SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 8-K
CURRENT REPORT PURSUANT TO
SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) May 26, 2000
CyPost Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 98-0178674
--------------------------------- -----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
101-260 West Esplanade
North Vancouver, British Columbia, Canada V7M 3G7
------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(604) 904-4422
--------------------------------------------------
Registrant's Telephone Number, Including Area Code
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Pursuant to a share purchase agreement (the "Acquisition Agreement") executed on
January 26, 2000 and closed on February 23, 2000, Cypost Corporation ("Cypost")
acquired all the issued and outstanding shares of Playa Corporation ("Playa")
from the following shareholders of Playa: Hirofumi Watanabe, Susumu Kohda,
Sagin Venture Capital Co., Ltd., and Hiroshi Mitani. The total purchase price
for all of the shares of Playa was US$3,000,000 consisting of US$300,000 paid in
cash and the balance paid by the issuance of 785,455 common shares of Cypost at
a deemed value of US$2,700,000.
The purchase consideration was established by negotiation. Funds for the
purchase of Playa was obtained from working capital.
Playa is the developers of YABUMI instant electronic messaging and e-greeting
technologies. YABUMI is based in Japan and has an existing customer base of
85,000 users.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial States of Businesses Acquired
The audited financial statements for the years ended October 31, 1999 and 1998
of Playa have been filed with this Form 8-K.
(b) Pro Forma Financial Information
It is not practicable to provide the required pro forma financial statements on
the date hereof. Accordingly, the pro forma financial statements will be filed
as an amendment to this Current Report on Form 8-K as soon as practicable.
(c) Exhibits
A copy of the Acquisition Agreement is attached as an Exhibit.
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.
CyPost Corporation
(Registrant)
Date: May 26, 2000 /s/ Robert Sendoh
Robert Sendoh, Chairman
<PAGE>
AUDITED FINANCIAL STATEMENTS
PLAYA CORPORATION
OCTOBER 31, 1999 AND 1998
<PAGE>
Playa Corporation
Audited Financial Statements
October 31, 1999 and 1998
<PAGE>
CONTENTS
Report of Independent Auditors 1
Audited Financial Statements
Balance Sheets 2
Statements of Operations and Retained Earnings - Deficit 4
Statements of Cash Flows 5
Notes to Financial Statements 6
<PAGE>
Report of Independent Auditors
The Board of Directors
Playa Corporation
We have audited the accompanying balance sheets of Playa Corporation as of
October 31, 1999 and 1998, and the related statements of operations and retained
earnings-deficit, and cash flows for the years then ended. 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 auditing standards generally accepted
in the United States. Those standards 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. 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 Playa Corporation at October
31, 1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States.
The accompanying financial statements have been prepared assuming that Playa
Corporation will continue as a going concern. As more fully described in Note
2, the Company has incurred recurring net losses and has a working capital
deficiency and a deficiency in assets. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
We have also reviewed the translations of the statements mentioned above into
U.S. dollars on the basis described in Note 1. In our opinion, these statements
have been translated on such basis.
