10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission file number 000-21783

8X8, INC.
(Exact name of Registrant as Specified in its Charter)

 

Delaware	77-0142404
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

2125 O'Nel Drive
San Jose, CA    95131
(Address of Principal Executive Offices)

(408) 727-1885
(Registrant's Telephone Number, including Area Code)

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.    x YES      ¨ NO   

      Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     YES  x     NO  ¨

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer    x Accelerated filer    ¨ Non-accelerated filer    ¨
(Do not check if a smaller reporting company) Smaller reporting company    ¨

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES    ¨        NO    x

      The number of shares of the Registrant's Common Stock outstanding as of July 23, 2014 was 88,727,860.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	Page No.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at June 30, 2014 and March 31, 2014	3
Condensed Consolidated Statements of Income for the three            months ended June 30, 2014 and 2013	4
Condensed Consolidated Statements of Comprehensive Income for the three            months ended June 30, 2014 and 2013	5
Condensed Consolidated Statements of Cash Flows for the three            months ended June 30, 2014 and 2013	6
Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk	28
Item 4. Controls and Procedures	28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	29
Item 1A. Risk Factors	29
Item 6. Exhibits	29
Signature	30

2

Part I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

8X8, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)

		June 30,		March 31,
		2014		2014
ASSETS
Current assets:
Cash and cash equivalents	$	55,073	$	59,159
Short-term investments		126,937		47,181
Accounts receivable, net		5,947		5,503
Inventory		753		811
Deferred cost of goods sold		106		263
Deferred tax asset		1,732		2,065
Other current assets		2,201		1,951
Total current assets		192,749		116,933
Long-term investments		-		72,021
Property and equipment, net		8,339		7,711
Intangible assets, net		14,670		15,095
Goodwill		38,802		38,461
Non-current deferred tax asset		47,520		47,797
Other assets		1,074		1,185
Total assets	$	303,154	$	299,203
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	8,217	$	6,789
Accrued compensation		5,264		4,583
Accrued warranty		619		660
Accrued taxes		2,453		2,323
Deferred revenue		1,741		1,857
Other accrued liabilities		1,492		1,909
Total current liabilities		19,786		18,121
Non-current liabilities		1,555		1,619
Non-current deferred revenue		1,072		1,285
Total liabilities		22,413		21,025
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock		89		88
Additional paid-in capital		386,340		384,325
Accumulated other comprehensive gain		969		430
Accumulated deficit		(106,657)		(106,665)
Total stockholders' equity		280,741		278,178
Total liabilities and stockholders' equity	$	303,154	$	299,203

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

8X8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts; unaudited)

		Three Months Ended
		June 30,
		2014		2013
Service revenue	$	34,276	$	26,499
Product revenue		3,637		2,752
Total revenue		37,913		29,251
Operating expenses:
Cost of service revenue		6,997		4,786
Cost of product revenue		3,969		3,347
Research and development		3,406		2,336
Sales and marketing		19,160		13,072
General and administrative		3,878		2,772
Total operating expenses		37,410		26,313
Income from operations		503		2,938
Other income, net		177		15
Income from continuing operations before provision for income taxes		680		2,953
Provision for income taxes		672		961
Income from continuing operations		8		1,992
Income from discontinued operations, net of income tax provision		-		147
Net income	$	8	$	2,139
Income per share - continuing operations:
Basic	$	0.00	$	0.03
Diluted	$	0.00	$	0.03
Income per share - discontinued operations:
Basic	$	0.00	$	0.00
Diluted	$	0.00	$	0.00
Net income per share:
Basic	$	0.00	$	0.03
Diluted	$	0.00	$	0.03
Weighted average number of shares:
Basic		88,592		72,510
Diluted		91,445		75,756

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

8X8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)

		Three Months Ended
		June 30,
		2014		2013
Net income	$	8	$	2,139
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on investments in securities		86		(65)
Foreign currency translation adjustment		453		-
Comprehensive income	$	547	$	2,074

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

8X8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)

		Three Months Ended
		June 30,
		2014		2013
Cash flows from operating activities:
Net income	$	8	$	2,139
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation		755		675
Amortization of intangible assets		567		340
Amortization of capitalized software		85		-
Net accretion of discount and amortization of premium on
marketable securities		192		-
Stock-based compensation		1,847		907
Deferred income tax provision		610		873
Other		9		158
Changes in assets and liabilities:
Accounts receivable, net		(402)		132
Inventory		47		(61)
Other current and noncurrent assets		(175)		(306)
Deferred cost of goods sold		157		30
Accounts payable		988		(316)
Accrued compensation		674		82
Accrued warranty		(41)		22
Accrued taxes and fees		128		192
Deferred revenue		(352)		373
Other current and noncurrent liabilities		(447)		(7)
Net cash provided by operating activities		4,650		5,233
Cash flows from investing activities:
Purchases of property and equipment		(1,026)		(466)
Cost of capitalized software		-		(328)
Proceeds from maturity of investments		3,300		-
Sales of investments - available for sale		18,992		-
Purchases of investments - available for sale		(30,134)		-
Net cash used in investing activities		(8,868)		(794)
Cash flows from financing activities:
Capital lease payments		(46)		(5)
Repurchase of common stock		(48)		(120)
Proceeds from issuance of common stock under employee stock plans		170		1,296
Net cash provided by financing activities		76		1,171
Effect of exchange rate changes on cash		56		-
Net (decrease) increase in cash and cash equivalents		(4,086)		5,610
Cash and cash equivalents at the beginning of the period		59,159		50,305
Cash and cash equivalents at the end of the period	$	55,073	$	55,915
Supplemental cash flow information
Income taxes paid	$	85	$	156
Interest paid		1		1

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

8X8, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

1. DESCRIPTION OF THE BUSINESS

THE COMPANY

8x8, Inc. ("8x8" or the "Company") develops and markets a comprehensive portfolio of cloud-based communications and collaboration solutions that include hosted cloud telephony, unified communications, contact center, video conferencing and virtual desktop software and services. These unified communications and collaboration services are offered from the Internet cloud via a software-as-a-service subscription. The Company also provides cloud-based computing services. As of June 30, 2014, the Company had 39,340 business customers.

The Company was incorporated in California in February 1987 and was reincorporated in Delaware in December 1996. The Company's fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in these notes to the condensed consolidated financial statements refers to the fiscal year ending March 31 of the calendar year indicated (for example, fiscal 2015 refers to the fiscal year ending March 31, 2015).

2. BASIS OF PRESENTATION

The accompanying interim condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as our annual consolidated financial statements for the fiscal year ended March 31, 2014. In the opinion of the Company's management, these interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.

The March 31, 2014 year-end condensed consolidated balance sheet data in this document was derived from audited consolidated financial statements and does not include all of the disclosures required by U.S. generally accepted accounting principles. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements as of and for the fiscal year ended March 31, 2014 and notes thereto included in the Company's fiscal 2014 Annual Report on Form 10-K.

The results of operations and cash flows for the interim periods included in these condensed consolidated financial statements are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

Reclassification

Certain amounts previously reported within the Company's consolidated statements of income have been reclassified to conform to the current period presentation. The reclassification included certain prior-period amounts related to the Company's discontinued operations.

The reclassification had no impact on the Company's previously reported net income or basic and diluted net income per share amounts.

7

Service and Product Revenue

The Company recognizes service revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, price is fixed or determinable and collectability is reasonably assured. The Company defers recognition of service revenues in instances when cash receipts are received before services are delivered and recognizes deferred revenues ratably as services are provided.

The Company recognizes revenue from product sales for which there are no related services to be rendered upon shipment to customers provided that persuasive evidence of an arrangement exists, the price is fixed, title has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant obligations. Gross outbound shipping and handling charges are recorded as revenue, and the related costs are included in cost of goods sold. Reserves for returns and allowances for customer sales are recorded at the time of shipment. In accordance with the ASC 985-605, the Company records shipments to distributors, retailers, and resellers, where the right of return exists, as deferred revenue. The Company defers recognition of revenue on sales to distributors, retailers, and resellers until products are resold to the customer.

The Company records revenue net of any sales-related taxes that are billed to its customers. The Company believes this approach results in consolidated financial statements that are more easily understood by users.

Under the terms of the Company's typical subscription agreement, new customers can terminate their service within 30 days of order placement and receive a full refund of fees previously paid. The Company has determined that it has sufficient history of subscriber conduct to make a reasonable estimate of cancellations within the 30-day trial period. Therefore, the Company recognizes new subscriber revenue in the month in which the new order was shipped, net of an allowance for expected cancellations.

Multiple Element Arrangements

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 605-25 requires that revenue arrangements with multiple deliverables be divided into separate units of accounting if the deliverables in the arrangement meet specific criteria.  The provisioning of the 8x8 cloud service with the accompanying 8x8 IP telephone constitutes a revenue arrangement with multiple deliverables.  For arrangements with multiple deliverables, the Company allocates the arrangement consideration to all units of accounting based on their relative selling prices. In such circumstances, the accounting principles establish a hierarchy to determine the relative selling price to be used for allocating arrangement consideration to units of accounting as follows: (i) vendor-specific objective evidence of fair value ("VSOE"), (ii) third-party evidence of selling price ("TPE"), and (iii) best estimate of the selling price ("BESP").

VSOE generally exists only when the Company sells the deliverable separately, on more than a limited basis, at prices within a relatively narrow range.  When VSOE cannot be established, the Company attempts to establish the selling price of deliverables based on relevant TPE. TPE is determined based on manufacturer's prices for similar deliverables when sold separately, when possible. When the Company is unable to establish selling price using VSOE or TPE, it uses a BESP for the allocation of arrangement consideration. The objective of BESP is to determine the price at which the Company would transact a sale if the product or service was sold on a stand-alone basis. BESP is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings. The Company determines BESP for a product or service by considering multiple factors including, but not limited to:

• the price list established by its management which is typically based on general pricing practices and targeted gross margin of products and services sold; and
• analysis of pricing history of new arrangements, including multiple element and stand-alone transactions.

In accordance with the guidance of ASC 605-25, when the Company enters into revenue arrangements with multiple deliverables the Company allocates arrangement consideration, including activation fees, among the 8x8 IP telephones and subscriber services based on their relative selling prices. Arrangement consideration allocated to the IP telephones that is fixed or determinable and that is not contingent on future performance or future deliverables is recognized as product revenues during the period of the sale less the allowance for estimated returns during the 30-day trial period. Arrangement consideration allocated to subscriber services that is fixed or determinable and that is not contingent on future performance or future deliverables is recognized ratably as service revenues as the related services are provided, which is generally over the initial contract term.

8

Deferred Cost of Goods Sold

Deferred cost of goods sold represents the cost of products sold for which the end customer or distributor has a right of return. The cost of the products sold is recognized contemporaneously with the recognition of revenue, when the subscriber has accepted the service.

Cash, Cash Equivalents and Investments

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Management determines the appropriate categorization of its investments at the time of purchase and reevaluates the classification at each reporting date. The cost of the Company's investments is determined based upon specific identification.

The Company's investments are comprised of mutual funds, commercial paper, corporate debt, municipal securities, asset backed securities, mortgage backed securities, international government securities and money market funds. At June 30, 2014 and March 31, 2014, all investments were classified as available-for-sale and reported at fair value, based either upon quoted prices in active markets, quoted prices in less active markets, or quoted market prices for similar investments, with unrealized gains and losses, net of related tax, if any, included in other comprehensive loss and disclosed as a separate component of consolidated stockholders' equity. Realized gains and losses on sales of all such investments are reported within the caption of other income, net in the consolidated statements of income and computed using the specific identification method. The Company classifies its investments as current based on the nature of the investments and their availability for use in current operations. The Company's investments in marketable securities are monitored on a periodic basis for impairment. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the investment is established. These available-for-sale investments are primarily held in the custody of a major financial institution.

Available-for-sale investments were (in thousands):

				Gross		Gross
		Amortized		Unrealized		Unrealized		Estimated
As of June 30, 2014		Costs		Gain		Loss		Fair Value
Money market funds	$	25,020	$	-	$	-	$	25,020
Fixed income
Mutual funds		1,909		21		-		1,930
Commercial paper		24,583		6		-		24,589
Corporate debt		69,163		69		(8)		69,224
Municipal securities		5,434		4		(3)		5,435
Asset backed securities		20,067		11		(3)		20,075
Mortgage backed securities		4,882		-		(3)		4,879
International government securities		800		5		-		805
Total available-for-sale investments	$	151,858	$	116	$	(17)	$	151,957
Reported as (in thousands):
Cash and cash equivalents							$	25,020
Short-term investments								126,937
Total							$	151,957

9

Contractual maturities of mutual funds, commercial paper, corporate debt, municipal securities, asset backed securities, mortgage backed securities, international government securities and money market funds as of June 30, 2014 are set forth below (in thousands):

Due within one year	$	75,972
Due after one year		75,985
Total	$	151,957

				Gross		Gross
		Amortized		Unrealized		Unrealized		Estimated
As of March 31, 2014		Costs		Gain		Loss		Fair Value
Money market funds	$	32,611	$	-	$	-	$	32,611
Fixed income
Mutual funds		1,964		-		(55)		1,909
Commercial paper		30,374		5		-		30,379
Corporate debt		63,621		35		(39)		63,617
Municipal securities		5,435		5		(1)		5,439
Asset backed securities		17,049		6		(1)		17,054
International government securities		800		4		-		804
Total available-for-sale investments	$	151,854	$	55	$	(96)	$	151,813
Reported as (in thousands):
Cash and cash equivalents							$	32,611
Short-term investments								47,181
Long-term investments								72,021
Total							$	151,813

Contractual maturities of mutual funds, commercial paper, corporate debt, municipal securities, asset backed securities, international government securities and money market funds as of March 31, 2014 are set forth below (in thousands):

Due within one year	$	79,792
Due after one year		72,021
Total	$	151,813

10

Intangible Assets

Amortization expense for the customer relationship intangible asset is included in sales and marketing expenses. Amortization expense for technology is included in cost of service revenue. The carrying values of intangible assets were as follows (in thousands):

		June 30, 2014						March 31, 2014
		Gross						Gross
		Carrying		Accumulated		Net Carrying		Carrying		Accumulated		Net Carrying
		Amount		Amortization		Amount		Amount		Amortization		Amount
Technology	$	8,242	$	(2,286)	$	5,956	$	8,242	$	(2,080)	$	6,162
Customer relationships		9,686		(1,929)		7,757		9,686		(1,710)		7,976
Trade names/domains		957		-		957		957		-		957
Total acquired identifiable
intangible assets	$	18,885	$	(4,215)	$	14,670	$	18,885	$	(3,790)	$	15,095

At June 30, 2014, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives, is estimated to be the following (in thousands):

		Amount
Remaining 2015	$	1,712
2016		2,282
2017		2,275
2018		2,027
2019		1,781
Thereafter		3,636
Total	$	13,713

Research, Development and Software Costs

The Company accounts for software to be sold or otherwise marketed in accordance with ASC 985-20 - Costs of Software to be Sold, Leased or Marketed, which requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. The Company defines establishment of technological feasibility as the completion of a working model. Software development costs for software to be sold or otherwise marketed incurred prior to the establishment of technological feasibility are included in research and development and are expensed as incurred. Software development costs incurred subsequent to the establishment of technological feasibility through the period of general market availability of the product are capitalized, if material.

