<SUBMISSION>
<ACCESSION-NUMBER>0001023731-01-500005
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>3
<PERIOD>20010930
<FILING-DATE>20011025
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>8X8 INC /DE/
<CIK>0001023731
<ASSIGNED-SIC>3674
<IRS-NUMBER>770142404
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>0331
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-21783
<FILM-NUMBER>1766530
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>2445 MISSION COLLEGE BLVD
<CITY>SANTA CLARA
<STATE>CA
<ZIP>95054
<PHONE>4087271885
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>2445 MISSION COLLEGE BLVD
<CITY>SANTA CLARA
<STATE>CA
<ZIP>95054
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>8X8 INC
<DATE-CHANGED>19961023
</FORMER-COMPANY>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>NETERGY NETWORKS INC
<DATE-CHANGED>20000912
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>form10q.htm
<DESCRIPTION>10Q
<TEXT>
<HTML>
<head>
<title>Q2 2002 DOC</title>
</head>
<body bgcolor=white>
<font FACE="Times New Roman" SIZE="3">

<DIV align=left>
<HR align=left SIZE=2 width="100%">
</DIV>
<DIV align=left>
<HR align=left SIZE=2 width="100%">
</DIV>

<p align="center"><font size="3"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION<BR>
Washington, D.C. 20549</B></font></p>

<br>
<HR WIDTH="25%">
<br>
<p align="center"><font size="5"><B>FORM 10-Q</B></font></p>
<br>
<HR WIDTH="25%">

<p align="center"><font size="3"><B>
   [X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
</B></font></p>
<p align="center"><font size="4" color="FF0000"><B>
             For the quarterly period ended September 30, 2001
</B></font></p>

<p align="center"><font size="3"><B> OR </B></font></p>

<p align="center"><font size="3"><B>
[&nbsp;&nbsp;]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
</B></font></p>
<p align="center"><font size="3"><B>
 For the transition period from ________to _________
</B></font></p>
<p align="center"><font size="3"><B>
                       <u>Commission file number 000-21783</u>
</B></font></p>
<p align="center"><font size="6" color="#0000FF"><B>
                                  <U>8X8, INC.</U>
</B></font><BR>
<font size="2">
               (Exact name of Registrant as Specified in its Charter)
</font></p>

<P>&nbsp;
<TABLE COLS=2 WIDTH="100%" >
<TR>
<TD>
<font size="3"><B>
<CENTER><u>Delaware</u></CENTER>
</font></B>
</TD>
<TD>
<font size="3"><B>
<CENTER><u> 77-0142404 </u></CENTER>
</font></B>
</TD>
</TR>
<TR>
<TD>
<font size="2">
<CENTER>&nbsp; (State or Other Jurisdiction of Incorporation or Organization)&nbsp;</CENTER>
</font>
</TD>
<TD>
<font size="2">
<CENTER>(I.R.S. Employer Identification Number)</CENTER>
</font>
</TD>
</TR>
</TABLE>
<BR>



<p align="center"><font size="3"><B>
                           2445 Mission College Blvd.<br>
                            <U>Santa Clara, CA &nbsp;&nbsp;  95054
</B></font></u><br>

<font size="2">
        (Address of Principal Executive Offices including Zip Code)
</font></p>

<p align="center"><font size="3"><B><u>
                                 (408) 727-1885
</B></font></u><br>

<font size="2">
                 (Registrant's Telephone Number, Including Area Code)
</font></p>


<DIV align=left>
<HR align=left SIZE=2 width="100%">
</DIV>
<DIV align=left>
<HR align=left SIZE=2 width="100%">
</DIV>

<p>&nbsp;&nbsp;&nbsp;
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. YES [X] NO [&nbsp;&nbsp;&nbsp;] </p>

<p>&nbsp;&nbsp;&nbsp;
The number of shares of the Registrant's Common Stock outstanding as of October 19,
2001 was 26,894,280.

<p>&nbsp;&nbsp;&nbsp;
The Exhibit Index begins on page 25.



<DIV align=left>
<HR align=left SIZE=2 width="100%">
</DIV>
<DIV align=left>

<HR align=left SIZE=2 width="100%">
</DIV>


<br>
<br>
<P ALIGN="CENTER"><IMG SRC="logo.gif"></P>
<p align="center"><B>
                                    8X8, INC.<br>
                                    FORM 10-Q<br>
                                TABLE OF CONTENTS
</B></p>

<P ALIGN="LEFT"><TABLE BORDER=0 CELLSPACING=1 CELLPADDING=2 WIDTH=700>
  <TR vAlign=bottom>
<TD WIDTH="90%">
<font size="3"><B>
    PART I.   FINANCIAL INFORMATION
</font></B>
</TD>

<TD WIDTH="10%">
<font size="3"><B>
<u>Page No.</u>
</font></B>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
Item 1.   Financial Statements:

</font>
</TD>

<TD>
<font size="3">
<CENTER>&nbsp;</CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
        Condensed Consolidated Balance Sheets at
         September 30, 2001 and March 31, 2001
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#bs">1</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
        Condensed Consolidated Statements of Operations for the three and<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         six months ended September 30, 2001 and 2000
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#ops">2</A></CENTER>
</font>
</TD>
</TR>


<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
        Condensed Consolidated Statements of Cash Flows for the six<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         months ended September 30, 2001 and 2000
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#flows">3</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
        Notes to Unaudited Condensed Consolidated Financial Statements
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#notes">4</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
        Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#mda">9</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
Item 3.   Quantitative and Qualitative Disclosures About Market Risk

</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#market">15</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3"><B>
        PART II.  OTHER INFORMATION
</font></B>
</TD>

<TD>
<font size="3">
<CENTER>&nbsp;</CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>


  <TR vAlign=top>
<TD>
<font size="3">
        Item 1:  Legal Proceedings
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#item1">24</A></CENTER>
</font>
</TD>
</TR>



<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
        Item 6.   Exhibits and Reports on Form 8-K
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#item6">24</A></CENTER>
</font>
</TD>
</TR>


<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3"><B>
        Signature
</font></B>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#sign">25</A></CENTER>
</font>
</TD>
</TR>
</TABLE>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>

<P ALIGN="CENTER"><B>
Part I -- FINANCIAL INFORMATION </B> </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">ITEM 1.&#9;FINANCIAL STATEMENTS</B> </P>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="bs"></A>
<p align="center"><B>
                                    8X8, INC.
<br>
<br>
                      CONDENSED CONSOLIDATED BALANCE SHEETS
<br>
                            (In thousands, unaudited)
<br>
<pre>
                                                     September 30,    March 31,
                                                         2001          2001
                                                     ------------  ------------
ASSETS                                                                         </B>
Current assets:
  Cash and cash equivalents ....................... $     19,026  $     24,126
  Accounts receivable, net ........................        1,218         2,907
  Inventory .......................................        1,071         1,328
  Other current assets ............................        1,968         2,571
                                                     ------------  ------------
    Total current assets ..........................       23,283        30,932
Property and equipment, net .......................        3,753         5,016
Intangibles and other assets ......................        2,626         3,197
                                                     ------------  ------------
                                                    $     29,662  $     39,145
                                                     ============  ============
<B>
LIABILITIES AND STOCKHOLDERS' EQUITY                                           </B>
Current liabilities:
  Accounts payable ................................ $        793  $      1,387
  Accrued compensation ............................        1,067         1,531
  Accrued warranty ................................          481           525
  Deferred revenue ................................        3,868         5,903
  Other accrued liabilities .......................        1,459         1,929
                                                     ------------  ------------
    Total current liabilities .....................        7,668        11,275
Convertible subordinated debentures ...............        6,608         6,238
                                                     ------------  ------------
    Total liabilities .............................       14,276        17,513
                                                     ------------  ------------
Stockholders' equity:
  Common stock ....................................           27            27
  Additional paid-in capital ......................      150,134       150,015
  Notes receivable from stockholders ..............           --            (1)
  Deferred compensation ...........................          (37)         (174)
  Accumulated other comprehensive loss ............         (162)          (89)
  Accumulated deficit .............................     (134,576)     (128,146)
                                                     ------------  ------------
    Total stockholders' equity ....................       15,386        21,632
                                                     ------------  ------------
                                                    $     29,662  $     39,145
                                                     ============  ============

</pre>
<p align="center">
    The accompanying notes are an integral part of these unaudited condensed
                       consolidated financial statements.






<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="ops"></A>
<p align="center"><B>
                                    8X8, INC.
<br>
<br>
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<br>
                            (In thousands, unaudited)

<pre>


                                           Three Months Ended     Six Months Ended
                                              September 30,         September 30,
                                         --------------------  --------------------
                                            2001       2000       2001       2000
                                         ---------  ---------  ---------  ---------</B>
Product revenues ...................... $   1,440  $   2,604  $   3,035  $   7,574
License and other revenues ............     2,486      1,288      4,491      2,141
                                         ---------  ---------  ---------  ---------
   Total revenues .....................     3,926      3,892      7,526      9,715
                                         ---------  ---------  ---------  ---------

Cost of product revenues ..............       410      1,258      1,361      2,794
Cost of license and other revenues ....        24        507        111        549
                                         ---------  ---------  ---------  ---------
   Total cost of revenues .............       434      1,765      1,472      3,343
                                         ---------  ---------  ---------  ---------
Gross profit ..........................     3,492      2,127      6,054      6,372
                                         ---------  ---------  ---------  ---------
Operating expenses:
  Research and development ............     2,697      4,788      6,565      9,002
  Selling, general and administrative .     2,367      4,728      5,329      8,427
  In-process research and development .        --      4,563         --      4,563
  Amortization of intangibles .........       191      3,573        382      3,763
                                         ---------  ---------  ---------  ---------
   Total operating expenses ...........     5,255     17,652     12,276     25,755
                                         ---------  ---------  ---------  ---------
Loss from operations ..................    (1,763)   (15,525)    (6,222)   (19,383)
Other income, net .....................       112        918        456      1,894
Interest expense ......................      (332)      (364)      (664)      (695)
                                         ---------  ---------  ---------  ---------
Loss before provision for income taxes     (1,983)   (14,971)    (6,430)   (18,184)
Provision for income taxes ............        --         --         --         12
                                         ---------  ---------  ---------  ---------
Net loss .............................. $  (1,983) $ (14,971) $  (6,430) $ (18,196)
                                         =========  =========  =========  =========

Net loss per basic and diluted share .. $   (0.07) $   (0.60) $   (0.24) $   (0.77)
                                         =========  =========  =========  =========

Basic and diluted shares outstanding ..    26,958     24,923     26,864     23,688
                                         =========  =========  =========  =========


</pre>
<p align="center">
    The accompanying notes are an integral part of these unaudited condensed
                       consolidated financial statements.




