8x8 1998 Annual Report Download

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8X8 INC /DE/
FORM 10-K
(Annual Report)
Filed 05/07/98 for the Period Ending 03/31/98
Address 3151 JAY STREET
SANTA CLARA, CA 95054
Telephone 4087271885
CIK 0001023731
Symbol EGHT
SIC Code
4813 - Telephone Communications, Except Radiotelephone
Industry Communications Services
Sector Services
Fiscal Year 03/31
http://www.edgar-online.com
© Copyright 2009, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    8X8 INC /DE/ FORM 10-K (Annual Report) Filed 05/07/98 for the Period Ending 03/31/98 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 3151 JAY STREET SANTA CLARA, CA 95054 4087271885 0001023731 EGHT 4813 - Telephone Communications, Except Radiotelephone Communications Services ...

  • Page 2
    ... OR ORGANIZATION) 77-0142404 (IRS EMPLOYER IDENTIFICATION NO.) 2445 MISSION COLLEGE BLVD. SANTA CLARA, CA 95054 (408) 727-1885 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF...

  • Page 3

  • Page 4
    8X8, INC. INDEX PAGE ---PART Item Item Item Item I 1. 2. 3. 4. Business...Properties...Legal Proceedings......III Item 10. Item 12. Item 13. PART IV Item 14. Directors and Executive Officers of the Registrant...Security Ownership of Certain Beneficial Owners and Management...Certain Relationships and...

  • Page 5
    ... and related software to develop and market low cost video communication systems (hereinafter referred to as its "VideoCommunicators"). The Company began shipping the first product in its planned family of VideoCommunicator products, ViaTV videophone model VC100, in February 1997. Subsequently, the...

  • Page 6
    ... to permit symmetrical transmission over POTS at a rate of 25 Kbps. A video bandwidth of 25 Kbps is typical in a 33.6 Kbps POTS connection, allowing for audio, data and control overhead. The quality of transmitted video images is a function of network bandwidth and the sophistication of the hardware...

  • Page 7
    ...compliance with all current and emerging video telephony standards to encourage proliferation of the Company's and its OEM customers' system products.* - Broaden and Enhance VideoCommunicator Family. The Company is currently selling four models of the ViaTV videophone, all of which currently operate...

  • Page 8
    ...PRODUCT DESCRIPTION FEATURES ViaTV Model VC50 Modular H.324 modular videophone with built-in 33.6 Kbps - 3 camera inputs Videophone modem requiring connection to a television, a digital - Accessory port input video camera and a touch-tone telephone ViaTV Model VC55 Modular H.324 modular videophone...

  • Page 9
    ... a built-in four-inch LCD display. As a result, it merely requires connection to a touch-tone telephone. Thus, it is suited for desktop or countertop use in a home or business environment. The Company offers a number of accessories for use with its ViaTV videophones, including wireless keyboards and...

  • Page 10
    ...room systems. - LVP -- Low bit-rate Videophone Processor. The LVP semiconductor is designed to support H.324 based videophones using standard POTS phone lines. Systems based on the LVP benefit from the same RISC and DSP technology found in the Company's VCP product, and are designed to deliver video...

  • Page 11
    ... may be ported to other platforms such as PCs or embedded controllers. The Company supplies an Application Programmers Interface (API) with its software to allow limited customization through an external microprocessor or host controller. The Company also sells licenses for the source code for its...

  • Page 12
    ... video capture and display devices. These capabilities include filtering, scaling, noise reduction and interlacing. The Company's semiconductors contain interfaces to the external devices that comprise a typical video communication system. These interfaces include a digital video port, digital audio...

  • Page 13
    ... addition, the Company's single-chip control of audio and video data in certain applications provides for audio/video synchronization and low end-to-end latency. - Robustness to Varying Network Conditions. Video communication systems must interface to networks with transmission characteristics that...

  • Page 14
    ...distributes sales and product literature and has an active public relations plan to encourage coverage of the Company's products and technology by the media. In relation to its ViaTV products, the Company also utilizes advertising in print media and on television and radio, in some cases...1998; ASCII,...

  • Page 15
    ... an initial license fee plus certain royalties, a license to make, use and sell systems and products containing the Company's proprietary technology relating to its VideoCommunicators and its PC-related video communication products. As a result, 3Com has a license to substantially all of the Company...

  • Page 16
    ..., until May 5, 1998, from licensing the technology to others, except in limited circumstances. The KME agreement provides to KME, for a license fee previously paid in full to the Company, all of the source code and object code of the H.324 software for 8x8's LVP semiconductor product and related...

  • Page 17
    ... such as Microsoft, Philips and Sony. C-Phone, Leadtek, 3Com and Truedox are among the companies selling low cost videophones. Many other companies have announced the development of low cost videophones. The Company expects that additional companies will introduce products that compete with the...

