8x8 2005 Annual Report Download - page 18

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development charge of $4.6 million, and a $1.1 million charge for the cumulative effect of a change in
accounting principle.
(4) The convertible subordinated debentures, which had a face value of $7.5 million, are presented net of the
related debt discount, which was amortized over the initial three-year term of the debentures. The
debentures were redeemed in December 2001.
(5) Net loss and net loss per share include restructuring and other charges of $3.4 million.
(6) Beginning fiscal 2003, Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and
Other Intangible Assets,” was adopted, and we ceased to amortize approximately $1.5 million of goodwill,
net of amortization, including intangibles that were classified as goodwill upon adoption of SFAS No. 142.
The 2001 and 2002 consolidated financial data includes amortization of goodwill and intangibles totaling
$0.7 million for 2002 and $11 million for 2001.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
We were founded in 1987 and completed an initial public offering of common stock in 1997. We develop and
market telecommunication technology for Internet protocol, or IP, telephony and video applications. We offer the
Packet8 broadband voice over Internet protocol, or VoIP, and video communications service, Packet8 Virtual Office
service and videophone equipment and services. We shipped our first VoIP product in 1998, launched our Packet8
service in November 2002, and launched the Packet8 Virtual Office business service offering in March 2004. As of
March 31, 2005, we had approximately 57,000 Packet8 lines in service. In fiscal 2005 and 2004 substantially all of
the Company’s revenues were generated from the sale, license and provision of VoIP products, services and
technology. Prior to fiscal 2003, our focus was on our VoIP semiconductor business.
In late fiscal 2003, we began to devote more of our resources to the promotion, distribution and development of the
Packet8 voice and video communications service than to our existing semiconductor business or hosted iPBX
solutions business. We completed several transactions during fiscal 2004 to license and sell technology and assets
of these businesses, including the sale of our IP PBX research and development center in France, the sale of our next
generation video semiconductor development effort, and the license of technology and manufacturing rights for our
VoIP semiconductor products to other semiconductor companies. In addition, during January 2004, we announced
the end of life of our VoIP semiconductor products, and began accepting last time buy orders from customers. This
change in our business has resulted in a reduction of revenues, but has enabled us to reduce costs and generate cash
from the related license and sale transactions related to the semiconductor and IP PBX businesses. We continue to
own the voice and video technology related to the semiconductor and IP PBX businesses, and utilize this technology
in the Packet8 service offering and continue to sell or license this technology when the opportunity is in our best
interest.
During fiscal 2005, we completed equity financings for gross proceeds of approximately $38.5 million. As of
March 31, 2005, we had cash, cash equivalents, restricted cash and investments of approximately $31.8 million as
compared to $14 million at March 31, 2004.
CRITICAL ACCOUNTING POLICIES & ESTIMATES
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in
the United States of America. Note 1 to the consolidated financial statements in Part II, Item 8 of this Report
describes the significant accounting policies and methods used in the preparation of our consolidated financial
statements.
We have identified the policies below as some of the more critical to our business and the understanding of our
results of operations. These policies may involve a higher degree of judgment and complexity in their application
and represent the critical accounting policies used in the preparation of our financial statements. Although we
believe our judgments and estimates are appropriate and correct, actual future results may differ from our estimates.
If different assumptions or conditions were to prevail, the results could be materially different from our reported
results. The impact and any associated risks related to these policies on our business operations is discussed
throughout Management's Discussion and Analysis of Financial Condition and Results of Operations where such