8x8 2009 Annual Report Download - page 63

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limited in certain circumstances. Events which may cause limitations in the amount of net operating loss carryforwards that the
Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a
three year period.
A reconciliation of the tax provision (benefit) to the amounts computed using the statutory U.S. federal income tax rate of 34%
is as follows (in thousands):
2009 2008 2007
Tax provision (benefit) at statutory rat
e
$ (835) $ 12 $ (3,376)
State income taxes (benefit) before valuation
allowance, net of federal effect 20 (67) (580)
Research and development credits (100) (52) 250
Change in valuation allowanc
e
395 519 3,582
Income from change in fair value of warrant liability (10 7) (728) (1,488)
Compensation/option differences (5) (9) (14)
Prior year loss carryforward reduction - - 797
Non-deductible compensation 674 307 720
Foreign rate differences - - (2)
Othe
r
3 18 111
$45 $ - $ -
Years Ended March 31,
Effective April 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes: an Interpretation of FASB Statement No. 109” (FIN 48), which clarifies the
accounting and disclosure for uncertainty in income taxes recognized in an enterprise’ s financial statements. As a result of the
implementation of FIN No. 48, the Company recognized no material adjustment to the April 1, 2007 balance of retained
earnings. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
2009 2008
Balance at beginning of year $ 2,122 $ 2,044
Gross increases - tax position in prior period - -
Gross decreases - tax position in prior period (27) -
Gross increases - tax positions related to the current year 111 78
Settlements - -
Lapse of statue of limitations - -
Balance at end of year $ 2,206 $ 2,122
Unrecognized Tax Benefits
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $2.2 million, but any
affect would have been fully offset by the application of the valuation allowance. To the extent that the unrecognized tax
benefits are ultimately recognized, they may have an impact on the effective tax rate in future periods; however, such impact
on the effective tax rate would only occur if the recognition of such unrecognized tax benefits occurs in a future period when
the Company has already determined that its deferred tax assets are more likely than not realizable. The Company does not
expect the unrecognized tax benefits to change significantly over the next 12 months.
The Company files U.S. federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. The
Company has not been under examination by income tax authorities in federal, state or other foreign jurisdictions. The 1995
through fiscal 2009 tax years generally remain subject to examination by federal and most state tax authorities. In significant
foreign jurisdictions, the fiscal year 2005 through 2009 tax years remain subject to examination by their respective tax
authorities.
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