  • Page 18
    ...video communication systems business may result in certain customers or potential customers perceiving the Company as a competitor or potential competitor, which may be used by other semiconductor manufacturers to their advantage. The Company's reliance on developing vertically...Report... 1998 ...annual...

  • Page 19
    ...reporting of sell-through by resellers of the Company's products, the level of international sales, continued compliance with industry standards and general... 34% of videophone systems sold by the Company in the year ended March 31, 1998, has not ordered additional products from the Company...

  • Page 20
    ... into a long-term agreement requiring it to purchase the Company's products. Further, all of the Company's license and other revenues are nonrecurring. UNCERTAINTY OF MARKET ACCEPTANCE; LIMITS OF EXISTING TECHNOLOGY Previous efforts to sell consumer videophones have been unsuccessful and there...

  • Page 21
    ... States patents, including patents relating to video compression and memory architecture technology, and ...property rights. The Company's broad range of technology, including systems, digital... Company could be required to refrain from using, manufacturing or selling certain products or using certain ...

  • Page 22
    ... not maintain key person life insurance policies on any of its employees. PRODUCT CONCENTRATION; DEPENDENCE ON VIDEO COMMUNICATION INDUSTRY Sales of video communication products accounted for approximately 100%, 86% and 66% of total product revenues in the fiscal years ended March 31, 1998, 1997 and...

  • Page 23
    ... common stock. In the past, following periods of volatility in the market price of a Company's securities, securities class action litigation has... 45,623 square foot facility in Santa Clara, California. This lease expires in April 1999. The Company also leases 2,663 square feet in London,...

  • Page 24
    ... and related software to develop and market low cost video communication systems (hereinafter referred to as its "VideoCommunicators"). The Company began shipping the first product in its planned family of VideoCommunicator products, ViaTV videophone model VC100, in February 1997. Subsequently, the...

  • Page 25
    ... due to sales generated from the Company's ViaTV products, combined with an increase in sales of the Company's video communication semiconductors, offset by a decrease in both MPEG semiconductor and math co-processor sales due to the discontinuation of such product lines in fiscal 1997. License and...

  • Page 26
    ... in fiscal 1998 included costs associated with increased shipments of its VideoCommunicator products, which the Company began shipping in February 1997, as well as increased shipments of the Company's video communication semiconductor products. The cost structure of the Company's ViaTV product line...

  • Page 27
    ...sales of ViaTV products than for sales of the Company's semiconductors. If ViaTV product revenue continues to grow as a percentage of total product revenue, ... 1997 to fiscal 1998 as a result of the factors listed above, the non-cash compensation expense recognized on certain stock option grants and...

  • Page 28
    ... increased from fiscal 1997 to fiscal 1998 as a result of the factors listed above, the non-cash compensation expense recognized on certain stock option grants and charged to selling, general and administrative decreased to $741,000 in fiscal 1998 from $3.1 million in fiscal 1997. Restructuring...

  • Page 29
    ...Revenue Code of... its common stock, selling 4,140,000...1998 was due to increases in both ViaTV inventory held by the Company and inventory balances held by retailers. Because the Company does not recognize revenue on the shipment of its VideoCommunicator products to retailers or distributors until sell...

  • Page 30
    ...significant costs related on the development of ViaTV products, advertising for its ViaTV products, support of the retail sales channel and growth in ViaTV inventory. The Company believes that it will be able to fund planned expenditures and satisfy its cash requirements for at least the next twelve...

  • Page 31
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS PAGE ---FINANCIAL STATEMENTS: Report of Independent Accountants...Consolidated Balance Sheets at March 31, 1998 and 1997...Consolidated Statements of Operations for each of the three years in the period ended March 31,...

  • Page 32
    ...material respects, the financial position of 8x8, Inc. and its subsidiaries at March 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1998, in conformity with generally accepted accounting principles. These financial...

  • Page 33
    ... 31, 1997...Common stock, $0.001 par value: Authorized: 40,000,000 shares; Issued and outstanding: 15,293,614 shares at March 31, 1998 and 6,990,286 shares at March 31, 1997...Additional paid-in capital...Notes receivable from stockholders...Deferred compensation...Unrealized loss on investments...

  • Page 34
    8X8 INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED MARCH 31 1998 1997 1996 34,933 $ 12,771 ...product revenues...Cost of license and other revenues...Total cost of revenues...Gross profit...Operating expenses: Research and development...Selling, general...

