8x8 2001 Annual Report Download - page 49

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NETERGY NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Odisei S.A.
On May 24, 1999, the Company acquired Odisei S.A. (Odisei), a privately held, development stage company based in Sophia Antipolis,
France, that was developing software for managing voice-over IP networks. The consolidated financial statements reflect the acquisition of
Odisei for approximately 2,868,000 shares of the Company's common stock and approximately 121,000 of contingent shares, which were
subsequently issued to Odisei employee shareholders in March 2000. Approximately 30,000 of the shares issued to Odisei employees are
subject to repurchase as of March 31, 2001 if the employee departs prior to vesting. The purchase price was approximately $13.6 million,
which includes approximately $295,000 of acquisition-related costs. The purchase price was allocated to tangible assets acquired and liabilities
assumed based on the book value of Odisei's current assets and liabilities, which approximated their fair value. In addition, the Company
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 related to Odisei's initial product for which technological feasibility had not been established and was
estimated to be approximately 60% complete. The fair value of the in-process technology was based on a discounted cash flow model, which
discounted expected future cash flows to present value, net of tax. In developing cash flow projections, revenues were forecasted based on
relevant factors, including aggregate revenue growth rates for the business as a whole, characteristics of the potential market for the
technology, and the anticipated life of the technology. Projected annual revenues for the in-process research and development projects were
assumed to ramp up initially and decline significantly at the end of the in-process technology's economic life. Operating expenses and resulting
profit margins were forecasted based on the characteristics and cash flow generating potential of the acquired in-process technology.
risks related to the impact of potential changes in market conditions and technology. The resulting estimated net cash flows were 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. Based on the independent appraisal, the value of the acquired Odisei in-process research and development, which was
expensed in the fiscal year ended March 31, 2000, was $10.1 million. The excess of the purchase price over the net tangible and intangible
assets acquired and liabilities assumed was allocated to goodwill. The allocation of the purchase price consisted of the following (in
thousands):
The Company's Consolidated Statement of Operations for the fiscal year ended March 31, 2000 includes the results of Odisei from the date of
acquisition. Had the acquisition taken place as of the beginning of either fiscal 2000 or fiscal 1999, the pro forma net loss for both periods
would have been substantially the same.
NOTE 4 -- RESTRUCTURING CHARGES
During the fourth quarter of fiscal 2001, after a significant number of employees had resigned, the Company discontinued its Canadian
operations acquired in conjunction with the acquisition of U/Force in June 2000. The Company closed its offices in Montreal and Hull, Quebec
and laid-off all remaining employees resulting in the cessation of most of the research and development efforts and all of the sales and
marketing and professional services activities associated with the U/Force business. As a result of the restructuring, the
44
In-process research and development........................ $10,100
Workforce.................................................. 200
Net tangible liabilities................................... (219)
Goodwill................................................... 3,481
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$13,562
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