Tokyo, Japan
April 21, 2000
<PAGE>
<TABLE>
<CAPTION>
Playa Corporation
Balance Sheets
OCTOBER 31, OCTOBER 31,
<S> <C> <C> <C>
1999 1998 1999
------------------- ---------
(Yen) (US dollars)
(Note 1)
ASSETS
Current assets:
Cash (Note 9) . . . . . . . . . . . . . . . . . \ 5,365,527 \ 2,087,171 $ 51,100
Trade receivables:
Notes (Note 9). . . . . . . . . . . . . . . . . 3,150,000 630,000 30,000
Accounts (Note 9) . . . . . . . . . . . . . . . 679,666 5,052,042 6,473
-------------- -------------
3,829,666 5,682,042 36,473
Due from related parties (Note 4) . . . . . . . 6,117,502 2,656,399 58,262
Less: Allowance for doubtful accounts (Note 4) (2,656,399) (2,656,399) (25,299)
-------------- -------------
3,461,103 0 32,963
Prepaid expenses and other current assets . . . 947,639 911,211 9,025
-------------- -------------
Total current assets. . . . . . . . . . . . . . 13,603,935 8,680,424 129,561
Equipment and an automobile, at cost (Note 8) . 9,398,602 10,750,512 89,511
Less: Accumulated depreciation
(Note 8). . . . . . . . . . . . . . . . . . . . (6,015,996) (5,699,662) (57,295)
-------------- ------------- ----------
Equipment and an automobile, net (Note 8) . . . 3,382,606 5,050,850 32,216
Other assets. . . . . . . . . . . . . . . . . . 2,147,053 2,217,053 20,448
\19,133,594 \15,948,327 $182,225
============== ============= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31,
<S> <C> <C> <C>
1999 1998 1999
--------------- -----------
(Yen). (U.S. dollars)
(Note 1)
LIABILITIES AND DEFICIENCY IN ASSETS
Current liabilities:
Short-term loans (Notes 5 and 9) . . . . . . . . . . . \ 64,500,000 \ 38,800,000 $ 614,286
Current portion of long-term debt (Notes 5 and 9). . . 6,000,000 3,996,000 57,143
Trade accounts payable . . . . . . . . . . . . . . . . - 63,000 -
Accounts payable - other . . . . . . . . . . . . . . . 7,921,429 7,669,350 75,442
Due to a related party (Note 4). . . . . . . . . . . . 1,128,093 125,090 10,744
Obligations under capital leases
(Note 8) . . . . . . . . . . . . . . . . . . . . . . . 179,906 552,560 1,713
Accrued income taxes . . . . . . . . . . . . . . . . . 140,000 140,000 1,333
Other current liabilities. . . . . . . . . . . . . . . 2,480,813 2,093,261 23,627
--------------- -------------
Total current liabilities. . . . . . . . . . . . . . . 82,350,241 53,439,261 784,288
Due to a related party (Note 4). . . . . . . . . . . . 144,486 914,337 1,376
Long-term debt (Notes 5, 9 and 10) . . . . . . . . . . 38,821,000 36,411,000 369,724
Obligations under capital leases
(Note 8) . . . . . . . . . . . . . . . . . . . . . . . - 179,906 -
--------------- -------------
38,965,486 37,505,243 371,100
Contingencies and commitments
(Note 8)
Deficiency in assets (Notes 2 and 10):
Common stock, Y50,000 par value:
Authorized -- 800 shares
Issued and outstanding -- 200 shares in 1999 and 1998. 10,000,000 10,000,000 95,238
Retained earnings - deficit (Notes 2 and 3). . . . . . (112,182,133) (84,996,177) (1,068,401)
--------------- -------------
Net deficiency in assets . . . . . . . . . . . . . . . (102,182,133) (74,996,177) (973,163)
--------------- ------------- ------------
\ 19,133,594 \ 15,948,327 $ 182,225
=============== ============= ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Playa Corporation
Statements of Operations and Retained Earnings - Deficit
Year ended
Year ended October 31, October 31,
<S> <C> <C> <C>
1999 1998 1999
------------------------ -----------
(Yen) (U.S. dollars)
(Note 1)
Revenues:
Net sales (Note 4). . . . . . . . . . . . . . . . . . . . \ 47,375,029 \ 32,189,491 $ 451,191
Interest and other income . . . . . . . . . . . . . . . . 38,960 25,904 371
------------- ----------- ----------
47,413,989 32,215,395 451,562
Cost and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . 4,834,870 6,732,714 46,047
Selling, general and
administrative expenses
(Notes 4, 6 and 8). . . . . . . . . . . . . . . . . . . . 66,057,831 40,963,301 629,122
Interest. . . . . . . . . . . . . . . . . . . . . . . . . 2,992,698 3,314,363 28,502
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 574,546 203,668 5,472