In the first three months of fiscal 2015, the Company expensed all research and development costs in accordance with ASC 985-20. At June 30, 2014, total capitalized software development costs included in other long-term assets was approximately $945,000 and accumulated amortization costs related to capitalized software was approximately $233,000.

Foreign Currency Translation

The Company has determined that the functional currency of its UK foreign subsidiary is the subsidiary's local currency, the British Pound Sterling ("GBP"), which the Company believes most appropriately reflects the current economic facts and circumstances of the UK subsidiary's operations. The assets and liabilities of the subsidiary are translated at the applicable exchange rate as of the end of the balance sheet period and revenue and expenses are translated at an average rate over the period presented. Resulting currency translation adjustments are recorded as a component of accumulated other comprehensive income or loss within the stockholder's equity in the consolidated balance sheets.

11

Stock Purchase Right/Restricted Stock Unit and Option Activity

Stock purchase right activity for the three months ended June 30, 2014 is summarized as follows:

			Weighted	Weighted
			Average	Average
			Grant-Date	Remaining
	Number of		Fair Market	Contractual
	Shares		Value	Term (in Years)
Balance at March 31, 2014	489,627	$	4.83	1.93
Granted	31,432		7.88
Vested	(56,057)		2.80
Forfeited	(24,625)		5.50
Balance at June 30, 2014	440,377	$	5.27	1.91

Restricted stock unit and performance stock unit activity for the three months ended June 30, 2014 is summarized as follows:

				Weighted
			Weighted	Average
			Average	Remaining
	Number of		Purchase	Contractual
	Shares		Price	Term (in Years)
Balance at March 31, 2014	1,134,856	$	-	2.00
Granted	77,750		-
Vested	(7,875)		-
Forfeited	(74,204)		-
Balance at June 30, 2014	1,130,527	$	-	1.80

Option activity for the three months ended June 30, 2014 is summarized as follows:

				Weighted
		Shares		Average
	Shares	Subject to		Exercise
	Available	Options		Price
	for Grant	Outstanding		Per Share
Balance at March 31, 2014	1,613,943	6,002,382	$	4.14
Granted - options	(10,000)	10,000		7.88
Stock purchase rights/restricted stock unit (1)	(109,182)	-		-
Exercised	-	(137,940)		1.55
Canceled/forfeited - options	269,056	(269,056)		5.10
Canceled/forfeited - restricted stock unit	74,393	-		-
Balance at June 30, 2014	1,838,210	5,605,386	$	4.16

(1) The reduction to shares available for grant includes awards granted of 109,182 shares.

12

The following table summarizes the stock options outstanding and exercisable at June 30, 2014:

	Options Outstanding						Options Exercisable
			Weighted	Weighted					Weighted
			Average	Average					Average
			Exercise	Remaining		Aggregate			Exercise		Aggregate
Range of			Price	Contractual		Intrinsic			Price		Intrinsic
Exercise Price	Shares		Per Share	Life (Years)		Value	Shares		Per Share		Value
$0.55 - $1.26	1,628,745	$	1.04	3.6	$	11,472,489	1,628,745	$	1.04	$	11,472,489
$1.27 - $1.79	1,238,578	$	1.53	1.7		8,110,169	1,238,578	$	1.53		8,110,169
$1.80 - $5.87	1,345,025	$	4.67	6.7		4,593,163	834,255	$	4.24		3,201,363
$5.88 - $9.74	1,243,038	$	9.49	9.2		95,930	93,135	$	8.92		40,317
$10.97 - $11.26	150,000	$	11.11	9.5		-	-	$	-		-
	5,605,386				$	24,271,751	3,794,713			$	22,824,338

Stock-based Compensation Expense

The Company accounts for its employee stock options, stock purchase rights, restricted stock units including restricted performance stock units granted under the 1996 Stock Plan, 1996 Director Option Plan, the 2006 Stock Plan, the 2003 Contactual Plan, the 2012 Equity Incentive Plan, the 2013 New Employee Inducement Incentive Plan and stock purchase rights under the 1996 Employee Stock Purchase Plan (collectively "Equity Compensation Plans") under the provisions of ASC 718 - Stock Compensation. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the equity grant), net of estimated forfeitures.

To value option grants, stock purchase rights and restricted stock units under the Equity Compensation Plans for stock-based compensation, the Company used the Black-Scholes option valuation model. Fair value determined using the Black-Scholes option valuation model varies based on assumptions used for the expected stock prices volatility, expected life, risk-free interest rates and future dividend payments. For the three months ended June 30, 2014 and 2013, the Company used the historical volatility of its stock over a period equal to the expected life of the options. The expected life assumptions represent the weighted-average period stock-based awards are expecting to remain outstanding. These expected life assumptions were established through the review of historical exercise behavior of stock-based award grants with similar vesting periods. The risk-free interest rate is based on the closing market bid yields on actively traded U.S. treasury securities in the over-the-counter market for the expected term equal to the expected term of the option. The dividend yield assumption is based on the Company's history and expectation of future dividend payout. Compensation expense for stock-based payment awards is recognized using the straight-line single-option method and includes the impact of estimated forfeitures.

As of June 30, 2014, there was $15.6 million of unamortized stock-based compensation expense related to unvested stock awards which is expected to be recognized over a weighted average period of 2.83 years.

The following table summarizes the assumptions used to compute reported stock-based compensation to employees and directors for the three months ended June 30, 2014 and 2013:

		Three Months Ended
		June 30,
		2014		2013
Expected volatility		59%		66%
Expected dividend yield		-		-
Risk-free interest rate		1.53%		0.73%
Weighted average expected option term		5.00 years		4.50 years
Weighted average fair value of options granted	$	4.01	$	3.96

13

In accordance with ASC 718 - Stock Compensation, the Company recorded $1,671,000 and $718,000 in compensation expense relative to stock-based awards for the three months ended June 30, 2014 and 2013, respectively.

Employee Stock Purchase Plan

Under the Company's Employee Stock Purchase Plan, or ESPP, eligible employees can participate and purchase common stock semi-annually through payroll deductions at a price equal to 85% of the fair market value of the common stock at the beginning of each one year offering period or the end of the applicable nine month purchase period within that offering period, whichever is lower. The contribution amount may not exceed 10% of an employee's base compensation, including commissions but not including bonuses and overtime. The Company accounts for the ESPP as a compensatory plan and recorded compensation expense of $176,000 and $189,000 for the three months ended June 30, 2014 and 2013, respectively, in accordance with ASC 718.

As of June 30, 2014, there was $179,000 of total unrecognized compensation cost related to employee stock purchases. This cost is expected to be recognized over a weighted average period of 0.5 years.

ASC 718 requires the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather than as an operating cash flow. The future realization of tax benefits related to stock-based compensation is dependent upon the timing of employee exercises and future taxable income, among other factors. The Company did not realize any tax benefit from the stock-based compensation charges incurred during the three months ended June 30, 2014 and 2013.

The following table summarizes the classification of stock-based compensation expense related to employee stock options and employee stock purchases under ASC 718 among the Company's operating functions for the three months ended June 30, 2014 and 2013 which was recorded as follows (in thousands):

		Three Months Ended
		June 30,
		2014		2013
Cost of service revenue	$	115	$	68
Cost of product revenue		-		-
Research and development		314		154
Sales and marketing		744		347
General and administrative		674		338
Total stock-based compensation expense related to employee
stock options and employee stock purchases, pre-tax		1,847		907
Tax benefit		-		-
Stock-based compensation expense related to employee
stock options and employee stock purchases, net of tax	$	1,847	$	907

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and the IASB has issued IFRS 15, Revenue from Contracts with Customers. The issuance of these documents completes the joint effort by the FASB and the IASB to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and IFRS. The new guidance affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance.   For public entities, the amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.  Early application is not permitted. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements.

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In June 2014, the FASB issued Accounting Standards Update No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in ASC 718, Compensation-Stock Compensation, as it relates to such awards. ASU 2014-12 is effective for us in our first quarter of fiscal 2017 with early adoption permitted using either of two methods: (i) prospective to all awards granted or modified after the effective date; or (ii) retrospective to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter, with the cumulative effect of applying ASU 2014-12 as an adjustment to the opening retained earnings balance as of the beginning of the earliest annual period presented in the financial statements. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements.

3. FAIR VALUE MEASUREMENT

The following tables present the Company's fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at June 30, 2014 and March 31, 2014 (in thousands):

		Quoted Prices in		Other		Significant
		Active Markets for		Observable		Unobservable		Balance at
		Identical Assets		Inputs		Inputs		June 30,
		(Level 1)		(Level 2)		(Level 3)		2014
Cash equivalents:
Money market funds	$	25,020	$	-	$	-	$	25,020
Short-term investments:
Mutual funds		1,930		-		-		1,930
Commercial paper		-		24,589		-		24,589
Corporate debt		-		69,224		-		69,224
Municipal securities		-		5,435		-		5,435
Asset backed securities		-		20,075		-		20,075
Mortgage backed securities		-		4,879		-		4,879
International government securities		-		805		-		805
Total	$	26,950	$	125,007	$	-	$	151,957

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		Quoted Prices in		Other		Significant
		Active Markets for		Observable		Unobservable		Balance at
		Identical Assets		Inputs		Inputs		March 31,
		(Level 1)		(Level 2)		(Level 3)		2014
Cash equivalents:
Money market funds	$	32,611	$	-	$	-	$	32,611
Short-term investments:
Mutual funds		1,909		-		-		1,909
Commercial paper		-		30,379		-		30,379
Corporate debt		-		14,893		-		14,893
Long-term investments:
Corporate debt		-		48,724		-		48,724
Municipal securities		-		5,439		-		5,439
Asset backed securities		-		17,054		-		17,054
International government securities		-		804		-		804
Total	$	34,520	$	117,293	$	-	$	151,813

4. BALANCE SHEET DETAIL

		June 30,		March 31,
		2014		2014
Inventory (in thousands):
Work-in-process	$	9	$	23
Finished goods		744		788
	$	753	$	811

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5. NET INCOME PER SHARE

Basic net income per share is computed by dividing net income available to common stockholders (numerator) by the weighted average number of vested, unrestricted common shares outstanding during the period (denominator). Diluted net income per share is computed on the basis of the weighted average number of shares of common stock outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include shares issuable upon exercise of outstanding stock options and under the ESPP.

		Three Months Ended
		June 30,
		2014		2013
		(in thousands, except per share amounts)
Numerator:
Income from continuing operations	$	8	$	1,992
Income from discontinued operations, net of income tax provision		-		147
Net income available to common stockholders		8		2,139
Denominator:
Common shares		88,592		72,510
Denominator for basic calculation		88,592		72,510
Employee stock options		2,480		2,911
Stock purchase rights		373		335
Denominator for diluted calculation		91,445		75,756
Income per share - continuing operations:
Basic	$	0.00	$	0.03
Diluted	$	0.00	$	0.03
Income per share - discontinued operations:
Basic	$	0.00	$	0.00
Diluted	$	0.00	$	0.00
Net income per share:
Basic	$	0.00	$	0.03
Diluted	$	0.00	$	0.03

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The following shares attributable to outstanding stock options and stock purchase rights were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive (in thousands):

	Three Months Ended
	June 30,
	2014	2013
Employee stock options	1,370	935
Stock purchase rights	79	2
Total anti-dilutive employee stock-based securities	1,449	937

6. INCOME TAXES

For the three months ended June 30, 2014, the Company recorded a provision for income taxes of $0.7 million, which was primarily attributable to net income from continuing operations. For the three months ended June 30, 2013, the Company recorded a provision for income taxes of $1.1 million, which was primarily attributable to net income from continuing operations ($1.0 million) and from discontinued operations ($0.1 million).

The effective tax rate is calculated by dividing the income tax provision by net income before income tax expense.

At March 31, 2014, there were $2.2 million of unrecognized tax benefits that, if recognized, would have affected the effective tax rate.  The Company does not believe that there has been any significant change in the unrecognized tax benefits in the three-month period ended June 30, 2014, and does not expect the remaining unrecognized tax benefit to change materially in the next 12 months. To the extent that the remaining unrecognized tax benefits are ultimately recognized, they will have an impact on the effective tax rate in future periods.

The Company is subject to taxation in the U.S., California and various other states and foreign jurisdictions in which it has or had a subsidiary or branch operations or it is collecting sales tax. All tax returns from fiscal 1995 to fiscal 2014 may be subject to examination by the Internal Revenue Service, California and various other states. As of July 23, 2014, there were no active federal or state income tax audits. Returns filed in foreign jurisdictions may be subject to examination for the fiscal years 2010 to 2014.

7. SEGMENT REPORTING

ASC 280, "Segment Reporting" establishes annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas and major customers. Under ASC 280, the method for determining what information to report is based upon the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. The Company has determined that it has only one reportable segment. The Company's chief operating decision makers, the Chief Executive Officer, Chief Financial Officer and Chief Technology Officer, evaluate performance of the Company and make decisions regarding allocation of resources based on total Company results.

No customer represented greater than 10% of the Company's total revenues for the three months ended June 30, 2014 or 2013. The Company's revenue distribution by geographic region (based upon the destination of shipments and the customer's service address) was as follows:

	Three Months Ended
	June 30,
	2014	2013
Americas (principally US)	91%	99%
Europe	8%	0%
Asia Pacific	1%	1%
	100%	100%

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Geographic area data is based upon the location of the property and equipment and is as follows (in thousands):

		June 30,		March 31,
		2014		2014
United States	$	6,483	$	6,305
Europe		1,567		1,087
Asia		289		319
Total	$	8,339	$	7,711

8. COMMITMENTS AND CONTINGENCIES

Guarantees

Indemnifications

In the normal course of business, the Company indemnifies 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, were as follows (in thousands):

		Three Months Ended
		June 30,
		2014		2013
Balance at beginning of period	$	660	$	452
Accruals for warranties		54		177
Payments		(95)		(155)
Balance at end of period	$	619	$	474

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 $0.4 million. The agreement requires a 150-day notice to terminate. The total remaining obligation under the amended contract is $2.2 million.

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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 in fiscal 2015 through 2016. At June 30, 2014, future minimum annual payments under these third party network service contracts were as follows (in thousands):

Year ending March 31:
Remaining 2015	$	1,355
2016		214
Total minimum payments	$	1,569

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 February 22, 2011, we were named a defendant in a lawsuit, Bear Creek Technologies, Inc. v. 8x8, Inc. et al., along with 20 other defendants. On August 17, 2011, we were dismissed without prejudice from this lawsuit under Rule 21 of the Federal Rules of Civil Procedure. On August 17, 2011, we were sued again by Bear Creek Technologies, Inc. in the United States District Court for the District of Delaware. We believe we have factual and legal defenses to these claims and are presenting a vigorous defense.  Further, on November 28, 2012, the U.S. Patent & Trademark Office initiated a Reexamination proceeding with a Reexamination Declaration explaining that there is a substantial new question of patentability, based on four separate grounds and affecting each claim of the patent which is the basis for the complaint filed against us.  On March 26, 2013, the USPTO issued a first Office Action in the Reexamination, with all claims of the '722 patent being rejected on each of the four separate grounds raised in the Request for Reexamination.  On July 10, 2013, we filed an informational pleading in support of and joining a motion to stay the proceeding in the District Court; the District Court granted the motion on July 17, 2013, based on the possibility that at least one of the USPTO rejections will be upheld and considering the USPTO's conclusion that Bear Creek's patent suffers from a defective claim for priority.  On March 24, 2014, the USPTO issued another Office Action in which the rejections of the claims were maintained.  We cannot estimate potential liability in this case at this early stage of litigation.