<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="flows"></A>
<p align="center"><B>
                                    8X8, INC.
<br>
<br>
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<br>
                            (In thousands, unaudited)
<pre>
<font size="1">

                                                                    Six Months Ended
                                                                     September 30,
                                                                 ----------------------
                                                                     2001        2000
                                                                 ----------  ----------</B>
Cash flows from operating activities:
Net loss ...................................................... $   (6,430) $  (18,196)
Adjustment to reconcile net loss to net cash
   used in operating activities:
       Depreciation and amortization ..........................      2,165       5,225
       Stock compensation expense .............................        (18)        625
       Purchased in-process research and development ..........         --       4,563
       Gain on sale of nonmarketable equity investment ........         --        (225)
       Other ..................................................        103          69
Changes in assets and liabilities, net of effects of
   acquisition and disposal of businesses .....................     (1,056)     (2,205)
                                                                 ----------  ----------
      Net cash used in operating activities ...................     (5,236)    (10,144)
                                                                 ----------  ----------
Cash flows from investing activities:
   Purchases of property and equipment ........................       (123)     (2,475)
   Proceeds from sale of equipment ............................         55          --
   Proceeds from sale of nonmarketable equity investment ......         --         225
   Cash paid for acquisition, net .............................         --        (493)
   Proceeds from disposition of business, net .................         --       5,160
                                                                 ----------  ----------
      Net cash (used in) provided by investing activities .....        (68)      2,417
                                                                 ----------  ----------
Cash flows from financing activities:
   Proceeds from issuance of common stock .....................        204       2,399
   Long-term debt repayment ...................................         --         (74)
   Repayment of notes receivable from stockholders ............         --          26
                                                                 ----------  ----------
       Net cash provided by financing activities ..............        204       2,351
                                                                 ----------  ----------
Net decrease in cash and equivalents ..........................     (5,100)     (5,376)
Cash and cash equivalents at the beginning of the period ......     24,126      48,576
                                                                 ----------  ----------
Cash and cash equivalents at the end of the period ............ $   19,026  $   43,200
                                                                 ==========  ==========
Supplemental non-cash disclosure:
Common stock issued to satisfy interest obligations ........... $       97  $       --
                                                                 ==========  ==========

</font size="1">
</PRE>

<p align="center">
    The accompanying notes are an integral part of these unaudited condensed
                       consolidated financial statements.

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="notes"></A>
<p align="center"><B>
                                    8X8, INC.
<br>
<br>
                    NOTES TO UNAUDITED CONDENSED CONSOLIDATED
<br>
                              FINANCIAL STATEMENTS       </B>



<B><FONT SIZE=2><P>1. DESCRIPTION OF THE BUSINESS </P>
</B><P ALIGN="JUSTIFY">8x8, Inc. and its subsidiaries (collectively, the
Company) develop and market communication technology for Internet Protocol (IP)
telephony and video applications. The Company has three product lines: voice and
video semiconductors and related software, hosted Internet Private Branch
Exchange (iPBX) solutions, and Voice-over-IP (VoIP) service creation
software.</P>
<P ALIGN="JUSTIFY">During the fiscal year ended March 31, 2001, the Company
formed two subsidiaries, Netergy Microelectronics, Inc. (Netergy Micro) and
Centile, Inc. (Centile) and reorganized its operations more clearly along its
three product lines. Netergy Micro provides voice and video semiconductors and
related communication software to original equipment manufacturers (OEMs) of
telephones, terminal adapters, and other edge devices and to other semiconductor
companies. Netergy Micro's technologies are used to make IP telephones and to
voice-enable cable and digital subscriber line (DSL) modems, wireless devices,
and other broadband technologies. Centile develops and markets hosted iPBX
solutions that allow service providers to offer private branch exchange (PBX)
functionality to small and medium-sized businesses over broadband networks. The
Company has a third product line, VoIP service creation software, that includes
a service creation environment (SCE) and a unified messaging application (UM)
(collectively, the SCE Product), at the parent company level. The SCE Product is
designed for use by telecommunication equipment manufacturers and service
providers.</P>
<P ALIGN="JUSTIFY">The Company was incorporated in California in February 1987
and in December 1996 was reincorporated in Delaware. In August 2000, the Company
changed its name from 8x8, Inc. to Netergy Networks, Inc. The Company changed
its name back to 8x8, Inc. in July 2001.  </P>
<B><P ALIGN="JUSTIFY">2. BASIS OF PRESENTATION </P>
</B><P ALIGN="JUSTIFY">In December 2000, the Company approved a change in its
fiscal year from a year ending on the Thursday closest to March 31 to a year
ending on March 31. This change also resulted in each fiscal quarter ending on
the last day of the last month of each calendar quarter. Since the Company
enacted this change during the third quarter of fiscal 2001, the quarter end
date for the second quarter of fiscal 2001 was September 28, 2000. For purposes
of these condensed consolidated financial statements, we have indicated the
interim periods of fiscal 2001 as ending on September 30, 2000. The six-month
periods ended September 30, 2001 and September 30, 2000 included 26 weeks of
operations.</P>
<P ALIGN="JUSTIFY">The accompanying interim condensed consolidated financial
statements are unaudited and have been prepared on substantially the same basis
as our annual financial statements for the fiscal year ended March 31, 2001. In
the opinion of management, these financial statements reflect all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation 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 consolidated condensed financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from these estimates. </P>
<P ALIGN="JUSTIFY">These financial statements should be read in conjunction with
the Company's audited consolidated financial statements for the year ended March
31, 2001, including notes thereto, included in the Company's fiscal 2001 Annual
Report on Form 10-K. Certain prior period balances have been reclassified to
conform to the current period presentation. </P>
<P ALIGN="JUSTIFY">The results of operations and cash flows for the interim
periods included in these financial statements are not necessarily indicative of
the results to be expected for any future period or the entire fiscal year.</P>
<B><P ALIGN="JUSTIFY">3. BALANCE SHEET DETAIL </P>

<PRE>
<B>
                                         September 30,    March 31,
                                             2001          2001
                                         ------------  ------------</B>
Inventory (in thousands):
   Raw materials ...................... $        151  $        213
   Work-in-process ....................          713           783
   Finished goods .....................          207           332
                                         ------------  ------------
                                        $      1,071  $      1,328
                                         ============  ============

</PRE>


<P ALIGN="JUSTIFY">4. DEBT </P>
</B><P ALIGN="JUSTIFY">In December 1999, the Company issued $7.5 million of 4%
Series A and Series B convertible subordinated debentures (the Debentures).
Interest is payable semiannually, and may be paid in cash or common stock at the
Company's option. The Debentures mature in December 2002 unless converted
earlier. Repayment of the Debentures may be accelerated by the lenders under
certain circumstances, including the suspension of trading or failure of the
Company's common stock to be listed on the Nasdaq National Market, the New York
Stock Exchange, or the American Stock Exchange for a period of 5 consecutive
trading days or 10 trading days in a 365 day period.  In such a case the
Debentures are repayable at up to 110% of their face amount. The $3.75 million
of Series A debentures and $3.75 million of Series B debentures are convertible
into the Company's common stock at conversion prices equal to $7.05 and $35.50,
respectively. </P>
<P ALIGN="JUSTIFY">For the Series A and Series B debentures, the lenders
received three-year warrants to purchase 531,914 common shares of the Company at
$7.05 per share and 105,634 shares at $35.50 per share, respectively. The
Company also issued warrants to the placement agent in conjunction with the
Series A and Series B debentures equal to 53,191 shares and 10,563 shares,
respectively, at substantially the same terms granted to the lenders. The
conversion prices of the Debentures and the exercise prices of the warrants
issued to the lenders may be adjusted under certain circumstances.</P>
<P ALIGN="JUSTIFY">Using the Black-Scholes pricing model, the Company determined
that the debt discount associated with the fair value of the warrants issued to
the lenders approximated $2.2 million. The amortization of the debt discount is
being recognized ratably at $185,000 per quarter and has been, and will continue
to be, reflected as a non-cash charge to interest expense over the term of the
warrants. The debt discount, net of accumulated amortization, of $892,000 is
reflected as a reduction in the face value of the Debentures at September 30,
2001.</P>
<B><P ALIGN="JUSTIFY">5. NET LOSS PER SHARE </P>
</B><P ALIGN="JUSTIFY">Basic net loss per share is computed by dividing net loss
available to common stockholders (numerator) by the weighted average number of
common shares outstanding during the period (denominator). The numerators for
each period presented are equal to the reported net loss. Additionally, due to
net losses incurred for the periods presented, weighted average basic and
diluted shares outstanding for the respective three and six-month periods are
the same. The following equity instruments were not included in the computations
of diluted net loss per share because the effect on the calculations would be
anti-dilutive (in thousands):</P>

<PRE>
<B>
                                              September 30,
                                         --------------------------
                                            2001          2000
                                         ------------  ------------</B>
Common stock options ..................        7,118         6,743
Convertible subordinated debentures ...          638           638
Warrants ..............................          701           701
Unvested restricted common stock ......            1           143
Unvested restricted exchangeable shares .         --         2,108
                                         ------------  ------------
                                               8,458        10,333
                                         ============  ============

</PRE>


<B><P>6. COMPREHENSIVE INCOME (LOSS) </P>
</B><P ALIGN="JUSTIFY">Comprehensive income (loss), as defined, includes all
changes in equity (net assets) during a period from non-owner sources. The
difference between net income (loss) and comprehensive income (loss) is due
primarily to unrealized gains and losses on short-term investments classified as
available-for-sale and foreign currency translation adjustments. Comprehensive
losses for the three and six month periods ended September 30, 2001 and 2000
were as follows (in thousands): </P>

<PRE>
<B>
                                     Three Months Ended     Six Months Ended
                                        September 30,         September 30,
                                   --------------------  --------------------
                                      2001       2000       2001       2000
                                   ---------  ---------  ---------  ---------</B>
Net loss, as reported............    (1,983)   (14,971)    (6,430)   (18,196)
Unrealized loss on investments...      (185)        --       (115)        --
Cumulative translation adjustment       (56)        10         42         10
                                   ---------  ---------  ---------  ---------
Comprehensive loss...............    (2,224)   (14,961)    (6,503)   (18,186)
                                   =========  =========  =========  =========

</PRE>



<B><P>7. SEGMENT REPORTING </P>
</B><P ALIGN="JUSTIFY">During the fourth quarter of fiscal year 2001, the
Company changed its internal reporting processes and determined that it had
three reportable segments: Netergy Micro, Centile, and SCE and Other (formerly
the Corporate and Other segment). The Company's reportable segments have been
determined based on the nature of the operations and products offered to
customers. The Netergy Micro segment primarily reflects the activity associated
with the sale and development of semiconductors and related software focused on
the IP telephony and videoconferencing markets.  In addition, the Netergy Micro
segment includes revenue derived from the license of video monitoring technology
to Interlogix, Inc. (Interlogix), as well as sales of media hub systems. The
Centile segment reflects activity associated with the development and sale of a
hosted iPBX solution.  The SCE and Other segment represents the business
activities of the parent entity, 8x8, Inc. The results for the SCE and Other
segment principally reflect activities related to the development and deployment
of the SCE Product, unallocated corporate overhead expenses, and revenues and
certain costs associated with discontinued product lines. </P>
<P ALIGN="JUSTIFY">Inter-segment revenues between the reportable segments were
not significant during the periods presented. Shared support service functions
such as human resources, facilities management, and other infrastructure support
and overhead are allocated between the segments. Accounting policies are applied
consistently to the segments, where applicable. </P>
<P ALIGN="JUSTIFY">Revenues, gross profit, operating loss, and net income (loss)
for the Netergy Micro, Centile and the Corporate and Other segments for the
fiscal quarters and six month periods ended September 30, 2001 and 2000 were as
follows (in thousands):  </P>