---------- ----------- --------
74,459,945 51,214,046 709,143
--------- ---------- --------
Loss before income taxes. . . . . . . . . . . . . . . . . (27,045,956) (18,998,651) (257,581)
Income taxes (Note 7) . . . . . . . . . . . . . . . . . . 140,000 162,600 1,333
----------- ------------ ---------
Net loss (Notes 2 and 3). . . . . . . . . . . . . . . . . (27,185,956) (19,161,251) (258,914)
Retained earnings - deficit at
beginning of the year
(Notes 2 and 3) . . . . . . . . . . . . . . . . . . . . . (84,996,177) (65,834,926) (809,487)
------------ ----------- ---------
Retained earnings - deficit at end
of the year (Notes 2 and 3) . . . . . . . . . . . . . . . \(112,182,133) \(84,996,177) $(1,068,401)
============= =========== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Playa Corporation
Statements of Cash Flows
YEAR ENDED YEAR ENDED
YEAR ENDED OCTOBER 31, OCTOBER 31,
<S> <C> <C> <C>
1999 1998 1999
----------------------- ------------
(Yen) (U.S. dollars)
(Note 1)
OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . \(27,185,956) \(19,161,251) $(258,914)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization. . . . . . . . . . 1,891,334 2,122,975 18,013
Loss on disposal of an automobile, net . . . . . - 112,668 -
Provision for allowance for doubtful accounts. . - 672,000 -
Changes in operating assets and liabilities:
Trade receivables. . . . . . . . . . . . . . . . 1,852,376 2,006,539 17,642
Due from related parties . . . . . . . . . . . . (3,461,103) (634,500) (32,963)
Prepaid expenses and other current assets. . . . (36,428) 68,313 (347)
Trade accounts payable . . . . . . . . . . . . . (63,000) (908,688) (600)
Accounts payable-other . . . . . . . . . . . . . 252,079 (493,282) 2,401
Due to a related party . . . . . . . . . . . . . 1,003,003 125,090 9,552
Accrued income taxes . . . . . . . . . . . . . . - (140,200) -
Other current liabilities. . . . . . . . . . . . 387,552 192,760 3,691
--------- --------- --------
Net cash used in operating activities. . . . . . (25,360,143) (16,037,576) (241,525)
INVESTING ACTIVITIES
Purchases of equipment and an automobile . . . . (153,090) (5,402,231) (1,458)
Proceeds from disposal of an automobile. . . . . - 246,219 -
Increase in other assets . . . . . . . . . . . . - (571,667) -
--------- ----------- -------
Net cash used in investing activities. . . . . . (153,090) (5,727,679) (1,458)
FINANCING ACTIVITIES
Proceeds from long-term loans from banks
and a related party. . . . . . . . . . . . . . . 13,174,486 21,096,267 125,471
Repayment of long-term loans from banks
and a related party. . . . . . . . . . . . . . . (9,530,337) (17,914,930) (90,765)
Proceeds from issuance of bonds with detachable
warrants . . . . . . . . . . . . . . . . . . . . - 20,000,000 -
Increase (decrease) in short-term loans. . . . . 25,700,000 (868,000) 244,762
Principal payments under capital lease
obligation . . . . . . . . . . . . . . . . . . . (552,560) (679,747) (5,263)
----------- ---------- -------
Net cash provided by financing activities. . . . 28,791,589 21,633,590 274,205
- ---------- ---------- --------
Net increase (decrease) in cash. . . . . . . . . 3,278,356 (131,665) 31,222
Cash at beginning of the year. . . . . . . . . . 2,087,171 2,218,836 19,878
---------- --------- -------
Cash at end of the year. . . . . . . . . . . . . \ 5,365,527 \ 2,087,171 $ 51,100
============= ============ ==========
SUPPLEMENTARY INFORMATION:
Interest paid during the year. . . . . . . . . . \ 2,894,036 \ 3,225,157 $ 27,562
Income taxes . . . . . . . . . . . . . . . . . . 140,000 302,800 1,333
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Playa Corporation
Notes to Financial Statements
October 31, 1999 and 1998
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Playa Corporation (the "Company"), a corporation established under the
Commercial Code of Japan, engages in design, construction and maintenance of IT
network system and development of IT systems. Substantially all the Company's
notes and accounts receivable are due from companies in various industries
located throughout Japan.