On October 25, 2011, we were named a defendant in a lawsuit, Klausner Technologies, Inc. v. Oracle Corporation et al., along with 30 other defendants filed in the U.S. District Court for the District of Delaware. Based on a transfer of ownership of the patent in suit, the lawsuit against 8x8 became IPVX Patent Holdings, Inc., v. 8x8, Inc. The lawsuit alleges infringement of a patent that is believed to have expired.  On November 1, 2011, IPVX dismissed the complaint voluntarily and filed new complaints separating the defendants, including a new complaint against 8x8.  On March 21, 2013, the District Court granted 8x8's Motion to Change Venue, and ordered the transfer of the case to the U.S. District Court for the Northern District of California.  The Company filed its answer to the complaint on April 25, 2014.  On July 7, 2014, the parties agreed to participate in a Court-facilitated mediation session, and subsequently agreed to settle all claims in the suit under confidential terms which await finalization; subject to such the written agreement being finalized, this lawsuit is dismissed.   The impact of the settlement on the Company will be immaterial.

On March 31, 2014, we were named a defendant in a lawsuit, CallWave Communications LLC v. 8x8, Inc.  CallWave Communications also sued Fonality Inc. on March 31, 2014, and previously sued other companies including Verizon, Google, T-Mobile, and AT&T.  We are currently assessing factual and legal defenses to these claims and expect to present a vigorous defense.  We have answered the complaint and filed counterclaims in response thereto.  We cannot estimate potential liability in this case at this early stage of the litigation.

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 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.

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9. DISCONTINUED OPERATIONS

On September 30, 2013, the Company completed the sale of its dedicated server hosting business to IRC Company, Inc. ("IRC") and, as a result, no longer provides dedicated server hosting services. In the transaction, IRC purchased 100% of the stock of Central Host, Inc., which had been wholly owned by the Company and all of the assets specific to the dedicated server hosting business.

The Company sold its dedicated server hosting business for total consideration of $3.0 million in cash, which was received on October 1, 2013.

The dedicated server hosting business has been reported as discontinued operations. The results of operations position of these discontinued operations is as follows:

Results of operations:

		Three Months Ended
		June 30,
		2014		2013
Revenue	$	-	$	753
Operating expense		-		502
Income before income taxes		-		251
Provision for income taxes		-		104
Income from discontinued operations		-		147

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Management Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as "may," "will," "should," "estimates," "predicts," "potential," "continue," "strategy," "believes," "anticipates," "plans," "expects," "intends," and similar expressions are intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Actual results and trends may differ materially from historical results or those projected in any such forward-looking statements depending on a variety of factors. These factors include, but are not limited to, customer acceptance and demand for our cloud communications and collaboration services, the quality and reliability of our services, the prices for our services, customer renewal rates, customer acquisition costs, our ability to compete effectively in the hosted telecommunications and cloud-based computing services business, actions by our competitors, including price reductions for their competitive services, our ability to provide cost-effective and timely service and support to larger distributed enterprises, potential federal and state regulatory actions, compliance costs, potential warranty claims and product defects, our need for and the availability of adequate working capital, our ability to innovate technologically, the timely supply of products by our contract manufacturers, our management's ability to execute its plans, strategies and objectives for future operations, including the execution of integration plans, and to realize the expected benefits of our acquisitions, and potential future intellectual property infringement claims and other litigation that could adversely affect our business and operating results. All forward-looking statements included in this report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. In addition to the factors discussed elsewhere in this Form 10-Q, see the Risk Factors discussion in Item 1A of our 2013 Form 10-K. The forward-looking statements included in this Form 10-Q are made only as of the date of this report, and we undertake no obligation to update the forward-looking statements to reflect subsequent events or circumstances.

BUSINESS OVERVIEW

We develop and market a comprehensive portfolio of cloud-based communication and collaboration solutions that include hosted cloud telephony, unified communications, contact center, video conferencing and virtual desktop software and services. These communication and collaboration services are offered from the Internet cloud via a software-as-a-service subscription. We also provide cloud-based computing services. As of June 30, 2014, we had 39,340 business customers. Since fiscal 2004, substantially all of our revenue has been generated from the sale, license and provision of these cloud products, services and technology. Prior to fiscal 2003, our focus was on our Voice over Internet Protocol semiconductor business.

Our fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in this report refers to the fiscal year ending March 31 of the calendar year indicated (for example, fiscal 2015 refers to the fiscal year ending March 31, 2015).

RECLASSIFICATION

Certain amounts previously reported within our consolidated statements of income have been reclassified to conform to the current period presentation. The reclassification included certain prior-period amounts that are related to our discontinued operations.

The reclassification had no impact on our previously reported net income or basic and diluted net income per share amounts. The operating results discussed under "Results of Operations" exclude the impact of our discontinued operations for all periods presented.

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SUMMARY AND OUTLOOK

In the first quarter of fiscal 2015, we displayed continued momentum with revenue increasing 30% year over year to a record $37.9 million; our channel and mid-market sales increasing 94% year over year, representing 44% of new monthly recurring revenue sold in the quarter; and average monthly service revenue per business customer of $293, up 11% compared with $263 in the same period last year.

CRITICAL ACCOUNTING POLICIES & ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of assets and liabilities. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

RECENT ACCOUNTING PRONOUNCEMENTS

See Item 1 of Part I, "Financial Statements - Note 2 - Basis of Presentation - Recent Accounting Pronouncements."

SELECTED OPERATING STATISTICS

We periodically review certain key business metrics, within the context of our articulated performance goals, in order to evaluate the effectiveness of our operational strategies, allocate resources and maximize the financial performance of our business. The selected operating statistics include the following:

	Selected Operating Statistics (1)
	June 30,	March 31,	Dec 31,	Sept. 30,	June 30,
	2014	2014	2013	2013	2013
Total business customers (2)	39,340	37,933	36,753	34,674	33,374
Business customers average monthly
service revenue per customer (3)	$ 293	$ 287	$ 274	$ 268	$ 263
Monthly business service revenue churn	0.4%	1.2%	1.5%	1.2%	1.2%
Overall service margin	80%	79%	81%	81%	82%
Overall product margin	-9%	-23%	-34%	-27%	-22%
Overall gross margin	71%	70%	71%	71%	72%

(1)	Selected operating statistics table include continuing operations and excludes dedicated server hosting business sold September 30, 2013.
(2)	Business customers are defined as customers paying for service. Customers that are currently in the 30-day trial period are considered to be customers that are paying for service. Customers subscribing to Virtual Office Solo, DNS or Cloud VPS services are not included as business customers.
(3)	Business customer average monthly service revenue per customer is service revenue from business customers in the period divided by the number of months in the period divided by the simple average number of business customers during the period.

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RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto.

		June 30,				Dollar	Percent
Service revenue		2014		2013		Change	Change
		(dollar amounts in thousands)
Three months ended	$	34,276	$	26,499	$	7,777	29.3%
Percentage of total revenue		90.4%		90.6%

Service revenue consists primarily of revenue attributable to the provision of our 8x8 cloud communication and collaboration services, and royalties earned from cloud technology licenses. We expect that cloud communication and collaboration service revenues will continue to comprise nearly all of our service revenues for the foreseeable future. 8x8 service revenues increased in the first quarter of fiscal 2015 primarily due to the increase in our business customer subscriber base and an increase in the average monthly service revenue per customer. Our business service subscriber base grew from 33,374 business customers on June 30, 2013, to 39,340 on June 30, 2014.

		June 30,				Dollar	Percent
Product revenue		2014		2013		Change	Change
		(dollar amounts in thousands)
Three months ended	$	3,637	$	2,752	$	885	32.2%
Percentage of total revenue		9.6%		9.4%

Product revenue consists primarily of revenue from sales of IP telephones in conjunction with our 8x8 cloud telephony service. Product revenue increased for the three months ended June 30, 2014 primarily due to an increase in equipment sales to business customers.

No customer represented greater than 10% of the Company's total revenues for the three months ended June 30, 2014 or 2013.

		June 30,				Dollar	Percent
Cost of service revenue		2014		2013		Change	Change
		(dollar amounts in thousands)
Three months ended	$	6,997	$	4,786	$	2,211	46.2%
Percentage of service revenue		20.4%		18.1%

The cost of service revenue primarily consists of costs associated with network operations and related personnel, telephony origination and termination services provided by third party carriers and technology license and royalty expenses. Cost of service revenue for the three months ended June 30, 2014 increased over the comparable period in the prior fiscal year primarily due to a $1.1 million increase in third party network services expenses, a $0.5 million increase in payroll and related expenses, a $0.2 million increase in depreciation expense, and a $0.1 million increase in consulting, temporary personnel, and outside service expenses.

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		June 30,				Dollar	Percent
Cost of product revenue		2014		2013		Change	Change
		(dollar amounts in thousands)
Three months ended	$	3,969	$	3,347	$	622	18.6%
Percentage of product revenue		109.1%		121.6%

The cost of product revenue consists primarily of IP Telephones, estimated warranty obligations and direct and indirect costs associated with product purchasing, scheduling, shipping and handling. The amount of revenue allocated to product revenue based on the relative selling price is less than the cost of the IP phone equipment. The cost of product revenue for the three months ended June 30, 2014 increased over the comparable period in the prior fiscal year primarily due to an increase in equipment shipped to customers. The decrease in negative margin is due to less discounting of equipment in the current period.

		June 30,				Dollar	Percent
Research and development		2014		2013		Change	Change
		(dollar amounts in thousands)
Three months ended	$	3,406	$	2,336	$	1,070	45.8%
Percentage of total revenue		9.0%		8.0%

Historically, our research and development expenses have consisted primarily of personnel, system prototype design, and equipment costs necessary for us to conduct our development and engineering efforts. During the three months ended June 30, 2014, we expensed all research and development costs as they were incurred in accordance with ASC 985-20. The research and development expenses for the three months ended June 30, 2014 increased over the comparable period in the prior fiscal year primarily due to a $0.3 million increase in consulting, temporary personnel, and outside service expenses, a $0.3 million decrease in amounts capitalized as software developments costs, a $0.2 million increase in stock-based compensation expenses, and a $0.1 million increase in payroll and related costs.

		June 30,				Dollar	Percent
Sales and marketing		2014		2013		Change	Change
		(dollar amounts in thousands)
Three months ended	$	19,160	$	13,072	$	6,088	46.6%
Percentage of total revenue		50.5%		44.7%

Sales and marketing expenses consist primarily of personnel and related overhead costs for sales, marketing, and customer service. Such costs also include outsourced customer service call center operations, sales commissions, as well as trade show, advertising and other marketing and promotional expenses. Sales and marketing expenses for the first quarter of fiscal 2015 increased over the same quarter in the prior fiscal year primarily because of a $3.5 million increase in payroll and related costs, a $0.5 million increase in temporary personnel, consulting and outside service expenses, a $0.5 million increase in indirect channel commission expenses, and a $0.4 increase in stock-based compensation expenses.

		June 30,				Dollar	Percent
General and administrative		2014		2013		Change	Change
		(dollar amounts in thousands)
Three months ended	$	3,878	$	2,772	$	1,106	39.9%
Percentage of total revenue		10.2%		9.5%

General and administrative expenses consist primarily of personnel and related overhead costs for finance, human resources and general management. General and administrative expenses for the first quarter of fiscal 2015 increased over the same quarter in the prior fiscal year primarily because of a $0.3 million increase in payroll and related costs, a $0.3 million increase in stock-based compensation expenses, a $0.2 million increase in legal fees, and a $0.2 million increase in recruiting, temporary personnel, consulting and outside service expenses.

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		June 30,				Dollar	Percent
Other income, net		2014		2013		Change	Change
		(dollar amounts in thousands)
Three months ended	$	177	$	15	$	162	1080.0%
Percentage of total revenue		0.5%		0.1%

In the three months ended June 30, 2014, other income, net primarily consisted of interest income earned on our cash, cash equivalents and investments.

		June 30,				Dollar	Percent
Provision for income tax		2014		2013		Change	Change
		(dollar amounts in thousands)
Three months ended	$	672	$	961	$	(289)	-30.1%
Percentage of income
before provision for income taxes		98.8%		32.5%

For the three months ended June 30, 2014, we recorded a provision for income taxes of $0.7 million which was primarily attributable to income from continuing operations. For the three months ended June 30, 2013, we recorded a provision for income taxes of $1.1 million which was primarily attributable to net income from continuing operations ($1.0 million) and discontinued operations ($0.1 million).

The effective tax rate set forth in the previous table is calculated by dividing the income tax provision by net income before income tax expense. We estimate our annual effective tax rate at the end of each quarter. In estimating the annual effective tax rate, we, in consultation with our tax advisors, consider, among other things, annual pre-tax income, permanent tax differences, the geographic mix of pre-tax income and the application and interpretations of existing tax laws.

Income from discontinued operations,		June 30,				Dollar	Percent
net of income tax provision		2014		2013		Change	Change
		(dollar amounts in thousands)
Three months ended	$	-	$	147	$	(147)	-100.0%
Percentage of total revenue		0.0%		0.5%

On September 30, 2013, we sold our dedicated server hosting business. The current historical results of our dedicated server hosting business have been reclassified to income from discontinued operations, net of income tax provision.

Liquidity and Capital Resources

As of June 30, 2014, we had approximately $182.0 million in cash, cash equivalents and short-term investments.

Net cash provided by operating activities for the three months ended June 30, 2014 was approximately $4.7 million, compared with $5.2 million for the three months ended June 30, 2013. Cash 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 the use of deferred tax assets, depreciation and amortization and the expense associated with stock-based awards.

26

Net cash used in investing activities was approximately $8.9 million during the three months ended June 30, 2014. We spent approximately $1.0 million on the purchase of property and equipment, and we purchased $7.9 million of short-term investments, net of sales and proceeds from maturities of short-term investments. The net cash used in investing activities for the three months ended June 30, 2013 was $0.8 million during which period we spent approximately $0.5 million on the purchase of additional furniture and fixtures and leasehold and capitalized $0.3 million of software costs.

Our financing activities for the three months ended June 30, 2014 were not material. For the three-month period ended June 30, 2013, our financing activities consisted primarily of cash proceeds of $1.3 million related to the exercise of employee stock options and the purchase of shares under the employee stock purchase plan and $0.1 million of cash used to repurchase shares of our common stock.

Contractual Obligations

We lease our headquarters facility in San Jose, California under an operating lease agreement that expires in October 2019. The lease is an industrial net lease with monthly base rent of $130,821 for the first 15 months with a 3% increase each year thereafter, and requires us to pay property taxes, utilities and normal maintenance costs.

We lease our UK headquarters in Aylesbury UK under an operating lease agreement that expires in March 2017, with a break clause in March 2015 exercisable with six months' notice. The lease has a base monthly rent of $9,201 until March 2015, rising to $9,909 thereafter, and requires us to pay property taxes, service charges, utilities and normal maintenance costs.

We entered into a series of noncancelable capital lease agreements for office equipment bearing interest at various rates. Assets under capital lease at June 30, 2014 totaled $502,000 with accumulated amortization of $325,000.

In the third quarter of 2010, we amended the contract with one of our third party customer support vendors containing a minimum monthly commitment of approximately $0.4 million. The agreement requires a 150-day notice to terminate. At June 30, 2014, the total remaining obligation under the contract was $2.2 million.

We have entered into contracts with multiple vendors for third party network services. At June 30, 2014, future minimum annual payments under these third party network service contracts were $1.4 million in fiscal 2015 and $0.2 million for fiscal 2016.

