8x8 1999 Annual Report Download - page 45

8X8, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
8x8, Inc. (the "Company" or "8x8") was incorporated in California in February 1987. In December 1996, the Company was reincorporated in
Delaware.
The Company develops, manufactures and markets telecommunication equipment focused on multimedia Internet protocol (IP) applications.
The Company's products are highly integrated, leverage its proprietary technology and are comprised of multimedia communication
semiconductors, multimedia compression algorithms, network protocols and embedded system design. These products are used in applications
including voice-over-IP, video monitoring and streaming, and videoconferencing. The Company markets its products mainly to original
equipment manufacturers (OEMs), but also to end users for its Video Monitoring system products.
In an effort to expand the available market for its multimedia communication products, the Company began developing low-cost consumer
videophones and marketing these products to consumers under the ViaTV brand name in 1997. However in the fourth quarter of fiscal 1999,
the Company determined that due to a combination of factors including the high cost of maintaining a consumer distribution channel, the
slower than expected growth rate of the consumer videophone market, and the low gross margins typical of a consumer electronics product
made it unlikely that the consumer videophone business would be profitable in the foreseeable future. Therefore, the Company announced in
April 1999 that it would cease production of the ViaTV product line and withdraw from its distribution channels over the subsequent several
quarters. The Company does not expect to be able to generate revenues from its other products to compensate for the loss of ViaTV revenues
for at least the next twelve months, if at all. If the Company can not adequately compensate for lower revenues with decreased manufacturing
overhead expenses and with lower operating expenses, it could have a material adverse effect on the Company's business and operating results.
See also Note 9.
FISCAL YEAR
The Company's fiscal year ends on the last Thursday on or before March 31. For purposes of these consolidated financial statements, the
Company has indicated its fiscal year as ending on March 31.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of the consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
REVENUE RECOGNITION
Revenues from product sales to OEMs and other end users are recognized upon shipment. License revenues are generally recognized upon the
delivery of the licensed technology provided no significant future obligations exist and collection is probable. For financial reporting purposes,
revenues generated by sales to distributors and retailers under agreements allowing certain rights of return are deferred until the product is
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