8x8 2009 Annual Report Download - page 27

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• the management of inventory;
• continued compliance with industry standards and regulatory requirements; and
• general economic conditions.
Due to these and other factors, we believe that period-to-period comparisons of our results of operations are not meaningful
and should not be relied upon as indicators of our future performance. It is possible that in some future periods our results of
operations may be below the expectations of public market analysts and investors. If this were to occur, the price of our
common stock would likely decline significantly.
We need to retain key personnel to support our products and ongoing operations.
The development and marketing of our VoIP products will continue to place a significant strain on our limited personnel,
management, and other resources. Our future success depends upon the continued services of our executive officers and other
key employees who have critical industry experience and relationships that we rely on to implement our business plan. None of
our officers or key employees are bound by employment agreements for any specific term. The loss of the services of any of
our officers or key employees could delay the development and introduction of, and negatively impact our ability to sell our
products which could adversely affect our financial results and impair our growth. We currently do not maintain key person life
insurance policies on any of our employees.
We may not be able to manage our inventory levels effectively, which may lead to inventory obsolescence that would
force us to incur inventory write-downs.
Our products have lead times of up to several months and are built to forecasts that are necessarily imprecise. Because of our
practice of building our products to necessarily imprecise forecasts, it is likely that from time to time we will have either excess
or insufficient product inventory. In addition, because we rely on third party vendors for the supply of components and contract
manufacturers to assemble our products, our inventory levels are subject to the conditions regarding the timing of purchase
orders and delivery dates that are not within our control. Excess inventory levels would subject us to the risk of inventory
obsolescence, while insufficient levels of inventory may negatively affect relations with customers. For instance, our customers
rely upon our ability to meet committed delivery dates, and any disruption in the supply of our products could result in legal
action from our customers, loss of customers or harm to our ability to attract new customers. Any of these factors could have a
material adverse effect on our business, financial condition or operating results.
The fair value of certain warrant liabilities may increase or decrease, and as a result, we may be required, pursuant to
EITF 00-19, to reflect a corresponding increase or decrease in our net income or net loss, as the case may be, and the
amount of our recorded liability for the warrants for the applicable quarter also may fluctuate materially.
Pursuant to 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”), warrants issued to two investors in an equity financing we
consummated in fiscal 2006 are classified as liabilities because of the possibility, however likely or unlikely, that the Company
would be unable to deliver registered shares upon a future exercise of these warrants means that the warrants are deemed to
include a "net cash settlement" provision within the meaning of EITF 00-19. The required accounting for a warrant with a "net
cash settlement" provision under EITF 00-19 is to estimate the fair value on the date of issuance and to record a liability equal
to that value to reflect the required assumption that the Company will breach its obligation to deliver registered shares in the
future (which we refer to as a "presumed breach"). The warrants will continue to be recorded as liabilities until such time as
the warrants are exercised, expire or we and the warrant holders amend the applicable warrant agreement in a manner that
renders this accounting treatment unnecessary. In the event that at the end of any fiscal quarter the fair value of these warrants
increases or decreases, we will be required to re-value the warrants and reflect such change for the applicable fiscal quarter in
our financial statements in accordance with EITF 00-19. If the fair value at the end of any fiscal quarter increases, we will
recognize a corresponding increase in expense for such fiscal quarter, as well as reflect a corresponding increase in our
liabilities for such fiscal quarter, in accordance with EITF 00-19, resulting in a reduction of our stockholders’ equity on our
balance sheet for such fiscal quarter and a decrease in net income on our income statement for such fiscal quarter. If the fair
value at the end of any fiscal quarter decreases, we will recognize a corresponding decrease in expense for such fiscal quarter,
as well as reflect a corresponding decrease in our liabilities for such fiscal quarter, in accordance with EITF 00-19, resulting in
an increase of our stockholders’ equity on our balance sheet for such fiscal quarter and increase in net income on our income
statement for such fiscal quarter. The amount we record as a liability under EITF 00-19 is not, nor do we intend for it to be, an
admission or stipulation of the amount that we would owe or be obligated to pay the warrant holder in the event of an actual