8x8 2005 Annual Report Download - page 49

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8X8, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
8x8, Inc., or 8x8, and its subsidiaries (collectively, the Company) develop and market communication technology
and services for Internet protocol or, IP, telephony and video applications. The Company was incorporated in
California in February 1987, and in December 1996 was reincorporated in Delaware. In August 2000, the Company
changed its name from 8x8, Inc. to Netergy Networks, Inc. The Company changed its name back to 8x8, Inc. in July
2001.
The Company offers the Packet8 broadband voice over Internet protocol, or VoIP, and video communications
service, Packet8 Virtual Office service and videophone equipment and services. The Packet8 voice and video
communications service (Packet8) enables broadband Internet users to add digital voice and video communications
services to their high-speed Internet connection. Customers can choose a direct-dial phone number from any of the
rate centers offered by the service, and then use an 8x8-supplied terminal adapter to connect any telephone to a
broadband Internet connection and make or receive calls from a regular telephone number. All Packet8 telephone
accounts come with voice mail, caller ID, call waiting, call waiting caller ID, call forwarding, hold, line-alternate, 3-
way conferencing, web access to account controls, and real-time online billing. In addition, 8x8 offers a videophone
for use with the Packet8 service and a business telephone for use with the Packet8 Virtual Office service.
Substantially all of the Company’s revenues are generated from the sale, license and provisioning of VoIP products,
services and technology. Prior to fiscal 2004, the Company was focused on its VoIP semiconductor business
(through its subsidiary Netergy Microelectronics, Inc.) and hosted iPBX solutions business (through its subsidiary
Centile, Inc.). In late fiscal 2003, the Company began to devote more of its resources to the promotion, distribution
and development of the Packet8 service than to its existing semiconductor business or hosted iPBX solutions
business. The Company completed several transactions during fiscal 2004 to license and sell technology and assets
of these former businesses, including the sale of its hosted iPBX research and development center in France, the sale
and license of its next generation video semiconductor development effort, and the license of technology and
manufacturing rights for its VoIP semiconductor products to other semiconductor companies. In addition, during
January 2004, the Company announced the end of life of its VoIP semiconductor products, and began accepting last
time buy orders from customers. The Company continues to own the voice and video technology related to the
semiconductor and iPBX businesses, and utilizes this technology in the Packet8 service offering, and continues to
sell or license this technology to third parties.
The Company’s fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in these notes to
the consolidated financial statements refers to the fiscal year ending March 31 of the calendar year indicated (for
example, fiscal 2005 refers to the fiscal year ended March 31, 2005).
LIQUIDITY
The Company has sustained net losses and negative cash flows from operations since fiscal 1999 that have been
funded primarily through the issuance of equity securities and borrowings. Management believes that current cash,
cash equivalents and investments will be sufficient to finance the Company's operations for the next twelve months.
However, the Company continually evaluates its cash needs and may pursue additional equity or debt financing in
order to achieve the Company's overall business objectives. There can be no assurance that such financing will be
available, or, if available, at a price that is acceptable to the Company. Failure to generate sufficient revenues, raise
additional capital or reduce certain discretionary spending could have an adverse impact on the Company's ability to
achieve its longer term business objectives.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of 8x8 and its subsidiaries. All material intercompany
accounts and transactions have been eliminated.
USE OF ESTIMATES