8x8 2002 Annual Report Download - page 25

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1
Lower third-party consulting expenses associated with development of the graphical user interface for Centile's
hosted iPBX product;
1
A decrease in stock compensation charges of approximately $325,000; and
1
Our overall efforts to reduce discretionary operating costs.
Higher research and development expenses during fiscal 2001 as compared to fiscal 2000 were due primarily to
increases in personnel resulting from the acquisition of U|Force and increases in hosted iPBX development efforts,
higher third-
party 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.
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 $9.5
million, $18.1 million, and $21.3 million in fiscal 2002, 2001, and 2000, respectively. The significant decrease in
selling, general, and administrative expenses in fiscal 2002 as compared to fiscal 2001 was due to the following:
1
A $3.7 million decrease due to the elimination of our Canadian operations in the fourth quarter of fiscal 2001;
1
Reductions in sales, marketing and administrative personnel staffing levels in the first quarter of fiscal 2002;
1
A decrease in stock compensation charges; and
1
Lower legal, financial reporting, corporate function, telephone, travel, corporate marketing, public relations and
trade show expenditures resulting from our efforts to reduce discretionary operating costs.
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 reflected 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.
IN
-PROCESS RESEARCH AND DEVELOPMENT AND AMORTIZATION OF INTANGIBLES
We incurred in-
process research and development charges of $4.6 million in the second quarter of fiscal 2001 related to
the acquisition of U|Force, Inc. (U|Force), and $10.1 million in the first quarter of fiscal 2000 related to the acquisition
of Odisei S.A. (Odisei). 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) designed to allow telecommunication service providers to develop, deploy, and
manage telephony applications and services to their customers. The purchase price was comprised of 8x8 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 held by former employee shareholders or indirect owners of U|Force stock.
The Exchangeable Shares held by U|Force employees were subject to certain restrictions, including our right to
repurchase the Exchangeable Shares if an employee departed prior to vesting. In addition, we also agreed to issue one
share of preferred stock (the Special Voting Share) that provides holders of Exchangeable Shares with voting rights
equivalent to the shares of common stock into which their shares are convertible. We also assumed outstanding stock