8x8 1999 Annual Report Download - page 21

At that time, the Company reduced the total number of employees to 126. The decrease in headcount was due primarily to lower personnel
requirements for the sale and manufacture of ViaTVs. The Company also employs a number of temporary employees and consultants on a
contract basis.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The following factors as well as the factors discussed above under the headings "Competition" and "Manufacturing" should be considered in
conjunction with the information in this Report on Form 10-K.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company recorded operating losses of $20.2 million and $13.6 million in the years ended March 31, 1999 and 1997, respectively, and
operating losses in three of the four quarters in fiscal 1998. The Company would not have been profitable in fiscal 1998 had it not received
nonrecurring license and other revenues. Revenues fluctuated from $19.1 million in fiscal 1997 to $49.8 million in fiscal 1998 to $31.7 million
in fiscal 1999. In view of the Company's historical operating losses, there can be no assurance that the Company will be able to achieve
profitability on either an annual or quarterly basis.
NO ASSURANCE OF FUTURE LICENSE AND OTHER REVENUES
The Company has in the past received substantial revenues from licensing of technology. License and other revenues, all of which were
nonrecurring, were $5.5 million, $14.5 million and $3.9 million in the fiscal years ended March 31, 1999, 1998 and 1997, respectively. There
can be no assurance that the Company will receive revenues from licensing of its technology in the future, which could have a material adverse
effect on the Company's business and operating results.
DISCONTINUATION OF VIATV PRODUCT LINE
The Company announced in April 1999 that it would cease production of the ViaTV product line and withdraw from its distribution channels
over the subsequent several quarters. In fiscal 1999 and 1998, ViaTV and revenues represented 49% and 38% of product revenues,
respectively. With the discontinuation of production, it is not clear how much, if any, revenue the Company will be able to generate from
selling its existing inventories of ViaTV's. The Company does not expect to be able to generate revenues from its other products to compensate
for the loss of ViaTV revenues for at least the next twelve months, if at all.* If the Company cannot adequately compensate for lower revenues
with decreased manufacturing overhead expenses and with lower operating expenses, it could have a material adverse effect on the Company's
business and operating results.
In fiscal 1999, the Company recognized a $5.7 million expense associated with valuing the ViaTV inventory at the current estimated fair
market value. The Company's discontinuation of the sale of ViaTV's may also result in higher levels of product returns, the necessity of
granting price protection to resellers, more lengthy receivable collection cycles and higher warranty costs, which may have a material adverse
effect on the Company's business and operating results. If the Company is unable to sell the remaining ViaTV inventory in a timely manner, at
or above the estimated fair market value, it would have a material adverse effect on the Company's business and operating results. At March
31, 1999, the ViaTV inventory was recorded on the Company's financial statements at a value of $2.5 million.
The Company's operating results historically have been subject to increased seasonality with sales higher during the Company's third fiscal
quarter, corresponding to the Christmas shopping season. The Company's discontinuation of ViaTV products may result in substantially
different patterns in operating results.
* This statement is a forward looking statement reflecting current expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. See "Manufacturing" commencing on page 15, "Competition" commencing on
page 13 and "Factors That May Affect Future Results" commencing on page 17 for a discussion of certain factors that could affect future
performance.
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