8x8 2005 Annual Report Download - page 27

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At March 31, 2005, we had open purchase orders related to our contract manufacturers and other contractual
obligations of approximately $1.6 million primarily related to inventory purchases. These purchase commitments
are reflected in our consolidated financial statements once goods or services have been received or at such time
when we are obligated to make payments related to these goods or services. At March 31, 2005, future minimum
annual lease payments under noncancelable operating leases, net of sublease income, were as follows (in thousands):
We have sustained net losses and negative cash flows from operations since fiscal 1999 that have been funded
primarily through the issuance of equity securities and borrowings. Management believes that current cash, cash
equivalents and investments will be sufficient to finance our operations for the next twelve months. However, we
continually evaluate our cash needs and may pursue additional equity or debt financing in order to achieve our
overall business objectives. There can be no assurance that such financing will be available, or, if available, at a
price or terms that are acceptable to us. Failure to generate sufficient revenues, raise additional capital or reduce
certain discretionary spending could have an adverse impact on our ability to achieve our longer term business
objectives.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, “Share-Based
Payment,” requiring all share-based payments to employees, including grants of employee stock options, to be
recognized as compensation expense in the consolidated financial statements based on their fair values. This
standard includes two transition methods. Upon adoption, we will be required to use either the modified prospective
or the modified retrospective transition method. Under the modified prospective method, awards that are granted,
modified, or settled after the date of adoption should be measured and accounted for in accordance with SFAS No.
123R. Unvested equity-classified awards that were granted prior to the effective date should continue to be
accounted for in accordance with SFAS No. 123 except that amounts must be recognized in the income statement.
Under the modified retrospective approach, the previously-reported amounts are restated (either to the beginning of
the year of adoption or for all periods presented) to reflect the SFAS No. 123 amounts in the income statement.
In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107
(“SAB 107”) which provides guidance regarding the application of SFAS 123(R). SAB 107 expresses views of the
SEC regarding the interaction between SFAS No. 123(R), Share-Based Payment, and certain SEC rules and
regulations and provides the SEC’s views regarding the valuation of share-based payment arrangements for public
companies. In particular, SAB 107 provides guidance related to share-based payment transactions with non-
employees, the transition from nonpublic to public entity status, valuation methods (including assumptions such as
expected volatility and expected term), the accounting for certain redeemable financial instruments issued under
share-based payment arrangements, the classification of compensation expense, non-GAAP financial measures,
first-time adoption of SFAS No. 123(R) in an interim period, capitalization of compensation cost related to share-
based payment arrangements, the accounting for income tax effects of share-based payment arrangements upon
adoption of SFAS No. 123(R), the modification of employee share options prior to adoption of SFAS No.
123(R) and disclosures in Management’s Discussion and Analysis (“MD&A”) subsequent to adoption of
SFAS 123(R).
On April 14, 2005, the SEC approved a new rule that delays the effective date for SFAS No. 123(R) to annual
periods beginning after June 15, 2005. Our adoption of SFAS No. 123(R) on April 1, 2006 is expected to have a
material impact on our consolidated results of operations. We are currently evaluating the impact of this standard
and its transitional alternatives.
YEAR ENDING MARCH 31,
2006..................................................................................................................
.
408
2007..................................................................................................................
.
482
2008..................................................................................................................
.
490
2009..................................................................................................................
.
493
2010..................................................................................................................
.
206
Total minimum payments.................................................................... $ 2,079