Credit is extended, in general, based on past business experience and on an
evaluation of the customers' financial condition, and collateral is generally
not required. Credit losses are provided for in the financial statements and
have consistently been within management's expectations.
BASIS OF FINANCIAL STATEMENTS
The Company maintains its official accounting records and prepares its financial
statements for domestic purposes in accordance with accounting practices
generally accepted in Japan. The accompanying financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States and differ from those issued for domestic purposes in Japan.
Accordingly, these financial statements reflect certain adjustments not recorded
in the Company's official accounting records which are explained in Note 3.
All amounts in the accompanying financial statements are stated inclusive of
consumption tax.
U.S. DOLLAR TRANSLATION
The accompanying financial statements are stated in yen, the currency of the
country in which the Company is incorporated and operates. The U.S. dollar
amounts with respect to the year ended October 31, 1999 are presented solely for
the convenience of readers outside Japan. Translation of yen financial
statements into U.S. dollar amounts has been made at Y105 = U.S.$1.00, the
exchange rate prevailing on October 31, 1999. This translation should not be
construed as a representation that yen could be converted into U.S. dollars at
the above or any other rate.
<PAGE>
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions which affect the amounts reported in the financial statements and
the accompanying notes. The actual results could differ from those estimates.
EQUIPMENT AND AN AUTOMOBILE
Equipment and an automobile are stated on the basis of cost. Depreciation is
computed by the declining-balance method over the estimated useful lives of the
respective assets.
SEVERANCE BENEFITS
The Company has no severance benefit plan for employees and directors.
Employees are covered by a governmental severance benefit plan and the Company
pays contributions to it, which are charged to income as incurred. No cost or
expense would be incurred further to this contribution.
NOTE 2. GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements during the years ended October 31, 1999 and 1998, the Company
incurred a net loss of \27,185,956 ($258,914) and \19,161,251, respectively.
The Company also recorded a deficiency in assets of \102,182,133 ($973,163) and
\74,996,177 at October 31, 1999 and 1998, respectively. These factors indicate
that the Company will be unable to continue as a going concern for a reasonable
period of time.
<PAGE>
NOTE 3. ADJUSTMENTS NOT RECORDED IN THE OFFICIAL ACCOUNTING RECORDS
The following adjustments, not reflected in the official accounting records,
have been made to conform the Company's Japanese yen financial statements to
accounting principles generally accepted in the United States (U.S. GAAP):
<TABLE>
<CAPTION>
RETAINED RETAINED
EARNINGS - EARNINGS -
DEFICIT AT DEFICIT AT
BEGINNING OF THE APPROPRI- NET (LOSS) END OF
YEAR ATIONS INCOME THE YEAR
-----------------
<S> <C> <C> <C> <C>
(Yen)
Year ended October 31, 1999
-------------------------------
Per the Company's official
accounting records. . . . . . . \(44,930,033) - \(13,009,648) \ (57,939,681)
Adjustments:. . . . . . . . . . -
Capital leases. . . . . . . . . (421,635) - 299,963 (121,672)
Work-in-process and software
development cost. . . . . . . . (17,677,307) - (21,691,380) (39,368,687)
Trade accounts receivable . . . (9,775,500) - 7,024,500 (2,751,000)
Accounts payable-other. . . . . (7,440,000) - (118,500) (7,558,500)
Due from and to related parties (2,781,489) - (1,003,003) (3,784,492)
Other assets. . . . . . . . . . (765,805) - 1,336,272 570,467
Prepaid and accrued expenses. . (1,204,408) - (24,160) (1,228,568)
----------------- ---------- --------------
Total adjustments . . . . . . . (40,066,144) - (14,176,308) (54,242,452)
