8x8 2001 Annual Report Download - page 21

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elimination of the professional services organization as part of the restructuring of our Canadian operations in the fourth quarter of fiscal 2001.
Research and Development Expenses
Research and development expenses consist primarily of personnel, system prototype design and fabrication, mask, prototype wafer, and
equipment costs necessary for us to conduct our development efforts. Research and development costs, including software development costs,
are expensed as incurred. Research and development expenses were $18.7 million, $11.9 million, and $9.9 million for fiscal 2001, 2000, and
personnel, resulting from the acquisition of U/Force and increases in hosted iPBX development efforts, higher consulting expenses associated
with the development of a graphical user interface for the hosted iPBX product, higher depreciation and maintenance expenses as a result of
additional lab equipment and computer aided design tools, and increased stock compensation charges of approximately $325,000 related to
stock option bonus programs. Higher research and development expenses during fiscal 2000 as compared to fiscal 1999 were due primarily to
increased spending related to hosted iPBX system software development. Significant expenses were also incurred in fiscal 2000 related to
development efforts associated with the Audacity-T2 processor and media hub products.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, human
resources, and general management. Such costs also include advertising, sales commissions, trade show, and other marketing and promotional
expenses. Selling, general, and administrative expenses were $18.1 million, $21.3 million, and $17.7 million in fiscal 2001, 2000, and 1999,
respectively. The decrease in selling, general, and administrative expenses during the year ended March 31, 2001 as compared to the
comparable period in the prior year is due primarily to a one-time $6.4 million charge related to the sale of 3.7 million shares of our common
stock to STMicroelectronics that we recorded in the fourth quarter of fiscal 2000. The charge reflected the discount from the fair market value
of our common stock on the date of the related agreement. The decrease also reflects lower headcount and other costs required to support
ViaTV and video monitoring sales, promotion, and support activities due to our exit from the consumer videophone and video monitoring
businesses. These decreases were substantially offset by increased expenses associated with the addition of the U/Force sales, marketing,
finance, and corporate organizations, costs incurred related to our name change, and increased stock compensation charges. The increase in
expenses in fiscal 2000 compared to fiscal 1999 was primarily the result of the $6.4 million charge discussed above. This increase was offset
by lower costs associated with the marketing, advertising, and promotion of the ViaTV product line and lower headcount required to support
these activities as we exited the consumer videophone business.
In-Process Research and Development and Amortization of Intangibles
We incurred in-process research and development charges of $10.1 million in the first quarter of fiscal 2000 related to the acquisition of Odisei
S.A. (Odisei), and $4.6 million in the second quarter of fiscal 2001 related to the acquisition of U/Force, Inc. (U/Force). A discussion of these
acquisitions follows below.
U/Force, Inc.
The Company's consolidated financial statements reflect the acquisition of all of the outstanding stock of U/Force, Inc. on June 30, 2000 for a
total purchase price of $46.8 million. U/Force, based in Montreal, Canada, was a developer of IP-based software applications and a provider of
professional services. U/Force was also developing a Java-based service creation environment (SCE) that is designed to allow
telecommunication service providers to develop, deploy, and manage telephony applications and services to their customers. The purchase
price was comprised of Netergy common stock with a fair value of approximately $38.0 million comprised of: (i) 1,447,523 shares issued at
closing of the acquisition, and (ii) 2,107,780 shares to be issued upon the exchange or redemption of the exchangeable shares (the
Exchangeable Shares) of Canadian entities
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