<PRE>
<B>
                                     Three Months Ended     Six Months Ended
                                        September 30,         September 30,
                                   --------------------  --------------------
                                      2001       2000       2001       2000
                                   ---------  ---------  ---------  ---------
Revenues:                                                                    </B>
Netergy Micro.................... $   3,203  $   3,227  $   6,732  $   8,102
Centile .........................        85         60        106         83
SCE and Other ...................       638        605        688      1,530
                                   ---------  ---------  ---------  ---------
   Total revenues ............... $   3,926  $   3,892  $   7,526  $   9,715
                                   =========  =========  =========  =========<B>

Gross profit:                                                                </B>
Netergy Micro.................... $   2,770  $   1,890  $   5,291  $   5,552
Centile .........................        85         13        106         35
SCE and Other ...................       637        224        657        785
                                   ---------  ---------  ---------  ---------
   Total gross profit ........... $   3,492  $   2,127  $   6,054  $   6,372
                                   =========  =========  =========  =========<B>

Operating loss:                                                              </B>
Netergy Micro.................... $     (33) $  (2,336) $  (1,027) $  (3,267)
Centile .........................    (1,435)    (3,313)    (3,802)    (6,606)
SCE and Other ...................      (295)    (9,876)    (1,393)    (9,510)
                                   ---------  ---------  ---------  ---------
  Total operating loss .......... $  (1,763) $ (15,525) $  (6,222) $ (19,383)
                                   =========  =========  =========  =========<B>

Net income (loss):                                                           </B>
Netergy Micro.................... $      47  $  (2,349) $    (865) $  (3,296)
Centile .........................    (1,477)    (3,263)    (3,711)    (6,557)
SCE and Other ...................      (553)    (9,359)    (1,854)    (8,343)
                                   ---------  ---------  ---------  ---------
  Total net loss ................ $  (1,983) $ (14,971) $  (6,430) $ (18,196)
                                   =========  =========  =========  =========

</PRE>



<P ALIGN="JUSTIFY">There were no significant reconciling items between the
segments for the revenue, gross profit, operating loss, and net income (loss)
amounts.</P>
<P ALIGN="JUSTIFY">The following table illustrates net revenues by groupings of
similar products (in thousands): </P>

<PRE>
<B>

                                             Three Months Ended   Six Months Ended
                                                September 30,       September 30,
                                           ------------------  ------------------
                                              2001      2000      2001      2000
                                           --------  --------  --------  --------</B>
Videoconferencing semiconductors ........ $  1,164  $  2,390  $  2,483  $  5,946
IP telephony semiconductors .............      256        43       480       315
Media hub systems .......................       20        91        62       308
Video monitoring systems ................       --         1        --       915
Consumer videophone systems .............       --        79        10        90
                                           --------  --------  --------  --------
   Product revenues .....................    1,440     2,604     3,035     7,574
                                           --------  --------  --------  --------

Videoconferencing licenses and royalties       562       451     1,500     1,208
IP telephony licenses and royalties .....      774       245     1,351       318
Hosted iPBX licenses ....................       83        60       104        83
Video monitoring licenses ...............      429        --       858        --
SCE Product licenses ....................      638        --       678        --
Professional services....................       --       532        --       532
                                           --------  --------  --------  --------
   License and other revenues ...........    2,486     1,288     4,491     2,141
                                           --------  --------  --------  --------
   Total revenues ....................... $  3,926  $  3,892  $  7,526  $  9,715
                                           ========  ========  ========  ========

</PRE>




<P ALIGN="JUSTIFY">Deferred revenue by groupings of similar products is as
follows (in thousands): </P>

<PRE>
<B>
                                         September 30,    March 31,
                                             2001          2001
                                         ------------  ------------</B>
Videoconferencing semiconductors....... $        113  $        113
IP telephony semiconductors............           15            --
                                         ------------  ------------
   Product deferred revenue............          128           113
                                         ------------  ------------

Videoconferencing licenses.............            8            23
IP telephony licenses..................          216           741
Hosted iPBX licenses...................           33             6
Video monitoring licenses..............        2,861         3,719
SCE Product licenses...................          622         1,301
                                         ------------  ------------
   License and other deferred revenue..        3,740         5,790
                                         ------------  ------------
   Total deferred revenue.............. $      3,868  $      5,903
                                         ============  ============

</PRE>




<P ALIGN="JUSTIFY">The Company has received payment for the amounts included in
deferred revenue with the exception of $103,000 at September 30, 2001 and
$826,000 at March 31, 2001. </P>
<B><P>8. LEGAL PROCEEDINGS </P>
</B><P>On April 6, 2001, the Company, along with Sun Microsystems, Inc.,
Netscape Communications Canada Inc., Burntsand Inc., and Intraware Canada Inc.,
was sued by Milinx Business Services, Inc. and Milinx Business Group Inc.
(collectively, Milinx) in the Supreme Court of British Columbia, Canada (the
Court). Milinx has alleged that the Company failed to perform certain
contractual obligations and knowingly misrepresented the capabilities of its
products. The lawsuit seeks general, special, and aggravated damages totaling in
excess of $65 million Canadian dollars plus interest, costs, and any other
relief which the Court may choose to provide. Management believes that the
Company has valid defenses against the claims alleged by Milinx and intends to
continue its vigorous defense of this lawsuit. However, due to the nature of
litigation and because the lawsuit is in the pre-discovery stages, the Company
cannot determine the possible loss, if any, that may ultimately be incurred
either in the context of a trial or a negotiated settlement.  Should the Company
not prevail in the litigation, its operating results and financial condition
would be adversely impacted.</P>
<P>The Company is also involved in various other legal claims and litigation
that have arisen in the normal course of the Company's operations. While the
results of such claims and litigation cannot be predicted with certainty, the
Company believes that the final outcome of such matters will not have a
significant adverse effect on the Company's financial position or results of
operations. However, should the Company not prevail in any such litigation, its
operating results and financial position could be adversely impacted.</P>
<B><P>9. RECENT ACCOUNTING PRONOUNCEMENTS </P>
</B><P>In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Financial Instruments and for Hedging Activities." SFAS No. 133, as
amended by SFAS No. 138, provides a comprehensive and consistent standard for
the recognition and measurement of derivatives and hedging activities. The
Company adopted SFAS No. 133, beginning April 1, 2001, and it did not have a
material impact on the Company's results of operations or financial
condition.</P>
<P>In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." These statements make
significant changes to the accounting for business combinations, goodwill, and
intangible assets and become effective for fiscal years beginning after December
15, 2001. The new rules also require business combinations initiated after June
30, 2001 to be accounted for using the purchase method and goodwill recorded
after June 30, 2001 will not be amortized. Goodwill existing at June 30, 2001
will continue to be amortized through the end of fiscal 2002. Beginning in the
first quarter of fiscal 2003, goodwill will no longer be amortized but will be
subject to annual impairment tests. All other intangible assets will continue to
be amortized over their estimated useful lives. Through the end of fiscal 2002,
the Company will test goodwill for impairment using the current method, which
uses an undiscounted cash flow test. During fiscal 2003, the Company will begin
to test goodwill for impairment under the new rules, applying a fair-value based
test. Based on acquisitions completed as of June 30, 2001, application of the
goodwill non-amortization provisions of these rules is expected to result in a
decrease in operating expenses of approximately $697,000 for fiscal 2003.</P>
<P>On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 supercedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of."  SFAS 144 applies to all long-lived assets (including
discontinued operations) and consequently amends Accounting Principles Board
Opinion No. 30. SFAS 144 develops one accounting model for long-lived assets
that are to be disposed of by sale. SFAS 144 requires that long-lived assets
that are to be disposed of by sale be measured at the lower of book value or
fair value less cost to sell.  Additionally, SFAS 144 expands the scope of
discontinued operations to include all components of an entity with operations
that (1) can be distinguished from the rest of the entity and (2) will be
eliminated from the ongoing operations of the entity in a disposal transaction.
SFAS 144 is effective for the Company for all financial statements issued in
fiscal 2003.</P>

<A NAME="mda"></A>
<B><P ALIGN="JUSTIFY">ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS </P>
<I><P>FORWARD-LOOKING STATEMENTS</B></I> </P>
<P ALIGN="JUSTIFY">This discussion and analysis of financial condition and
results of operations contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including, but not limited to,
those specifically identified as such, that involve risks and uncertainties. The
statements contained in this Report on Form 10-Q (the Report) that are not
purely historical are forward looking statements, including, without limitation,
statements regarding our expectations, beliefs, estimates, intentions or
strategies regarding the future, including statements regarding working capital
and capital expenditure requirements, efforts to raise additional financing, the
acquisition or investment in other businesses and products, commitment of
resources, and reduction in operating costs including the possible sale or
cessation of certain business lines, the possible further reduction of personnel
and suspension of salary increases and capital expenditures and the possible
acceleration of the repayment of the convertible debt. 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. You should not place undue reliance on these forward-looking
statements. Actual results could differ materially from those anticipated in
these forward-looking statements as a result of a number of factors, including,
but not limited to, risks faced by us as described in this Report, including
those set forth under the section entitled "Factors that May Affect Future
Results", and the other documents we file with the Securities and Exchange
Commission (SEC) including our most recent reports on Form 8-K. </P>
<B><I><P>OVERVIEW</B></I> </P>
<P ALIGN="JUSTIFY">8x8, Inc. and its subsidiaries (collectively, We or 8x8)
develop and market communication technology for Internet Protocol (IP) telephony
and video applications. We have three product lines: voice and video
semiconductors and related software, hosted Internet Private Branch Exchange
(iPBX) solutions, and Voice-over-IP (VoIP) service creation software. </P>
<P ALIGN="JUSTIFY">During the fiscal year ended March 31, 2001, we formed two
subsidiaries, Netergy Microelectronics, Inc. (Netergy Micro) and Centile, Inc.
(Centile) and reorganized our operations more clearly along our three product
lines. Netergy Micro provides voice and video semiconductors and related
communication software to original equipment manufacturers (OEMs) of telephones,
terminal adapters, and other edge devices and to other semiconductor companies.
Netergy Micro's technologies are used to make IP telephones and to voice-enable
cable and digital subscriber line (DSL) modems, wireless devices, and other
broadband technologies. Centile develops and markets hosted iPBX solutions that
allow service providers to offer private branch exchange (PBX) functionality to
small and medium-sized businesses over broadband networks. We also have a third
product line, VoIP service creation software, that includes a service creation
environment (SCE) and a unified messaging application (UM) (collectively, the
SCE Product), at the parent company level. The SCE Product is designed for use
by telecommunication equipment manufacturers and service providers. </P>
<B><I><P>RESULTS OF OPERATIONS</B></I> </P>
<P ALIGN="JUSTIFY">The following
table sets forth condensed consolidated statements of operations data for the
three and six month periods ended September 30, 2001 and 2000, respectively, as
well as the percentage of our total revenues represented by each item. Cost of
product revenues is presented as a percentage of product revenues and cost of
license and other revenues is presented as a percentage of license and other
revenues. You should read this information in conjunction with our condensed
consolidated financial statements and related notes included elsewhere in this
Report: </P>

