tangible and intangible assets acquired and
liabilities assumed has been allocated to goodwill. The allocation of
the purchase price is as follows (in thousands):
<TABLE>
<S> <C>
In process research and development $ 10,100
Workforce 200
Odisei net tangible liabilities (318)
Goodwill 3,397
--------
$ 13,379
========
</TABLE>
2. Unaudited Pro Forma Condensed Combined Statement of Operations
The following adjustments were applied to the historical statements of
operations for 8x8 and Odisei for the year ended March 31, 1999 to
arrive at the unaudited pro forma condensed combined statement of
operations as though the acquisition took place on April 1, 1998:
(a) To reflect amortization of the fair values of the goodwill and
workforce over periods of five and three years, respectively.
- 5 -
<PAGE> 7
(b) Shares used in the per share calculation reflect 2,868,000 shares
issued to shareholders (less approximately 181,000 unvested restricted
common shares issued to Odisei) as if they were outstanding from the
beginning of the period presented. Basic and diluted weighted average
shares outstanding are the same in each period because of the pro forma
combined net loss.
(c) The one time charge to expense for the fair value of the in-process
research and development has been excluded from the unaudited pro forma
condensed combined statement of operations since it is a non-recurring
charge.
2. Unaudited Pro Forma Condensed Combined Balance Sheet
The following adjustments were applied to the historical balance sheet
of 8x8 and Odisei at March 31, 1999 to arrive at the pro forma condensed
combined balance sheet:
(a) To record intangible assets acquired at their fair values, as
follows (in thousands):
<TABLE>
<S> <C>
Workforce $ 200
Goodwill 3,397
------
$3,597
======
</TABLE>
(b) Adjustment to record the estimate of transaction costs related to
the acquisition. Estimated costs include all costs directly incurred as
a result of the agreement including, but not limited to, accounting and
attorney fees, consultants and other miscellaneous items.
(c) To reflect the one time charge for the acquired in-process research
and development charges of $10,100,000.
(d) To record the increase in stockholders' equity of 8x8 as a result of
the issuance of common shares and valuation of the 8x8 options issued to
Odisei.
(e) To eliminate the stockholder's deficit of Odisei as a result of the
purchase transaction.
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
2.1 Stock Exchange Agreement, dated as of May 13, 1999,
by and among 8x8, Inc., Odisei S.A. and the
Security Holders named therein and the agreements
related thereto (filed as Exhibit 2.1 to 8x8's
Current Report on Form 8-K for an event dated May
24, 1999, filed on June 7, 1999, and incorporated
herein by reference).
23.1 Consent of KPMG Fiduciaire de France, independent
auditors of Odisei S.A.
</TABLE>
- 6 -
<PAGE> 8
<TABLE>
<S> <C>
99.1 Press release dated May 13, 1999 (filed as Exhibit
99.1 to 8x8's Current Report on Form 8-K for an
event dated May 24, 1999, filed on June 7,1999, and
incorporated herein by reference.
99.2 Press release dated May 25, 1999 (filed as Exhibit
99.2 to 8x8's Current Report on Form 8-K for an
event dated May 24, 1999, filed on June 7, 1999,
and incorporated herein by reference).
99.3 Financial Statements of Business Acquired.
</TABLE>
- 7 -
<PAGE> 9
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 hereunto duly authorized.
8X8, INC.
Dated: August 9, 1999
By: /s/ Sandra Abbott
------------------------------------
Sandra L. Abbott
Chief Financial Officer and
Vice President of Finance
- 8 -
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
2.1 Stock Exchange Agreement, dated as of May 13, 1999,
by and among 8x8, Inc., Odisei S.A. and the
Security Holders named therein and the agreements
related thereto (filed as Exhibit 2.1 to 8x8's
Current Report on Form 8-K for an event dated May
24, 1999, filed on June 7, 1999, and incorporated
herein by reference).
23.1 Consent of KPMG Fiduciaire de France, independent
auditors of Odisei S.A.
99.1 Press release dated May 13, 1999 (filed as Exhibit
99.1 to 8x8's Current Report on Form 8-K for an
event dated May 24, 1999, filed on June 7, 1999,
and incorporated herein by reference.
99.2 Press release dated May 25, 1999 (filed as Exhibit
99.2 to 8x8's Current Report on Form 8-K for an
event dated May 24, 1999, filed on June 7, 1999,
and incorporated herein by reference).
99.3 Financial Statements of Business Acquired.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-30943 and 333-50519) and Form S-3 (No.
333-80379) of 8x8, Inc. of our report dated January 22, 1999, appearing on
Exhibit 99.3 to this Form 8-K/A.
