8x8 2005 Annual Report Download - page 21

18
Litigation
From time to time, we receive notices that our products or manufacturing processes may be infringing the patent or
intellectual property rights of others. Management's current estimated range of liability related to pending
intellectual property and other litigation involving the Company is based on claims and exposures for which our
management can estimate the amount and range of loss. We have recorded the minimum estimated liability related
to those claims, where there is a range of loss. At March 31, 2005, liabilities related to litigation matters were not
significant. Because of the uncertainties related to both the amount and range of loss on pending litigation,
management is unable to make a reasonable estimate of the liability that could result from an unfavorable outcome.
As additional information becomes available, we will assess the potential liability, if any, related to our pending
litigation and revise our estimates. Such revisions in our estimates of the potential liability could materially impact
our results of operations, financial position or cash flows.
RESULTS OF OPERATIONS
The following table sets forth consolidated statement of operations data for each of the years ended March 31, 2005,
2004 and 2003, expressed as the percentage of our total revenues represented by each item. Cost of product revenues
is presented as a percentage of product revenues and cost of license and other revenues is presented as a percentage
of license and service revenues. You should read this information in conjunction with our Consolidated Financial
Statements and related notes included elsewhere in this Report.
REVENUES
Product revenues consist of revenues from sales of VoIP terminal adapters, telephones and videophones, primarily
attributable to our Packet8 service, as well as sales of VoIP semiconductors and other system products. Product
revenues were $2.4 million, $2.7 million and $5.7 million for fiscal 2005, 2004 and 2003, respectively. The $0.3
million decrease in fiscal 2005 compared to fiscal 2004 million was primarily attributable to a $1.4 million increase
in Packet8 product revenues attributable to the growth in the subscriber base compared to the prior year, partially
offset by a $1.7 million decrease in sales of video and VoIP semiconductors. During fiscal 2005, our Packet8 lines
in service increased from approximately 11,000 at March 31, 2004 to approximately 57,000 at March 31, 2005.
The $3 million decrease in product revenues in fiscal 2004 compared to fiscal 2003 was due primarily to a $2.8
million decline in sales of our semiconductor products, consisting of a $2.5 million decrease in videoconferencing
semiconductor sales combined with a $300,000 decrease in VoIP semiconductor sales. The decrease in
videoconferencing semiconductor sales was attributable to a decrease in unit shipments due to the end of life of
those products and completion of final shipments of such products in the first quarter of fiscal 2004. Total
videoconferencing semiconductor product revenues were $530,000 and $3.1 million for the fiscal years ended
Year Ended March 31,
2005 2004 2003
Product revenues.....................................................................
.
21 %29 %52 %
License and service revenues.................................................... 79 %71 %48 %
Total revenues............................................................... 100 %100 %100 %
Operating expenses:
Cost of product revenues.......................................................
.
40 %19 %25 %
Cost of license and service revenues....................................... 45 %28 %14 %
Research and development..................................................... 27 %30 %71 %
Selling, general and administrative.........................................
.
161 %65 %68 %
Restructuring and other charges.............................................
.
--
%-- %31 %
Total operating expenses............................................... 273 %142 %209 %
Loss from operations............................................................... (173)%(42)%(109)%
Other income, net...................................................................
.
4
%9%5%
Loss before benefit for income taxes.......................................
.
(169)%(33)%(104)%
Benefit for income taxes.........................................................
.
(2)%-- %-- %
N
et loss...................................................................................
.
(167)%(33)%(104)%