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, 20142015

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):

      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, 201427, 2015 was 88,727,860.88,598,106.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	Page No.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at June 30, 20142015 and March 31, 20142015	3
Condensed Consolidated Statements of Income (Loss) for the three            months ended June 30, 20142015 and 20132014	4
Condensed Consolidated Statements of Comprehensive Income for the three            months ended June 30, 20142015 and 20132014	5
Condensed Consolidated Statements of Cash Flows for the three months            months           ended June 30, 20142015 and 20132014	6
Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2220
Item 3. Quantitative and Qualitative Disclosures About Market Risk	2826
Item 4. Controls and Procedures	2826
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	2927
Item 1A. Risk Factors	2927
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 5. Other Information	27
Item 6. Exhibits	2928
Signature	3029

2

Part I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

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

3

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

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

4

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

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)

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 AND SIGNIFICANT ACCOUNTING POLICIES

THE COMPANYDESCRIPTION OF BUSINESS

8x8, Inc. ("8x8"(8x8 or the "Company") developsCompany) is a leading provider of VoIP (Voice over Internet Protocol) technology and marketsSaaS (Software as a comprehensive portfolioService) communication solutions in the cloud for SMBs (Small and Midsize Business) and mid-market and distributed enterprises. The Company delivers a broad suite of cloud-based communicationsSaaS services to in-office and collaboration solutions that include hostedmobile devices spanning cloud telephony, unified communications,virtual contact center video conferencing and virtual desktop software and services. Thesemeeting through its proprietary 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.SaaS platform.

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

BASIS OF PRESENTATION

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 endingended March 31 of the calendar year indicated (for example, fiscal 20152016 refers to the fiscal year endingended March 31, 2015)2016).

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, 2014.2015. 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, 20142015 year-end condensed consolidated balance sheet data in this document waswere 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, 20142015 and notes thereto included in the Company's fiscal 20142015 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.

ReclassificationPRINCIPLES OF CONSOLIDATION

Certain amounts previously reported withinThe consolidated financial statements include the Company's consolidated statementsaccounts of income8x8 and its subsidiaries. All material intercompany accounts and transactions have been reclassified to conform toeliminated.

SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in our Annual Report on Form 10-K for the current period presentation. The reclassification included certain prior-period amounts relatedfiscal year ended March 31, 2015 filed with the SEC on May 29, 2015, and there have been no changes 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.

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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):

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):

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):

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):

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):

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:

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

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

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

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

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:

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 incurredpolicies during the three months ended June 30, 2015, except as described in the "Recent Accounting Pronouncements"section below.

7

RECENT ACCOUNTING PRONOUNCEMENTS

In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-08,Presentation of Financial Statements (Topic 205) and 2013.

Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU changes the requirements for reporting discontinued operations in FASB ASU 205-20, such that a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results. This ASU requires an entity to present, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation separately in the asset and liability sections, respectively, of the statement of financial position, as well as additional disclosures about discontinued operations. Additionally, the ASU requires disclosures about a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements and expands the disclosures about an entity's significant continuing involvement with a discontinued operation. The following table summarizes the classification of stock-based compensation expense related to employee stock optionsaccounting update is effective for annual periods beginning on or after December 15, 2014. We adopted this pronouncement for our fiscal year beginning April 1, 2015, and employee stock purchases under ASC 718 among the Company's operating functions for the three months ended June 30, 2014 and 2013 whichthere was recorded as follows (in thousands):

Recent Accounting Pronouncementsno effect on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09,Revenue from Contracts with Customers (Topic 606) and the IASBInternational Accounting Standards Board (IASB) has issued IFRSInternational Financial Reporting Standards (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,In July 2015, the amendments areFASB voted to delay the effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.  Early application is not permitted.date of this standard until the first quarter of 2018. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements.

