8x8 2008 Annual Report Download - page 38

Cost of product revenues during fiscal 2008 included an increase of $0.3 million for shipments of equipment attributable to
growth in the Packet8 Virtual Office subscriber base and a $0.1 million increase in costs from the write-off of equipment
shipped to a failed retailer.
The decrease in cost of product revenues in fiscal 2007 from fiscal 2006 resulted primarily from lower cost terminal adapters
for the entire year rather than for part of the year, as in fiscal 2006. In addition, we shipped fewer residential terminal adapters
and Packet8 videophones in fiscal 2007 than 2006. The decrease in expenses was partially offset by an increase in Packet8
Virtual Office equipment sales.
RESEARCH AND DEVELOPMENT EXPENSES
2008 2007 2006
Research and development $ 4,335 $ 4,712 $ 5,916 $ (377) -8.0% $ (1,204) -20.4%
Percentage of total revenues 7.0% 8.9% 18.6%
2006 to 20072007 to 2008
Year Ended March 31, Year-Over-Year Change
(dollar amounts in thousands)
Historically, our research and development expenses have consisted primarily of personnel, system prototype design, and
equipment costs necessary for us to conduct our development and engineering efforts. We expense research and development
costs, including software development costs, as they are incurred.
The decrease in research and development expenses for fiscal 2008 from fiscal 2007 was primarily attributable to a $0.3
million decrease in contractor headcount expenses. Research and development expenses declined due to employees and
contractors leaving the Company and difficulty in recruiting research and development employees to replace these departures.
The decrease in research and development expenses for fiscal 2007 from fiscal 2006 was primarily attributable to a $1.4
million decrease in personnel and contractor headcount expenses, net of $0.4 million in SFAS 123(R) stock based
compensation expense. A total of $0.6 million of the decrease from 2006 to 2007 was related to the departure of the
Company’ s Vice Chairman in January 2006.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
2008 2007 2006
Selling, general and administrative $ 37,596 $ 35,657 $ 27,863 $ 1,939 5.4% $ 7,794 28.0%
Percentage of total revenues 61.0% 67.1% 87.4%
Year Ended March 31, Year-Over-Year Change
2007 to 2008 2006 to 2007
(dollar amounts in thousands)
Selling, general and administrative expenses consist primarily of personnel and related overhead costs for sales, marketing,
customer support, finance, human resources and general management. Such costs also include outsourced customer service call
center operations, sales commissions, as well as trade show, advertising and other marketing and promotional expenses.
The increase in selling, general and administrative expenses for fiscal 2008 from fiscal 2007 was primarily due to a $2.3
million increase in additional employee and temporary personnel costs and a $1.4 million increase in advertising, public
relations, and other marketing and promotional expenses. This increase was partially offset by a $0.9 million decrease in sales
agent and retailer commissions and a $0.5 million decrease in sales and use tax expenses as the Company began to collect and
remit taxes in states outside of California.
The increase in selling, general and administrative expenses for fiscal 2007 from fiscal 2006 consisted primarily of a $2.5
million increase in compensation expense for personnel due to headcount additions, a $2.0 million increase in contractor
expenses relating to the increase in staffing of our customer service organizations, a $1.0 million increase in credit card
transaction processing fees, a $0.4 million increase in sales and use tax expense, a $0.3 million increase in advertising and
other marketing and promotional expenses, a $0.2 million increase in legal fees, a $0.2 million increase in sales agent and
retailer commissions and a $0.2 million increase in external auditor and tax expenses. We also reported $1.3 million in SFAS
123(R) stock-based compensation expense in fiscal 2007, which expenses were not required to be included in this line item in
fiscal 2006.
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