27

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency

Our financial market risk consists primarily of risks associated with international operations and related foreign currencies. We derive a portion of our revenue from customers in Europe and Asia. In order to reduce the risk from fluctuation in foreign exchange rates, the vast majority of our sales are denominated in U.S. dollars. In addition, almost all of our arrangements with our contract manufacturers are denominated in U.S. dollars. We have not entered into any currency hedging activities. To date, our exposure to exchange rate volatility has not been significant; however, there can be no assurance that there will not be a material impact in the future.

Investments

The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Some of the securities in which we invest may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, we may maintain our portfolio of cash equivalents and investments in a variety of securities, including commercial paper, money market funds, debt securities and certificates of deposit. The risk associated with fluctuating interest rates is limited to our investment portfolio and we do not believe that a 10% change in interest rates would have a significant impact on our interest income.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Disclosure Controls") that are designed to ensure that information we are required to disclose in reports filed or submitted under the Securities and Exchange Act of 1934 is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

As of the end of the period covered by this Quarterly Report on Form 10-Q, under the supervision of our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our Disclosure Controls. Based on this evaluation our Chief Executive Officer and our Chief Financial Officer have concluded that our Disclosure Controls were effective as of June 30, 2014.

Limitations on the Effectiveness of Controls

Our management, including the Chief Executive Officer and Chief Financial Officer, do not expect that our Disclosure Controls or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Changes in Internal Control over Financial Reporting

During the first quarter of fiscal 2015, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

28

PART II -- OTHER INFORMATION

ITEM 1. Legal Proceedings

Descriptions of our legal proceedings are contained in Part I, Item 1, Financial Statements - Notes to Condensed Consolidated Financial Statements - "Note 8".

ITEM 1A. Risk Factors

We face many significant risks in our business, some of which are unknown to us and not presently foreseen. These risks could have a material adverse impact on our business, financial condition and results of operations in the future. We have disclosed a number of material risks under Part I, Item 1A of our annual report on Form 10-K for the fiscal year ended March 31, 2014, which we filed with the Securities and Exchange Commission on May 27, 2014.

ITEM 6. EXHIBITS

Exhibit Number	Description
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

29

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: July 25, 2014

8X8, INC. 

(Registrant) 

By: /s/ DANIEL WEIRICH          

Daniel Weirich 

Chief Financial Officer
(Principal Financial and Chief Accounting Officer and Duly Authorized Officer)

30

EX-31.1 2 exh31-1.htm CEO 302 CERTIFICATE

Exhibit 31.1

CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Vikram Verma, certify that:

1. I have reviewed this quarterly report on Form 10-Q of 8x8, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

1. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
2. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
3. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
4. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

1. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

July 25, 2014

/s/ VIKRAM VERMA
Vikram Verma
Chief Executive Officer

EX-31.1

Q1 2015 Exhibit 31.1

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel Weirich, certify that:

1. I have reviewed this quarterly report on Form 10-Q of 8x8, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

1. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
2. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
3. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
4. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

1. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

July 25, 2014

/s/ DANIEL WEIRICH
Daniel Weirich
Chief Financial Officer and Secretary

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of 8x8, Inc. (the "Company") for the period ended June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Vikram Verma, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ VIKRAM VERMA
Vikram Verma
Chief Executive Officer

July 25, 2014

This certification accompanies this Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, or otherwise required, be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of 8x8, Inc. (the "Company") for the period ended June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel Weirich, Chief Financial Officer and Secretary of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ DANIEL WEIRICH
Daniel Weirich
Chief Financial Officer and Secretary

July 25, 2014

This certification accompanies this Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, or otherwise required, be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.

XML

Basis of Presentation (Stock Option Narrative) (Details) (USD $)	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Stock-based compensation expense	$ 1,847,000	$ 907,000
Stock-Based Awards
Unamortized stock-based compensation expense related to unvested stock awards	15,600,000
Weighted average period of recognition for unrecognized compensation costs (in years)	2 years 303 days
Tax benefit attributable to stock options exercised	0	0
Stock-based compensation expense	1,671,000	718,000
Employee Stock Purchase Plan
Unamortized stock-based compensation expense related to unvested stock awards	179,000
Weighted average period of recognition for unrecognized compensation costs (in years)	0 years 6 months
Tax benefit attributable to stock options exercised	0	0
Stock-based compensation expense	$ 176,000	$ 189,000

XML

Commitments and Contingencies (CustomerSupport Commitments) (Narrative) (Details) (USD $)	Jun. 30, 2014
Commitments And Contingencies Customersupport Commitments Narrative Details
Third party customer support vendor minimum monthly commitment	$ 400,000
Third party customer support vendor maximum obligation	$ 2,200,000
Advance termination notice required, days	150

XML

Commitments and Contingencies (Product Warranties) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Commitments And Contingencies Product Warranties Details
Balance at beginning of period	$ 660	$ 452
Accruals for warranties	54	177
Payments	(95)	(155)
Balance at end of period	$ 619	$ 474

XML

Basis of Presentation (Schedule Of Stock Purchase Right Activity) (Details) (USD $)	3 Months Ended
	Jun. 30, 2014
Basis Of Presentation Schedule Of Stock Purchase Right Activity Details
Balance at March 31, 2014	489,627
Granted	31,432
Vested	(56,057)
Forfeited	(24,625)
Balance at June 30, 2014	440,377
Weighted-average grant date fair market value, March 31, 2014	$ 4.83
Weighted-average grant date fair market value of restricted stock rights granted	$ 7.88
Weighted-average grant date fair market value, vested during period	$ 2.80
Weighted-average grant date fair market value, forfeited during period	$ 5.50
Weighted-average grant date fair market value, June 30, 2014	$ 5.27
Weighted-average remaining contractual term, in years, March 31, 2014	1 year 339 days
Weighted-average remaining contractual term, in years, June 30, 2014	1 year 332 days

XML

Commitments And Contingencies (Tables)

3 Months Ended

Jun. 30, 2014

Commitments And Contingencies Tables

Product warranties

Changes in the Company's product warranty liability, which is included in cost of product revenue in the condensed consolidated statements of income, were as follows (in thousands):

		Three Months Ended
		June 30,
		2014		2013
Balance at beginning of period	$	660	$	452
Accruals for warranties		54		177
Payments		(95)		(155)
Balance at end of period	$	619	$	474

Minimum third party network service provider commitments

At June 30, 2014, future minimum annual payments under these third party network service contracts were as follows (in thousands):

Year ending March 31:
Remaining 2015	$	1,355
2016		214
Total minimum payments	$	1,569

XML

Discontinued Operations (Narrative) (Details) (USD $) In Millions, unless otherwise specified	1 Months Ended
	Oct. 31, 2013
Discontinued Operations Narrative Details
Proceeds from disposition of discontinued dedicated server operations	$ 3.0

XML

Net Income Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Net Income Per Share Details
Income from continuing operations	$ 8	$ 1,992
Income from discontinued operations, net of income tax provision	0	147
Net income available to common stockholders	$ 8	$ 2,139
Common shares	88,592	72,510
Denominator for basic calculation	88,592	72,510
Employee stock options	2,480	2,911
Stock purchase rights	373	335
Denominator for diluted calculation	91,445	75,756
Income per share - continuing operations:
Basic	$ 0.00	$ 0.03
Diluted	$ 0.00	$ 0.03
Income per share - discontinued operations:
Basic	$ 0.00	$ 0.00
Diluted	$ 0.00	$ 0.00
Net income per share:
Basic	$ 0.00	$ 0.03
Diluted	$ 0.00	$ 0.03

XML

Stock Plans (Assumptions Used In Black-Scholes Model) (Details) (Option Grants and Stock Purchase Rights, USD $)	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Option Grants and Stock Purchase Rights
Expected volatility	59.00%	66.00%
Expected dividend yield	0.00%	0.00%
Risk-free interest rate	1.53%	0.73%
Weighted average expected ESPP option term, in years	5 years	4 years 183 days
Weighted average fair value of ESPP options granted, per share	$ 4.01	$ 3.96

XML

Commitments and Contingencies (Service Provider Contracts) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014
Commitments And Contingencies Service Provider Contracts Details
Remaining 2015	$ 1,355
2016	214
Total minimum payments	$ 1,569

XML

BALANCE SHEET DETAIL - Note 4

3 Months Ended

Jun. 30, 2014

Notes to Financial Statements

BALANCE SHEET DETAIL - Note 4

4. BALANCE SHEET DETAIL

		June 30,		March 31,
		2014		2014
Inventory (in thousands):
Work-in-process	$	9	$	23
Finished goods		744		788
	$	753	$	811

XML

Net Income Per Share (Options and Rights Excluded) (Details) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Anti-dilutive shares	1,449	937
Employee stock options
Anti-dilutive shares	1,370	935
Stock purchase rights
Anti-dilutive shares	79	2

XML

Basis of Presentation (Service and Product Revenue) (Narrative) (Details)	Jun. 30, 2014
Basis Of Presentation Service And Product Revenue Narrative Details
Trial period offered with all new services, days	30

XML

Basis of Presentation (Cash Cash Equivalents and Short-term Investments) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Jun. 30, 2014	Mar. 31, 2014
Amortized Cost Basis	$ 151,858	$ 151,854
Available-for-sale Securities, Gross Unrealized Gain	116	55
Gross Unrealized Losses	(17)	(96)
Total available-for-sale investments, estimated fair value	151,957	151,813
Reported as:
Cash equivalents	25,020	32,611
Short-term investments	126,937	47,181
Long-term investments	0	72,021
Contractual maturities of investments:
Investments due within one year	75,972	79,792
Investments due after one year	75,985	72,021
Money Market Funds
Amortized Cost Basis	25,020	32,611
Available-for-sale Securities, Gross Unrealized Gain	0	0
Gross Unrealized Losses	0	0
Total available-for-sale investments, estimated fair value	25,020	32,611
Mutual Funds
Amortized Cost Basis	1,909	1,964
Available-for-sale Securities, Gross Unrealized Gain	21	0
Gross Unrealized Losses	0	(55)
Total available-for-sale investments, estimated fair value	1,930	1,909
Commercial Paper
Amortized Cost Basis	24,583	30,374
Available-for-sale Securities, Gross Unrealized Gain	6	5
Gross Unrealized Losses	0	0
Total available-for-sale investments, estimated fair value	24,589	30,379
Corporate Debt
Amortized Cost Basis	69,163	63,621
Available-for-sale Securities, Gross Unrealized Gain	69	35
Gross Unrealized Losses	(8)	(39)
Total available-for-sale investments, estimated fair value	69,224	63,617
Municipal Securities
Amortized Cost Basis	5,434	5,435
Available-for-sale Securities, Gross Unrealized Gain	4	5
Gross Unrealized Losses	(3)	(1)
Total available-for-sale investments, estimated fair value	5,435	5,439
Asset Backed Securities
Amortized Cost Basis	20,067	17,049
Available-for-sale Securities, Gross Unrealized Gain	11	6
Gross Unrealized Losses	(3)	(1)
Total available-for-sale investments, estimated fair value	20,075	17,054
Mortgage Backed Securities
Amortized Cost Basis	4,882
Available-for-sale Securities, Gross Unrealized Gain	0
Gross Unrealized Losses	(3)
Total available-for-sale investments, estimated fair value	4,879
Internatinal Government Securities
Amortized Cost Basis	800	800
Available-for-sale Securities, Gross Unrealized Gain	5	4
Gross Unrealized Losses	0	0
Total available-for-sale investments, estimated fair value	$ 805	$ 804

XML

Income Taxes (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Jun. 30, 2014	Mar. 31, 2014
Income Taxes Narrative Details
Unrecognized tax benefits	$ 2.2	$ 2.2
Open Tax Year	1995

XML

Basis of Presentation (Goodwill And Other Intangibles Schedule Of Intangibles) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Mar. 31, 2014
Gross Carrying Amount	$ 18,885	$ 18,885
Accumulated Amortization	(4,215)	(3,790)
Net Carrying Amount	14,670	15,095
Technology
Gross Carrying Amount	8,242	8,242
Accumulated Amortization	(2,286)	(2,080)
Net Carrying Amount	5,956	6,162
Customer relationships
Gross Carrying Amount	9,686	9,686
Accumulated Amortization	(1,929)	(1,710)
Net Carrying Amount	7,757	7,976
Trade names domains
Gross Carrying Amount	957	957
Accumulated Amortization	0	0
Net Carrying Amount	$ 957	$ 957

XML

Basis of Presentation (Goodwill And Other Intangibles Schedule Of Future Amortization Of Intangibles) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014
Basis Of Presentation Goodwill And Other Intangibles Schedule Of Future Amortization Of Intangibles Details
Remaining 2015	$ 1,712
2016	2,282
2017	2,275
2018	2,027
2019	1,781
Thereafter	3,636
Total	$ 13,713

XML

FAIR VALUE MEASURMENT - Note 3

3 Months Ended

Jun. 30, 2014

Notes to Financial Statements

FAIR VALUE MEASURMENT - Note 3

3. FAIR VALUE MEASUREMENT

The following tables present the Company's fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at June 30, 2014 and March 31, 2014 (in thousands):

		Quoted Prices in		Other		Significant
		Active Markets for		Observable		Unobservable		Balance at
		Identical Assets		Inputs		Inputs		June 30,
		(Level 1)		(Level 2)		(Level 3)		2014
Cash equivalents:
Money market funds	$	25,020	$	-	$	-	$	25,020
Short-term investments:
Mutual funds		1,930		-		-		1,930
Commercial paper		-		24,589		-		24,589
Corporate debt		-		69,224		-		69,224
Municipal securities		-		5,435		-		5,435
Asset backed securities		-		20,075		-		20,075
Mortgage backed securities		-		4,879		-		4,879
International government securities		-		805		-		805
Total	$	26,950	$	125,007	$	-	$	151,957

		Quoted Prices in		Other		Significant
		Active Markets for		Observable		Unobservable		Balance at
		Identical Assets		Inputs		Inputs		March 31,
		(Level 1)		(Level 2)		(Level 3)		2014
Cash equivalents:
Money market funds	$	32,611	$	-	$	-	$	32,611
Short-term investments:
Mutual funds		1,909		-		-		1,909
Commercial paper		-		30,379		-		30,379
Corporate debt		-		14,893		-		14,893
Long-term investments:
Corporate debt		-		48,724		-		48,724
Municipal securities		-		5,439		-		5,439
Asset backed securities		-		17,054		-		17,054
International government securities		-		804		-		804
Total	$	34,520	$	117,293	$	-	$	151,813

XML

Basis of Presentation (Software Development Costs) (Details) (Software Development Costs, USD $)	3 Months Ended
	Jun. 30, 2014
Software Development Costs
Costs capitalized during the period	$ 0
Total costs	945,000
Accumulated amortization	$ 233,000

