8x8 2003 Annual Report Download - page 27

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lines of credit and a bank loan assumed as part of the U|Force acquisition. All of the U|Force debt obligations were
repaid in the quarter ended March 31, 2001.
PROVISION FOR INCOME TAXES
The provisions of $15,000 and $17,000 for the years ended March 31, 2002 and 2001, respectively, were comprised
primarily of certain foreign taxes. We had no provision for the fiscal year ended March 31, 2003. The provision for
the year ended March 31, 2002 also reflected a $10,000 refund of U.S. federal income taxes received in fiscal 2002.
At March 31, 2003, we had net operating loss carryforwards for federal and state income tax purposes of
approximately $115 million and $42 million, respectively, which expire at various dates beginning in 2005. In
addition, at March 31, 2002, we had research and development credit carryforwards for federal and state tax
reporting purposes of approximately $3 million and $2.3 million, respectively. The federal credit carryforwards will
begin expiring in 2010 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, 2003 and 2002, we had gross deferred tax assets of approximately $51 million and $47 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, 2003 and March 31, 2002.
EXTRAORDINARY GAIN
We realized an extraordinary gain of $779,000 in the third quarter of fiscal 2002 resulting from the early
extinguishment of our convertible subordinated debentures. See Note 5 to the consolidated financial statements in
Part II, Item 8 of this Report for further discussion of this transaction.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In November 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board reached several
conclusions regarding the accounting for debt and equity securities with beneficial conversion features, including a
consensus requiring the application of the "accounting conversion price" method, versus the use of the stated
conversion price, to calculate the beneficial conversion feature for such securities. The Securities and Exchange
Commission (SEC) required companies to record a cumulative catch-up adjustment in the fourth quarter of calendar
2000 related to the application of the "accounting conversion price" method to securities issued after May 21, 1999.
Accordingly, we recorded a $1.1 million non-cash expense during the quarter ended December 31, 2000 to account
for a beneficial conversion feature associated with Debentures and related warrants issued in December 1999, and
we presented it as a cumulative effect of a change in accounting principle as required by the SEC.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2003, we had cash and cash equivalents totaling $3.4 million, representing a decrease of $9 million
from March 31, 2002. We currently have no borrowing arrangements.
Cash used in operations of $8.8 million in fiscal 2003 primarily resulted from the net loss of $11.4 million, a
$249,000 decrease in accrued compensation, a $1.9 million decrease in deferred revenue, and a $71,000 increase in
accounts receivable. Cash used in operations was partially offset by a $298,000 decrease in inventory and non-cash
items, including depreciation and amortization of $1.8 million, $2.3 million for the non-cash portion of restructuring
and asset impairment charges, and $83,000 related to the provision for inventory. Cash used in investing activities in
fiscal 2003 was attributable to purchases of short-term investments of $208,000 and capital expenditures of
$137,000, partially offset by proceeds from the sale of equipment of $42,000. Cash provided by financing activities
during fiscal 2003 consisted of proceeds of $89,000 resulting from the sale of our common stock to employees
through our employee stock purchase and stock option plans.
Cash used in operations of $7.9 million in fiscal 2002 reflected a net loss of $9.1 million, a decrease in accounts
payable of $839,000, a decrease in accrued compensation of $610,000, a decrease of $579,000 in other accrued
liabilities, a $3.5 million decrease in deferred revenue and a non-cash extraordinary gain of $779,000 due to