<PRE>
<font size="1">

                                         Three Months Ended September 30,   Six Months Ended September 30,
                                         --------------------------------  --------------------------------
                                              2001            2000              2001            2000
                                         ---------------  ---------------  ---------------  ---------------
                                                                 ($ in millions)
Product revenues ...................... $   1.4      37% $   2.6      67% $   3.0      40% $   7.6      78%
License and other revenues ............     2.5      63%     1.3      33%     4.5      60%     2.1      22%
                                         -------  ------  -------  ------  -------  ------  -------  ------
   Total revenues .....................     3.9     100%     3.9     100%     7.5     100%     9.7     100%
                                         -------  ------  -------  ------  -------  ------  -------  ------

Cost of product revenues ..............     0.4      28%     1.3      48%     1.4      46%     2.8      37%
Cost of license and other revenues ....     0.0       1%     0.5      39%     0.1       2%     0.5      26%
                                         -------  ------  -------  ------  -------  ------  -------  ------
   Total cost of revenues .............     0.4      11%     1.8      45%     1.5      20%     3.3      34%
                                         -------  ------  -------  ------  -------  ------  -------  ------
Gross profit ..........................     3.5      89%     2.1      55%     6.0      80%     6.4      66%
                                         -------  ------  -------  ------  -------  ------  -------  ------
Operating expenses:
  Research and development ............     2.7      69%     4.8     123%     6.6      87%     9.0      93%
  Selling, general and administrative .     2.4      60%     4.7     121%     5.3      71%     8.4      87%
  In-process research and development .      --      --      4.5     116%      --      --      4.6      47%
  Amortization of intangibles .........     0.2       5%     3.6      92%     0.4       5%     3.8      39%
                                         -------  ------  -------  ------  -------  ------  -------  ------
   Total operating expenses ...........     5.3     134%    17.6     452%    12.3     163%    25.8     266%
                                         -------  ------  -------  ------  -------  ------  -------  ------
Loss from operations ..................    (1.8)    -46%   (15.5)   -397%    (6.2)    -83%   (19.4)   -200%
Other income, net .....................     0.1       3%     0.9      21%     0.5       6%     1.9      19%
Interest expense ......................    (0.3)     -8%    (0.4)     -9%    (0.7)     -9%    (0.7)     -7%
                                         -------  ------  -------  ------  -------  ------  -------  ------
Loss before provision for income taxes     (2.0)    -51%   (15.0)   -385%    (6.4)    -86%   (18.2)    188%
Provision for income taxes ............      --      --       --      --       --      --      0.0      --
                                         -------  ------  -------  ------  -------  ------  -------  ------
Net loss .............................. $  (2.0)    -51% $ (15.0)   -385% $  (6.4)    -86% $ (18.2)   -188%
                                         =======  ======  =======  ======  =======  ======  =======  ======

</font size="1">
</PRE>



<P ALIGN="JUSTIFY">The following discussion should be read in conjunction with
our condensed consolidated statements of operations and the notes thereto: </P>
<B><I><P>Revenues</B></I> </P>
<P ALIGN="JUSTIFY">The following table illustrates net revenues by groupings of
similar products (in thousands): </P>

<PRE>
<B>

                                             Three Months Ended   Six Months Ended
                                                September 30,       September 30,
                                           ------------------  ------------------
                                              2001      2000      2001      2000
                                           --------  --------  --------  --------</B>
Videoconferencing semiconductors ........ $  1,164  $  2,390  $  2,483  $  5,946
IP telephony semiconductors .............      256        43       480       315
Media hub systems .......................       20        91        62       308
Video monitoring systems ................       --         1        --       915
Consumer videophone systems .............       --        79        10        90
                                           --------  --------  --------  --------
   Product revenues .....................    1,440     2,604     3,035     7,574
                                           --------  --------  --------  --------

Videoconferencing licenses and royalties       562       451     1,500     1,208
IP telephony licenses and royalties .....      774       245     1,351       318
Hosted iPBX licenses ....................       83        60       104        83
Video monitoring licenses ...............      429        --       858        --
SCE Product licenses ....................      638        --       678        --
Professional services....................       --       532        --       532
                                           --------  --------  --------  --------
   License and other revenues ...........    2,486     1,288     4,491     2,141
                                           --------  --------  --------  --------
   Total revenues ....................... $  3,926  $  3,892  $  7,526  $  9,715
                                           ========  ========  ========  ========

</PRE>



<P ALIGN="JUSTIFY">Product revenues were $1.4 million in the second quarter of
fiscal 2002, a decrease of $1.2 million from the $2.6 million reported in the
second quarter of fiscal 2001. Product revenues were $3.0 million for the six
month period ended September 30, 2001, a decrease of approximately $4.6 million
from the $7.6 million reported in the prior year period. The decreases in the
three and six month periods ended September 30, 2001 as compared to the
corresponding periods in the prior year were due primarily to a decrease in unit
shipments of videoconferencing semiconductor products and media hub systems,
offset partially by increased sales of Audacity-T2 semiconductors and increases
in average selling prices (ASPs) associated with our videoconferencing
semiconductor products. The decrease in product revenues for the six month
period ended September 30, 2001 as compared to the prior year was also due to a
decrease in sales of video monitoring systems resulting from our exit from this
business.  </P>
<P ALIGN="JUSTIFY">License and other revenues were $2.5 million in the second
quarter of fiscal 2002, an increase of approximately $1.2 million over the $1.3
million reported in the second quarter of fiscal 2001. License and other
revenues were $4.5 million for the six month period ended September 30, 2001, an
increase of approximately $2.4 million over the $2.1 million reported in the
prior year period. License and other revenues for the periods reported consist
primarily of technology licenses, including royalties earned pursuant to such
licenses.  However, license and other revenues for the three and six month
periods ended September 30, 2000 also included professional service revenues
associated with the Canadian operations. No professional service revenues were
recognized in the corresponding periods in fiscal 2002 due to the elimination of
the professional services organization as part of the restructuring of our
Canadian operations in the fourth quarter of fiscal 2001. The negative impact of
eliminating professional service revenues in fiscal 2002 was more than offset by
improvements in other areas as compared to the prior year including increases
in:</P>

<UL>
<P ALIGN="JUSTIFY"><LI>Licenses of our IP telephony technology, e.g.,  Veracity
VoIP software and Audacity-T2 based reference design kits marketed by Netergy
Micro;</LI></P>
<P ALIGN="JUSTIFY"><LI>SCE license revenue due to the recognition of revenue
associated with our license of SCE technology to Lucent;</LI></P>
<P ALIGN="JUSTIFY"><LI>Revenue associated with the license of our video
monitoring technology to Interlogix in fiscal 2001.</LI></P></UL>

<P ALIGN="JUSTIFY">Recognition of the approximately $3.9 million of revenue
ascribed to the license of video monitoring technology to Interlogix in fiscal
2001 had been deferred until we satisfied certain remaining obligations in the
quarter ended March 31, 2001. Revenue associated with the license is being
recognized ratably over the license term which expires in May 2003. The
remaining balance in deferred revenue at September 30, 2001 is approximately
$2.9 million.</P>
<P ALIGN="JUSTIFY">Four customers represented more than 10% of our total
revenues for the quarter ended September 30, 2001. These customers represented
17%, 16%, 11% and 10% of our total revenues, respectively. One customer
represented 13% of our total revenues for the quarter ended September 30, 2000.
Two customers represented 16% and 12% of our total revenues, respectively, for
the six month period ended September 30, 2001. No customer represented 10% or
more of our total revenues for the six month period ended September 30,
2000.</P>
</FONT><P ALIGN="JUSTIFY">Our revenue distribution by geographic region (based
upon the destination of shipments) was as follows: </P>

<PRE>
<B>
                           Three Months Ended     Six Months Ended
                              September 30,         September 30,
                         --------------------  --------------------
                            2001       2000       2001       2000    </B>
                         ---------  ---------  ---------  ---------
   North America.......        40%        62%        38%        45%
   Europe..............        21%        15%        21%        25%
   Taiwan..............        17%         5%        17%        14%
   Other Asia Pacific..        22%        18%        24%        16%
                         ---------  ---------  ---------  ---------
                              100%       100%       100%       100%
                         =========  =========  =========  =========

</PRE>



<B><I><FONT SIZE=2><P ALIGN="JUSTIFY">Cost of Revenues and Gross Profit</B></I>
</P>
<P ALIGN="JUSTIFY">The cost of product revenues consists of costs associated
with components, semiconductor wafer fabrication, system and semiconductor
assembly and testing performed by third-party vendors and direct and indirect
costs associated with purchasing, scheduling and quality assurance. Gross profit
from product revenues decreased to $1.0 million in the second quarter of fiscal
2002 from $1.3 million for the quarter ended September 30, 2000 due to a
decrease in product revenues offset by an increase in product gross margins from
52% to 72%. The increase in product gross margins is due to an increase in
average selling prices (ASPs) on our videoconferencing semiconductors and a
decrease in manufacturing overhead costs as a result of our cost reduction
efforts. Gross profit from product revenues decreased to approx. $1.6 million
for the six month period ended September 30, 2001 from $4.8 million during the
corresponding period of the prior year to a decrease in product revenues and a
decrease in product gross margins from 63% to 55%. The decrease in product gross
margins is due primarily to inventory reserves associated with our media hub
products that we recorded in the first quarter of fiscal 2002, offset by an
increase in average selling prices (ASPs) on our videoconferencing
semiconductors.</P>
<P ALIGN="JUSTIFY">The cost of license and other revenues for the periods
presented consist principally of royalties associated with technology
sublicensed from third parties and certain costs associated with providing
maintenance services.  The cost of license and other revenues for the three and
six month periods ended September 30, 2000 also included costs associated with
the U|Force professional services organization. No such costs were incurred in
the corresponding periods in fiscal 2002 due to the elimination of the U|Force
professional services organization as part of the restructuring of our Canadian
operations in the fourth quarter of fiscal 2001. Due to the low gross margins
attributable to professional service revenues, the elimination of the
professional services organization had a significant impact on gross margins
associated with overall license and other revenues in fiscal 2002. Gross margin
increased from 61% during the three months ended September 30, 2000 to 99% in
the quarter ended September 30, 2001. Gross margin increased from 74% during the
six months ended September 30, 2000 to 98% in the corresponding period in the
current fiscal year. </P>
<B><I><P ALIGN="JUSTIFY">Research and Development Expenses</B></I> </P>
<P ALIGN="JUSTIFY">Research and development expenses consist primarily of
personnel, system prototype design and fabrication, mask, prototype wafer and
equipment costs necessary for us to conduct our development efforts. Research
and development costs, including software development costs, are expensed as
incurred. Research and development expenses decreased by $2.1 million in the
second quarter of fiscal 2002 as compared to the second quarter of fiscal 2001,
and decreased by approximately $2.4 million in the first six months of fiscal
2002 as compared to the first six months of fiscal 2001. The significant
decreases in research and development expenses for the three and six month
periods ended September 30, 2001 as compared to the comparable periods in the
prior year are due to the following:</P>