XML

Fair Value Measurement (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Mar. 31, 2014
Cash equivalents:
Money market funds	$ 25,020	$ 32,611
Short-term investments:
Mutual funds	1,930	1,909
Commercial paper	24,589	30,379
Corporate debt	69,224	14,893
Long-term investments:
Corporate debt	0	48,724
Municipal securities	5,435	5,439
Asset backed securities	20,075	17,054
Mortgage backed securities	4,879	0
International government securities	805	804
Total	151,957	151,813
Quoted Prices in Active Markets for Identical Assets (Level 1)
Cash equivalents:
Money market funds	25,020	32,611
Short-term investments:
Mutual funds	1,930	1,909
Commercial paper	0	0
Corporate debt	0	0
Long-term investments:
Corporate debt	0	0
Municipal securities	0	0
Asset backed securities	0	0
Mortgage backed securities	0	0
International government securities	0	0
Total	26,950	34,520
Other Observable Inputs (Level 2)
Cash equivalents:
Money market funds	0	0
Short-term investments:
Mutual funds	0	0
Commercial paper	24,589	30,379
Corporate debt	69,224	14,893
Long-term investments:
Corporate debt	0	48,724
Municipal securities	5,435	5,439
Asset backed securities	20,075	17,054
Mortgage backed securities	4,879	0
International government securities	805	804
Total	125,007	117,293
Significant Unobservable Inputs (Level 3)
Cash equivalents:
Money market funds	0	0
Short-term investments:
Mutual funds	0	0
Commercial paper	0	0
Corporate debt	0	0
Long-term investments:
Corporate debt	0	0
Municipal securities	0	0
Asset backed securities	0	0
Mortgage backed securities	0	0
International government securities	0	0
Total	$ 0	$ 0

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Mar. 31, 2014
Current assets:
Cash and cash equivalents	$ 55,073	$ 59,159
Short-term investments	126,937	47,181
Accounts receivable, net	5,947	5,503
Inventory	753	811
Deferred cost of goods sold	106	263
Deferred tax asset	1,732	2,065
Other current assets	2,201	1,951
Total current assets	192,749	116,933
Long-term investments	0	72,021
Property and equipment, net	8,339	7,711
Intangible assets, net	14,670	15,095
Goodwill	38,802	38,461
Non-current deferred tax asset	47,520	47,797
Other assets	1,074	1,185
Total assets	303,154	299,203
Current liabilities:
Accounts payable	8,217	6,789
Accrued compensation	5,264	4,583
Accrued warranty	619	660
Accrued taxes	2,453	2,323
Deferred revenue	1,741	1,857
Other accrued liabilities	1,492	1,909
Total current liabilities	19,786	18,121
Non-current liabilities	1,555	1,619
Non-current deferred revenue	1,072	1,285
Total liabilities	22,413	21,025
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock	89	88
Additional paid-in capital	386,340	384,325
Accumulated other comprehensive gain	969	430
Accumulated deficit	(106,657)	(106,665)
Total stockholders' equity	280,741	278,178
Total liabilities and stockholders' equity	$ 303,154	$ 299,203

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Segment Reporting Revenue and Property and Equipment by Geographic Area (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Mar. 31, 2014
Geographic Areas, Revenue from External Customers	100%	100%
Number of customers at more than 10% of revenue	0	0
Geographic Areas, Long-Lived Assets	$ 8,339		$ 7,711
Americas
Geographic Areas, Revenue from External Customers	91%	99%
Europe
Geographic Areas, Revenue from External Customers	8%	0%
Geographic Areas, Long-Lived Assets	1,567		1,087
Asia Pacific
Geographic Areas, Revenue from External Customers	1%	1%
United States
Geographic Areas, Long-Lived Assets	6,483		6,305
Asia
Geographic Areas, Long-Lived Assets	$ 289		$ 319

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DESCRIPTION OF THE BUSINESS - Note 1

3 Months Ended

Jun. 30, 2014

Notes to Financial Statements

DESCRIPTION OF THE BUSINESS - Note 1

1. DESCRIPTION OF THE BUSINESS

THE COMPANY

8x8, Inc. ("8x8" or the "Company") develops and markets a comprehensive portfolio of cloud-based communications and collaboration solutions that include hosted cloud telephony, unified communications, contact center, video conferencing and virtual desktop software and services. These unified communications and collaboration services are offered from the Internet cloud via a software-as-a-service subscription. The Company also provides cloud-based computing services. As of June 30, 2014, the Company had 39,340 business customers.

The Company was incorporated in California in February 1987 and was reincorporated in Delaware in December 1996. The Company's fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in these notes to the condensed consolidated financial statements refers to the fiscal year ending March 31 of the calendar year indicated (for example, fiscal 2015 refers to the fiscal year ending March 31, 2015).

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Basis of Presentation (Schedule Of Option Activity) (Details) (USD $)	3 Months Ended
	Jun. 30, 2014
Basis Of Presentation Schedule Of Option Activity Details
Balance at March 31, 2014	6,002,382
Granted - options	10,000
Exercised	(137,940)
Cancelled/forfeited	(269,056)
Balance at June 30, 2014	5,605,386
Shares available for grant at March 31, 2014	1,613,943
Granted options, shares available for grant	(10,000)
Stock purchase rights/restricted stock unit (1)	(109,182)	[1]
Restricted Stock Units	0
Exercised	0
Cancelled/forfeited shares available for grant	269,056
Cancelled/forfeited - Restricted Stock Units	74,393
Shares available for grant, at June 30, 2014	1,838,210
Weighted-average exercise price of options outstanding, at March 31, 2014	$ 4.14
Weighted-average exercise price of options granted during period	$ 7.88
Weighted-average exercise price of stock purchases rights during period	$ 0
Weighted-average exercise price of options exercised during the period	$ 1.55
Weighted-average exercise price of options forfeited, cancelled or expired during the period	$ 5.10
Weighted-average exercise price of canceled / forfeited - restricted stock unit during period	$ 0
Weighted-average exercise price of options outstanding at June 30, 2014	$ 4.16

[1] The reduction to shares available for grant includes awards granted of 109,182 shares

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Inventory (Tables)

3 Months Ended

Jun. 30, 2014

Inventory Tables

Inventory (Tables)

Inventory was comprised of the following:

		June 30,		March 31,
		2014		2014
Inventory (in thousands):
Work-in-process	$	9	$	23
Finished goods		744		788
	$	753	$	811

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Basis of Presentation (Summary Of Stock Options Outstanding And Exercisable) (Details) (USD $)			3 Months Ended
	Jun. 30, 2014	Mar. 31, 2014	Jun. 30, 2014 $0.55 - $1.26	Jun. 30, 2014 $1.27 - $1.79	Jun. 30, 2014 $1.80 - $5.87	Jun. 30, 2014 $5.88 - $9.74	Jun. 30, 2014 $10.97 - $11.26	Jun. 30, 2014 $0.55 - $11.26
Range of Exercise Prices, Minimum			$ 0.55	$ 1.27	$ 1.80	$ 5.88	$ 10.97	$ 0.55
Range of Exercise Prices, Maximum			$ 1.26	$ 1.79	$ 5.87	$ 9.74	$ 11.26	$ 11.26
Options Outstanding, Number of Shares	5,605,386	6,002,382	1,628,745	1,238,578	1,345,025	1,243,038	150,000	5,605,386
Options Outstanding, Weighted-Average Exercise Price Per Share	$ 4.16	$ 4.14	$ 1.04	$ 1.53	$ 4.67	$ 9.49	$ 11.11
Options Outstanding, Weighted-Average Remaining Contractual Term (in years)			3 years 219 days	1 year 256 days	6 years 256 days	9 years 73 days	9 years 183 days
Options Outstanding, Aggregate Intrinsic Value			$ 11,472,489	$ 8,110,169	$ 4,593,163	$ 95,930	$ 0	$ 24,271,751
Options Exercisable, Number of Shares			1,628,745	1,238,578	834,255	93,135	0	3,794,713
Options Exercisable, Weighted-Average Exercise Price Per Share			$ 1.04	$ 1.53	$ 4.24	$ 8.92	$ 0
Options Exercisable, Aggregate Intrinsic Value			$ 11,472,489	$ 8,110,169	$ 3,201,363	$ 40,317	$ 0	$ 22,824,338

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Segment Information (Tables)

3 Months Ended

Jun. 30, 2014

Segment Information Tables

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas

The Company's revenue distribution by geographic region (based upon the destination of shipments and the customer's service address) was as follows:

	Three Months Ended
	June 30,
	2014	2013
Americas (principally US)	91%	99%
Europe	8%	0%
Asia Pacific	1%	1%
	100%	100%

Geographic area data is based upon the location of the property and equipment and is as follows (in thousands):

		June 30,		March 31,
		2014		2014
United States	$	6,483	$	6,305
Europe		1,567		1,087
Asia		289		319
Total	$	8,339	$	7,711

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BASIS OF PRESENTATION - Note 2

3 Months Ended

Jun. 30, 2014

Notes to Financial Statements

BASIS OF PRESENTATION - Note 2

2. BASIS OF PRESENTATION

The accompanying interim condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as our annual consolidated financial statements for the fiscal year ended March 31, 2014. In the opinion of the Company's management, these interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.

The March 31, 2014 year-end condensed consolidated balance sheet data in this document was derived from audited consolidated financial statements and does not include all of the disclosures required by U.S. generally accepted accounting principles. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements as of and for the fiscal year ended March 31, 2014 and notes thereto included in the Company's fiscal 2014 Annual Report on Form 10-K.

The results of operations and cash flows for the interim periods included in these condensed consolidated financial statements are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

Reclassification

Certain amounts previously reported within the Company's consolidated statements of income have been reclassified to conform to the current period presentation. The reclassification included certain prior-period amounts related to the Company's discontinued operations.

The reclassification had no impact on the Company's previously reported net income or basic and diluted net income per share amounts.

Service and Product Revenue

The Company recognizes service revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, price is fixed or determinable and collectability is reasonably assured. The Company defers recognition of service revenues in instances when cash receipts are received before services are delivered and recognizes deferred revenues ratably as services are provided.

The Company recognizes revenue from product sales for which there are no related services to be rendered upon shipment to customers provided that persuasive evidence of an arrangement exists, the price is fixed, title has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant obligations. Gross outbound shipping and handling charges are recorded as revenue, and the related costs are included in cost of goods sold. Reserves for returns and allowances for customer sales are recorded at the time of shipment. In accordance with the ASC 985-605, the Company records shipments to distributors, retailers, and resellers, where the right of return exists, as deferred revenue. The Company defers recognition of revenue on sales to distributors, retailers, and resellers until products are resold to the customer.

The Company records revenue net of any sales-related taxes that are billed to its customers. The Company believes this approach results in consolidated financial statements that are more easily understood by users.

Under the terms of the Company's typical subscription agreement, new customers can terminate their service within 30 days of order placement and receive a full refund of fees previously paid. The Company has determined that it has sufficient history of subscriber conduct to make a reasonable estimate of cancellations within the 30-day trial period. Therefore, the Company recognizes new subscriber revenue in the month in which the new order was shipped, net of an allowance for expected cancellations.

Multiple Element Arrangements

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 605-25 requires that revenue arrangements with multiple deliverables be divided into separate units of accounting if the deliverables in the arrangement meet specific criteria.  The provisioning of the 8x8 cloud service with the accompanying 8x8 IP telephone constitutes a revenue arrangement with multiple deliverables.  For arrangements with multiple deliverables, the Company allocates the arrangement consideration to all units of accounting based on their relative selling prices. In such circumstances, the accounting principles establish a hierarchy to determine the relative selling price to be used for allocating arrangement consideration to units of accounting as follows: (i) vendor-specific objective evidence of fair value ("VSOE"), (ii) third-party evidence of selling price ("TPE"), and (iii) best estimate of the selling price ("BESP").

VSOE generally exists only when the Company sells the deliverable separately, on more than a limited basis, at prices within a relatively narrow range.  When VSOE cannot be established, the Company attempts to establish the selling price of deliverables based on relevant TPE. TPE is determined based on manufacturer's prices for similar deliverables when sold separately, when possible. When the Company is unable to establish selling price using VSOE or TPE, it uses a BESP for the allocation of arrangement consideration. The objective of BESP is to determine the price at which the Company would transact a sale if the product or service was sold on a stand-alone basis. BESP is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings. The Company determines BESP for a product or service by considering multiple factors including, but not limited to:

• the price list established by its management which is typically based on general pricing practices and targeted gross margin of products and services sold; and
• analysis of pricing history of new arrangements, including multiple element and stand-alone transactions.

In accordance with the guidance of ASC 605-25, when the Company enters into revenue arrangements with multiple deliverables the Company allocates arrangement consideration, including activation fees, among the 8x8 IP telephones and subscriber services based on their relative selling prices. Arrangement consideration allocated to the IP telephones that is fixed or determinable and that is not contingent on future performance or future deliverables is recognized as product revenues during the period of the sale less the allowance for estimated returns during the 30-day trial period. Arrangement consideration allocated to subscriber services that is fixed or determinable and that is not contingent on future performance or future deliverables is recognized ratably as service revenues as the related services are provided, which is generally over the initial contract term.

Deferred Cost of Goods Sold

Deferred cost of goods sold represents the cost of products sold for which the end customer or distributor has a right of return. The cost of the products sold is recognized contemporaneously with the recognition of revenue, when the subscriber has accepted the service.

Cash, Cash Equivalents and Investments

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Management determines the appropriate categorization of its investments at the time of purchase and reevaluates the classification at each reporting date. The cost of the Company's investments is determined based upon specific identification.

The Company's investments are comprised of mutual funds, commercial paper, corporate debt, municipal securities, asset backed securities, mortgage backed securities, international government securities and money market funds. At June 30, 2014 and March 31, 2014, all investments were classified as available-for-sale and reported at fair value, based either upon quoted prices in active markets, quoted prices in less active markets, or quoted market prices for similar investments, with unrealized gains and losses, net of related tax, if any, included in other comprehensive loss and disclosed as a separate component of consolidated stockholders' equity. Realized gains and losses on sales of all such investments are reported within the caption of other income, net in the consolidated statements of income and computed using the specific identification method. The Company classifies its investments as current based on the nature of the investments and their availability for use in current operations. The Company's investments in marketable securities are monitored on a periodic basis for impairment. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the investment is established. These available-for-sale investments are primarily held in the custody of a major financial institution.