  • Page 35
    ... of notes receivable from stockholders...Repurchase of unvested common stock...Deferred compensation related to stock options...Unrealized loss on investments...Net income...Balance at March 31, 1998...3,041,820 $ 3 COMMON STOCK SHARES AMOUNT 4,550,721 $ 5 ADDITIONAL PAID IN CAPITAL ---------$10...

  • Page 36
    ... warrant...Repayment of notes receivable from stockholders...Repurchase of unvested common stock...Deferred compensation related to stock options...Unrealized loss on investments...Net income...Balance at March 31, 1998... --- 19 10 -- 3,765 -(13,613) -------(13,402) 4,486 (13,613) -------6,041...

  • Page 37
    ... 1998 1997 1996 3,727 $(13,613) $ (3,217) Cash flows from operating activities: Net income (loss)...Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization...Loss on disposition of capital equipment...Amortization of deferred compensation...

  • Page 38
    ... 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...

  • Page 39
    ... establishment of technological feasibility as the completion of a working model. Software development costs incurred subsequent to the establishment of technological feasibility through the period of general market availability of the product are capitalized, if material. To date, all software...

  • Page 40
    ... losses relating to any investment instruments. The Company sells its products to OEMs and distributors throughout the world. The ...Stock Issued to Employees." Accordingly, no compensation cost has been recognized for its stock plans. The Company provides additional pro forma disclosures as required...

  • Page 41
    ...1998 1997 1996 3,726 3,042 287 2,291 2,561 -1,296 1 287 7,313 5,604 Preferred Stock...Common stock options...Unvested restricted common stock...disclosures about products and services, geographic areas, and major customers. The Company will adopt FAS 131 in its fiscal 1999 annual report. The ...

  • Page 42
    ...1998, 1997 and 1996, the Company's product revenues included $355,000, $2,415,000 and $2,037,000, respectively, in sales to ASCII Corporation (ASCII). The Company terminated its distribution relationship with ASCII effective June 30, 1997. An executive of ASCII... by another of 8x8's former officers, ...

  • Page 43
    8X8, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) VidUs is engaged in the design of integrated camera and video compression solutions as well as ethernet interface cards. VidUs has been consolidated in the Company's financial statements since inception. During fiscal 1998, the Company...

  • Page 44
    ......Non-deductible compensation...Other...(Benefit) provision for income taxes... In August 1995, the Internal Revenue Service (the IRS) asserted a...in April 1999. This agreement provides for annual increments of rent in predetermined amounts and requires the Company to pay property taxes, insurance ...

  • Page 45
    ... equal to the fair market value of the stock at the grant dates. Options generally vest over periods ranging from two to four years. Vesting for certain options accelerated in fiscal 1998 upon the achievement of certain predefined milestones. 1996 STOCK PLAN In June 1996, the Board of Directors...

  • Page 46
    ...stock option to purchase 16,000 shares of common stock on the date upon which such person...status as a director. If not terminated earlier, the Director Plan will have a term of ten years. Option activity under the stock...at March 31, 1998...Options exercisable at March 31, 1998... OPTIONS AVAILABLE FOR...

  • Page 47
    ...776,576 $ 3.82 ========= RANGE OF EXERCISE PRICES 0.50 to ...compensation over the related vesting period of the options (which is generally 48 months). At March 31, 1998 the balance of this deferred compensation was $744,000. This deferred compensation...STOCK PURCHASE PLAN The Company's 1996 Stock...

  • Page 48
    ... savings plan (the Savings Plan) covering substantially all of its U.S. employees. Under the Savings Plan, eligible employees may contribute up to the maximum allowed by the IRS from their compensation to the Savings Plan. Effective January 1, 1998 the Company's matching contribution increased from...

  • Page 49
    8X8, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) percentage of net income. Charges related to this plan were approximately $685,000 in the fiscal year ended March 31, 1998...year ended March 31, 1998. Product sales to one customer ...Company's restructuring actions were fully completed...

  • Page 50
    ...31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, 1998 1997 1997 1997 1997 1996 1996 1996 12,129 $15,138 $10,894 $11,615 $ 4,489 $ 4,582... (loss)...Operating expenses: Research and development...Selling, general and administrative...Restructuring costs...Total operating expenses...

  • Page 51
    ... of Directors -- Compensation of Directors," "Additional Information -- Executive Compensation" and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is set forth in the 1998 Proxy Statement under...

  • Page 52
    ... duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Clara, State of California, on May 7, 1998. 8X8, INC. By: /s/ PAUL VOOIS Paul Voois, Chairman & Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE...

  • Page 53
    ...Common Stock. 10...8x8, Inc. to Stanford University on February 17, 1998. 10.20 Fifth Amendment to Lease dated January 26, 1998...1998 among Sobrato Interests, Bay Networks, Inc. and the Registrant. 21.1+ Subsidiaries of Registrant. 23.1 Consent of Independent Accountants. 24.1 Power of Attorney (see page...