<UL>
<P ALIGN="JUSTIFY"><LI>The elimination of our Canadian operations in the fourth
quarter of fiscal 2001; </LI></P>
<P ALIGN="JUSTIFY"><LI>Reductions in headcount;</LI></P>
<P ALIGN="JUSTIFY"><LI>Lower consulting expenses associated with development of
the graphical user interface for Centile's hosted iPBX product; and</LI></P>
<P ALIGN="JUSTIFY"><LI>Our overall efforts to reduce discretionary operating
costs.  </LI></P></UL>

</FONT><P ALIGN="JUSTIFY">In addition, the six month period ended September
30, 2000 included a non-recurring stock compensation charge of approximately
$300,000 related to the acceleration of stock option vesting pursuant to an
existing bonus program. </P>
<B><I><FONT SIZE=2><P ALIGN="JUSTIFY">Selling, General and Administrative
Expenses</B></I> </P>
<P ALIGN="JUSTIFY">Selling, general and administrative expenses consist
primarily of personnel and related overhead costs for sales, marketing, finance,
human resources and general management. Such costs also include sales
commissions, trade show, advertising and other marketing and promotional
expenses. Selling, general and administrative expenses decreased by $2.3 million
in the second quarter of fiscal 2002 as compared the same period in the prior
year and decreased by approximately $3.1 million in the first six months of
fiscal 2002 as compared to the first six months of fiscal 2001. The decreases in
selling, general and administrative expenses during the three and six month
periods ended September 30, 2001 as compared to the comparable periods in the
prior year are primarily attributable to:</P>

<UL>
<P ALIGN="JUSTIFY"><LI>The elimination of our Canadian operations in the fourth
quarter of fiscal 2001;</LI></P></UL>


<UL>
<P ALIGN="JUSTIFY"><LI>Reductions in headcount; and</LI></P></UL>


<UL>
<P ALIGN="JUSTIFY"><LI>Lower legal, travel, corporate marketing, public
relations and trade show expenditures resulting from our efforts to reduce
discretionary operating costs.</LI></P></UL>

<B><I><P ALIGN="JUSTIFY">In-Process Research and Development and Amortization of
Intangibles</B></I> </P>
<P ALIGN="JUSTIFY">In the second quarter of fiscal 2001 we incurred an in-
process research and development charge of $4.6 million related to the
acquisition of U|Force.</P>
<P ALIGN="JUSTIFY">In conjunction with the acquisition of Odisei S.A. in May
1999, we recorded intangible assets related to goodwill and workforce that are
being amortized on a straight-line basis over five and three years,
respectively. Approximately $190,000 of such amortization was charged to
operations during each of the two three-month periods ending September 30, 2001
and 2000. An additional $3.4 million was charged to operating expenses during
the second quarter of fiscal 2001 related to the amortization of intangible
assets acquired as a result of the acquisition of U|Force. Amortization of
intangible assets totaled $382,000 and $3.8 million in the six month periods
ended September 30, 2001 and 2000, respectively. This decrease in amortization
of intangibles was primarily due to the write off of U|Force intangible assets
during the fourth quarter of fiscal 2001.   </P>
<P ALIGN="JUSTIFY">See the financial statements in our Report on Form 10-K for
the fiscal year ended March 31, 2001 for further explanation of the U|Force
transaction.</P>
<B><I><P>Other Income, Net</B></I> </P>
<P ALIGN="JUSTIFY">In the second quarters of fiscal 2002 and 2001, other income,
net, was $112,000 and $918,000, respectively.   During the six month periods
ending September 30, 2001 and 2000, other income, net, was $456,000 and $1.9
million, respectively. During fiscal 1996, we acquired an equity position in a
privately held company. We realized a gain of $225,000 in the quarter ended June
30, 2000 resulting from the sale of this investment. Apart from the realized
gain on the sale of an investment as noted above, other income consists
primarily of interest income earned on our cash and cash equivalents. Interest
income decreased significantly in the first two quarters of fiscal 2002 as
compared to the corresponding periods of the prior fiscal year due primarily to
significantly lower average cash and cash equivalent balances combined with
lower interest rates. </P>
<B><I><P>Interest Expense</B></I> </P>
<P ALIGN="JUSTIFY">Interest expense for the three and six month periods ended
September 30, 2001 and 2000, respectively, consists mainly of charges associated
with the convertible subordinated debentures issued in December 1999, as well as
the amortization of the related debt discount and debt issuance costs.  In
addition, approximately $32,000 of interest expense was incurred in the quarter
ended September 30, 2000 resulting from lines of credit assumed as part of the
U|Force acquisition.  </P>
<B><I><P>Provision for Income Taxes</B></I> </P>
<P ALIGN="JUSTIFY">There were no tax provisions recorded in the second quarters
of fiscal 2002 and 2001, or during the six month period ended September 30,
2001, due to net losses incurred. The tax provision of $12,000 reported for the
six month period ended September 30, 2000 represents certain foreign taxes. </P>
<B><I><P>Recent Accounting Pronouncements</B></I> </P>
<P>In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Financial Instruments and for Hedging Activities." SFAS No. 133, as
amended by SFAS No. 138, provides a comprehensive and consistent standard for
the recognition and measurement of derivatives and hedging activities. The
Company adopted SFAS No. 133, beginning April 1, 2001, and it did not have a
material impact on the Company's results of operations or financial
condition.</P>
<P>In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." These statements make
significant changes to the accounting for business combinations, goodwill, and
intangible assets and become effective for fiscal years beginning after December
15, 2001. The new rules also require business combinations initiated after June
30, 2001 to be accounted for using the purchase method and goodwill recorded
after June 30, 2001 will not be amortized. Goodwill existing at June 30, 2001
will continue to be amortized through the end of fiscal 2002. Beginning in the
first quarter of fiscal 2003, goodwill will no longer be amortized but will be
subject to annual impairment tests. All other intangible assets will continue to
be amortized over their estimated useful lives. Through the end of fiscal 2002,
the Company will test goodwill for impairment using the current method, which
uses an undiscounted cash flow test. During fiscal 2003, the Company will begin
to test goodwill for impairment under the new rules, applying a fair-value based
test. Based on acquisitions completed as of June 30, 2001, application of the
goodwill non-amortization provisions of these rules is expected to result in a
decrease in operating expenses of approximately $697,000 for fiscal 2003.</P>
<P>On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 supercedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of."  SFAS 144 applies to all long-lived assets (including
discontinued operations) and consequently amends Accounting Principles Board
Opinion No. 30. SFAS 144 develops one accounting model for long-lived assets
that are to be disposed of by sale. SFAS 144 requires that long-lived assets
that are to be disposed of by sale be measured at the lower of book value or
fair value less cost to sell.  Additionally, SFAS 144 expands the scope of
discontinued operations to include all components of an entity with operations
that (1) can be distinguished from the rest of the entity and (2) will be
eliminated from the ongoing operations of the entity in a disposal transaction.
SFAS 144 is effective for the Company for all financial statements issued in
fiscal 2003.</P>
<B><I><P>Liquidity and Capital Resources</B></I> </P>
<P ALIGN="JUSTIFY">As of September 30, 2001, we had cash and cash equivalents
totaling $19.0 million, representing a decrease of approximately $5.1 million
from March 31, 2001. We currently have no bank borrowing arrangements. </P>
<P ALIGN="JUSTIFY">Cash used in operations of approximately $5.2 million in the
first six months of fiscal 2002 is primarily attributable to the net loss of
$6.4 million, a $594,000 decrease in accounts payable, a $490,000 decrease in
accrued compensation, and a $2.0 million decrease in deferred revenue.  This was
offset by a decrease in accounts receivable of $1.7 million, a $489,000 decrease
in other current assets, and non-cash items, including depreciation and
amortization of $2.2 million. Cash used in operations of approximately $10.1
million in the first six months of fiscal 2001 is primarily attributable to the
net loss of $18.2 million, increases in prepaid expenses and other assets of
approximately $3.1 million, decreases in accounts payable and deferred revenue
of $926,000 and $349,000, and a net gain resulting from the sale of an
investment of $225,000.  Cash used in operations was partially offset by an
increase in other accrued liabilities of $601,000 and non-cash items, including
depreciation and amortization of $5.2 million, stock compensation charges of
$625,000 and a charge for purchased in-process research and development of $4.6
million. </P>
<P ALIGN="JUSTIFY">Cash used in investing activities in the six months ended
September 30, 2001 is attributable to capital expenditures of $123,000 offset by
proceeds from the sale of equipment of $55,000. Cash provided by investing
activities in the six months ended September 30, 2000 is primarily attributable
to net proceeds from the sale of assets and the license of technology associated
with our video monitoring business of $5.2 million and proceeds from the sale of
a non-marketable equity investment of $225,000, offset by capital expenditures
of $2.5 million and net cash paid of $493,000 related to the acquisition of
U|Force.</P>
<P ALIGN="JUSTIFY">Cash provided by financing activities during the first two
quarters of fiscal 2002 consisted primarily of proceeds resulting from the sale
of the our common stock to employees through our employee stock purchase and
stock option plans. Cash provided by financing activities in the six month
period ended September 30, 2000 consisted primarily of net proceeds from the
repayment of stockholders' notes receivable and net proceeds from sales of our
common stock to employees through our employee stock purchase and stock option
plans, offset by the repayment of certain debt obligations.</P>
<P ALIGN="JUSTIFY">As of September 30, 2001, our principal commitments consisted
of obligations outstanding under non-cancelable operating leases. </P>
<P ALIGN="JUSTIFY">In December 1999, the Company issued $7.5 million of 4%
Series A and Series B convertible subordinated debentures (the Debentures). The
Debentures mature in December 2002 unless converted earlier. Repayment of the
Debentures may be accelerated by the lenders under certain circumstances,
including the suspension of trading or failure of the Company's common stock to
be listed on the Nasdaq National Market, the New York Stock Exchange, or the
American Stock Exchange for a period of 5 consecutive trading days or 10 trading
days in a 365 day period.  In such a case the Debentures are repayable at up to
110% of their face amount.</P>
<P ALIGN="JUSTIFY">Although we believe that our current cash and cash
equivalents will satisfy our expected working capital and capital expenditure
requirements through at least the next twelve months, our business may change in
ways we do not currently anticipate requiring us to raise additional funds to
support our operations earlier than otherwise expected. In addition, we
anticipate that we may require additional funds to support our business in
fiscal 2003. We may not be able to obtain additional financing as needed on
acceptable terms, or at all, which may require us to further reduce our
operating costs and other expenditures by making additional reductions in
personnel and capital expenditures. Alternatively, or in addition to such
potential measures, we may elect to implement other cost reduction actions as we
may determine are necessary and in our best interests, including the possible
sale or cessation of some or all of our business segments. Any such actions
undertaken might limit our opportunities to realize plans for revenue growth and
we might not be able to reduce our costs in amounts sufficient to achieve break-
even or profitable operations. <A NAME="market"></A></P>
<B><P ALIGN="JUSTIFY">ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK </P>
</B><P ALIGN="JUSTIFY">Our financial market risk consists primarily of risks
associated with international operations and related foreign currencies. We
derive a significant portion of our revenues 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, all of our
arrangements with our semiconductor foundry and assembly vendors are denominated
in U.S. dollars. We have foreign subsidiaries and are exposed to market risk
from changes in exchange rates. 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.</P>
<P ALIGN="JUSTIFY">We invest our surplus cash and cash equivalents in money
market funds with variable interest rates, and, accordingly, fluctuations in
interest rates do not have an impact on the fair values of such investments.</P>
<I><P ALIGN="JUSTIFY">FACTORS THAT MAY AFFECT FUTURE RESULTS</P>
</I><B><P ALIGN="JUSTIFY">We may need to raise additional capital to support our
growth, and failure to do so in a timely manner may cause us to delay our plans
for growth or cause us to implement additional cost reduction strategies</P>
</B><P ALIGN="JUSTIFY">As of September 30, 2001, we had approximately $19.0
million in cash and cash equivalents. We believe that our current cash and cash
equivalents, and cash generated from operations, if any, will satisfy our
expected working capital and capital expenditure requirements through at least
the next twelve months. We may, however, need additional working capital shortly
thereafter. Accordingly, we may seek additional financing at some point during
the next twelve months in order to meet our cash requirements in fiscal 2003. We
may also seek to explore business opportunities, including acquiring or
investing in complementary businesses or products that will require additional
capital from equity or debt sources. Additionally, the development and marketing
of new products could require a significant commitment of resources, which could
in turn require us to obtain additional financing earlier than otherwise
expected. We may not be able to obtain additional financing as needed on
acceptable terms, or at all, which may require us to further reduce our
operating costs and other expenditures, including additional reductions of
personnel and suspension of salary increases and capital expenditures.
Alternatively, or in addition to such potential measures, we may elect to
implement other cost reduction actions as we may determine are necessary and in
our best interests, including the possible sale or cessation of certain of our
business segments. Any such actions undertaken might limit our opportunities to
realize plans for revenue growth and we might not be able to reduce our costs in
amounts sufficient to achieve break-even or profitable operations. If we issue
additional equity or convertible debt securities to raise funds, the ownership
percentage of our existing stockholders would be reduced. New investors may
demand rights, preferences or privileges senior to those of existing holders of
our common stock.</P>
<B><P ALIGN="JUSTIFY">We have a history of losses and we are uncertain as to our
future profitability</P>
</B><P ALIGN="JUSTIFY">We recorded an operating loss of approximately $6.2
million in the six months ended September 30, 2001 and we ended the period with
an accumulated deficit of $134.6 million. In addition, we recorded operating
losses of $74.5 million and $27.1 million for the fiscal years ended March 31,
2001 and 2000, respectively. We expect that the Company, as well as its
subsidiaries individually, will continue to incur operating losses for the
foreseeable future, and such losses may be substantial. We will need to generate
significant revenue growth to achieve profitability. Given our history of
fluctuating revenues and operating losses, we cannot be certain that we will be
able to achieve profitability on either a quarterly or annual basis.</P>
</FONT><H5 ALIGN="JUSTIFY">If we fail to meet the continued listing requirements
of the Nasdaq National Market, our common stock could be delisted resulting in a
decline in the liquidity of our common stock and could trigger unfavorable
consequences under our convertible debt agreements</H5>
<P ALIGN="JUSTIFY">Our common stock is listed on the Nasdaq National Market.
The Nasdaq Stock Market's Marketplace Rules impose requirements for companies
listed on the Nasdaq National Market to maintain their listing status, including
minimum bid price and net tangible assets or stockholders' equity requirements.
The Nasdaq Stock Market has recently implemented a moratorium that suspends the
minimum bid and public float requirements for continued listing on the Nasdaq
National Market; however, the moratorium is currently scheduled to expire on
January 2, 2002. Our common stock is currently trading at levels lower than the
minimum bid price threshold of $1.00.  If our minimum bid price does not rise
above the threshold or if the Nasdaq does not extend the moratorium we could
face delisting. Delisting could reduce the ability of our shareholders to
purchase or sell shares as quickly and as inexpensively as they have done
historically. For instance, failure to obtain listing on another market or
exchange may make it more difficult for traders to sell our securities. Broker-
dealers may be less willing or able to sell or make a market in our common
stock. Not maintaining a listing on a major stock market may:</P>

<UL>
<FONT SIZE=2><P ALIGN="JUSTIFY"><LI>result in a decrease in the trading price of
our common stock due to a decrease in liquidity;</LI></P>
<P ALIGN="JUSTIFY"><LI>lessen interest by institutions and individuals in
investing in our common stock; </LI></P>
<P ALIGN="JUSTIFY"><LI>make it more difficult to obtain analyst
coverage;</LI></P>
<P ALIGN="JUSTIFY"><LI>make it more difficult for us to raise capital in the
future.</LI></P></UL>

<P ALIGN="JUSTIFY">Additionally, under the terms of our convertible debt
financing, we are required to maintain the listing of our common stock on either
the Nasdaq National Market, the New York Stock Exchange, or the American Stock
Exchange. Repayment of the convertible debt may be accelerated by the holders
upon the suspension of trading or failure of our common stock to be listed for a
period of 5 consecutive trading days or 10 trading days in a 365 day period.  In
such a case, outstanding convertible debt is repayable at up to 110% of the face
amount.</P>
<B><P ALIGN="JUSTIFY">The growth of our business and future profitability
depends on future IP telephony revenue</P>
</B><P ALIGN="JUSTIFY">We believe that our business and future profitability
will be largely dependent on widespread market acceptance of our internet
protocol (IP) telephony technology and products. Our videoconferencing
semiconductor business has not provided, nor is it expected to provide,
sufficient revenues to profitably operate our business. To date, we have not
generated significant revenue from the sale of our IP telephony products. If we
are not able to generate significant revenues selling into the IP telephony
market, our business and operating results would be seriously harmed.</P>
<P ALIGN="JUSTIFY">Success of our IP telephony product strategy assumes that
there will be future demand for IP telephony systems and services. In order for
the IP telephony market to continue to grow, several things need to occur.
Telephone service providers must continue to invest in the deployment of high
speed broadband networks to residential and commercial customers. IP networks
must improve quality of service for real-time communications, managing effects
such as packet jitter, packet loss, and unreliable bandwidth, so that toll-
quality service can be provided. IP telephony equipment must achieve the 99.999%
reliability that users of the public switched telephone network (PSTN) have come
to expect from their telephone service. IP telephony service providers must
offer cost and feature benefits to their customers that are sufficient to cause
the customers to switch away from traditional telephony service providers. If
any or all of these factors fail to occur, our business may not grow. </P>
<B><P ALIGN="JUSTIFY">Our future operating results may not follow past or
expected trends due to many factors and any of these could cause our stock price
to fall</P>
</B><P ALIGN="JUSTIFY">Our historical operating results have fluctuated
significantly and will likely continue to fluctuate in the future, and a decline
in our operating results could cause our stock price to fall. On an annual and a
quarterly basis, there are a number of factors that may affect our operating
results, many of which are outside our control. These include, but are not
limited to:</P>

<UL>
<P ALIGN="JUSTIFY"><LI>changes in market demand;</LI></P>
<P ALIGN="JUSTIFY"><LI>the timing of customer orders;</LI></P>
<P ALIGN="JUSTIFY"><LI>competitive market conditions;</LI></P>
<P ALIGN="JUSTIFY"><LI>lengthy sales cycles and/or regulatory approval
cycles;</LI></P>
<P ALIGN="JUSTIFY"><LI>new product introductions by us or our
competitors;</LI></P>
<P ALIGN="JUSTIFY"><LI>market acceptance of new or existing products;</LI></P>
<P ALIGN="JUSTIFY"><LI>the cost and availability of components;</LI></P>
<P ALIGN="JUSTIFY"><LI>the mix of our customer base and sales channels;</LI></P>
<P ALIGN="JUSTIFY"><LI>the mix of products sold;</LI></P>
<P ALIGN="JUSTIFY"><LI>the management of inventory;</LI></P>
<P ALIGN="JUSTIFY"><LI>the level of international sales;</LI></P>
<P ALIGN="JUSTIFY"><LI>continued compliance with industry standards;
and</LI></P>
<P ALIGN="JUSTIFY"><LI>general economic conditions.</LI></P></UL>

<P ALIGN="JUSTIFY">Our gross margin is affected by a number of factors
including, product mix, the recognition of license and other revenues for which
there may be little or no corresponding cost of revenues, product pricing, the
allocation between international and domestic sales, the percentage of direct
sales and sales to resellers, and manufacturing and component costs. The markets
for our products are characterized by falling average selling prices. We expect
that, as a result of competitive pressures and other factors, gross profit as a
percentage of revenue for our videoconferencing semiconductor products will
continue to decrease for the foreseeable future. Average selling prices (ASPs)
realized to date for our IP telephony semiconductors have been lower than those
historically attained for our videoconferencing semiconductor products resulting
in lower gross margins. In the likely event that we encounter significant price
competition in the markets for our products, we could be at a significant
disadvantage compared to our competitors, many of whom have substantially
greater resources, and therefore may be better able to withstand an extended
period of downward pricing pressure. </P>
<P ALIGN="JUSTIFY">Variations in timing of sales may cause significant
fluctuations in future operating results. In addition, because a significant
portion of our business may be derived from orders placed by a limited number of
large customers, including OEM customers, the timing of such orders can also
cause significant fluctuations in our operating results. Anticipated orders from
customers may fail to materialize. Delivery schedules may be deferred or
canceled for a number of reasons, including changes in specific customer
requirements or international economic conditions. The adverse impact of a
shortfall in our revenues may be magnified by our inability to adjust spending
to compensate for such shortfall. Announcements by our competitors or us of new
products and technologies could cause customers to defer purchases of our
existing products, which would also have a material adverse effect on our
business and operating results.</P>
<P ALIGN="JUSTIFY">As a result of these and other factors, it is likely that in
some or all future periods our operating results will be below the expectations
of securities analysts or investors, which would likely result in a significant
reduction in the market price of our common stock.</P>
<B><P ALIGN="JUSTIFY">We may not be able to manage our inventory levels
effectively, which may lead to inventory obsolescence that would force us to
lower our prices</P>
</B><P ALIGN="JUSTIFY">Our products have lead times of up to several months, and
are built to forecasts that are necessarily imprecise. Because of our practice
of building our products to necessarily imprecise forecasts, it is likely that,
from time to time, we will have either excess or insufficient product inventory.
Excess inventory levels would subject us to the risk of inventory obsolescence
and the risk that our selling prices may drop below our inventory costs, while
insufficient levels of inventory may negatively affect relations with customers.
Any of these factors could have a material adverse effect on our business,
operating results, and financial condition.</P>
<B><P ALIGN="JUSTIFY">We depend on purchase orders from key customers and
failure to receive significant purchase orders in the future would cause a
decline in our operating results</P>
</B><P ALIGN="JUSTIFY">Historically, a significant portion of our sales has been
to relatively few customers, although the composition of these customers has
varied. Revenues from our ten largest customers for the quarters ended September
30, 2001 and 2000, respectively, accounted for approximately 86% and 51% of
total revenues.  Revenues from our ten largest customers for the fiscal years
ended March 31, 2001 and 2000 accounted for approximately 48% and 35%,
respectively, of total revenues. Substantially all of our product sales have
been made, and are expected to continue to be made, on a purchase order basis.
None of our customers has entered into a long-term agreement requiring it to
purchase our products. In the future, we will need to gain purchase orders for
our products to earn additional revenue. Further, substantially all of our
license and other revenues are nonrecurring. </P>
<B><P ALIGN="JUSTIFY">The IP telephony market is subject to rapid technological
change and we depend on new product introduction in order to maintain and grow
our business</P>
</B><P ALIGN="JUSTIFY">IP telephony is an emerging market that is characterized
by rapid changes in customer requirements, frequent introductions of new and
enhanced products, and continuing and rapid technological advancement. To
compete successfully in this emerging market, we must continue to design,
develop, manufacture, and sell new and enhanced semiconductor and IP telephony
software products and services that provide increasingly higher levels of
performance and reliability at lower cost. These new and enhanced products must
take advantage of technological advancements and changes, and respond to new
customer requirements. Our success in designing, developing, manufacturing, and
selling such products and services will depend on a variety of factors,
including:</P>