Available-for-sale investments were (in thousands):

				Gross		Gross
		Amortized		Unrealized		Unrealized		Estimated
As of June 30, 2014		Costs		Gain		Loss		Fair Value
Money market funds	$	25,020	$	-	$	-	$	25,020
Fixed income
Mutual funds		1,909		21		-		1,930
Commercial paper		24,583		6		-		24,589
Corporate debt		69,163		69		(8)		69,224
Municipal securities		5,434		4		(3)		5,435
Asset backed securities		20,067		11		(3)		20,075
Mortgage backed securities		4,882		-		(3)		4,879
International government securities		800		5		-		805
Total available-for-sale investments	$	151,858	$	116	$	(17)	$	151,957
Reported as (in thousands):
Cash and cash equivalents							$	25,020
Short-term investments								126,937
Total							$	151,957

Contractual maturities of mutual funds, commercial paper, corporate debt, municipal securities, asset backed securities, mortgage backed securities, international government securities and money market funds as of June 30, 2014 are set forth below (in thousands):

Due within one year	$	75,972
Due after one year		75,985
Total	$	151,957

				Gross		Gross
		Amortized		Unrealized		Unrealized		Estimated
As of March 31, 2014		Costs		Gain		Loss		Fair Value
Money market funds	$	32,611	$	-	$	-	$	32,611
Fixed income
Mutual funds		1,964		-		(55)		1,909
Commercial paper		30,374		5		-		30,379
Corporate debt		63,621		35		(39)		63,617
Municipal securities		5,435		5		(1)		5,439
Asset backed securities		17,049		6		(1)		17,054
International government securities		800		4		-		804
Total available-for-sale investments	$	151,854	$	55	$	(96)	$	151,813
Reported as (in thousands):
Cash and cash equivalents							$	32,611
Short-term investments								47,181
Long-term investments								72,021
Total							$	151,813

Contractual maturities of mutual funds, commercial paper, corporate debt, municipal securities, asset backed securities, international government securities and money market funds as of March 31, 2014 are set forth below (in thousands):

Due within one year	$	79,792
Due after one year		72,021
Total	$	151,813

Intangible Assets

Amortization expense for the customer relationship intangible asset is included in sales and marketing expenses. Amortization expense for technology is included in cost of service revenue. The carrying values of intangible assets were as follows (in thousands):

		June 30, 2014						March 31, 2014
		Gross						Gross
		Carrying		Accumulated		Net Carrying		Carrying		Accumulated		Net Carrying
		Amount		Amortization		Amount		Amount		Amortization		Amount
Technology	$	8,242	$	(2,286)	$	5,956	$	8,242	$	(2,080)	$	6,162
Customer relationships		9,686		(1,929)		7,757		9,686		(1,710)		7,976
Trade names/domains		957		-		957		957		-		957
Total acquired identifiable
intangible assets	$	18,885	$	(4,215)	$	14,670	$	18,885	$	(3,790)	$	15,095

At June 30, 2014, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives, is estimated to be the following (in thousands):

		Amount
Remaining 2015	$	1,712
2016		2,282
2017		2,275
2018		2,027
2019		1,781
Thereafter		3,636
Total	$	13,713

Research, Development and Software Costs

The Company accounts for software to be sold or otherwise marketed in accordance with ASC 985-20 - Costs of Software to be Sold, Leased or Marketed, which requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. The Company defines establishment of technological feasibility as the completion of a working model. Software development costs for software to be sold or otherwise marketed incurred prior to the establishment of technological feasibility are included in research and development and are expensed as incurred. Software development costs incurred subsequent to the establishment of technological feasibility through the period of general market availability of the product are capitalized, if material.

In the first three months of fiscal 2015, the Company expensed all research and development costs in accordance with ASC 985-20. At June 30, 2014, total capitalized software development costs included in other long-term assets was approximately $945,000 and accumulated amortization costs related to capitalized software was approximately $233,000.

Foreign Currency Translation

The Company has determined that the functional currency of its UK foreign subsidiary is the subsidiary's local currency, the British Pound Sterling ("GBP"), which the Company believes most appropriately reflects the current economic facts and circumstances of the UK subsidiary's operations. The assets and liabilities of the subsidiary are translated at the applicable exchange rate as of the end of the balance sheet period and revenue and expenses are translated at an average rate over the period presented. Resulting currency translation adjustments are recorded as a component of accumulated other comprehensive income or loss within the stockholder's equity in the consolidated balance sheets.

Stock Purchase Right/Restricted Stock Unit and Option Activity

Stock purchase right activity for the three months ended June 30, 2014 is summarized as follows:

			Weighted	Weighted
			Average	Average
			Grant-Date	Remaining
	Number of		Fair Market	Contractual
	Shares		Value	Term (in Years)
Balance at March 31, 2014	489,627	$	4.83	1.93
Granted	31,432		7.88
Vested	(56,057)		2.80
Forfeited	(24,625)		5.50
Balance at June 30, 2014	440,377	$	5.27	1.91

Restricted stock unit and performance stock unit activity for the three months ended June 30, 2014 is summarized as follows:

				Weighted
			Weighted	Average
			Average	Remaining
	Number of		Purchase	Contractual
	Shares		Price	Term (in Years)
Balance at March 31, 2014	1,134,856	$	-	2.00
Granted	77,750		-
Vested	(7,875)		-
Forfeited	(74,204)		-
Balance at June 30, 2014	1,130,527	$	-	1.80

Option activity for the three months ended June 30, 2014 is summarized as follows:

				Weighted
		Shares		Average
	Shares	Subject to		Exercise
	Available	Options		Price
	for Grant	Outstanding		Per Share
Balance at March 31, 2014	1,613,943	6,002,382	$	4.14
Granted - options	(10,000)	10,000		7.88
Stock purchase rights/restricted stock unit (1)	(109,182)	-		-
Exercised	-	(137,940)		1.55
Canceled/forfeited - options	269,056	(269,056)		5.10
Canceled/forfeited - restricted stock unit	74,393	-		-
Balance at June 30, 2014	1,838,210	5,605,386	$	4.16

(1) The reduction to shares available for grant includes awards granted of 109,182 shares.

The following table summarizes the stock options outstanding and exercisable at June 30, 2014:

	Options Outstanding						Options Exercisable
			Weighted	Weighted					Weighted
			Average	Average					Average
			Exercise	Remaining		Aggregate			Exercise		Aggregate
Range of			Price	Contractual		Intrinsic			Price		Intrinsic
Exercise Price	Shares		Per Share	Life (Years)		Value	Shares		Per Share		Value
$0.55 - $1.26	1,628,745	$	1.04	3.6	$	11,472,489	1,628,745	$	1.04	$	11,472,489
$1.27 - $1.79	1,238,578	$	1.53	1.7		8,110,169	1,238,578	$	1.53		8,110,169
$1.80 - $5.87	1,345,025	$	4.67	6.7		4,593,163	834,255	$	4.24		3,201,363
$5.88 - $9.74	1,243,038	$	9.49	9.2		95,930	93,135	$	8.92		40,317
$10.97 - $11.26	150,000	$	11.11	9.5		-	-	$	-		-
	5,605,386				$	24,271,751	3,794,713			$	22,824,338

Stock-based Compensation Expense

The Company accounts for its employee stock options, stock purchase rights, restricted stock units including restricted performance stock units granted under the 1996 Stock Plan, 1996 Director Option Plan, the 2006 Stock Plan, the 2003 Contactual Plan, the 2012 Equity Incentive Plan, the 2013 New Employee Inducement Incentive Plan and stock purchase rights under the 1996 Employee Stock Purchase Plan (collectively "Equity Compensation Plans") under the provisions of ASC 718 - Stock Compensation. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the equity grant), net of estimated forfeitures.

To value option grants, stock purchase rights and restricted stock units under the Equity Compensation Plans for stock-based compensation, the Company used the Black-Scholes option valuation model. Fair value determined using the Black-Scholes option valuation model varies based on assumptions used for the expected stock prices volatility, expected life, risk-free interest rates and future dividend payments. For the three months ended June 30, 2014 and 2013, the Company used the historical volatility of its stock over a period equal to the expected life of the options. The expected life assumptions represent the weighted-average period stock-based awards are expecting to remain outstanding. These expected life assumptions were established through the review of historical exercise behavior of stock-based award grants with similar vesting periods. The risk-free interest rate is based on the closing market bid yields on actively traded U.S. treasury securities in the over-the-counter market for the expected term equal to the expected term of the option. The dividend yield assumption is based on the Company's history and expectation of future dividend payout. Compensation expense for stock-based payment awards is recognized using the straight-line single-option method and includes the impact of estimated forfeitures.

As of June 30, 2014, there was $15.8 million of unamortized stock-based compensation expense related to unvested stock awards which is expected to be recognized over a weighted average period of 2.83 years.

The following table summarizes the assumptions used to compute reported stock-based compensation to employees and directors for the three months ended June 30, 2014 and 2013:

		Three Months Ended
		June 30,
		2014		2013
Expected volatility		59%		66%
Expected dividend yield		-		-
Risk-free interest rate		1.53%		0.73%
Weighted average expected option term		5.00 years		4.50 years
Weighted average fair value of options granted	$	4.01	$	3.96

In accordance with ASC 718 - Stock Compensation, the Company recorded $1,671,000 and $718,000 in compensation expense relative to stock-based awards for the three months ended June 30, 2014 and 2013, respectively.

Employee Stock Purchase Plan

Under the Company's Employee Stock Purchase Plan, or ESPP, eligible employees can participate and purchase common stock semi-annually through payroll deductions at a price equal to 85% of the fair market value of the common stock at the beginning of each one year offering period or the end of the applicable nine month purchase period within that offering period, whichever is lower. The contribution amount may not exceed 10% of an employee's base compensation, including commissions but not including bonuses and overtime. The Company accounts for the ESPP as a compensatory plan and recorded compensation expense of $176,000 and $189,000 for the three months ended June 30, 2014 and 2013, respectively, in accordance with ASC 718.

As of June 30, 2014, there was $179,000 of total unrecognized compensation cost related to employee stock purchases. This cost is expected to be recognized over a weighted average period of 0.5 years.

ASC 718 requires the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather than as an operating cash flow. The future realization of tax benefits related to stock-based compensation is dependent upon the timing of employee exercises and future taxable income, among other factors. The Company did not realize any tax benefit from the stock-based compensation charges incurred during the three months ended June 30, 2014 and 2013.

The following table summarizes the classification of stock-based compensation expense related to employee stock options and employee stock purchases under ASC 718 among the Company's operating functions for the three months ended June 30, 2014 and 2013 which was recorded as follows (in thousands):

		Three Months Ended
		June 30,
		2014		2013
Cost of service revenue	$	115	$	68
Cost of product revenue		-		-
Research and development		314		154
Sales and marketing		744		347
General and administrative		674		338
Total stock-based compensation expense related to employee
stock options and employee stock purchases, pre-tax		1,847		907
Tax benefit		-		-
Stock-based compensation expense related to employee
stock options and employee stock purchases, net of tax	$	1,847	$	907

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and the IASB has issued IFRS 15, Revenue from Contracts with Customers. The issuance of these documents completes the joint effort by the FASB and the IASB to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and IFRS. The new guidance affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance.   For public entities, the amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.  Early application is not permitted. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements.

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in ASC 718, Compensation-Stock Compensation, as it relates to such awards. ASU 2014-12 is effective for us in our first quarter of fiscal 2017 with early adoption permitted using either of two methods: (i) prospective to all awards granted or modified after the effective date; or (ii) retrospective to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter, with the cumulative effect of applying ASU 2014-12 as an adjustment to the opening retained earnings balance as of the beginning of the earliest annual period presented in the financial statements. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Condensed Consolidated Statements Of Income
Service revenue	$ 34,276	$ 26,499
Product revenue	3,637	2,752
Total revenue	37,913	29,251
Operating expenses:
Cost of service revenue	6,997	4,786
Cost of product revenue	3,969	3,347
Research and development	3,406	2,336
Sales and marketing	19,160	13,072
General and administrative	3,878	2,772
Total operating expenses	37,410	26,313
Income from operations	503	2,938
Other income, net	177	15
Income from continuing operations before provision for income taxes	680	2,953
Provision for income taxes	672	961
Income from continuing operations	8	1,992
Income from discontinued operations, net of income tax provision	0	147
Net income	$ 8	$ 2,139
Income per share - continuing operations:
Basic	$ 0.00	$ 0.03
Diluted	$ 0.00	$ 0.03
Income per share - discontinued operations:
Basic	$ 0.00	$ 0.00
Diluted	$ 0.00	$ 0.00
Net income per share:
Basic	$ 0.00	$ 0.03
Diluted	$ 0.00	$ 0.03
Weighted average number of shares:
Basic	88,592	72,510
Diluted	91,445	75,756

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Intangible Assets (Tables)

3 Months Ended

Jun. 30, 2014

Intangible Assets Tables

Carrying values of intangible assets

The carrying values of intangible assets were as follows (in thousands):

		June 30, 2014						March 31, 2014
		Gross						Gross
		Carrying		Accumulated		Net Carrying		Carrying		Accumulated		Net Carrying
		Amount		Amortization		Amount		Amount		Amortization		Amount
Technology	$	8,242	$	(2,286)	$	5,956	$	8,242	$	(2,080)	$	6,162
Customer relationships		9,686		(1,929)		7,757		9,686		(1,710)		7,976
Trade names/domains		957		-		957		957		-		957
Total acquired identifiable
intangible assets	$	18,885	$	(4,215)	$	14,670	$	18,885	$	(3,790)	$	15,095

Finite-lived intangible assets - future amortization expense

At June 30, 2014, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives, is estimated to be the following (in thousands):

		Amount
Remaining 2015	$	1,712
2016		2,282
2017		2,275
2018		2,027
2019		1,781
Thereafter		3,636
Total	$	13,713

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Document and Entity Information	3 Months Ended
	Jun. 30, 2014	Jan. 24, 2014
Document And Entity Information
Entity Registrant Name	8X8 INC /DE/
Entity Central Index Key	0001023731
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Amendment Flag	false
Current Fiscal Year End Date	--03-31
Is Entity a Well-known Seasoned Issuer?	Yes
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		88,727,860
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2015

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Stock-Based Compensation And Employee Purchase Plans (Tables)

3 Months Ended

Jun. 30, 2014

Stock Options

Disclosure Of Share-Based Compensation Arrangements By Share-Based Payment Award

Option activity for the three months ended June 30, 2014 is summarized as follows:

				Weighted
		Shares		Average
	Shares	Subject to		Exercise
	Available	Options		Price
	for Grant	Outstanding		Per Share
Balance at March 31, 2014	1,613,943	6,002,382	$	4.14
Granted - options	(10,000)	10,000		7.88
Stock purchase rights/restricted stock unit (1)	(109,182)	-		-
Exercised	-	(137,940)		1.55
Canceled/forfeited - options	269,056	(269,056)		5.10
Canceled/forfeited - restricted stock unit	74,393	-		-
Balance at June 30, 2014	1,838,210	5,605,386	$	4.16

(1) The reduction to shares available for grant includes awards granted of 109,182 shares.

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

The following table summarizes the assumptions used to compute reported stock-based compensation to employees and directors for the three months ended June 30, 2014 and 2013:

		Three Months Ended
		June 30,
		2014		2013
Expected volatility		59%		66%
Expected dividend yield		-		-
Risk-free interest rate		1.53%		0.73%
Weighted average expected option term		5.00 years		4.50 years
Weighted average fair value of options granted	$	4.01	$	3.96

Stock Purchase Rights

Disclosure Of Share-Based Compensation Arrangements By Share-Based Payment Award

Stock purchase right activity for the three months ended June 30, 2014 is summarized as follows:

			Weighted	Weighted
			Average	Average
			Grant-Date	Remaining
	Number of		Fair Market	Contractual
	Shares		Value	Term (in Years)
Balance at March 31, 2014	489,627	$	4.83	1.93
Granted	31,432		7.88
Vested	(56,057)		2.80
Forfeited	(24,625)		5.50
Balance at June 30, 2014	440,377	$	5.27	1.91

Restricted Stock Units

Disclosure Of Share-Based Compensation Arrangements By Share-Based Payment Award

Restricted stock unit and performance stock unit activity for the three months ended June 30, 2014 is summarized as follows:

				Weighted
			Weighted	Average
			Average	Remaining
	Number of		Purchase	Contractual
	Shares		Price	Term (in Years)
Balance at March 31, 2014	1,134,856	$	-	2.00
Granted	77,750		-
Vested	(7,875)		-
Forfeited	(74,204)		-
Balance at June 30, 2014	1,130,527	$	-	1.80

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Statement of Comprehensive Income [Abstract]
Net income	$ 8	$ 2,139
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on investments in securities	86	(65)
Foreign currency translation adjustment	453	0
Comprehensive income	$ 547	$ 2,074

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SEGMENT REPORTING - Note 7

3 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

SEGMENT REPORTING - Note 7

7. SEGMENT REPORTING

ASC 280, "Segment Reporting" establishes annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas and major customers. Under ASC 280, the method for determining what information to report is based upon the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. The Company has determined that it has only one reportable segment. The Company's chief operating decision makers, the Chief Executive Officer, Chief Financial Officer and Chief Technology Officer, evaluate performance of the Company and make decisions regarding allocation of resources based on total Company results.

