8x8 1999 Annual Report Download - page 36

associated with Year 2000 compliance was material as the feature is included with a system purchased by the Company to satisfy its business
needs. As such, the Company has not allocated any portion of the total project cost to the Year 2000 issue.
The Company is also assessing the possible effects on the Company's operations of the Year 2000 readiness of key customers, subcontract
manufacturers, component suppliers and other providers of goods and services to the Company. The Company expects that this assessment, as
well as related remediation and contingency planning activities, will be on-
going throughout calendar year 1999.* Failure to address Year 2000
issues by the Company's customers, subcontract manufacturers, component suppliers, and other providers of goods and services could have a
material adverse impact on the Company's business and operating results.*
The total estimated cost to be incurred by the Company regarding the testing of current products for Year 2000 compliance, and answering and
responding to customer requests related to Year 2000 issues, including both incremental spending and redeployed resources, is currently not
expected to exceed $100,000. The total cost estimate does not include costs of internal software and hardware replaced in the normal course of
business. In some instances, the installation schedule of new software and hardware in the normal course of business is being accelerated to
also afford a solution to Year 2000 compliance issues.
The failure to correct a material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or
operations. Due to the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of the Year 2000 readiness
of key customers, subcontract manufacturers, component suppliers and other partners providing goods and services to the Company, the
Company is unable to determine at this time whether the consequences of Year 2000 related interruptions or failures will have a material
impact on the Company's results of operations, liquidity or financial condition. To attempt to mitigate the impact of Year 2000 related risks, the
Company has begun development of contingency plans which will include, for example, attempting to identify alternative vendors of critical
materials and services in the event of a Year 2000 related disruption in supply.* Contingency planning will continue through at least calendar
1999, and will depend heavily on responses received from current vendors and customers regarding their Year 2000 readiness.* However, even
if the Company, in a timely manner, develops contingency plans believed to be adequate, some problems may not be identified or corrected in
time to prevent material adverse consequences to the Company.* Additionally, if the Company fails to satisfactorily resolve Year 2000 issues
in a timely manner, it could be exposed to claims by third parties.
Liquidity and Capital Resources
As of March 31, 1999, the Company had cash and liquid investments totaling $15.8 million, representing a decrease of $10.9 million from
March 31, 1998. The Company currently has no bank borrowing arrangements.
Cash used in operations of $10.4 million in fiscal 1999 reflected a net loss of $19.2 million, an increase in accounts receivable of $1.4 million,
and a decrease in accounts payable of $708,000. Cash used in operations was partially offset by cash provided by a decrease in inventory of
$8.8 million, an increase in deferred revenue of $1.6 million, and noncash items, including a deferred compensation charge of $416,000 and
depreciation and amortization of $967,000. Cash used in investing activities in fiscal 1999 is primarily attributable to capital expenditures of
$1.8 million and the repurchase of common stock from minority shareholders of a subsidiary of the Company in conjunction with its merger
with the Company in August 1998. Cash flows from financing activities in fiscal 1999 consisted primarily of net proceeds from the repayment
of stockholders' notes receivable and sales of the Company's common stock upon the exercise of employee stock options. For the year, cash
and cash equivalents decreased by $10.9 million.
* This statement is a forward looking statement reflecting current expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. See "Manufacturing" commencing on page 15, "Competition" commencing on
page 13 and "Factors That May Affect Future Results" commencing on page 17 for a discussion of certain factors that could affect future
performance.
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