8x8 2008 Annual Report Download - page 39

INTEREST INCOME AND OTHER, NET
2008 2007 2006
Interest income and other, net $ 1,606 $ 667 $ 847 $ 939 140.8% $ (180) -21.3%
Percentage of total revenues 2.6% 1.3% 2.7%
Year Ended March 31, Year-Over-Year Change
2007 to 2008 2006 to 2007
(dollar amounts in thousands)
Our interest income and other, net, primarily consists of interest and investment income earned on our cash, cash equivalents
and investment balances. The increase in other income consists primarily of $1.2 million from the sale of two patents offset by
a reduction in interest and investment income earned on our cash, cash equivalents and investment balances of $0.2 million due
to lower average cash balances and interest rates.
The decrease in other income for fiscal 2007 from fiscal 2006 resulted primarily lower interest income on lower average cash
balances.
INCOME ON CHANGE IN FAIR VALUE OF WARRANT LIABILITY
2008 2007 2006
Income on change in fair
value of warrant liability $ 2,142 $ 3,736 $ 886 $ (1,594) -42.7% $ 2,850 321.7%
Percentage of total revenues 3.5% 7.0% 2.8%
2007 to 2008 2006 to 2007
(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 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.
The increase in the income from change in fair value of warrants in fiscal 2007 compared to fiscal 2006 was due to a reduction
in the fair value of warrants resulting from a decline in our stock price, expected stock price volatility 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.
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