8x8 2002 Annual Report Download - page 31

Based upon our current expectations, we believe that our current cash and cash equivalents, and cash generated from
operations, if any, will satisfy our expected working capital and capital expenditure requirements through at least the
next 12 months. We will, however, need additional working capital during fiscal 2004. Accordingly, we will be seeking
additional financing during the next twelve months in order to meet our cash requirements for fiscal 2004. We will be
evaluating financing alternatives prior to that time. We may also seek to explore business opportunities, including
acquiring or investing in complementary businesses or products that will require additional capital from equity or debt
sources. Additionally, the development and marketing of new products could require a significant commitment of
resources, which could in turn require us to obtain additional financing earlier than otherwise expected. We may not be
able to obtain additional financing as needed on acceptable terms, or at all, which may require us to reduce our
operating costs and other expenditures, including reductions of personnel and suspension of salary increases and capital
expenditures. Alternatively, or in addition to such potential measures, we may elect to implement other cost reduction
actions as we may determine are necessary and in our best interests, including the possible sale or cessation of certain
of our business segments. Any such actions undertaken might limit our opportunities to realize plans for revenue
growth and we might not be able to reduce our costs in amounts sufficient to achieve break-
even or profitable
operations. If we issue additional equity or convertible debt securities to raise funds, the ownership percentage of our
existing stockholders would be reduced. New investors may demand rights, preferences or privileges senior to those of
existing holders of our common stock.
RELATED PARTY TRANSACTIONS
Given the currently low yields on governmental and corporate debt securities and money market funds, our Board of
Directors (the Board) believes that we may benefit from investing in other classes of securities that may generate higher
returns. Toward this end, in March 2002 the Board authorized us to open securities trading accounts and make
investments of up to $1.0 million on behalf of 8x8, Inc. as directed by the Company's Chairman, Joe Parkinson; Chief
Executive Officer, Bryan Martin; or Chief Financial Officer, David Stoll. Mr. Parkinson has agreed to personally
reimburse 8x8 on a quarterly basis for any losses resulting from his trading activities in order to maintain a minimum
investment account balance of $1.0 million. The Board has been assured of Mr. Parkinson's ability to cover any such
losses; however, should he be unable to do so it could have a material impact on our cash flows and results of
operations. As part of the arrangement, our Board has expressed its intent, but not obligation, to pay Mr. Parkinson a
quarterly bonus in an amount equal to 25% of the profits attributable to investments made on our behalf by Mr.
Parkinson to the extent such a bonus exceeds his salary for the corresponding period. The Company or Mr. Parkinson
can terminate this arrangement at any time, subject to the terms of an agreement that has been filed with this Report as
exhibit 10.24. As of March 31, 2002, the $1.0 million was invested in money market accounts.
In the quarter ended March 31, 2000, the Company entered into a strategic relationship with STMicroelectronics NV,
or STM. Under various agreements, STM purchased shares of 8x8 common stock and was granted certain related
rights, licensed certain of the Company's intellectual property and engaged the Company to jointly develop products
that enable voice and other multimedia services over internet protocol networks. Item 13 of this Report provides further
information regarding the Company's license and other arrangements with STM.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS 141 requires all business combinations to be accounted for using the purchase method of
accounting, and also requires that certain intangible assets acquired in a business combination be recognized as assets
apart from goodwill. SFAS No. 141 was effective for all business combinations initiated after June 30, 2001. Under
SFAS No. 142, goodwill will no longer be amortized, but will be subject to annual impairment tests. Goodwill should
be assigned to an entity's reporting units, which, under SFAS No. 142, are defined as operating segments, or one level
below that. Furthermore, SFAS No. 142 requires purchased intangible assets other than goodwill to be amortized over
their useful lives, unless these lives are determined to be indefinite, and, upon adoption, requires a reassessment of the
useful lives previously assigned to its recognized intangible assets. In addition, if certain recognized intangible assets
do not meet certain criteria, such assets should be reclassified to goodwill. Conversely, certain intangible assets that
have been reported as part of goodwill may need to be reclassified as of the date that SFAS No. 142 is initially applied
in its entirety.
Goodwill that existed at June 30, 2001 was amortized through March 31, 2002. The net carrying value of goodwill at