KPMG Fiduciaire de France
Nice, France
August 9, 1999
<PAGE> 1
EXHIBIT 99.3
ODISEI S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
FINANCIAL STATEMENTS
FOR THE PERIOD FROM FEBRUARY 25, 1998 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1998
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Odisei S.A.
In our opinion, the accompanying balance sheet of Odisei S.A. (a company in the
development stage) and the related statements of operations and accumulated
deficit and of cash flows present fairly, in all material respects, the
financial position of Odisei S.A. (a company in the development stage) at
September 30, 1998, and the results of its operation and its cash flow for the
period from February 25, 1998 (date of incorporation) to September 30, 1998, in
conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has not generated significant revenues and, as
a result, has incurred significant losses from operations that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result form the outcome of this
uncertainty.
Nice, France
22 January 1999
KPMG Fiduciaire de France
Thierry Borel
<PAGE> 3
ODISEI
(a company in the development stage)
BALANCE SHEET
September 30, 1998
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents FF 335,800
VAT receivable 111,412
Other receivable 60,000
Prepaid expenses and other current assets 97,973
----------
Total current assets 605,185
Property and equipment, net 202,943
Other assets 45,675
----------
TOTAL ASSETS FF 853,803
----------
LIABILITIES
Current liabilities:
Accounts payable FF 53,565
Accrued liabilities 76,878
Accrued compensation 199,619
Accrued payroll taxes 262,916
Current portion of capital lease obligations 36,877
----------
Total current liabilities 629,855
Capital lease obligations, less current portion 61,687
----------
Total liabilities 691,542
----------
Commitments (Note 4 and 5)
SHAREHOLDERS' EQUITY
Common stock 1 FF par value:
Authorized: 564 000 shares in September 1998
Issued and outstanding: 564 000 shares in September 1998 564,000
Additional paid-in-capital 981,627
Deficit accumulated during the development stage (1,383,366)
----------
Total shareholders equity 162,261
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY FF 853,803
==========
</TABLE>
The accompanying notes are integral part of these financial statements
<PAGE> 4
ODISEI
(a company in the development stage)
STATEMENTS OF OPERATIONS
Period from February 25, 1998 (date of inception) to September 30, 1998
<TABLE>
<S> <C>
Revenues from grants FF 60,000
Operating expenses:
Research and development 1,020,461
General and administrative 419,940
---------
Loss from operations 1,380,401
Interest expense net 2,965
---------
Loss before income taxes 1,383,366
Provision for income taxes --
---------
Net loss FF 1,383,366
=========
</TABLE>
The accompanying notes are integral part of these financial statements
<PAGE> 5
ODISEI
(a company in the development stage)
STATEMENTS OF SHAREHOLDERS' EQUITY
Period from February 25, 1998 (date of inception) to September 30, 1998
<TABLE>
<CAPTION>
Deficit
accumulated
Common stock Additional during the
------------------------- paid-in- development
Shares Amount capital stage Total
---------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to the founders at one
franc per share for cash on February 25, 1998 300,000 FF 300,000 FF 300,000
Issuance of common stock at 2,5 francs per share
for cash on April 8, 1998 98,100 98,100 FF 147,150 245,250
Issuance of common stock at 6,03 francs per share
for cash on April 27, 1998 165,900 165,900 834,477 1,000,377
Net loss FF (1,383,366) (1,383,366)
---------- ---------- ---------- -------------- ----------
Balances, September 30, 1998 564,000 FF 564,000 FF 981,627 FF (1,383,366) FF 162,261
========== ========== ========== ============== ==========
</TABLE>
The accompanying notes are integral part of these financial statements
<PAGE> 6
ODISEI
(a company in the development stage)
STATEMENTS OF CASH FLOWS
Period from February 25, 1998 (date of inception) to September 30, 1998
<TABLE>
<S> <C>
Cash flows from operating activities
Net loss FF (1,383,366)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 25,476
Change in operating assets and liabilities:
VAT receivable (111,412)
Other receivable (60,000)
Prepaid expenses and other current assets (97,973)
Other assets (45,675)
Accounts payable 53,565
Accrued liabilities and payroll taxes 339,794
Accrued compensation 199,619
----------
Net cash used in operating activities (1,079,972)
Cash flows from investing activities
Acquisition of property and equipment (110,039)
----------
Net cash used in investing activities (110,039)
Cash flows from financing activities
Proceeds from issuance of common stock 1,545,627
Payment under capital lease obligations (19,816)
----------
Net cash provided by financing activities 1,525,811
Net increase (decrease) in cash 335,800
Cash at beginning of year --
----------
Cash at end of year FF 335,800
==========
SUPPLEMENTAL DISCLOSURES OF CASH-FLOW INFORMATIONS
Interest paid FF 3,634
</TABLE>
The accompanying notes are integral part of these financial statements
<PAGE> 7
ODISEI
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY
Odisei (the Company) is a societe anonyme (SA) and was incorporated on February
25, 1998. Since inception, the Company has devoted substantially all of its
effort to developing the initial products, recruiting personnel, creating
relationships and raising capital.
