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PART I
ITEM 1. BUSINESS
GENERAL
Statements contained in this Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act, including, without limitation, statements regarding our expectations, beliefs,
estimates, intentions or strategies. All forward-looking statements included in this Report on Form 10-K are based on information available to
us on the date hereof, and we assume no obligation to update any such forward-looking statements. You should not place undue reliance on
these forward-looking statements. Actual results could differ materially from those anticipated in these forward-looking statements as a result
of a number of factors, including, but not limited to, those set forth below under the headings "Manufacturing," "Customers and Marketing,"
and "Factors That May Affect Future Results" and elsewhere in this Report on Form 10-K.
Netergy Networks, Inc. and its subsidiaries (collectively, Netergy or the Company) 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.
HISTORY
The Company effected its initial public offering on July 2, 1997 under the name 8x8, Inc. In August 2000, the Company changed its name to
Netergy Networks, Inc.
The Company began developing its multimedia communication technology in the form of programmable semiconductors and accompanying
software in 1990 and became a leading manufacturer of semiconductors for the embedded videoconferencing and videophone markets. The
networks (LANs), wide area networks (WANs), and the Internet.
The Company began developing low cost consumer videophones and marketing these products to consumers under the ViaTV brand name in
1997. The Company exited the consumer videophone business in the second quarter of the fiscal year ended March 31, 2000.
security applications for small businesses. However, the Company determined that its video monitoring business was not well aligned with its
strategic focus on the IP telephony market and, in May 2000, sold its remaining video monitoring business to Interlogix, Inc. (Interlogix), a
leading manufacturer of security equipment. Interlogix continues to purchase semiconductors from NME for certain of its security systems.
The Company entered the market for embedded VoIP telephony products in December 1998 with the announcement of its Audacity Internet
Telephony Processor (Audacity-ITP). The Audacity-ITP processor
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