8x8 2006 Annual Report Download - page 32

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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 services 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, 2006, we had approximately 133,000 Packet8 lines in service. Since fiscal 2004, substantially all of the
Company’s revenues have been 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.
During fiscal 2006, we completed an equity financing for gross proceeds of approximately $15 million. As of
March 31, 2006, we had cash, cash equivalents and investments of approximately $23 million as compared to $31.8
million at March 31, 2005.
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, 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 policies affect
our reported and expected financial results.
Use of Estimates
The preparation of the consolidated financial statements, in conformity with accounting principles generally
accepted in the United States, requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities and equity and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we
evaluate our estimates, including, but not limited to, those related to bad debts, valuation of inventories, and
litigation and other contingencies. We base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could
differ from those estimates under different assumptions or conditions. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not
readily apparent from other sources. Actual results could differ from those estimates under different assumptions or
conditions. Additional information regarding risk factors that may impact our estimates is included above in Item
1A, "Risk Factors."
Revenue Recognition
Our revenue recognition policies are described in Note 1 to the consolidated financial statements in Part II, Item 8 of
this Report. As described below, significant management judgments and estimates must be made and used in
connection with the revenue recognized in any accounting period. Material differences may result in the amount and
timing of our revenue for any period if our management made different judgments or utilized different estimates.