8x8 2004 Annual Report Download - page 21

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The increase in license and service revenues of approximately $1.3 million for fiscal 2004 as compared to fiscal
2003 was primarily due to the following:
• A $1.2 million increase in revenues in fiscal 2004 related to the license and sale of the technology related to our
next generation video semiconductor product to Leadtek as compared to revenues recognized related to the
development effort in fiscal 2003;
• A $1.7 million increase in revenues attributable to our IP semiconductor telephony technology, primarily
attributable to a July 2003 license of the Audacity T2 and T2U semiconductor products and Veracity software
to a single customer; and
• A $1.0 million increase in service revenues attributable to our Packet8 service.
These increases were offset by:
• A $1.4 million reduction in revenues associated with the June 2000 sale of our video monitoring business;
• A $750,000 decrease in royalties earned from a single customer under a license agreement for our MPEG video
compression technology; the final royalty revenues under this license agreement were received in the first
quarter of fiscal 2003; and
• A decrease of $386,000 in license and maintenance revenues associated with our hosted iPBX product.
License and service revenues were $5.3 million in fiscal 2003, a decrease of $3.3 million from the $8.6 million
recorded in fiscal 2002. License and other revenues, the majority of which are considered to be non-recurring in
nature, consisted primarily of technology licenses and related maintenance revenues, as well as royalties earned
under such licenses. License and other revenues for both fiscal 2003 and 2002 included approximately $1.6 million
of non-cash revenue recognition associated with the license of our video monitoring technology to Interlogix in
fiscal 2001. The decrease in fiscal 2003 was primarily attributable to:
• A $1.2 million decrease in royalties earned by Netergy under a license agreement for certain of our video
compression technology. Royalty revenue recognized under this agreement totaled $750,000 for fiscal 2003 as
compared to approximately $2 million for fiscal 2002. The licensee’s obligations to pay royalties on shipments
of products that incorporate our technology terminated in the first quarter of fiscal 2003 upon payment of the
$750,000;
• A decrease of approximately $1 million in revenues associated with our license of service creation environment
(SCE) technology to Lucent and unified messaging technology to Milinx;
• A $1.1 million decrease in license revenue associated with our embedded IP telephony firmware technology,
e.g., Veracity VoIP software and Audacity-T2 based reference design kits marketed by Netergy; and
• A decrease of approximately $1.5 million in non-recurring license and maintenance revenues associated with
our legacy videoconferencing technology.
These decreases were partially offset by:
• A $380,000 increase in license and maintenance revenues associated with Centile's hosted iPBX product; and
• Approximately $1.1 million of revenues recognized by Netergy under a contract to develop our next-generation
video compression semiconductor product that is accounted for using the percentage of completion method.
Profit estimates on this contract are revised periodically based on changes in facts; any loss is required to be
recognized immediately. Based on our cost estimates as of March 31, 2003, we recognized a loss
approximating $300,000 on this development contract in the quarter ended March 31, 2003, which has been
recorded in the Cost of License and Other Revenues line in the consolidated statements of operations.
Subsequent changes in our cost estimates could require us to recognize additional losses in a future period as the
revenues under this contract are fixed.
Revenues from our ten largest customers in the fiscal years ended March 31, 2004, 2003, and 2002 accounted for
approximately 73%, 63%, and 73%, respectively, of our total revenues. Two customers represented more than 10%
of our total revenues in each of fiscal 2004 and 2003. These customers represented 26% and 16% of our total
revenues in fiscal 2004 and 17% and 11% of our total revenues in fiscal 2003. During the fiscal year ended March
31, 2002, three customers represented more than 10% of our total revenues. These customers represented 13%, 13%,
and 12% of our total revenues.