8x8 2006 Annual Report Download - page 55

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52
experienced any material losses relating to any investment instruments.
The Company sells its products to OEMs and distributors. The Company performs ongoing credit evaluations of its
customers' financial condition, and generally does not require collateral from its customers. For each of the three
years ended March 31, 2006, the Company experienced minimal write-offs for bad debts and doubtful accounts. At
March 31, 2006, one customer accounted for 12% of accounts receivable. At March 31, 2005, three customers
accounted for 26%, 16% and 11%, respectively, of accounts receivable.
The Company outsources the manufacturing of its hardware products to independent contract manufacturers. The
inability of any contract manufacturer to fulfill supply requirements of the Company could materially impact future
operating results, financial position or cash flows. If any of these contract manufacturers fail to perform on their
obligations to the Company, such failure to fulfill supply requirements of the Company could materially impact
future operating results, financial position and cash flows.
The Company also relies on primarily one third party network service provider to provide telephone numbers and
public switched telephone network (PSTN) call termination and origination services for its customers. If this service
provider failed to perform on its obligations to the Company, such failure could materially impact future operating
results, financial position and cash flows.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments is determined by the Company using available market information
and valuation methodologies considered to be appropriate. The carrying amounts of the Company's cash and cash
equivalents, accounts receivable and accounts payable approximate their fair values due to their short maturities.
The Company’s investments are carried at fair values.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB Opinion No. 25) and related interpretations
thereof. As required under Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-
Based Compensation" (SFAS No. 123), the Company provides pro forma disclosure of net loss and loss per share.
If the Company had elected to recognize compensation costs based on the fair value at the date of grant of the
awards, consistent with the provisions of SFAS No. 123, net loss and loss per share amounts would have been as
follows (in thousands, except per share amounts):
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, the Company 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
Year Ende d Mar ch 3 1 ,
2006 2005 2004
Net los s: $ (24,139) $ (19,148) $ (3,039)
Add: Employee stock-based compensation expense
included in reported net loss..........................................
.
237 5 1,311
Deduct: Total employee stock-based compensation
determined pursuant to SFAS No.123........................
.
(2,798) (2,426) (2,113)
Pro forma net los s $ (26,700) $ (21,569) $ (3,841)
As reported net loss per share............................................
.
$ (0.43) $ (0.43) $ (0.09)
Pro forma net loss per share................................................. $ (0.48) $ (0.49) $ (0.12)