8x8 2007 Annual Report Download - page 54

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2007 2006
Machinery and computer equipmen
t
$ 3,941 $ 3,467
Furniture and fixtures 167 82
Licensed software 1,709 1,579
Leasehold improvements 281 183
6,098 5,311
Less: accumulated depreciation and amortizatio
n
(3,258) (2,240)
$ 2,840 $ 3,071
March 31,
(in thousands)
Maintenance, repairs and ordinary replacements are charged to expense. Expenditures for improvements that extend the
physical or economic life of the property are capitalized. Gains or losses on the disposition of property and equipment are
recorded in the loss from operations.
IMPAIRMENT OF LONG-LIVED ASSETS
8x8 reviews the recoverability of its long-lived assets, such as plant and equipment when events or changes in circumstances
occur that indicate that the carrying value of the asset or asset group may not be recoverable. The assessment of possible
impairment is based on the Company’s ability to recover the carrying value of the asset or asset group from the expected future
pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the
carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying
value. The measurement of impairment requires management to estimate future cash flows and the fair value of long-lived
assets.
WARRANTY EXPENSE
The Company accrues for estimated product warranty cost upon revenue recognition. Accruals for product warranties are
calculated based on the Company’s historical warranty experience adjusted for any specific requirements.
WARRANT LIABILITY
The Company accounts for its warrants in accordance with Emerging Issues Task Force Issue No. 00-19, “Accounting for
Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock” (“EITF 00-19”) which
requires warrants to be classified as permanent equity, temporary equity or as assets or liabilities. In general, warrants that
either require net-cash settlement or are presumed to require net-cash settlement are recorded as assets and liabilities at fair
value and warrants that require settlement in shares are recorded as equity instruments. Certain of the Company’s warrants
require settlement in shares and are accounted for as permanent equity. The Company has three investor warrants that are
classified as liabilities because they include a provision that specifies that the Company must deliver freely tradable shares
upon exercise by the warrant holder. Because there are circumstances, irrespective of likelihood, that may not be within the
control of the Company that could prevent delivery of registered shares, EITF 00-19 requires the warrants be recorded as a
liability at fair value, with subsequent changes in fair value recorded as income (loss) in change in fair value of warrant
liability. The fair value of the warrant is determined using a Black-Scholes option pricing model, and is affected by changes in
inputs to that model including our stock price, expected stock price volatility and contractual term.
RESEARCH, DEVELOPMENT AND SOFTWARE COSTS
Research and development costs are charged to operations as incurred. Software development costs for software to be sold or
otherwise marketed incurred prior to the establishment of technological feasibility are included in research and development
and are expensed as incurred. The Company defines establishment of technological feasibility as the completion of a working
model. Software development costs incurred subsequent to the establishment of technological feasibility through the period of
general market availability of the product are capitalized, if material. To date, all software development costs for software to be
sold or otherwise marketed have been expensed as incurred. In accordance with American Institute of Certified Public
Accountants Statement of Position (SOP) No. 98-1, “Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use,” the Company capitalizes purchase and implementation costs of internal use software. In accordance with
SOP No. 98-1, during fiscal 2007, 2006 and 2005, the Company capitalized $81,000, $679,000 and $676,000, respectively.
52