142. CASH, CASH EQUIVALENTS AND INVESTMENTS

Cash, cash equivalents, and available-for-sale investments were (in thousands):

8

						Gross			Gross						Cash and
			Amortized			Unrealized			Unrealized			Estimated			Cash			Short-Term
As of March 31, 2015			Costs			Gain			Loss			Fair Value			Equivalents			Investments
Cash		$	24,734		$	-		$	-		$	24,734		$	24,734		$	-
Level 1:
Money market funds			28,376			-			-			28,376			28,376			-
Mutual funds			2,000			-			(107)			1,893			-			1,893
Subtotal			55,110			-			(107)			55,003			53,110			1,893
Level 2:
Commercial paper			9,043			1			-			9,044			-			9,044
Corporate debt			75,284			57			(10)			75,331			-			75,331
Municipal securities			5,435			2			(1)			5,436			-			5,436
Asset backed securities			21,503			4			(5)			21,502			-			21,502
Mortgage backed securities			5,822			-			(52)			5,770			-			5,770
Agency bond			4,201			3			-			4,204			-			4,204
International government securities			800			4			-			804			-			804
Subtotal			122,088			71			(68)			122,091			-			122,091
Total		$	177,198		$	71		$	(175)		$	177,094		$	53,110		$	123,984

Contractual maturities of cash equivalents and investments as of June 30, 2015 are set forth below (in thousands):

3. BALANCE SHEET DETAIL

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4. INTANGIBLE ASSETS

The carrying value of intangible assets consisted of the following (in thousands):

At June 30, 2015, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives, is estimated to be the following (in thousands):

5. RESEARCH, DEVELOPMENT AND SOFTWARE COSTS

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 quarterthree months of fiscal 20172016, the Company expensed all research and development costs in accordance with early adoption permitted using eitherASC 985-20, Costs of two methods: (i) prospectiveSoftware to all awards grantedbe Sold, Leased 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 atMarketed (ASC 985-20). At June 30, 20142015 and March 31, 2014 (in thousands):

15

		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

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5. NET INCOME PER SHARE

Basic net income per share is computed by dividing net income available2015, total capitalized software development costs included in other long-term assets was approximately $0 and $1.0 million, respectively, and accumulated amortization costs related 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 optionscapitalized software was approximately $0 and under the ESPP.

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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):

6. INCOME TAXES

For the three months ended June 30, 2014, the Company recorded a provision for income taxes of $0.7$0.5 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. respectively.

The Company accounts for computer software developed or obtained for internal use in accordance with ASC 350-40,Internal Use Software (ASC 350-40). In the first three months of fiscal 2016, the Company capitalized $0.5 million in accordance with ASC 350-40, which is subject to taxationclassified as other assets. No such costs were capitalized 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 fromfirst three months of fiscal 1995 to fiscal 2014 may be subject to examination by the Internal Revenue Service, California and various other states.2015. 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 withinJune 30, 2015, the Company for making operating decisionscapitalized $2.0 million in accordance with ASC 350-40, of which $1.2 million is classified as other assets, 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$0.8 million is classified as property and Chief Technology Officer, evaluate performanceequipment. As of March 31, 2015, the Company and make decisions regarding allocationcapitalized $1.5 million in accordance with ASC 350-40, 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) waswhich $0.8 million is classified as follows:

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Geographic area data is based upon the location of the property and equipment and $0.7 million is classified as follows (in thousands):long-term assets. At June 30, 2015, the projects had not yet been placed into service, and accordingly no amortization has been recognized.

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6. COMMITMENTS AND CONTINGENCIES

Guarantees

Indemnifications

In the normal course of business, the Company indemnifiesmay agree to indemnify other parties, including customers, lessors and parties to other transactions with the Company, with respect to certain matters. Under these arrangements, the Company typically agrees to hold the other party harmless against losses arising from a breachmatters such as breaches of representations or covenants or intellectual property infringement or other claims made against certainby third 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 prior 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 revenuerevenues in the condensed consolidated statements of income (loss), were as follows (in thousands):

Minimum Third Party Customer Support Commitments

In the third quarter of fiscal 2010, the Company amended aits contract with one of its third party customer support vendors containing a minimum monthly commitment of approximately $0.4 million.million effective April 1, 2010. The agreement requires a 150-day notice to terminate. TheAt June 30, 2015, the total remaining obligation under the amended contract iswas $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 thatservice which expire on various dates in fiscal 20152016 through 2016.2018. At June 30, 2014,2015, future minimum annual payments under these third party network service contracts were as follows (in thousands):

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Legal Proceedings

FromThe Company, from time to time, the Company may becomeis involved in various legal claims andor litigation, including patent infringement claims that can arise in the normal course of itsthe Company's operations. WhilePending or future litigation could be costly, could cause the resultsdiversion of such claimsmanagement's attention and litigation cannot be predicted with certainty, the Company is not currently aware of any such matters that it believes wouldcould upon resolution, have a material adverse effect on its financial position,the Company's business, results of operations, orfinancial condition and cash flows.

