8x8 2001 Annual Report Download - page 42

NETERGY NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Netergy Networks, Inc. and its subsidiaries (collectively, the Company or Netergy) develop and market telecommunication technology for
Internet Protocol (IP) telephony and video applications. The Company has three product lines:
voice and video semiconductors and related software, hosted Internet Private Branch Exchange (iPBX) solutions, and Voice-over-IP (VoIP)
service creation software.
During the fiscal year ended March 31, 2001, the Company formed two subsidiaries, Netergy Microelectronics, Inc. (NME) and Centile, Inc.
(Centile) and reorganized its operations more clearly along its three product lines. NME provides voice and video semiconductors and related
communication software to original equipment manufacturers (OEMs) of telephones, terminal adapters, and other edge devices and to other
semiconductor companies. NME's technologies are used to make IP telephones and to voice-enable cable and digital subscriber line (DSL)
modems, wireless devices, and other broadband technologies. Centile develops and markets hosted iPBX solutions that allow service providers
to offer private branch exchange (PBX) functionality to small and medium-sized businesses over broadband networks. The Company is
developing its third product line, a VoIP service creation environment (SCE), at the parent company level. This product is designed for use by
telecommunication equipment manufacturers and service providers.
The Company was incorporated in California in February 1987 and in December 1996 was reincorporated in Delaware. In August 2000 the
Company changed its name from 8x8, Inc. to Netergy Networks, Inc.
FISCAL YEAR
Effective beginning in fiscal 2001, the Company changed its fiscal year from a year ending on the Thursday closest to March 31 to a year
ending on March
31. Fiscal 2001 was 52 weeks and 2 days, while fiscal 2000 and fiscal 1999 were 53 week and 52 week years, respectively. For purposes of
these consolidated financial statements, the Company has indicated its fiscal year ends on March 31.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of 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 the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
REVENUE RECOGNITION
Product revenue -- The Company recognizes revenue from product sales upon shipment to OEMs and end users. Reserves for returns and
allowances for OEM and end user sales are recorded at the time of shipment. The Company defers recognition of revenue on sales to
distributors where the right of return exists until products are resold by the distributor to the end user.
License and other revenue -- The Company recognizes revenue from license contracts when a non-cancelable, non-contingent license
agreement has been signed, the software product has been delivered, no uncertainties exist surrounding product acceptance, fees from the
agreement are fixed and determinable, and collection is probable. The Company uses the residual method to recognize revenue when a license
agreement
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