8x8 2010 Annual Report Download - page 39

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PROVISION FOR INCOME TAXES
2010 2009 2008
Provision for income taxes $ 3 $ 45 $ - $ (42) -93.3% $ 45 100.0%
Percentage of total revenues 0.0% 0.1% 0.0%
Year-over-Year Change
2009 to 2010 2008 to 2009
(dollar amounts in thousands)
Years Ended March 31,
We had a $3,000 provision for income taxes for the fiscal year ended March 31, 2010 for state tax in several states and foreign
tax, offset by federal refund in lieu of bonus depreciation (in accordance with the Economic Stimulus Act of 2010). We had a
$45,000 provision for income taxes in the fiscal years ended March 31, 2009. We had no provision for income taxes in the
fiscal year ended March 31, 2008.
At March 31, 2010, we had net operating loss carryforwards for federal and state income tax purposes of approximately $154.0
million and $90.3 million, respectively, that expire at various dates beginning in 2011 and continuing through 2030. In
addition, at March 31, 2010, we had research and development credit carryforwards for federal and state tax reporting purposes
of approximately $1.7 million and $2.9 million, respectively. The federal credit carryforwards will begin expiring in 2011
continuing through 2030, while the California credit will carry forward 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, 2010 and 2009, we had gross deferred tax assets of approximately $68.7 million and $71.4 million, respectively.
Because of uncertainties regarding the realization of deferred tax assets, we have applied a full valuation allowance as of
March 31, 2010 and 2009.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2010, we had $18.1 million of cash and cash equivalents. By comparison, at March 31, 2009, we had $16.4
million in cash and cash equivalents. We currently have no borrowing arrangements.
2009 to 2010
Net cash provided by operating activities for fiscal 2010 was $2.5 million, compared with $2.3 million provided by operating
activities for fiscal 2009. The increase in cash flow was primarily due to a decline in third party network service expenses and a
decline in stock-based compensation expense, offset partially by discounting of equipment sold to business service customers
during fiscal 2010. Cash used in or provided by operating activities has historically been affected by: the amount of net
income, sales of subscriptions, changes in working capital accounts, particularly in deferred revenue due to timing of annual
plan renewals, add-backs of non-cash expense items such as depreciation and amortization, and the expense associated with
stock-based awards.
Net cash used in investing activities was $0.9 million in fiscal 2010, compared with $2.6 million provided by investing
activities in fiscal 2009. The decrease in cash flow from investing activities during fiscal 2010 is primarily related to the
investment of operating cash balances.
Our financing activities for fiscal 2010 provided cash of $0.4 million from the issuance of common stock under our stock
option and employee stock purchase plans which was offset by $0.2 million used to repurchase shares of common stock under
our share repurchase plan. Our financing activities for fiscal 2009 provided cash of $0.4 million from the issuance of common
stock under the employee stock purchase plan.
2008 to 2009
Net cash provided by operating activities for fiscal 2009 was $2.3 million, compared with $3.0 million provided by operating
activities for fiscal 2008. The decrease in cash flow was primarily due to an increase in stock-based compensation, which
includes $2.4 million due to the acceleration of unvested employee stock options in January 2009, a $0.6 million provision for
inventory primarily due to $0.5 million of excess inventory related to our business services analog phone, a $0.4 million
provision for doubtful accounts primarily related to royalty revenue, and a $0.2 million write off of our legacy billing system,
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