On February 22, 2011, we werethe Company was named a defendant in, a lawsuit, Bear Creek Technologies, Inc. v. 8x8, Inc. et al., filed in the U.S. District Court for the District of Delaware, along with 20 other defendants. On August 17, 2011, we werethe suit was dismissed without prejudice from this lawsuitas to the Company under Rule 21 of the Federal Rules of Civil Procedure. On August 17, 2011, we were sued again by Bear Creek Technologies, Inc. refiled its suit against the Company 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, wethe Company 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 inOn August 15, 2014, the USPTO issued a Right of Appeal Notice, as the USPTO maintained all rejections of the patent claims.  On September 15, 2014, Bear Creek Technologies, Inc. filed a Notice of Appeal of this decision with the Patent Trial and Appeal Board, and the USPTO's rejections are currently on appeal. By an order issued on May 5, 2015, the Court administratively closed this case at this early stage of litigation.with leave to reopen if further attention by the Court is required. 

On October 25, 2011, we wereMarch 31, 2014, the Company was named as a defendant in a lawsuit, Klausner Technologies,CallWave Communications LLC (CallWave) v. 8x8, Inc. CallWave also sued Fonality Inc. on March 31, 2014, and previously had sued other companies including Verizon, Google, T-Mobile, and AT&T. The Company answered the complaint and filed counterclaims in response thereto. On April 21, 2015, the Company filed its answer and alleged a number of counterclaims including patent misuse. On or about May 26, 2015, the parties agreed to settle all claims in the suit, including, (but not necessarily limited to) a release and/or covenant not to sue by the plaintiff on future claims that 8x8 products infringe the CallWave patents alleged to have been infringed. The case was dismissed with prejudice on June 5, 2015.

On December 31, 2014, the Company was named as a defendant in a lawsuit, Adaptive Data, LLC v. Oracle Corporation et al.8x8, Inc., along with 30 other defendants filed in the U.S. District Court for the District of Delaware. BasedAdaptive Data, LLC also sued another 36 other defendants on December 31, 2014 and another 16 defendants on January 5, 2015 regarding the same patents asserted in our case. Service of process was never effected on the Company.  The Court issued a transferNotice of ownership ofVoluntary Dismissal on January 23, 2015.

On April 15, 2015, the patentCompany was named as a defendant in suit, thea lawsuit, against 8x8 became IPVX Patent Holdings, Inc.,UrgenSync, LLC 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 toin the U.S. District Court for the Northern DistrictE.D. of California.  The Company filed its answer toTexas. UrgenSync, LLC also sued another 14 other defendants on the same day regarding the same patent asserted in the complaint filed against 8x8.  The Court issued an Order of Voluntary Dismissal with Prejudice on June 18, 2015.

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 on16, 2015, the Company will be immaterial.

On March 31, 2014, we werewas named as a defendant in a lawsuit, CallWave Communications LLCSlocumb Law Firm v. 8x8, Inc.  CallWave Communications also sued Fonality Inc. on March 31, 2014,, filed in the United States District Court for the Middle District of Alabama. The Slocumb Law Firm alleges that it purchased certain business services from the Company that did not perform as advertised or expected, and previously sued other companiesasserts various causes of actions 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 stagefraud, breach of contract, violations of the litigation.Alabama Deceptive Trade Practices Act and negligence. On June 30, 2015, the Court granted the Company's motion to stay the case and compel the Slocumb Law Firm to arbitrate its claims against the Company in Santa Clara County, California pursuant to a clause mandating arbitration of disputes set forth in the terms and conditions to which Slocumb Law Firm agreed in connection with its purchase of business services from the Company. The Company has not yet received a formal arbitration demand from the Slocumb Law Firm, nor has discovery commenced. The Company intends to vigorously defend against the Slocumb Law Firm's claims.

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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 sales, use, telecommunications, excise, and income taxes. Several jurisdictions currently are conducting tax audits of the Company's records. 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.

207. STOCK-BASED COMPENSATION

The following table summarizes stock-based compensation expense (in thousands):

Stock Options, Stock Purchase Right and Restricted Stock Unit Activity

Stock Option activity under all the Company's stock option plans for the three months ended June 30, 2015, is summarized as follows:

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9. DISCONTINUED OPERATIONSStock Purchase Right activity for the three months ended June 30, 2015 is summarized as follows: