8x8 2007 Annual Report Download - page 63

could exercise in whole or in part a warrant to acquire up to 4,500,000 shares (subject to certain customary adjustments) of 8x8
common stock, at a purchase price per share equal to $5.50 (subject to certain customary adjustments). Only the vested portion
of the warrant could be exercised, and vesting was based on the number of customers subscribing to the Company’s Packet8
service that were referred by TJF. The shares subject to the warrant would commence vesting once TJF had delivered 50,000
subscribers to the Packet8 service. TJF did not deliver 50,000 subscribers to the Packet8 service, so no warrants had vested by
December 31, 2005, and the warrant was automatically cancelled as of that date.
5. 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, 2007 and 2006. The components of the consolidated
benefit for income taxes for fiscal 2005 consisted of the following (in thousands):
Current:
Federal $ (157)
State 7
Foreig
n
(53)
$ (203)
The Company's loss before income taxes included $26,000, $25,000, and $20,000 of foreign subsidiary income for the fiscal
years ended March 31, 2007, 2006 and 2005, respectively.
Deferred tax assets were comprised of the following (in thousands):
2007 2006
Research and development credit carryforwards $ 5,012 $ 6,212
Net operating loss carryforwards 55,792 49,862
Inventory valuatio
n
490 453
Reserves and allowances 1,401 1,573
Fixed assets and intangibles 10,478 12,441
73,173 70,541
Valuation allowance (73,173) (70,541)
Total $ - $ -
March 31,
Because of uncertainties regarding the realization of deferred tax assets, management has applied a full valuation allowance as
of March 31, 2007 and 2006.
At March 31, 2007, the Company had net operating loss carryforwards for federal and state income tax purposes of
approximately $148,000,000 and $96,000,000, respectively, which expire at various dates beginning in 2008 and continuing
through 2027. 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,
2007, the Company had research and development credit carryforwards for federal and state tax reporting purposes of
approximately $3,200,000 and $2,600,000, respectively. The federal credit carryforwards will expire at various dates beginning
in 2010 and continuing through 2027, 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.
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