------------- -------------- -------------
As adjusted to U.S. GAAP. . . . \(84,996,177) - \(27,185,956) \(112,182,133)
================= =========== ==============
Year ended October 31, 1998
-------------------------------
Per the Company's official
accounting records. . . . . . . \(45,486,778) - \ 556,745 \ (44,930,033)
Adjustments:
Capital leases. . . . . . . . . (661,318) - 239,683 (421,635)
Work-in-process and software
development cost. . . . . . . . (7,233,825) - (10,443,482) (17,677,307)
Trade accounts receivable . . . (15,435) - (9,760,065) (9,775,500)
Accounts payable-other. . . . . (7,880,000) - 440,000 (7,440,000)
Due from and to related parties (1,984,399) - (797,090) (2,781,489)
Other assets. . . . . . . . . . (1,407,472) - 641,667 (765,805)
Prepaid and accrued expenses. . (1,165,699) - (38,709) (1,204,408)
----------- ------------ -----------
Total adjustments . . . . . . . (20,348,148) - (19,717,996) (40,066,144)
----------------- ------------ ------------
As adjusted to U.S. GAAP. . . . \(65,834,926) - \(19,161,251) \ (84,996,177)
============= ============== =============
</TABLE>
<PAGE>
NOTE 3. ADJUSTMENTS NOT RECORDED IN THE OFFICIAL ACCOUNTING RECORDS (CONTINUED)
<TABLE>
<CAPTION>
RETAINED RETAINED
EARNINGS - EARNINGS -
DEFICIT AT DEFICIT AT
BEGINNING OF APPROPRI- NET (LOSS) END OF
THE YEAR ATIONS INCOME THE YEAR
---------------
<S> <C> <C> <C> <C>
(U.S. dollars)
Year ended October 31, 1999
-------------------------------
Per the Company's official
accounting records. . . . . . . $ (427,905) - $ (123,901) $ (551,806)
Adjustments:. . . . . . . . . . -
Capital leases. . . . . . . . . (4,016) - 2,857 (1,159)
Work-in-process and software
development cost. . . . . . . . (168,355) - (206,585) (374,940)
Trade accounts receivable . . . (93,100) - 66,900 (26,200)
Accounts payable-other. . . . . (70,857) - (1,129) (71,986)
Due from and to related parties (26,490) - (9,552) (36,042)
Other assets. . . . . . . . . . (7,293) - 12,726 5,433
Prepaid and accrued expenses. . (11,471) - (230) (11,701)
----------- ---------- ----------
Total adjustments . . . . . . . (381,582) - (135,013) (516,595)
----------- --------- ----------
As adjusted to U.S. GAAP. . . . $ (809,487) - $ (258,914) $(1,068,401)
=============== =========== ============
</TABLE>
NOTE 4. TRANSACTIONS WITH RELATED PARTIES
Transactions with related parties for the years ended October 31, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
1999 1998 1999
----------------- ------
<S> <C> <C> <C>
(Yen) (US dollars)
Net sales:
2-Bytes Culture Systems Inc. . . . - \3,603,610 -
Operating expenses reimbursed to:
2-Bytes Culture Systems Inc. . . . \1,003,003 \ 125,090 $9,552
</TABLE>
<PAGE>
NOTE 4. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
Balances due from and to affiliates at October 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1999
------------------------- -------
<S> <C> <C> <C>
(Yen) (US dollars)
Due from:
Digital Video K.K. . . . . . . . \ 1,984,399 \ 1,984,399 $ 18,899
2-Bytes Culture Systems Inc. . . 672,000 672,000 6,400
-------------- ------------------ ---------
2,656,399 2,656,399 25,299
Allowance for doubtful accounts. (2,656,399) (2,656,399) (25,299)
-------------- ------------------ ---------
0 0 0
Short-term loan to a director. . 3,461,103 - 32,963
-------------- ------------------ ---------
\ 3,461,103 \ 0 $ 32,963
============== ================== =========
Due to:
2-Bytes Culture Systems Inc. . . \ 1,128,093 \ 125,090 $ 10,744
Long-term loan from a director . 144,486 914,337 1,376
-------------- ------------------ ---------
\ 1,272,579 \ 1,039,427 $ 12,120
============== ================== =========
</TABLE>
Mr. Susumu Koda, a director of the Company, is concurrently a shareholder and a
director of Digital Video K.K. Mr. Aaron Huang, a director of the Company, is
concurrently a shareholder and a director of 2-Bytes Culture Systems Inc.
