8x8 2006 Annual Report Download - page 60

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bonuses subsequent to September 30, 2005. The terms of the bonus program were not met, and no bonuses were
awarded to either of the two officers.
7. INCOME TAXES
For the year ended March 31, 2005, the Company recorded a benefit for income taxes of $203,000, which was
attributable to the release of income tax reserves recorded in prior years and a refund received by one of the
Company’s foreign subsidiaries. There were no income tax provisions for the years ended March 31, 2006 and 2004.
The components of the consolidated benefit for income taxes for fiscal 2005 consisted of the following (in
thousands):
The Company's loss before income taxes included $25,000, $20,000, and $30,000 of foreign subsidiary income for
the fiscal years ended March 31, 2006, 2005 and 2004, respectively.
Deferred tax assets were comprised of the following (in thousands):
Management believes that, based on a number of factors, the weight of objective available evidence indicates that it
is more likely than not that the Company will not be able to realize its deferred tax assets, and thus a full valuation
allowance was recorded at March 31, 2006 and 2005.
At March 31, 2006, the Company had net operating loss carryforwards for federal and state income tax purposes of
approximately $132,000,000 and $86,000,000, respectively, which expire at various dates beginning in 2006 and
continuing through 2026. The net operating loss carryforwards include approximately $10,000,000 resulting from
employee exercises of non-qualified stock options or disqualifying dispositions, the tax benefits of which, when
realized, will be accounted for as an addition to additional paid-in capital rather than as a reduction of the provision
for income taxes. In addition, at March 31, 2006, the Company had research and development credit carryforwards
for federal and state tax reporting purposes of approximately $3,400,000 and $2,700,000, respectively. The federal
credit carryforwards will expire at various dates beginning in 2010 and continuing through 2023, while the
California credit will carryforward indefinitely. Under applicable tax laws, the amount of and benefits from net
operating losses and credits that can be carried forward may be impaired or 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.
Current:
Federal.............................................................................. $ (157)
State.................................................................................. 7
Foreign.............................................................................
.
(53)
$ (203)
March 31,
2006 2005
Research and development credit carryforwards.....................................
.
$6,212$5,711
N
et operating loss carryforwards................................................................ 49,862 39,370
Inventory valuation....................................................................................... 453 220
Reserves and allowances.............................................................................
.
1,573 1,450
Fixed assets and intangibles........................................................................
.
12,441 14,143
70,541 60,894
Valuation allowance......................................................................................
.
(70,541) (60,894)
Total....................................................................................................... $ -- $ --