  • Page 54
    ...COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH SALE, OFFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS... 17, 1999 NO. CS-01 8X8, INC. WARRANT TO PURCHASE 10,000 SHARES OF COMMON STOCK THIS CERTIFIES THAT, Stanford University (the...

  • Page 55
    ... and asked prices of the Company's Common Stock quoted in the Over-The-Counter Market Summary or the closing price quoted on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the ten trading days prior to the...

  • Page 56
    ..., stock dividend or combination, as the case may be. 4. Notice of Adjustments. Whenever the number of Shares purchasable hereunder or the Exercise Price thereof shall be adjusted pursuant to Section 3 hereof, the Company shall provide notice by first class mail to the holder of this Warrant setting...

  • Page 57
    ... and not with a view toward distribution or resale. (b) The Holder understands that the Warrant and the Shares have not been registered under the Act by reason of their issuance in a transaction exempt from the registration and prospectus delivery requirements of the Act pursuant to Section...

  • Page 58
    ... instruct its transfer agent not to register the transfer of the Shares, unless one of the conditions specified in the legend referred to in Section 9 hereof is satisfied. (c) Notwithstanding the provisions of paragraph (c) above, no opinion of counsel or "no-action" letter shall be necessary for...

  • Page 59
    ...any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of...reference only, and shall not limit or otherwise affect any of the terms hereof. Issued on February 17, 1998. 8X8, INC. By: /s/ BRETT D. BYERS Name: Brett D. Byers Title: General Counsel...

  • Page 60
    EXHIBIT A NOTICE OF EXERCISE TO: 8x8, Inc. 2445 Mission College Blvd. Santa Clara, CA 95054 Attention: Chief Financial Officer 1. The undersigned hereby elects to purchase _____ shares of Common Stock of 8x8, Inc. pursuant to the terms of the attached Warrant. 2. Method of Exercise (Please initial ...

  • Page 61
    ...8x8, Inc. 8x8, Inc. COMMON STOCK ISSUED UPON EXERCISE OF THE STOCK PURCHASE WARRANT ISSUED ON February 17, 1998...connection with, any "distribution" thereof for purposes of...registered or such registration is not required in the opinion of counsel...to be sold; and, in the case of an affiliate, or of a ...

  • Page 62
    ...required; and that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered..., and (2) Purchaser further agrees to execute any agreement reflecting (1) above as may...

  • Page 63
    ... (To be signed only upon transfer of Warrant) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _____ the right represented by the attached Warrant to purchase _____* shares of Common Stock of 8x8, Inc., to which the attached Warrant relates, and appoints _____ Attorney to...

  • Page 64
    ... floor from the space comprising the Premises; NOW, THEREFORE, in order to effect the intent of the parties as set forth above and for good and valuable consideration exchanged between the parties, the Lease is amended effective February 1, 1998 as follows: 1. The Premises shall consist of the first...

  • Page 65
    .... IN WITNESS WHEREOF, the parties hereto have set their hands to this Fourth Amendment as of the day and date first above written. Landlord Sobrato Interests, a California limited partnership By: /s/ J. M. SOBRATO Its: General Partner Tenant 8x8, Inc., a Delaware corporation By: /s/ Sandra Abbott...

  • Page 66
    ...23, 1998 made by and between the Tenant, as sublandlord, and 8x8, Inc., a Delaware corporation ("Subtenant"), as subtenant, a copy of which is attached as Exhibit A ("the Sublease"), covering that certain premises (the "Premises") commonly known as 2441 Mission College Boulevard, Santa Clara, CA. As...

  • Page 67
    ... the Lease, except that the Base Rent set forth in the Sublease shall be substituted for the Base Rent set forth in the Lease and the computation of...further instrument shall be required to give effect to said provisions. Upon the demand of Landlord, however, Subtenant agrees to execute, from time to ...

  • Page 68
    ...No Privity. Nothing herein contained shall be deemed a ...any such notices shall be delivered personally or sent by United States registered or certified mail, postage prepaid, return receipt ... JR. its Vice President Subtenant 8x8, Inc., a Delaware corporation by /s/ SANDRA ABBOTT its VP Page 3

  • Page 69
    ... 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-30943 and 333-50519) of 8x8, Inc. of our report dated May 1, 1998 appearing on page 24 of this Form 10-K. Price Waterhouse LLP San Jose, California May...

  • Page 70
    ARTICLE 5 This schedule contains summary information extracted from 8x8, Inc.'s Consolidated Statements of Operations and Consolidated Balance Sheets included in the Company's Form 10-K for the period ended March 31, 1998 and is qualified in its entirety by reference to such financial statements. ...