Odisei is a software development company with offices in Silicon Valley and
Sophia Antipolis, France.Odisei has developed an open software platform for
IP-based telephony solutions. The product leverages Java server technology and
is designed to provide for both highly scalable and distributed configurations.
By focusing its expertise on call control, Odisei has developed a unique
approach to managing voice over IP networks.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going concern
The financial statements have been prepared assuming the Company will continue
as a going concern. The Company is in the development stage and has therefore
incurred cumulative losses of 1 383 366 French francs through September 30,
1998. Management is currently pursuing additional equity financing to further
fund the development of its products and markets. Since there is no assurance
that management will complete their plans, there is substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might be necessary should the Company be unable
to continue as a going concern.
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 periods.
Actual results could differ from those estimates.
<PAGE> 8
Cash and cash equivalent
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Cash is comprised of funds in two financial institutions.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful life of the related assets
(generally three to five years). Property and equipment acquired under capital
leases are amortized over their useful lives, generally three years.
Income taxes
The Company accounts for income taxes under the liability method, whereby
deferred tax asset and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
Grant accounting
Grants received from government agencies are recognized as income or as a
reduction of costs in accordance with the purpose of the specific contract and
in the period in which the related expense is incurred.
In October 1998, the Company entered into a grant agreement with the Agence
Nationale de Valorisation de la Recherche (ANVAR) under which the Company will
receive grants of 1,4 million of French francs for research and development. A
liability to repay 1,4 million of French francs would arise in the likely event
the Company should succeed in marketing and selling its product.
Research and development
Research and development expenditures are charged to operations as incurred.
Fair Value of Financial Instruments
The amounts reported for cash, account payable, accrued liabilities and note
payable to shareholder are considered to approximate fair values due to their
short maturities.
<PAGE> 9
3. PROPERTY, PLANT AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30, 1998
------------------
<S> <C>
Software FF 3,050
Computer and equipment 222,419
Leasehold improvements 2,950
--------
228,419
Less accumulated depreciation and amortization (25,476)
--------
FF 202,943
========
</TABLE>
4. CAPITAL LEASE OBLIGATIONS
The Company currently leases equipment under noncancelable capital leases which
expire at various dates over the next three years. At September 30, 1998
equipment acquired under capital leases amounted to 118,380 French francs. Such
amounts are included in property and equipment and have accumulated amortization
totaling approximately 10,741 French francs at September 30, 1998.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
September 30, 1998
------------------
<S> <C>
Financial year:
1999 FF 44,344
2000 44,344
2001 22,173
2002 -
----------
110,861
Less amount interesting interest (12,297)
Less current portion (36,877)
----------
FF 61,687
==========
</TABLE>
<PAGE> 10
5. COMMITMENTS
The Company subleases its facility under an operating lease expiring in July
1999. The rental payment includes common area maintenance costs, property taxes
and insurance.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
September 30, 1998
------------------
<S> <C>
Financial year:
1999 FF 184,814
</TABLE>
Rent expense for the period from February 24, 1998 (date of inception) to
September 30, 1998 was 77,810 French francs.
6. SHAREHOLDERS' EQUITY
Common stock
On January 22, 1999, the Board of shareholders declared a one for one hundred
common stock split. All applicable share data has been adjusted for the stock
splits.
7. INCOME TAXES
The Company's net deferred tax asset comprised as follows:
<TABLE>
<CAPTION>
September 30, 1998
------------------
<S> <C>
Net operating losses FF 485,678
Other accruals and credits 21,286
Research and development credit 450,000
Deferred depreciation 4,732
------------
961,696
Valuation allowance (961,696)
------------
NET DEFERRED TAX ASSETS FF --
============
</TABLE>
The Company has established a 100% valuation allowance against its deferred tax
assets due to the uncertainty of the ultimate realization of this asset.
<PAGE> 11
At September 30, 1998, the Company had net operating loss carryforwards of
approximately 1,324,573 French francs available to reduce future taxable income.
The carryforwards expire by the year 2003 unless utilized.
