8x8 2009 Annual Report Download - page 42

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INCOME ON CHANGE IN FAIR VALUE OF WARRANT LIABILITY
2009 2008 2007
Income on change in fair
value of warrant liability $ 314 $ 2,142 $ 3,736 $ (1,828) -85.3% $ (1,594) -42.7%
Percentage of total revenues 0.5% 3.5% 7.0%
2008 to 2009 2007 to 2008
(dollar amounts in thousands)
Year Ended March 31, Year-Over-Year Change
In connection with the sale of shares of our common stock in fiscal 2005 and 2006, we issued warrants in three different equity
financings. The warrants included a provision that we must deliver freely tradable shares upon exercise of the warrant.
Because there are circumstances that may not be within our control 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 a gain or loss.
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. To the extent that the fair value of
the warrant liability increases or decreases, we record a loss or income in our statement of operations. 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 breach by us of the warrant terms. In fact, we have
made no determination of the amount of liability, if any, that we would owe to the warrant holder in the event of such a breach.
The decrease in the income from change in fair value of warrants in fiscal 2009 from fiscal 2008 occurred because the fair
value of warrants and warrant liability declined due to a reduction in our stock price, expected stock price volatility, risk free
interest rate and contractual life of the warrants which are the primary assumptions applied to the Black-Scholes model which
we have used to calculate the fair value of the warrants.
The decrease in the income from change in fair value of warrants in fiscal 2008 from fiscal 2007 occurred because the fair
value of warrants and warrant liability declined due to a reduction in our stock price, expected stock price volatility and
contractual life of the warrants. Furthermore, on August 29, 2007, we and the warrant holders amended the terms of warrants to
purchase 3,659,624 shares of common stock that we had classified as liabilities. The amended warrants met the requirement to
be classified as equity and accordingly, they were reclassified from liability to equity. A total of $0.8 million of the income
from the change in fair value of the warrants in fiscal 2008 was related to the amended warrants and $0.9 million was
reclassified from liability to equity. The remaining investor warrants for 1,785,714 shares of common stock issued on
December 19, 2005 have not been amended and will continue to be accounted for as liabilities until exercised or expiration in
December 2010.
PROVISION FOR INCOME TAXES
2009 2008 2007
Provision for income taxes $ 45 $ - $ - $ 45 100.0% $ - 0.0%
Percentage of total revenues 0.1% 0.0% 0.0%
2008 to 2009 2007 to 2008
(dollar amounts in thousands)
Year Ended March 31, Year-Over-Year Change
We had a $45,000 provision for income taxes for the fiscal year ended March 31, 2009 for state tax in several states and
foreign withholding tax on royalty revenue. We had no provision for income taxes in the fiscal years ended March 31, 2008
and 2007.
At March 31, 2009, we had net operating loss carryforwards for federal and state income tax purposes of approximately $153.9
million and $88.1 million, respectively, that expire at various dates beginning in 2013 and continuing through 2029. In
addition, at March 31, 2009, we had research and development credit carryforwards for federal and state tax reporting purposes
of approximately $3.4 million and $2.8 million, respectively. The federal credit carryforwards will begin expiring in 2010
continuing through 2029, while the California credit will carry forward 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.
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