COMMITMENTS AND CONTINGENCIES - Note 9

9 Months Ended

Dec. 31, 2011

Notes to Financial Statements

COMMITMENTS AND CONTINGENCIES - Note 9

9. COMMITMENTS AND CONTINGENCIES

Guarantees

Indemnifications

In the normal course of business, the Company or its subsidiaries have agreed or otherwise become obligated to indemnify other parties, including customers, lessors and parties to other transactions with the Company, with respect to certain matters. Under these arrangements, the Company typically agrees to hold the other party harmless against losses arising from a breach of representations or covenants, intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors.

It is not possible to determine the maximum potential amount of the Company's exposure under these indemnification agreements due to the limited history of indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material impact on the Company's operating results, financial position or cash flows. Under some of these agreements, however, the Company's potential indemnification liability might not have a contractual limit.

Product Warranties

The Company accrues for the estimated costs that may be incurred under its product warranties upon revenue recognition. Changes in the Company's product warranty liability, which is included in cost of product revenue in the condensed consolidated statements of income, during the three and nine months ended December 31, 2011 and 2010 were as follows (in thousands):

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2011		2010		2011		2010
Balance at beginning of period	$	391	$	380	$	362	$	331
Accruals for warranties		106		119		374		397
Settlements		(101)		(82)		(340)		(311)
Balance at end of period	$	396	$	417	$	396	$	417

Leases

In May 2009, the Company entered into a three-year lease for its primary facility in Sunnyvale, California that expires in fiscal 2013.

In September 2011, the Company assumed a lease for Contactual's headquarters facility in Redwood City, California that expires in fiscal 2013. At December 31, 2011, future minimum lease payments under current operating leases were as follows (in thousands):

Year ending March 31:
Remaining 2012	$	230
2013		403
Total minimum payments	$	633

In each of March 2007 and August 2009, the Company entered into a series of noncancelable capital lease agreements for office equipment bearing interest at various rates and in September 2011, the Company assumed noncancelable capital lease agreements for equipment and software bearing interest at various rates with the acquisition of Contactual. At December 31, 2011, future minimum annual lease payments under noncancelable capital leases were as follows (in thousands):

Year ending March 31:
Remaining 2012	$	9
2013		48
2014		11
Total minimum payments		68
Less: Amount representing interest		(3)
		65
Less: Short-term portion of capital lease obligations		(43)
Long-term portion of capital lease obligations	$	22

Capital leases included in computer equipment, office equipment and software were $525,000 at December 31, 2011. Total accumulated depreciation was $289,000 at December 31, 2011. Amortization expense for assets recorded under capital leases is included in depreciation expense.

Minimum Third Party Customer Support Commitments

In the third quarter of fiscal 2010, the Company amended a contract with one of its third party customer support vendors containing a minimum monthly commitment of approximately $430,000. The agreement requires a 150-day notice to terminate. At December 31, 2011, the total remaining obligation under the amended contract was $2.2 million.

Minimum Third Party Network Service Provider Commitments

The Company entered into contracts with multiple vendors for third party network services that expire on various dates through fiscal 2015. At December 31, 2011, future minimum annual payments under these third party network service contracts were $287,000 in 2012, $593,000 in 2013, $70,000 in 2014 and $7,000 in 2015.

Legal Proceedings

From time to time, the Company may become involved in various legal claims and litigation that arise in the normal course of its operations. While the results of such claims and litigation cannot be predicted with certainty, the Company is not currently aware of any such matters that it believes would have a material adverse effect on its financial position, results of operations or cash flows.

On March 15, 2011, the Company was named a defendant in a lawsuit, Bear Creek Technologies, Inc. v. 8x8, Inc. et al., along with more than 20 other defendants. On August 17, 2011, the Company was dismissed without prejudice from this lawsuit under Rule 21 of the Federal Rules of Civil Procedure. On August 17, 2011, the Company was sued again by Bear Creek Technologies, Inc. in the United States District Court for the District of Delaware. The Company filed a motion to dismiss the complaint on October 11, 2011, and the motion is still pending. The Company believes it has factual and legal defenses to these claims and is presenting a vigorous defense. The Company cannot estimate potential liability in this case at this early stage of litigation.

On October 25, 2011, the Company was named a defendant in a lawsuit, Klausner Technologies, Inc. v. Oracle Corporation et al., along with 30 other defendants. The Company believes it has factual and legal defenses to these claims and is presenting a vigorous defense. The plaintiff has not made a specific monetary demand and the Company cannot estimate potential liability in this case at this early stage of litigation. The Company has not answered the complaint.

Non-Income Based State and Municipal Taxes

From time to time, the Company has received inquiries from a number of state and municipal taxing agencies with respect to the remittance of non-income based taxes. The Company collects or has accrued for taxes that it believes are required to be remitted. The amounts that have been remitted have historically been within the accruals established by the Company.