8x8 2008 Annual Report Download - page 60

Deferred tax assets were comprised of the following (in thousands):
2008 2007
Research and development credit carryforwards $ 3,490 $ 5,012
N
et operating loss carryforwards 57,411 55,792
Inventory valuation 256 490
Reserves and allowances 1,514 1,401
Fixed assets and intangibles 9,415 10,478
72,086 73,173
Valuation allowance (72,086) (73,173)
Total $ - $ -
March 31,
Because of uncertainties regarding the realization of deferred tax assets, management has applied a full valuation allowance as
of March 31, 2008 and 2007.
At March 31, 2008, the Company had net operating loss carryforwards for federal and state income tax purposes of
approximately $152.0 million and $97.6 million, respectively, which expire at various dates beginning in 2012 and continuing
through 2028. The net operating loss carryforwards include approximately $10.0 million 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,
2008, the Company had research and development credit carryforwards for federal and state tax reporting purposes of
approximately $3.3 million and $2.9 million, respectively. The federal credit carryforwards will expire at various dates
beginning in 2009 and continuing through 2028, while the California credits 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.
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):
2008 2007 2006
Tax provision (benefit) at statutory rate $ 12 $ (3,376) $ (7,906)
State income tax benefit before valuation
allowance, net of federal effec
t
(67) (580) (1,356)
Research and development credits (52) 250 (501)
Change in valuation allowance 519 3,582 9,648
Income from change in fair value of warrant liability (728) (1,488) (353)
Compensation/option differences (9) (14) (9)
Prior year loss carryforward reduction - 797 261
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on-deductible compensation 307 720 94
Foreign rate differences - (2) (8)
Othe
r
18 111 130
$- $ - $ -
Years Ended March 31,
Effective April 1, 2007, we 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. This Interpretation
requires that the Company recognize in its financial statements the impact of a tax position if that position is more likely than
not of being sustained on audit, based on the technical merits of the position. The Company believes that any income tax filing
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