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) Delaware 333-15627 77-0142404 -------------------------------- ------------------------- -------------------- (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.) 2445 Mission College Blvd. Santa Clara, California 95054 (Address of principal executive offices) (408) 727-1885 (Registrant's telephone number, including area code)
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 -
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 -
4 8X8, INC UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS YEAR ENDED MARCH 31, 1999 (In thousands, except per share data) PRO FORMA PRO FORMA 8X8, INC. ODISEI S.A. ADJUSTMENTS COMBINED (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) See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements - 3 -
5 8X8, INC UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET MARCH 31, 1999 (In thousands) ODISEI PRO FORMA PRO FORMA 8X8, INC. S.A. ADJUSTMENTS COMBINED 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 ======== ======== ======== ======== See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements - 4 -
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): In process research and development $ 10,100 Workforce 200 Odisei net tangible liabilities (318) Goodwill 3,397 -------- $ 13,379 ======== 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 -
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): Workforce $ 200 Goodwill 3,397 ------ $3,597 ====== (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. Exhibit Number Description -------------- ----------- 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. - 6 -
8 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. - 7 -
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 -
10 EXHIBIT INDEX Exhibit Number Description -------------- ----------- 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.
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
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
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
3 ODISEI (a company in the development stage) BALANCE SHEET September 30, 1998 ASSETS 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 ========== The accompanying notes are integral part of these financial statements
4 ODISEI (a company in the development stage) STATEMENTS OF OPERATIONS Period from February 25, 1998 (date of inception) to September 30, 1998 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 ========= The accompanying notes are integral part of these financial statements
5 ODISEI (a company in the development stage) STATEMENTS OF SHAREHOLDERS' EQUITY Period from February 25, 1998 (date of inception) to September 30, 1998 Deficit accumulated Common stock Additional during the ------------------------- paid-in- development Shares Amount capital stage Total ---------- ---------- ---------- -------------- ---------- 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 ========== ========== ========== ============== ========== The accompanying notes are integral part of these financial statements
6 ODISEI (a company in the development stage) STATEMENTS OF CASH FLOWS Period from February 25, 1998 (date of inception) to September 30, 1998 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 The accompanying notes are integral part of these financial statements
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.
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.
9 3. PROPERTY, PLANT AND EQUIPMENT Property and equipment consist of the following: September 30, 1998 ------------------ 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 ======== 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: September 30, 1998 ------------------ 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 ==========
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: September 30, 1998 ------------------ Financial year: 1999 FF 184,814 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: September 30, 1998 ------------------ 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 -- ============ The Company has established a 100% valuation allowance against its deferred tax assets due to the uncertainty of the ultimate realization of this asset.
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.