Short-term loans to and from a director represent those to and from Mr. Hirofumi
Watanabe, the representative director of the Company. These loans are interest
free. The Company has not prepared collection or repayment schedules for these
loans.
NOTE 5. SHORT-TERM LOANS AND LONG-TERM DEBT
Short-term loans consisted of those from a bank, an affiliate of a bank and an
individual person. Short-term loans from a bank amounted to \12,500,000
($119,048) and \8,800,000 at October 31, 1999 and 1998, respectively.
Short-term loans from a bank consisted of secured or guaranteed loans at rates
ranging from 2.0% to 3.0% and 2.0% to 2.6% at October 31, 1999 and 1998,
respectively. A short-term loan from an affiliate of a bank amounted to
\30,000,000 ($285,714) at October 31, 1999 and 1998. It was a guaranteed loan
with an interest rate of 4.0% at October 31, 1999 and 1998. A short-term loan
from an individual person amounted to \22,000,000 ($209,524) at October 31,
1999. It was a guaranteed loan with an interest rate of 3.0% at October 31,
1999.
<PAGE>
NOTE 5. SHORT-TERM LOANS AND LONG-TERM DEBT (CONTINUED)
Long-term debt at October 31, 1999 and 1998 consisted of the following. All
debt is guaranteed:
<TABLE>
<CAPTION>
1999 1998 1999
-------------------- -----
<S> <C> <C> <C>
(Yen) (US dollars)
Loans from banks at rates ranging from
2.5% to 3.5% due in installments from
1999 to 2003. . . . . . . . . . . . . . \24,821,000 \20,407,000 $236,391
2.3% guaranteed bonds with detachable
warrants to purchase stock, due 2008 20,000,000 20,000,000 190,476
-------------- ---------- ---------
44,821,000 40,407,000 426,867
Less: Amounts classified as current
portion . . . . . . . . . . . . . . . . (6,000,000) (3,996,000) (57,143)
-------------- ----------- ---------
\38,821,000 \36,411,000 $369,724
============== =========== =========
</TABLE>
Each detachable warrant represents the right to purchase one share of the
Company's common stock with par value of \50,000 ($476) at an exercise price of
\50,000 ($476), until the expiration date of January 19, 2008. As of October
31, 1999, no warrants had been exercised.
The aggregate annual maturities of long-term debt subsequent to October 31, 1999
are summarized as follows:
<TABLE>
<CAPTION>
ANNUAL MATURITIES
-------------------
<S> <C> <C>
(Yen) (U.S. dollars)
Year ending October 31,
2000 . . . . . . . . . . \ 6,000,000 $ 57,143
2001 . . . . . . . . . . 6,000,000 57,143
2002 . . . . . . . . . . 6,000,000 57,143
2003 . . . . . . . . . . 5,693,000 54,219
2004 . . . . . . . . . . 1,128,000 10,743
Years subsequent to 2004 20,000,000 190,476
------------------- ---------------
\44,821,000 $426,867
================== ===============
</TABLE>
NOTE 6. RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed in the year in which such costs are
incurred. These amounted to 38,455,080 ($366,239) and 15,439,282 for the
years ended October 31, 1999 and 1998, respectively.
<PAGE>
NOTE 7. INCOME TAXES
Income taxes include per capita portion of inhabitants' taxes only because the
Company recorded negative taxable income for the years ended October 31, 1999
and 1998.
