8x8 2001 Annual Report Download - page 45

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NETERGY NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TAX CREDITS
Research and development and other tax credits are accounted for using the cost reduction method. Under this method, tax credits relating to
eligible expenditures are accounted for as a reduction of related expenses in the period during which the expenditures are incurred, provided
there is reasonable assurance of realization.
CONCENTRATIONS
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash
equivalents and trade accounts receivable. At March 31, 2001, approximately 96% of the Company's cash equivalents were placed in an
institutional money market fund of a reputable, U.S. based financial institution. 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 for certain transactions does require collateral from its customers. For each
of the three years ended March 31, 2001, the Company experienced minimal write-offs for bad debts and doubtful accounts. At March 31,
2001, two customers accounted for 23% and 12% of accounts receivable, respectively. At March 31, 2000, two customers accounted for 16%
and 14% of accounts receivable, respectively.
The Company outsources the manufacturing, packaging, and testing of its semiconductor products to independent foundries. The inability of
any manufacturer to fulfill supply requirements of the Company could materially impact future operating results.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments is determined by the Company, using available market information and valuation
methodologies considered to be appropriate The carrying amounts of the Company's cash equivalents and accounts receivable approximate
their fair values due to their short maturity. The fair value of the Company's convertible subordinated debentures (see Note 9) of approximately
$6.9 million has been estimated using discounted cash flow analysis, based on the incremental borrowing rate currently available to the
Company for debt with similar terms and maturity.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for employee stock-
based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB Opinion No. 25). In March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation (an Interpretation of APB Opinion No. 25)," (FIN
44), which became effective July 1, 2000. The adoption of the provisions of FIN 44 did not have a material impact on the Company's
consolidated financial position or results of operations. As required under Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," (SFAS 123) the Company provides pro forma disclosure of net income and earnings per share.
COMPREHENSIVE LOSS
Comprehensive loss, as defined, includes all changes in equity (net assets) during a period from non-
owner sources. The difference between net
loss and comprehensive loss is due primarily to unrealized losses on short-term investments classified as available-for-sale and foreign
currency translation adjustments. Comprehensive loss is reflected in the Consolidated Statements of Stockholders' Equity.
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