No customer represented greater than 10% of the Company's total revenues for the three months ended June 30, 2014 or 2013. The Company's revenue distribution by geographic region (based upon the destination of shipments and the customer's service address) was as follows:

	Three Months Ended
	June 30,
	2014	2013
Americas (principally US)	91%	99%
Europe	8%	0%
Asia Pacific	1%	1%
	100%	100%

Geographic area data is based upon the location of the property and equipment and is as follows (in thousands):

		June 30,		March 31,
		2014		2014
United States	$	6,845	$	6,305
Europe		1,205		1,087
Asia		289		319
Total	$	8,339	$	7,711

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INCOME TAXES - Note 6

3 Months Ended

Jun. 30, 2014

Notes to Financial Statements

INCOME TAXES - Note 6

6. INCOME TAXES

For the three months ended June 30, 2014, the Company recorded a provision for income taxes of $0.7 million, which was primarily attributable to net income from continuing operations. For the three months ended June 30, 2013, the Company recorded a provision for income taxes of $1.1 million, which was primarily attributable to net income from continuing operations ($1.0 million) and from discontinued operations ($0.1 million).

The effective tax rate is calculated by dividing the income tax provision by net income before income tax expense.

At March 31, 2014, there were $2.2 million of unrecognized tax benefits that, if recognized, would have affected the effective tax rate.  The Company does not believe that there has been any significant change in the unrecognized tax benefits in the three-month period ended June 30, 2014, and does not expect the remaining unrecognized tax benefit to change materially in the next 12 months. To the extent that the remaining unrecognized tax benefits are ultimately recognized, they will have an impact on the effective tax rate in future periods.

The Company is subject to taxation in the U.S., California and various other states and foreign jurisdictions in which it has or had a subsidiary or branch operations or it is collecting sales tax. All tax returns from fiscal 1995 to fiscal 2014 may be subject to examination by the Internal Revenue Service, California and various other states. As of July 23, 2014, there were no active federal or state income tax audits. Returns filed in foreign jurisdictions may be subject to examination for the fiscal years 2010 to 2014.

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Net Income Per Share (Tables)

3 Months Ended

Jun. 30, 2014

Net Income Per Share Tables

Net Income Per Share

		Three Months Ended
		June 30,
		2014		2013
		(in thousands, except per share amounts)
Numerator:
Income from continuing operations	$	8	$	1,992
Income from discontinued operations, net of income tax provision		-		147
Net income available to common stockholders		8		2,139
Denominator:
Common shares		88,592		72,510
Denominator for basic calculation		88,592		72,510
Employee stock options		2,480		2,911
Stock purchase rights		373		335
Denominator for diluted calculation		91,445		75,756
Income per share - continuing operations:
Basic	$	0.00	$	0.03
Diluted	$	0.00	$	0.03
Income per share - discontinued operations:
Basic	$	0.00	$	0.00
Diluted	$	0.00	$	0.00
Net income per share:
Basic	$	0.00	$	0.03
Diluted	$	0.00	$	0.03

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

The following shares attributable to outstanding stock options and stock purchase rights were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive (in thousands):

	Three Months Ended
	June 30,
	2014	2013
Employee stock options	1,370	935
Stock purchase rights	79	2
Total anti-dilutive employee stock-based securities	1,449	937

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Stock Options Outstanding And Exercisable (Tables)

3 Months Ended

Jun. 30, 2014

Stock Options Outstanding And Exercisable Tables

Summary Of Outstanding And Exercisable Stock Options

The following table summarizes the stock options outstanding and exercisable at June 30, 2014:

	Options Outstanding						Options Exercisable
			Weighted	Weighted					Weighted
			Average	Average					Average
			Exercise	Remaining		Aggregate			Exercise		Aggregate
Range of			Price	Contractual		Intrinsic			Price		Intrinsic
Exercise Price	Shares		Per Share	Life (Years)		Value	Shares		Per Share		Value
$0.55 - $1.26	1,628,745	$	1.04	3.6	$	11,472,489	1,628,745	$	1.04	$	11,472,489
$1.27 - $1.79	1,238,578	$	1.53	1.7		8,110,169	1,238,578	$	1.53		8,110,169
$1.80 - $5.87	1,345,025	$	4.67	6.7		4,593,163	834,255	$	4.24		3,201,363
$5.88 - $9.74	1,243,038	$	9.49	9.2		95,930	93,135	$	8.92		40,317
$10.97 - $11.26	150,000	$	11.11	9.5		-	-	$	-		-
	5,605,386				$	24,271,751	3,794,713			$	22,824,338

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Jun. 30, 2014

Notes to Financial Statements

Company

THE COMPANY

8x8, Inc. ("8x8" or the "Company") develops and markets a comprehensive portfolio of cloud-based communications and collaboration solutions that include hosted cloud telephony, unified communications, contact center, video conferencing and virtual desktop software and services. These unified communications and collaboration services are offered from the Internet cloud via a software-as-a-service subscription. The Company also provides cloud-based computing services. As of June 30, 2014, the Company had 39,340 business customers.

The Company was incorporated in California in February 1987 and was reincorporated in Delaware in December 1996.

Fiscal Period

The Company's fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in these notes to the condensed consolidated financial statements refers to the fiscal year ending March 31 of the calendar year indicated (for example, fiscal 2015 refers to the fiscal year ending March 31, 2015).

Basis of Presentation

The accompanying interim condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as our annual consolidated financial statements for the fiscal year ended March 31, 2014. In the opinion of the Company's management, these interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.

The March 31, 2014 year-end condensed consolidated balance sheet data in this document was derived from audited consolidated financial statements and does not include all of the disclosures required by U.S. generally accepted accounting principles. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements as of and for the fiscal year ended March 31, 2014 and notes thereto included in the Company's fiscal 2014 Annual Report on Form 10-K.

The results of operations and cash flows for the interim periods included in these condensed consolidated financial statements are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

Reclassification

Certain amounts previously reported within the Company's consolidated statements of income have been reclassified to conform to the current period presentation. The reclassification included certain prior-period amounts related to the Company's discontinued operations.

The reclassification had no impact on the Company's previously reported net income or basic and diluted net income per share amounts.

Service Revenue

The Company recognizes service revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, price is fixed or determinable and collectability is reasonably assured. The Company defers recognition of service revenues in instances when cash receipts are received before services are delivered and recognizes deferred revenues ratably as services are provided.

Product Revenue

The Company recognizes revenue from product sales for which there are no related services to be rendered upon shipment to customers provided that persuasive evidence of an arrangement exists, the price is fixed, title has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant obligations. Gross outbound shipping and handling charges are recorded as revenue, and the related costs are included in cost of goods sold. Reserves for returns and allowances for customer sales are recorded at the time of shipment. In accordance with the ASC 985-605, the Company records shipments to distributors, retailers, and resellers, where the right of return exists, as deferred revenue. The Company defers recognition of revenue on sales to distributors, retailers, and resellers until products are resold to the customer.

The Company records revenue net of any sales-related taxes that are billed to its customers. The Company believes this approach results in consolidated financial statements that are more easily understood by users.

Under the terms of the Company's typical subscription agreement, new customers can terminate their service within 30 days of order placement and receive a full refund of fees previously paid. The Company has determined that it has sufficient history of subscriber conduct to make a reasonable estimate of cancellations within the 30-day trial period. Therefore, the Company recognizes new subscriber revenue in the month in which the new order was shipped, net of an allowance for expected cancellations.

Revenue Recognition for Multiple Element Arrangements

Multiple Element Arrangements

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 605-25 requires that revenue arrangements with multiple deliverables be divided into separate units of accounting if the deliverables in the arrangement meet specific criteria.  The provisioning of the 8x8 cloud service with the accompanying 8x8 IP telephone constitutes a revenue arrangement with multiple deliverables.  For arrangements with multiple deliverables, the Company allocates the arrangement consideration to all units of accounting based on their relative selling prices. In such circumstances, the accounting principles establish a hierarchy to determine the relative selling price to be used for allocating arrangement consideration to units of accounting as follows: (i) vendor-specific objective evidence of fair value ("VSOE"), (ii) third-party evidence of selling price ("TPE"), and (iii) best estimate of the selling price ("BESP").

VSOE generally exists only when the Company sells the deliverable separately, on more than a limited basis, at prices within a relatively narrow range.  When VSOE cannot be established, the Company attempts to establish the selling price of deliverables based on relevant TPE. TPE is determined based on manufacturer's prices for similar deliverables when sold separately, when possible. When the Company is unable to establish selling price using VSOE or TPE, it uses a BESP for the allocation of arrangement consideration. The objective of BESP is to determine the price at which the Company would transact a sale if the product or service was sold on a stand-alone basis. BESP is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings. The Company determines BESP for a product or service by considering multiple factors including, but not limited to:

• the price list established by its management which is typically based on general pricing practices and targeted gross margin of products and services sold; and
• analysis of pricing history of new arrangements, including multiple element and stand-alone transactions.

In accordance with the guidance of ASC 605-25, when the Company enters into revenue arrangements with multiple deliverables the Company allocates arrangement consideration, including activation fees, among the 8x8 IP telephones and subscriber services based on their relative selling prices. Arrangement consideration allocated to the IP telephones that is fixed or determinable and that is not contingent on future performance or future deliverables is recognized as product revenues during the period of the sale less the allowance for estimated returns during the 30-day trial period. Arrangement consideration allocated to subscriber services that is fixed or determinable and that is not contingent on future performance or future deliverables is recognized ratably as service revenues as the related services are provided, which is generally over the initial contract term.

Deferred Cost of Goods Sold

Deferred Cost of Goods Sold

Deferred cost of goods sold represents the cost of products sold for which the end customer or distributor has a right of return. The cost of the products sold is recognized contemporaneously with the recognition of revenue, when the subscriber has accepted the service.

Cash and Equivalents

Cash, Cash Equivalents and Investments

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Management determines the appropriate categorization of its investments at the time of purchase and reevaluates the classification at each reporting date. The cost of the Company's investments is determined based upon specific identification.

Intangible Assets

Intangible Assets

Amortization expense for the customer relationship intangible asset is included in sales and marketing expenses. Amortization expense for technology is included in cost of service revenue. 

Research, Development and Software Costs

Research, Development and Software Costs

The Company accounts for software to be sold or otherwise marketed in accordance with ASC 985-20 - Costs of Software to be Sold, Leased or Marketed, which requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. The Company defines establishment of technological feasibility as the completion of a working model. Software development costs for software to be sold or otherwise marketed incurred prior to the establishment of technological feasibility are included in research and development and are expensed as incurred. Software development costs incurred subsequent to the establishment of technological feasibility through the period of general market availability of the product are capitalized, if material.

In the first three months of fiscal 2015, the Company expensed all research and development costs in accordance with ASC 985-20. At June 30, 2014, total capitalized software development costs included in other long-term assets was approximately $945,000 and accumulated amortization costs related to capitalized software was approximately $233,000.

Foreign Currency Translation

Foreign Currency Translation

The Company has determined that the functional currency of its UK foreign subsidiary is the subsidiary's local currency, the British Pound Sterling ("GBP"), which the Company believes most appropriately reflects the current economic facts and circumstances of the UK subsidiary's operations. The assets and liabilities of the subsidiary are translated at the applicable exchange rate as of the end of the balance sheet period and revenue and expenses are translated at an average rate over the period presented. Resulting currency translation adjustments are recorded as a component of accumulated other comprehensive income or loss within the stockholder's equity in the consolidated balance sheets.

Accounting for Stock-Based Compensation

Stock-based Compensation Expense

The Company accounts for its employee stock options, stock purchase rights, restricted stock units including restricted performance stock units granted under the 1996 Stock Plan, 1996 Director Option Plan, the 2006 Stock Plan, the 2003 Contactual Plan, the 2012 Equity Incentive Plan, the 2013 New Employee Inducement Incentive Plan and stock purchase rights under the 1996 Employee Stock Purchase Plan (collectively "Equity Compensation Plans") under the provisions of ASC 718 - Stock Compensation. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the equity grant), net of estimated forfeitures.

To value option grants, stock purchase rights and restricted stock units under the Equity Compensation Plans for stock-based compensation, the Company used the Black-Scholes option valuation model. Fair value determined using the Black-Scholes option valuation model varies based on assumptions used for the expected stock prices volatility, expected life, risk-free interest rates and future dividend payments. For the three months ended June 30, 2014 and 2013, the Company used the historical volatility of its stock over a period equal to the expected life of the options. The expected life assumptions represent the weighted-average period stock-based awards are expecting to remain outstanding. These expected life assumptions were established through the review of historical exercise behavior of stock-based award grants with similar vesting periods. The risk-free interest rate is based on the closing market bid yields on actively traded U.S. treasury securities in the over-the-counter market for the expected term equal to the expected term of the option. The dividend yield assumption is based on the Company's history and expectation of future dividend payout. Compensation expense for stock-based payment awards is recognized using the straight-line single-option method and includes the impact of estimated forfeitures.

Employee Stock Purchase Plan

Employee Stock Purchase Plan

Under the Company's Employee Stock Purchase Plan, or ESPP, eligible employees can participate and purchase common stock semi-annually through payroll deductions at a price equal to 85% of the fair market value of the common stock at the beginning of each one year offering period or the end of the applicable nine month purchase period within that offering period, whichever is lower. The contribution amount may not exceed 10% of an employee's base compensation, including commissions but not including bonuses and overtime. The Company accounts for the ESPP as a compensatory plan and recorded compensation expense of $176,000 and $189,000 for the three months ended June 30, 2014 and 2013, respectively, in accordance with ASC 718.

ASC 718 requires the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather than as an operating cash flow. The future realization of tax benefits related to stock-based compensation is dependent upon the timing of employee exercises and future taxable income, among other factors. The Company did not realize any tax benefit from the stock-based compensation charges incurred during the three months ended June 30, 2014 and 2013.

Net Income Per Share

NET INCOME PER SHARE

Basic net income per share is computed by dividing net income available to common stockholders (numerator) by the weighted average number of vested, unrestricted common shares outstanding during the period (denominator). Diluted net income per share is computed on the basis of the weighted average number of shares of common stock outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include shares issuable upon exercise of outstanding stock options and under the ESPP.

Segment Reporting

ASC 280, "Segment Reporting" establishes annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas and major customers. Under ASC 280, the method for determining what information to report is based upon the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. The Company has determined that it has only one reportable segment.

Indemnifications

Indemnifications

In the normal course of business, the Company indemnifies 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

Product Warranties

The Company accrues for the estimated costs that may be incurred under its product warranties upon revenue recognition.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and the IASB has issued IFRS 15, Revenue from Contracts with Customers. The issuance of these documents completes the joint effort by the FASB and the IASB to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and IFRS. The new guidance affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance.   For public entities, the amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.  Early application is not permitted. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements.

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in ASC 718, Compensation-Stock Compensation, as it relates to such awards. ASU 2014-12 is effective for us in our first quarter of fiscal 2017 with early adoption permitted using either of two methods: (i) prospective to all awards granted or modified after the effective date; or (ii) retrospective to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter, with the cumulative effect of applying ASU 2014-12 as an adjustment to the opening retained earnings balance as of the beginning of the earliest annual period presented in the financial statements. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements.