At October 31, 1999, the Company had \56,862,666 ($541,549) of net operating
loss carryforwards, which will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION
-------------
<S> <C> <C>
(Yen) (U.S. dollars)
October 31,
2001. . . . \44,220,775 $ 421,150
2004. . . . 12,641,891 120,399
------------- ---------------
\56,862,666 $ 541,549
=========== ============
</TABLE>
NOTE 8. CONTINGENCIES AND COMMITMENTS
The Company leases certain personal computers, software and other devices under
capital lease agreements. The Company also leases office and car parking space
under operating lease agreements.
Following is a summary of future minimum payments under capital leases and
operating leases that have initial or remaining noncancellable lease terms in
excess of one year at October 31, 1999:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING CAPITALIZED OPERATING
LEASES LEASES LEASES LEASES
--------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
(Yen) (U.S. dollars)
Year ending October 31,
2000 . . . . . . . . . . . . \ 181,800 \2,272,680 $ 1,731 $ 21,645
2001 . . . . . . . . . . . . - 742,560 - 7,072
--------------- ----------- ------------ ---------
Total minimum lease payments 181,800 \3,015,240 1,731 $ 28,717
=============== ==========
Imputed interest . . . . . . (1,894) (18)
--------------- ------
Present value of minimum
capital lease payments . . . 179,906 1,713
--------------- ---------
Current portion. . . . . . . (179,906) (1,713)
--------------- ----------
Long-term capital lease
obligations. . . . . . . . . \ - $ -
=============== ===========
</TABLE>
<PAGE>
NOTE 8. CONTINGENCIES AND COMMITMENTS (CONTINUED)
Assets recorded under capital leases were included in equipment and an
automobile as follows:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31,
1999 1998 1999
------------------- -----------
<S> <C> <C> <C>
(Yen) (US dollars)
Equipment and an automobile, at cost. \ 1,356,706 \ 2,861,706 $ 12,921
Less: Accumulated depreciation . . . (1,298,472) (2,550,875) (12,366)
-------------- ---------- ---------
Equipment and an automobile, at net . \ 58,234 \ 310,831 $ 555
============== ========= =========
</TABLE>
Rental expenses for office and car parking space under operating leases amounted
to \2,991,045 ($28,486) and \3,419,640 for the year ended October 31, 1999 and
1998, respectively.
At October 31, 1999, the Company is contingently liable as to a trade note
receivable discounted with a bank in the amount of \5,250,000 ($50,000).
NOTE 9. FINANCIAL INSTRUMENTS
The financial instruments which potentially subject the Company to a significant
concentration of credit risk consist principally of cash investments and trade
notes and accounts receivable. The Company maintains cash with various
financial institutions and performs periodic evaluations of the credit status of
those financial institutions, which are then considered in planning the
Company's investment strategy.
The following methods and assumptions were used by the Company in estimating the
fair value disclosure of its financial instruments:
Cash:
The carrying amount reported in the balance sheet for cash approximates fair
value.
Trade notes and accounts receivable:
The carrying amounts reported in the balance sheet for trade notes and accounts
receivable approximate fair value.
<PAGE>
NOTE 9. FINANCIAL INSTRUMENTS (CONTINUED)
Short-term loans:
The carrying amount reported in the balance sheet for short-term loans
approximates fair value.
Long-term debt:
The fair value of long-term debt is estimated by applying discount cash flow
analyses based on the Company's current incremental borrowing rates for similar
types of debt. The carrying amount of long-term debt approximates its fair
value.
NOTE 10. SUBSEQUENT EVENTS
On February 23, 2000, CyPost Corporation acquired all issued and outstanding
shares of the Company and its all potential shares issuable upon exercise of
warrants to purchase stock.
On March 8, 2000, all warrants to purchase stock were exercised and the Company
issued 400 shares of common stock and increased share capital by \20,000,000
($190,476). Simultaneously the Company redeemed bonds with detachable warrants
with the consideration paid by warrant holders.
