8x8 2004 Annual Report Download - page 13

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To protect our trade secrets and other proprietary information, we require our employees to sign agreements
providing for the maintenance of confidentiality and also the assignment of rights to inventions made by them while
in our employ. There can be no assurance that our means of protecting our proprietary rights in the United States or
abroad will be adequate or that competition will not independently develop technologies that are similar or superior
to our technology, duplicate our technology or design around any of our patents. We are also subject to the risks of
adverse claims and litigation alleging infringement of the intellectual property rights of others. The semiconductor
and software industries are subject to frequent litigation regarding patent and other intellectual property rights. In
addition, the laws of foreign countries in which our products are or may be sold do not protect our intellectual
property rights to the same extent as do the laws of the United States. Our failure to protect our proprietary
information could cause our business and operating results to suffer.
We rely upon certain technology, including hardware and software, licensed from third parties. There can be no
assurance that the technology licensed by us will continue to provide competitive features and functionality or that
licenses for technology currently utilized by us or other technology which we may seek to license in the future will
be available to us on commercially reasonable terms or at all. The loss of, or inability to maintain existing licenses
could result in shipment delays or reductions until equivalent technology or suitable alternative products could be
developed, identified, licensed and integrated, and could harm our business. These licenses are on standard
commercial terms made generally available by the companies providing the licenses. The cost and terms of these
licenses individually are not material to our business.
Licensing and Development Arrangements
Historically, we have entered into licensing and development arrangements with our semiconductor and IP PBX
customers to promote the design, development, manufacture and sale of our products. We have licensed portions of
our systems technology and software object code for our semiconductors to virtually all of our semiconductor
customers. Such arrangements may enable these companies to use our technology to produce products that compete
with our VoIP telephony and video products. We have also licensed the right to manufacture certain of our video
and VoIP telephony semiconductor products to several original equipment manufacturers, or OEMs. These licenses
generally provide for the payment of royalties. Only certain of these OEM licensees may sell semiconductors based
on the licensed technology to third parties, while other licensees are limited to sales of such semiconductors as part
of multimedia communication systems or sub-systems. The Company expects to continue licensing its technology
to others, many of whom may be located outside of the United States. In addition to licensing its technology to
others, the Company from time to time may take a license to technology owned by third parties and currently relies
upon certain technology, including hardware and software, licensed from third parties.
Information about Segments and Geographic Areas
During the third quarter of fiscal 2004, we changed our internal reporting processes and determined that we had only
one reportable segment. Accordingly, we ceased preparing operational data on the former segment basis. The
change in internal reporting processes was consistent with the change in business focus as we are primarily focusing
our efforts on the Packet8 voice and video communication service. We reported our new segment structure in our
Quarterly Report on Form 10-Q for the quarter ended December 31, 2003. As required by Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
consolidated financial statements issued by us in the future will reflect modifications to our reportable segments
resulting from these organizational changes, including reclassification of all comparative prior period segment
information.
Financial information relating to our businesses and information on revenues generated in different geographic areas
are set forth in Note 13 to our consolidated financial statements contained in Part II, Item 8 of this Report.
Employees
As of March 31, 2004, the Company employed forty-four full time individuals and nineteen individuals on a
temporary basis. These employees and contractors include twenty-three in operations, sixteen in research and
development, eleven in sales and marketing, and thirteen in general and administrative capacities. None of our
employees are represented by a labor union or are subject to a collective bargaining arrangement.
ITEM 2. PROPERTIES