<UL>
<P ALIGN="JUSTIFY"><LI>the identification of market demand for new
products;</LI></P>
<P ALIGN="JUSTIFY"><LI>product and feature selection;</LI></P>
<P ALIGN="JUSTIFY"><LI>timely implementation of product design and
development;</LI></P>
<P ALIGN="JUSTIFY"><LI>product performance;</LI></P>
<P ALIGN="JUSTIFY"><LI>cost-effectiveness of products under
development;</LI></P>
<P ALIGN="JUSTIFY"><LI>effective manufacturing processes; and</LI></P>
<P ALIGN="JUSTIFY"><LI>success of promotional efforts.</LI></P></UL>

<P ALIGN="JUSTIFY">Additionally, we may also be required to collaborate with
third parties to develop our products and may not be able to do so on a timely
and cost-effective basis, if at all. We have in the past experienced delays in
the development of new products and the enhancement of existing products, and
such delays will likely occur in the future. If we are unable, due to resource
constraints or technological or other reasons, to develop and introduce new or
enhanced products in a timely manner, if such new or enhanced products do not
achieve sufficient market acceptance, or if such new product introductions
decrease demand for existing products, our operating results would decline and
our business would not grow.</P>
<B><P ALIGN="JUSTIFY">The long and variable sales and deployment cycles for our
IP telephony software products may cause our revenue and operating results to
vary </P>
</B><P ALIGN="JUSTIFY">Our IP telephony software products, including our hosted
iPBX, SCE and unified messaging products, have lengthy sales cycles, and we may
incur substantial sales and marketing expenses and expend significant management
effort without making a sale. A customer's decision to purchase our products
often involves a significant commitment of its resources and a lengthy product
evaluation and qualification process. In addition, the length of our sales
cycles will vary depending on the type of customer to whom we are selling and
the product being sold. Even after making the decision to purchase our products,
our customers may deploy our products slowly. Timing of deployment can vary
widely and will depend on various factors, including:</P>

<UL>
<P ALIGN="JUSTIFY"><LI>the size of the network deployment;</LI></P>
<P ALIGN="JUSTIFY"><LI>the complexity of our customers' network
environments;</LI></P>
<P ALIGN="JUSTIFY"><LI>our customers' skill sets;</LI></P>
<P ALIGN="JUSTIFY"><LI>the hardware and software configuration and customization
necessary to deploy our products; and</LI></P>
<P ALIGN="JUSTIFY"><LI>our customers' ability to finance their purchase of our
products.</LI></P></UL>

<P ALIGN="JUSTIFY">As a result, it is difficult for us to predict the quarter in
which our customers may purchase our products, and our revenue and operating
results may vary significantly from quarter to quarter.</P>
<B><P ALIGN="JUSTIFY">If our products do not interoperate with our customers'
networks, orders for our products will be delayed or canceled and substantial
product returns could occur, which could harm our business</P>
</B><P ALIGN="JUSTIFY">Many of the potential customers for our hosted iPBX and
unified messaging products have requested that our products be designed to
interoperate with their existing networks, each of which may have different
specifications and use multiple standards. Our customers' networks may contain
multiple generations of products from different vendors that have been added
over time as their networks have grown and evolved. Our products must
interoperate with these products as well as with future products in order to
meet our customers' requirements. In some cases, we may be required to modify
our product designs to achieve a sale, which may result in a longer sales cycle,
increased research and development expense, and reduced operating margins. If
our products do not interoperate with existing equipment or software in our
customers' networks, installations could be delayed, orders for our products
could be canceled or our products could be returned. This could harm our
business, financial condition, and results of operations.</P>
<B><P ALIGN="JUSTIFY">We may have difficulty identifying the source of the
problem when there is a problem in a network</P>
</B><P ALIGN="JUSTIFY">Our hosted iPBX solution must successfully integrate with
products from other vendors, such as traditional telephone systems. As a result,
when problems occur in a network, it may be difficult to identify the source of
the problem. The occurrence of hardware and software errors, whether caused by
our hosted iPBX solution or another vendor's products, may result in the delay
or loss of market acceptance of our products and any necessary revisions may
force us to incur significant expenses. The occurrence of some of these types of
problems may seriously harm our business, financial condition and results of
operations.</P>
<B><P ALIGN="JUSTIFY">Intense competition in the markets in which we compete
could prevent us from increasing or sustaining our revenue and prevent us from
achieving profitability </P>
</B><P ALIGN="JUSTIFY">We expect our competitors to continue to improve the
performance of their current products and introduce new products or new
technologies. If our competitors successfully introduce new products or enhance
their existing products, this could reduce the sales or market acceptance of our
products and services, increase price competition or make our products obsolete.
To be competitive, we must continue to invest significant resources in research
and development, sales and marketing, and customer support. We may not have
sufficient resources to make these investments or to make the technological
advances necessary to be competitive, which in turn will cause our business to
suffer.</P>
<P ALIGN="JUSTIFY">In addition, our focus on developing a range of technology
products, including semiconductors and related embedded software, hosted iPBX
solutions, and service creation software, places a significant strain on our
research and development resources. Competitors that focus on one aspect of
technology, such as software or semiconductors, may have a considerable
advantage over us. In addition, many of our current and potential competitors
have longer operating histories, are substantially larger, and have greater
financial, manufacturing, marketing, technical, and other resources. For
example, certain competitors in the market for our semiconductor products
maintain their own semiconductor foundries and may therefore benefit from
certain capacity, cost and technical advantages. Many also have greater name
recognition and a larger installed base of products than us. Competition in our
markets may result in significant price reductions. As a result of their greater
resources, many current and potential competitors may be better able than us to
initiate and withstand significant price competition or downturns in the
economy. There can be no assurance that we will be able to continue to compete
effectively, and any failure to do so would harm our business, operating
results, and financial condition.</P>
<B><P ALIGN="JUSTIFY">If we do not develop and maintain successful partnerships
for IP telephony products, we may not be able to successfully market our
solutions</P>
</B><P ALIGN="JUSTIFY">We are entering into new market areas and our success is
partly dependent on our ability to forge new marketing and engineering
partnerships. IP telephony communication systems are extremely complex and no
single company possesses all the required technology components needed to build
a complete end to end solution. We will likely need to enter into partnerships
to augment our development programs and to assist us in marketing complete
solutions to our targeted customers. We may not be able to develop such
partnerships in the course of our product development. Even if we do establish
the necessary partnerships, we may not be able to adequately capitalize on these
partnerships to aid in the success of our business.</P>
<B><P ALIGN="JUSTIFY">Inability to protect our proprietary technology or our
infringement of a third party's proprietary technology would disrupt our
business</P>
</B><P ALIGN="JUSTIFY">We rely in part on trademark, copyright, and trade secret
law to protect our intellectual property in the United States and abroad. We
seek to protect our software, documentation, and other written materials under
trade secret and copyright law, which afford only limited protection. We also
rely in part on patent law to protect our intellectual property in the United
States and internationally. As of the date of this filing we hold forty-seven
(47)</FONT><FONT SIZE=2 COLOR="#0000ff"> </FONT><FONT SIZE=2>United States
patents and have a number of United States and foreign patent applications
pending. We cannot predict whether such pending patent applications will result
in issued patents. We may not be able to protect our proprietary rights in the
United States or internationally (where effective intellectual property
protection may be unavailable or limited), and competitors may independently
develop technologies that are similar or superior to our technology, duplicate
our technology or design around any patent of ours. We have in the past licensed
and in the future expect to continue licensing our technology to others; many of
who are located or may be located abroad. There are no assurances that such
licensees will protect our technology from misappropriation. Moreover,
litigation may be necessary in the future to enforce our intellectual property
rights, to determine the validity and scope of the proprietary rights of others,
or to defend against claims of infringement or invalidity. Such litigation could
result in substantial costs and diversion of management time and resources and
could have a material adverse effect on our business and operating results. Any
settlement or adverse determination in such litigation would also subject us to
significant liability.</P>
<P ALIGN="JUSTIFY">There has been substantial litigation in the semiconductor,
electronics, and related industries regarding intellectual property rights, and
from time to time third parties may claim infringement by us of their
intellectual property rights. Our broad range of technology, including systems,
digital and analog circuits, software, and semiconductors, increases the
likelihood that third parties may claim infringement by us of their intellectual
property rights. If we were found to be infringing on the intellectual property
rights of any third party, we could be subject to liabilities for such
infringement, which could be material. We could also be required to refrain from
using, manufacturing or selling certain products or using certain processes,
either of which could have a material adverse effect on our business and
operating results. From time to time, we have received, and may continue to
receive in the future, notices of claims of infringement, misappropriation or
misuse of other parties' proprietary rights. There can be no assurance that we
will prevail in these discussions and actions or that other actions alleging
infringement by the Company of third-party patents will not be asserted or
prosecuted against the Company.</P>
<P ALIGN="JUSTIFY">We rely on certain technology, including hardware and
software licensed from third parties. The loss of, or inability to maintain,
existing licenses could have a material adverse effect on our business and
operating results. In addition, we may be required to license technology from
third parties in the future to develop new products or product enhancements.
Third-party licenses may not be available to us on commercially reasonable
terms, if at all. Our inability to obtain third-party licenses required to
develop new products and product enhancements could require us to obtain
substitute technology of lower quality or performance standards or at a greater
cost, any of which could seriously harm our business, financial condition and
operating results.</P>
<B><P ALIGN="JUSTIFY">Continued reductions in levels of capital investment by
telecommunication service providers might impact our ability to increase revenue
and prevent us from achieving profitability</P>
</B><P ALIGN="JUSTIFY">The market for the services provided by telecommunication
service providers who compete against traditional telephone companies has only
begun to emerge, and many of these service providers are still building their
infrastructure and rolling out their services. These telecommunication service
providers require substantial capital for the development, construction, and
expansion of their networks and the introduction of their services. Financing
may not be available to emerging telecommunication service providers on
favorable terms, if at all. The inability of our current or potential emerging
telecommunication service provider customers to acquire and keep customers, to
successfully raise needed funds, or to respond to any other trends such as price
reductions for their services or diminished demand for telecommunication
services generally, could adversely affect their operating results or cause them
to reduce their capital spending programs. If our current or potential customers
are forced to defer or curtail their capital spending programs, sales of our
hosted iPBX, SCE and unified messaging products to those telecommunication
service providers may be adversely affected, which would negatively impact our
business, financial condition, and results of operations. In addition, many of
the industries in which telecommunication service providers operate have
recently experienced consolidation. The loss of one or more of our current or
potential telecommunication service provider customers, through industry
consolidation or otherwise, could reduce or eliminate our sales to such a
customer and consequently harm our business, financial condition, and results of
operations.</P>
<B><P ALIGN="JUSTIFY">The failure of IP networks to meet the reliability and
quality standards required for voice communications could render our products
obsolete</P>
</B><P ALIGN="JUSTIFY">Circuit-switched telephony networks feature very high
reliability, with a guaranteed quality of service. The common standard for
reliability of carrier-grade real-time voice communications is 99.999%, meaning
that the network can be down for only a few minutes per year. In addition, such
networks have imperceptible delay and consistently satisfactory audio quality.
Emerging broadband IP networks, such as LANs, WANs, and the Internet, or
emerging last mile technologies such as cable, DSL, and wireless local loop, may
not be used for telephony unless such networks and technologies can provide
reliability and quality consistent with these standards.</P>
<B><P ALIGN="JUSTIFY">Our products must comply with industry standards and FCC
regulations, and changes may require us to modify existing products</P>
</B><P ALIGN="JUSTIFY">In addition to reliability and quality standards, the
market acceptance of telephony over broadband IP networks is dependent upon the
adoption of industry standards so that products from multiple manufacturers are
able to communicate with each other. IP telephony products rely heavily on
standards such as H.323, SIP, SGCP, MGCP, H.GCP, and Megaco to interoperate with
other vendors' equipment. There is currently a lack of agreement among industry
leaders about which standard should be used for a particular application, and
about the definition of the standards themselves. We also must comply with
certain rules and regulations of the Federal Communications Commission (FCC)
regarding electromagnetic radiation and safety standards established by
Underwriters Laboratories as well as similar regulations and standards
applicable in other countries. Standards are continuously being modified and
replaced. As standards evolve, we may be required to modify our existing
products or develop and support new versions of our products. The failure of our
products to comply, or delays in compliance, with various existing and evolving
industry standards could delay or interrupt volume production of our IP
telephony products, which would have a material adverse effect on our business,
financial condition and operating results.</P>
<B><P ALIGN="JUSTIFY">Future regulation or legislation of the Internet could
restrict our business or increase our cost of doing business</P>
</B><P ALIGN="JUSTIFY">At present there are few laws or regulations that
specifically address access to or commerce on the Internet, including IP
telephony. We are unable to predict the impact, if any, that future legislation,
legal decisions or regulations concerning the Internet may have on our business,
financial condition, and results of operations. Regulation may be targeted
towards, among other things, assessing access or settlement charges, imposing
tariffs or imposing regulations based on encryption concerns or the
characteristics and quality of products and services, any of which could
restrict our business or increase our cost of doing business. The increasing
growth of the broadband IP telephony market and popularity of broadband IP
telephony products and services heighten the risk that governments will seek to
regulate broadband IP telephony and the Internet. In addition, large,
established telecommunication companies may devote substantial lobbying efforts
to influence the regulation of the broadband IP telephony market, which may be
contrary to our interests.</P>
<B><P ALIGN="JUSTIFY">We may transition to smaller geometry process technologies
and higher levels of design integration, which could disrupt our business</P>
</B><P ALIGN="JUSTIFY">We continuously evaluate the benefits, on an integrated
circuit, product-by-product basis, of migrating to smaller geometry process
technologies in order to reduce costs related to the development and production
of our semiconductors. We believe that the transition of our products to
increasingly smaller geometries will be important for us to remain competitive.
We have in the past experienced difficulty in migrating to new manufacturing
processes, which has resulted and could continue to result in reduced yields,
delays in product deliveries, and increased expense levels. Moreover, we are
dependent on relationships with our foundries and their partners to migrate to
smaller geometry processes successfully. If any such transition is substantially
delayed or inefficiently implemented, we may experience delays in product
introductions and incur increased expenses. As smaller geometry processes become
more prevalent, we expect to integrate greater levels of functionality, as well
as customer and third party intellectual property, into our products. We cannot
predict whether higher levels of design integration or the use of third-party
intellectual property will adversely affect our ability to deliver new
integrated products on a timely basis, or at all.</P>
<B><P ALIGN="JUSTIFY">We depend on subcontracted manufacturers to manufacture
substantially all of our products, and any delay or interruption in
manufacturing by these contract manufacturers would result in delayed or reduced
shipments to our customers and may harm our business </P>
</B><P ALIGN="JUSTIFY">We outsource the manufacturing of our semiconductor
products to independent foundries. Our primary semiconductor manufacturer is
Taiwan Semiconductor Manufacturing Corporation (TSMC). While TSMC has been a
valuable and capable supplier, there are no assurances or supply contracts
guaranteeing that they will continue to supply us with our required wafer
supply. Furthermore, Taiwan is always subject to geological or geopolitical
disturbances that could instantly cut off such supply. We also rely on other
third party manufacturers for packaging and testing of our semiconductors. </P>
<P ALIGN="JUSTIFY">We do not have long-term purchase agreements with our
subcontract manufacturers or our component suppliers. There can be no assurance
that our subcontract manufacturers will be able or willing to reliably
manufacture our products, in volumes, on a cost effective basis or in a timely
manner. For our semiconductor products, the time to port our technology to
another foundry, the time to qualify the new versions of product, and the cost
of this effort as well as the tooling associated with wafer production would
have a material adverse effect on our business, operating results, and financial
condition.</P>
<B><P ALIGN="JUSTIFY">If we discover product defects, we may have product-
related liabilities which may cause us to lose revenues or delay market
acceptance of our products</P>
</B><P ALIGN="JUSTIFY">Products as complex as those we offer frequently contain
errors, defects, and functional limitations when first introduced or as new
versions are released. We have in the past experienced such errors, defects or
functional limitations. We sell products into markets that are extremely
demanding of robust, reliable, fully functional products. Therefore, delivery of
products with production defects or reliability, quality or compatibility
problems could significantly delay or hinder market acceptance of such products,
which could damage our credibility with our customers and adversely affect our
ability to retain our existing customers and to attract new customers. Moreover,
such errors, defects or functional limitations could cause problems,
interruptions, delays or a cessation of sales to our customers. Alleviating such
problems may require significant expenditures of capital and resources by us.
Despite our testing, our suppliers or our customers may find errors, defects or
functional limitations in new products after commencement of commercial
production. This could result in additional development costs, loss of, or
delays in, market acceptance, diversion of technical and other resources from
our other development efforts, product repair or replacement costs, claims by
our customers or others against us, or the loss of credibility with our current
and prospective customers.</P>
<B><P ALIGN="JUSTIFY">We have significant international operations, which
subject us to risks that could cause our operating results to decline</P>
</B><P ALIGN="JUSTIFY">Sales to customers outside of North America represented
64% of total revenue during both the three and six month periods ended September
30, 2001. The table below shows the percentage of total revenue received from
customers in the different regions.  </P>

