8x8 1999 Annual Report Download - page 47

8X8, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RESEARCH AND SOFTWARE DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred. Software development costs incurred prior to the establishment of
technological feasibility are included in research and development and are expensed as incurred. The Company defines 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
development costs have been expensed as incurred.
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is the functional currency of the Company's foreign subsidiary. Exchange gains and losses resulting from transactions
denominated in currencies other than the U.S. dollar are included in the results of operations for the year. To date, such amounts have not been
significant. Total assets of the Company's foreign subsidiary were $656,000, $620,000 and $429,000, as of March 31, 1999, 1998 and 1997,
respectively. The Company does not undertake any foreign currency hedging activities.
INCOME TAXES
Income taxes are accounted for using the asset and liability approach. Under the asset and liability approach, a current tax liability or asset is
recognized for the estimated taxes payable or refundable on tax returns for the current year. A deferred tax liability or asset is recognized for
the estimated future tax effects attributed to temporary differences and carryforwards. If necessary, the deferred tax assets are reduced by the
amount of benefits that, based on available evidence, are not expected to be realized.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash
equivalents, short-term investments and trade accounts receivable. The Company places its cash, cash equivalents and short-term investments
primarily in market rate accounts with reputable financial institutions. Cash equivalents present risk of changes in value because of interest rate
changes. The Company has not experienced any material losses relating to any investment instruments. The Company sells its products to
OEMs and distributors throughout the world. The Company performs ongoing credit evaluations of its customers' financial condition and
maintains an allowance for uncollectible accounts receivable based upon the expected collectibility of all accounts receivable. At March 31,
1999, two customers accounted for 20% and 10% of accounts receivable, respectively. At March 31, 1998, one customer accounted for 30% of
accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, including cash equivalents, short-term investments, accounts receivable, and
nonmarketable equity investments, approximate fair values.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation cost has been recognized for its stock plans. The
Company provides additional pro forma disclosures as required under Statement of Financial Accounting Standards No. 123 (FAS 123),
"Accounting for Stock-Based Compensation." See Note 6.
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