8x8 2006 Annual Report Download - page 29

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Despite our testing, our suppliers or our customers may find errors, defects or functional limitations in new products
after commencement of commercial production. This could result in additional development costs, loss of, or delays
in, market acceptance, diversion of technical and other resources from our other development efforts, product repair
or replacement costs, claims by our customers or others against us, or the loss of credibility with our current and
prospective customers.
We may need to raise additional capital to support our operations.
As of March 31, 2006, we had cash, cash equivalents and investments of approximately $23 million, which we
believe is sufficient cash to fund operations and other commitments for at least the next twelve months. Unless we
achieve and maintain profitability thereafter, we will need to raise additional capital to meet our objectives. We may
not be able to obtain such 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 capital expenditures. If we
issue additional equity or convertible debt securities to raise funds, the ownership percentage of our existing
stockholders would be reduced and they may experience significant dilution. New investors may demand rights,
preferences or privileges senior to those of existing holders of our common stock. If we are not successful in these
actions, we may be forced to cease operations.
We may not be able to maintain our listing on the Nasdaq Capital Market.
Our common stock trades on the Nasdaq Capital Market, which has certain compliance requirements for continued
listing of common stock. We have in the past been subject to delisting procedures due to a drop in the price of our
common stock. If our minimum closing bid price per share falls below $1.00 for a period of 30 consecutive
business days in the future, we may again be subject to delisting procedures. As of the close of business on May 26,
2006, our common stock had a closing bid price of $1.39 per share. We must also meet additional continued listing
requirements contained in Nasdaq Marketplace Rule 4310(c)(2)(b), which requires that we have a minimum of
$2,500,000 in stockholders' equity or $50,000,000 market value of listed securities or $500,000 of net income from
continuing operations for the most recently completed fiscal year (or two of the three most recently completed fiscal
years). As of May 26, 2006, based on our closing price as of that day, the market value of our securities
approximated $85 million and we were in compliance with Nasdaq Marketplace Rule 4310(c)(2)(b). There can be
no assurance that we will continue to meet the continued listing requirements.
Delisting could reduce the ability of our shareholders to purchase or sell shares as quickly and as inexpensively as
they have done historically. For instance, failure to obtain listing on another market or exchange may make it more
difficult for traders to sell our securities. Broker-dealers may be less willing or able to sell or make a market in our
common stock. Not maintaining our Nasdaq Capital listing may:
• result in a decrease in the trading price of our common stock;
• lessen interest by institutions and individuals in investing in our common stock;
• make it more difficult to obtain analyst coverage; and
• make it more difficult for us to raise capital in the future.
While we believe that we currently have adequate internal control procedures in place, we are still exposed to
potential risks from legislation requiring companies to periodically evaluate internal controls under Section
404 of the Sarbanes Oxley Act of 2002.
We have evaluated our internal controls systems in order to allow management to report on, and our independent
auditors to attest to, the effectiveness of our internal controls over financial reporting, as required by this legislation.
We are required to perform the system and process evaluation and testing (and any necessary remediation) required
in an effort to allow our management to assess the effectiveness of our system of internal control over financial
reporting as of the end of each fiscal year. Our independent auditors must then attest to and report on that assessment
by our management to comply with the management certification and auditor attestation requirements of Section
404 of the Sarbanes Oxley Act, or Section 404. As a result, we have and expect to continue to incur significant
additional expenses and diversion of management's time towards Section 404 compliance. In any fiscal year, we
may fail to timely complete our evaluation, testing and remediation actions in order to allow for this assessment by
our management or our independent auditors may not be able to timely attest to our management's assessment. If we