8x8 2006 Annual Report Download - page 16

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adverse claims and litigation alleging infringement of the intellectual property rights of others. The communications
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 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 Packet8 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. We expect to continue licensing our technology to others,
many of whom may be located outside of the United States. In addition to licensing our technology to others, we,
from time to time, may take a license to technology owned by third parties and currently rely upon certain
technology, including hardware and software, licensed from third parties.
Information about Segments and Geographic Areas
We have only one reportable segment. Financial information relating to our product lines and information on
revenues generated in different geographic areas are set forth in Note 11 to our consolidated financial statements
contained in Part II, Item 8 of this Report.
Employees
As of March 31, 2006, our workforce consisted of one hundred and thirty-nine employees and thirty-six contractors.
None of our employees are represented by a labor union or are subject to a collective bargaining arrangement.
ITEM 1A. RISK FACTORS
Before you invest in our common stock, you should become aware of various risks, including those described
below. You should carefully consider these risk factors, together with all of the other information included in this
Annual Report, including the documents incorporated in this Annual Report by reference, before you decide whether
to purchase the securities. The risks set out below may not be exhaustive.
We have a history of losses and we are uncertain as to our future profitability.
We recorded an operating loss of approximately $25 million for the year ended March 31, 2006, and we ended the
period with an accumulated deficit of $195 million. In addition, we recorded operating losses of $20 million and $4
million for the fiscal years ended March 31, 2005 and 2004, respectively. We expect that we will continue to incur
operating losses for the foreseeable future, and such losses may be substantial. We will need to generate significant
revenue growth to achieve an operating profit. Given our history of fluctuating revenues and operating losses, we
cannot be certain that we will be able to achieve profitability on either a quarterly or annual basis in the future.