8x8 1999 Annual Report Download - page 23

existing products, which would also have a material adverse effect on the Company's business and operating results.
The Company's products have lead times of up to several months, and are built to forecasts that are necessarily imprecise. Because of the
Company's practice of building its products to necessarily imprecise forecasts, it is likely that, from time to time, the Company will have either
excess or insufficient product inventory. In particular, the Company had significant inventory quantities of its ViaTV products, both on hand
and at its retail distributors when the Company discontinued production in April 1999. In the fourth quarter ended March 31, 1999, cost of
product revenues included a $5.7 million charge associated with the write off of inventories related to the Company's decision to cease
production of its ViaTV product line. At March 31, 1999, the ViaTV inventory was recorded at a value of $2.5 million. Because retailers and
other distributors may have contractual rights to price protection if the Company decreases the selling price, and because the Company may
need to significantly decrease the selling price to sell existing ViaTV inventory, the Company's cost of such inventory may exceed the
Company's actual selling price. Excess inventory levels will subject the Company to the risk of inventory obsolescence and the risk that the
Company's selling prices may drop below the Company's inventory costs, while insufficient levels of inventory may negatively affect relations
with customers. Any of these factors could have a material adverse effect on the Company's operating results and business.
As a result of these and other factors, it is likely that in some future period the Company's operating results will be below the expectations of
securities analysts or investors, which would likely result in a significant reduction in the market price for the Company's common stock.*
NEED FOR ADDITIONAL CAPITAL
The Company believes that it will be able to fund planned expenditures and satisfy its cash requirements for at least the next twelve months
from cash flow from operations, if any, and existing cash balances. As of March 31, 1999, the Company had approximately $15.8 million in
cash and cash equivalents. However, the Company currently estimates that it will be required to raise additional financing at some point during
calendar year 2000.* The Company will be evaluating financing alternatives prior to that time. There also can be no assurance that the
Company will not seek to exploit business opportunities that will require it to raise additional capital from equity or debt sources to finance its
growth and capital requirements. In particular, the development and marketing of new products could require a significant commitment of
resources, which could in turn require the Company to obtain additional financing earlier than otherwise expected. There can be no assurance
that the Company will be able to obtain additional financing as needed on acceptable terms or at all.
DEPENDENCE ON KEY CUSTOMERS
Historically, a significant portion of the Company's sales has been to relatively few customers, although the composition of these customers has
varied. Revenues from the Company's ten largest customers in the years ended March 31, 1999, 1998 and 1997 accounted for approximately
40%, 61% and 61%, respectively, of total revenues. 3Com accounted for 20% of total revenues during the year ended March 31, 1998 and
ASCII, the Company's former distributor in Japan, accounted for 13% of total revenues during the year ended March 31, 1997. Substantially all
the Company's product sales have been made, and are expected to be made, on a purchase order basis. None of the Company's customers has
entered 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.
* 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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