8x8 2006 Annual Report Download - page 39

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The increase in other income, net in fiscal 2006 was primarily due to higher interest rates earned on our cash
balances as these funds were invested in marketable securities. In fiscal 2006, other income, net was primarily
comprised of interest and investment income earned on our cash, cash equivalents and investment balances.
The decrease in other income, net in fiscal 2005 was primarily attributable to a $790,000 one time gain recorded in
fiscal 2004 in connection with the sale of Centile Europe SA, partially offset by an increase in interest income of
$276,000 due to higher cash balances maintained during fiscal 2005 and the receipt of escrow funds of $180,000
from a cost basis common stock investment in an entity acquired in 1999 by a third party.
BENEFIT FOR INCOME TAXES
We had no provisions for the fiscal years ended March 31, 2006, 2005 and 2004. We recorded a $203,000 benefit in
fiscal 2005, which was primarily attributable to the release of income tax reserves recorded in prior years and
$20,000 attributable to an income tax refund received by one of our foreign subsidiaries.
At March 31, 2006, we had net operating loss carryforwards for federal and state income tax purposes of
approximately $132 million and $86 million, respectively, which expire at various dates beginning in 2006 and
continuing through 2026. In addition, at March 31, 2006, we had research and development credit carryforwards for
federal and state tax reporting purposes of approximately $3.4 million and $2.7 million, respectively. The federal
credit carryforwards will begin expiring in 2010 continuing through 2023, while the California credit will
carryforward indefinitely. Under the ownership change limitations of the Internal Revenue Code of 1986, as
amended, the amount and benefit from the net operating losses and credit carryforwards may be impaired or limited
in certain circumstances.
At March 31, 2006 and 2005, we had gross deferred tax assets of approximately $70.5 million and $60.9 million.
We believe that, based on a number of factors, the weight of objective available evidence indicates that it is more
likely than not that we will not be able to realize our deferred tax assets, and a full valuation allowance was recorded
at March 31, 2006 and 2005.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2006, we had $6.3 million of cash and cash equivalents, and $16.7 million in investments in
marketable securities for a combined total of $23 million. In comparison, at March 31, 2005, we had $22.5 million
in cash and cash equivalents, $0.3 million in restricted cash and $9 million in investments for a combined total of
$31.8 million. We currently have no borrowing arrangements. Our cash and cash equivalents balance decreased
$16.2 million and the combined balance decreased by $8.8 million during fiscal 2006. The decrease was primarily
attributable to $21.2 million used for operating activities and $1.9 million of capital expenditures, as discussed
below, partially offset by $14 million of net proceeds from financing activities. Our restricted cash balance
decreased by $0.3 million due to termination of an agreement requiring a letter of credit.
Comparison of fiscal 2005 and 2006
Cash used in operations of $21.2 million in fiscal 2006 was primarily attributable to the net loss of $24 million,
adjusted for $0.8 million of non-cash depreciation and amortization, a $0.2 million stock compensation charge and
$0.1 million of amortization of discounts and premiums on marketable securities, a $0.1 million increase in
inventory and a $0.4 million increase other current and noncurrent assets. Cash used in operations was partially
offset by a $0.4 million decrease in accounts receivable, a $0.6 million decrease in deferred cost of goods sold, a
$0.6 million increase in accounts payable and a $1.3 million increase in accrued compensation and other accrued
liabilities. The increase in accounts payable was attributable to timing and an increase in payables for
telecommunications service provider costs. The increase in accrued compensation and other accrued liabilities was
primarily attributable to the increase in headcount in fiscal 2006, accrued salary for a terminated executive and an
Year Ended March 31, Year-Over-Year Change
2006 2005 2004 2005 to 2006 2004 to 2005
(dollar amounts in thousands)
Benefit for income taxes..........................
.
$ -- $ (203) $ -- $ 203 -100.0% $ (203) n/a
Percentage of total revenues..................
.
-- -1.8% --