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COMMITMENTS AND CONTINGENCIES - Note 8

3 Months Ended

Jun. 30, 2014

Notes to Financial Statements

COMMITMENTS AND CONTINGENCIES - Note 8

8. COMMITMENTS AND CONTINGENCIES

Guarantees

Indemnifications

In the normal course of business, the Company indemnifies 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, were as follows (in thousands):

		Three Months Ended
		June 30,
		2014		2013
Balance at beginning of period	$	660	$	452
Accruals for warranties		54		177
Payments		(95)		(155)
Balance at end of period	$	619	$	474

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 $0.4 million. The agreement requires a 150-day notice to terminate. The total remaining obligation under the amended contract is $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 in fiscal 2015 through 2016. At June 30, 2014, future minimum annual payments under these third party network service contracts were as follows (in thousands):

Year ending March 31:
Remaining 2015	$	1,355
2016		214
Total minimum payments	$	1,569

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 February 22, 2011, we were named a defendant in a lawsuit, Bear Creek Technologies, Inc. v. 8x8, Inc. et al., along with 20 other defendants. On August 17, 2011, we were dismissed without prejudice from this lawsuit under Rule 21 of the Federal Rules of Civil Procedure. On August 17, 2011, we were sued again by Bear Creek Technologies, Inc. in the United States District Court for the District of Delaware. We believe we have factual and legal defenses to these claims and are presenting a vigorous defense.  Further, on November 28, 2012, the U.S. Patent & Trademark Office initiated a Reexamination proceeding with a Reexamination Declaration explaining that there is a substantial new question of patentability, based on four separate grounds and affecting each claim of the patent which is the basis for the complaint filed against us.  On March 26, 2013, the USPTO issued a first Office Action in the Reexamination, with all claims of the '722 patent being rejected on each of the four separate grounds raised in the Request for Reexamination.  On July 10, 2013, we filed an informational pleading in support of and joining a motion to stay the proceeding in the District Court; the District Court granted the motion on July 17, 2013, based on the possibility that at least one of the USPTO rejections will be upheld and considering the USPTO's conclusion that Bear Creek's patent suffers from a defective claim for priority.  On March 24, 2014, the USPTO issued another Office Action in which the rejections of the claims were maintained.  We cannot estimate potential liability in this case at this early stage of litigation.

On October 25, 2011, we were named a defendant in a lawsuit, Klausner Technologies, Inc. v. Oracle Corporation et al., along with 30 other defendants filed in the U.S. District Court for the District of Delaware. Based on a transfer of ownership of the patent in suit, the lawsuit against 8x8 became IPVX Patent Holdings, Inc., v. 8x8, Inc. The lawsuit alleges infringement of a patent that is believed to have expired.  On November 1, 2011, IPVX dismissed the complaint voluntarily and filed new complaints separating the defendants, including a new complaint against 8x8.  On March 21, 2013, the District Court granted 8x8's Motion to Change Venue, and ordered the transfer of the case to the U.S. District Court for the Northern District of California.  The Company filed its answer to the complaint on April 25, 2014.  On July 7, 2014, the parties agreed to participate in a Court-facilitated mediation session, and subsequently agreed to settle all claims in the suit under confidential terms which await finalization; subject to such the written agreement being finalized, this lawsuit is dismissed.   The impact of the settlement on the Company will be immaterial.

On March 31, 2014, we were named a defendant in a lawsuit, CallWave Communications LLC v. 8x8, Inc.  CallWave Communications also sued Fonality Inc. on March 31, 2014, and previously sued other companies including Verizon, Google, T-Mobile, and AT&T.  We are currently assessing factual and legal defenses to these claims and expect to present a vigorous defense.  We have answered the complaint and filed counterclaims in response thereto.  We cannot estimate potential liability in this case at this early stage of the litigation.

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 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.

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DISCONTINUED OPERATIONS - Note 9

3 Months Ended

Jun. 30, 2014

Discontinued Operations - Note 9

DISCONTINUED OPERATIONS - Note 9

9. DISCONTINUED OPERATIONS

On September 30, 2013, the Company completed the sale of its dedicated server hosting business to IRC Company, Inc. ("IRC") and, as a result, no longer provides dedicated server hosting services. In the transaction, IRC purchased 100% of the stock of Central Host, Inc., which had been wholly owned by the Company and all of the assets specific to the dedicated server hosting business.

The Company sold its dedicated server hosting business for total consideration of $3.0 million in cash, which was received on October 1, 2013.

The dedicated server hosting business has been reported as discontinued operations. The results of operations position of these discontinued operations is as follows:

Results of operations:

		Three Months Ended
		June 30,
		2014		2013
Revenue	$	-	$	753
Operating expense		-		502
Income before income taxes		-		251
Provision for income taxes		-		104
Income from discontinued operations		-		147

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Cash, Cash Equivalents and Investments (Tables)

3 Months Ended

Jun. 30, 2014

Cash Cash Equivalents And Investments Tables

Cash and Cash Equivalents (Tables)

Available-for-sale investments were (in thousands):

				Gross		Gross
		Amortized		Unrealized		Unrealized		Estimated
As of June 30, 2014		Costs		Gain		Loss		Fair Value
Money market funds	$	25,020	$	-	$	-	$	25,020
Fixed income
Mutual funds		1,909		21		-		1,930
Commercial paper		24,583		6		-		24,589
Corporate debt		69,163		69		(8)		69,224
Municipal securities		5,434		4		(3)		5,435
Asset backed securities		20,067		11		(3)		20,075
Mortgage backed securities		4,882		-		(3)		4,879
International government securities		800		5		-		805
Total available-for-sale investments	$	151,858	$	116	$	(17)	$	151,957
Reported as (in thousands):
Cash and cash equivalents							$	25,020
Short-term investments								126,937
Total							$	151,957

Contractual maturities of mutual funds, commercial paper, corporate debt, municipal securities, asset backed securities, mortgage backed securities, international government securities and money market funds as of June 30, 2014 are set forth below (in thousands):

Due within one year	$	75,972
Due after one year		75,985
Total	$	151,957

				Gross		Gross
		Amortized		Unrealized		Unrealized		Estimated
As of March 31, 2014		Costs		Gain		Loss		Fair Value
Money market funds	$	32,611	$	-	$	-	$	32,611
Fixed income
Mutual funds		1,964		-		(55)		1,909
Commercial paper		30,374		5		-		30,379
Corporate debt		63,621		35		(39)		63,617
Municipal securities		5,435		5		(1)		5,439
Asset backed securities		17,049		6		(1)		17,054
International government securities		800		4		-		804
Total available-for-sale investments	$	151,854	$	55	$	(96)	$	151,813
Reported as (in thousands):
Cash and cash equivalents							$	32,611
Short-term investments								47,181
Long-term investments								72,021
Total							$	151,813

Contractual maturities of mutual funds, commercial paper, corporate debt, municipal securities, asset backed securities, international government securities and money market funds as of March 31, 2014 are set forth below (in thousands):

Due within one year	$	79,792
Due after one year		72,021
Total	$	151,813

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Basis of Presentation (Schedule Of Restricted Stock Unit and Performance Stock Unit Activity) (Details)	3 Months Ended
	Jun. 30, 2014	Mar. 31, 2014
Basis Of Presentation Schedule Of Restricted Stock Unit And Performance Stock Unit Activity Details
Balance at March 31, 2014	1,134,856
Granted	77,750
Vested	(7,875)
Forfeited	(74,204)
Balance at June 30, 2014	1,130,527
RSU Weighted-average remaining contractual term, in years		2.00
RSU Weighted-average remaining contractual term, in years, end of period	1.80

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Fair Value Measurement (Tables)

3 Months Ended

Jun. 30, 2014

Fair Value Measurement Tables

Fair Value Measurement (Tables)

The following tables present the Company's fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at June 30, 2014 and March 31, 2014 (in thousands):

		Quoted Prices in		Other		Significant
		Active Markets for		Observable		Unobservable		Balance at
		Identical Assets		Inputs		Inputs		June 30,
		(Level 1)		(Level 2)		(Level 3)		2014
Cash equivalents:
Money market funds	$	25,020	$	-	$	-	$	25,020
Short-term investments:
Mutual funds		1,930		-		-		1,930
Commercial paper		-		24,589		-		24,589
Corporate debt		-		69,224		-		69,224
Municipal securities		-		5,435		-		5,435
Asset backed securities		-		20,075		-		20,075
Mortgage backed securities		-		4,879		-		4,879
International government securities		-		805		-		805
Total	$	26,950	$	125,007	$	-	$	151,957

		Quoted Prices in		Other		Significant
		Active Markets for		Observable		Unobservable		Balance at
		Identical Assets		Inputs		Inputs		March 31,
		(Level 1)		(Level 2)		(Level 3)		2014
Cash equivalents:
Money market funds	$	32,611	$	-	$	-	$	32,611
Short-term investments:
Mutual funds		1,909		-		-		1,909
Commercial paper		-		30,379		-		30,379
Corporate debt		-		14,893		-		14,893
Long-term investments:
Corporate debt		-		48,724		-		48,724
Municipal securities		-		5,439		-		5,439
Asset backed securities		-		17,054		-		17,054
International government securities		-		804		-		804
Total	$	34,520	$	117,293	$	-	$	151,813

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Discontinued Operations (Tables)

3 Months Ended

Jun. 30, 2014

Discontinued Operations Tables

Schedule of Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures

The results of operations position of these discontinued operations is as follows:

Results of operations:

		Three Months Ended
		June 30,
		2014		2013
Revenue	$	-	$	753
Operating expense		-		502
Income before income taxes		-		251
Provision for income taxes		-		104
Income from discontinued operations		-		147

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Discontinued Operations (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Results of Operations
Revenue	$ 0	$ 753
Operating expense	0	502
Income before income taxes	0	251
Provision for income taxes	0	104
Income from discontinued operations	$ 0	$ 147

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Balance Sheet Detail (Inventory Components) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Mar. 31, 2014
Balance Sheet Detail Inventory Components Details
Work-in-process	$ 9	$ 23
Finished goods	744	788
Inventory, net	$ 753	$ 811

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash flows from operating activities:
Net income	$ 8	$ 2,139
Adjustments to reconcile net income to net cash provided by operating activites:
Depreciation	755	675
Amortization of intangible assets	567	340
Amortization of capitalized software	85
Net accretion of discount and amortization of premium on marketable securities	192
Stock-based compensation	1,847	907
Deferred income tax provision	610	873
Other	9	158
Changes in assets and liabilities:
Accounts receivable, net	(402)	132
Inventory	47	(61)
Other current and noncurrent assets	(175)	(306)
Deferred cost of goods sold	157	30
Accounts payable	988	(316)
Accrued compensation	674	82
Accrued warranty	(41)	22
Accrued taxes and fees	128	192
Deferred revenue	(352)	373
Other current and noncurrent liabilities	(447)	(7)
Net cash provided by operating activities	4,650	5,233
Cash flows from investing activities:
Purchases of property and equipment	(1,026)	(466)
Cost of capitalized software	0	(328)
Proceeds from maturity of investments	3,300	0
Sales of investments - available for sale	18,992	0
Purchase of investments - available for sale	(30,134)	0
Net cash used in investing activities	(8,868)	(794)
Cash flows from financing activities:
Capital lease payments	(46)	(5)
Repurchase of common stock	(48)	(120)
Proceeds from issuance of common stock under employee stock plans	170	1,296
Net cash provided by financing activities	76	1,171
Effect of exchange rate changes on cash	56	0
Net (decrease) increase in cash and cash equivalents	(4,086)	5,610
Cash and cash equivalents at the beginning of the period	59,159	50,305
Cash and cash equivalents at the end of the period	55,073	55,915
Supplemental cash flow information
Income taxes paid	85	156
Interest paid	$ 1	$ 1

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NET INCOME PER SHARE - Note 5

3 Months Ended

Jun. 30, 2014

Notes to Financial Statements

NET INCOME PER SHARE - Note 5

5. NET INCOME PER SHARE

Basic net income per share is computed by dividing net income available to common stockholders (numerator) by the weighted average number of vested, unrestricted common shares outstanding during the period (denominator). Diluted net income per share is computed on the basis of the weighted average number of shares of common stock outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include shares issuable upon exercise of outstanding stock options and under the ESPP.

		Three Months Ended
		June 30,
		2014		2013
		(in thousands, except per share amounts)
Numerator:
Income from continuing operations	$	8	$	1,992
Income from discontinued operations, net of income tax provision		-		147
Net income available to common stockholders		8		2,139
Denominator:
Common shares		88,592		72,510
Denominator for basic calculation		88,592		72,510
Employee stock options		2,480		2,911
Stock purchase rights		373		335
Denominator for diluted calculation		91,445		75,756
Income per share - continuing operations:
Basic	$	0.00	$	0.03
Diluted	$	0.00	$	0.03
Income per share - discontinued operations:
Basic	$	0.00	$	0.00
Diluted	$	0.00	$	0.00
Net income per share:
Basic	$	0.00	$	0.03
Diluted	$	0.00	$	0.03

The following shares attributable to outstanding stock options and stock purchase rights were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive (in thousands):

	Three Months Ended
	June 30,
	2014	2013
Employee stock options	1,370	935
Stock purchase rights	79	2
Total anti-dilutive employee stock-based securities	1,449	937

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Description of the Business (Narrative) (Details)	3 Months Ended
	Jun. 30, 2014
Description Of Business Narrative Details
Approximate number of business customers	39,340
Year Founded	1987
Entity Incorporation, Date of Incorporation	Dec. 31, 1996
Entity Incorporation, State Country Name	Delaware
Fiscal Year End Date	--03-31

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Basis of Presentation (Schedule Of Stock-Based Compensation Expense By Statement Of Operations) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Stock-based employee compensation expense related to employee stock options and employee stock purchases, pre tax	$ 1,847	$ 907
Tax benefit	0	0
Stock-based employee compensation expense related to employee stock options and employee stock purchases, net of tax	1,847	907
Cost of service revenue
Stock-based employee compensation expense related to employee stock options and employee stock purchases, pre tax	115	68
Cost of product revenue
Stock-based employee compensation expense related to employee stock options and employee stock purchases, pre tax	0	0
Research and development
Stock-based employee compensation expense related to employee stock options and employee stock purchases, pre tax	314	154
Sales and marketing
Stock-based employee compensation expense related to employee stock options and employee stock purchases, pre tax	744	347
General and administrative
Stock-based employee compensation expense related to employee stock options and employee stock purchases, pre tax	$ 674	$ 338

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Distribution of Stock-Based Compensation Plan Expense (Tables)

3 Months Ended

Jun. 30, 2014

Distribution Of Stock-Based Compensation Plan Expense Tables

Schedule Of Stock-Based Compensation Expense By Statement Of Operations Line Item

The following table summarizes the classification of stock-based compensation expense related to employee stock options and employee stock purchases under ASC 718 among the Company's operating functions for the three months ended June 30, 2014 and 2013 which was recorded as follows (in thousands):

		Three Months Ended
		June 30,
		2014		2013
Cost of service revenue	$	115	$	68
Cost of product revenue		-		-
Research and development		314		154
Sales and marketing		744		347
General and administrative		674		338
Total stock-based compensation expense related to employee
stock options and employee stock purchases, pre-tax		1,847		907
Tax benefit		-		-
Stock-based compensation expense related to employee
stock options and employee stock purchases, net of tax	$	1,847	$	907