<PRE>
<B>
                           Three Months Ended     Six Months Ended
                              September 30,         September 30,
                         --------------------  --------------------
                            2001       2000       2001       2000    </B>
                         ---------  ---------  ---------  ---------
   North America.......        40%        62%        38%        45%
   Europe..............        21%        15%        21%        25%
   Taiwan..............        17%         5%        17%        14%
   Other Asia Pacific..        22%        18%        24%        16%
                         ---------  ---------  ---------  ---------
                              100%       100%       100%       100%
                         =========  =========  =========  =========

</PRE>



<P ALIGN="JUSTIFY">Substantially all of our current semiconductor and system-
level products are, and substantially all of our future products will be,
manufactured, assembled, and tested by independent third parties in foreign
countries. International sales and manufacturing are subject to a number of
risks, including general economic conditions in regions such as Asia, changes in
foreign government regulations and telecommunication standards, export license
requirements, tariffs and taxes, other trade barriers, fluctuations in currency
exchange rates, difficulty in collecting accounts receivable, and difficulty in
staffing and managing foreign operations. We are also subject to geopolitical
risks, such as political, social, and economic instability, potential
hostilities, and changes in diplomatic and trade relationships, in connection
with our international operations. A significant decline in demand from foreign
markets could have a material adverse effect on our business, operating results,
and financial condition.</P>
<B><P ALIGN="JUSTIFY">We need to retain key personnel to support our products
and ongoing operations </P>
</B><P ALIGN="JUSTIFY">The development and marketing of our IP telephony
products will continue to place a significant strain on our limited personnel,
management, and other resources. While the pace of economic growth in the San
Francisco Bay Area (where our corporate headquarters are located) has slowed in
recent months, competition for highly skilled engineering, sales, marketing, and
support personnel has remained strong. Any failure to retain qualified personnel
could adversely affect our financial results and impair our growth. We currently
do not maintain key person life insurance policies on any of our employees.</P>
<B><P ALIGN="JUSTIFY">We are involved in a litigation matter that could
seriously harm our financial condition</P>
</B><P ALIGN="JUSTIFY">On April 6, 2001, we, along with Sun Microsystems, Inc.,
Netscape Communications Canada Inc., Burntsand Inc., and Intraware Canada Inc.,
were sued by Milinx Business Services, Inc. and Milinx Business Group Inc.
(collectively, Milinx) in the Supreme Court of British Columbia, Canada (the
Court). Milinx has alleged that we failed to perform certain contractual
obligations and knowingly misrepresented the capabilities of our products. The
lawsuit seeks general, special, and aggravated damages totaling in excess of $65
million Canadian dollars plus interest, costs, and any other relief which the
Court may choose to provide. We believe we have valid defenses against the
claims alleged by Milinx and intend to continue our defense this lawsuit
vigorously. However, due to the nature of litigation and because the lawsuit is
in the very early pre-discovery stages, we cannot determine the possible loss,
if any, that may ultimately be incurred either in the context of a trial or a
negotiated settlement. Should we not prevail in any such litigation, our
operating results and financial condition could be adversely impacted.</P>
<B><P ALIGN="JUSTIFY">Our stock price has been highly volatile </P>
</B><P ALIGN="JUSTIFY">The market price of the shares of our common stock has
been and is likely to be highly volatile. It may be significantly affected by
factors such as: </P>

<UL>
<P ALIGN="JUSTIFY"><LI>actual or anticipated fluctuations in our operating
results;</LI></P>
<P ALIGN="JUSTIFY"><LI>announcements of technical innovations;</LI></P>
<P ALIGN="JUSTIFY"><LI>loss of key personnel;</LI></P>
<P ALIGN="JUSTIFY"><LI>new products or new contracts by us, our competitors or
their customers; and</LI></P></UL>


<UL>
<P ALIGN="JUSTIFY"><LI>developments with respect to patents or proprietary
rights, general market conditions, changes in financial estimates by securities
analysts, and other factors which could be unrelated to, or outside our
control.</LI></P></UL>

<P ALIGN="JUSTIFY">The stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the common stocks of technology companies and that have often
been unrelated to the operating performance of particular companies. These broad
market fluctuations may adversely affect the market price of our common stock.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been initiated against
the issuing company. If our stock price is volatile, we may also be subject to
such litigation. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which would disrupt business
and could cause a decline in our operating results. Any settlement or adverse
determination in such litigation would also subject us to significant
liability.</P>
<B><P ALIGN="JUSTIFY">The location of our headquarters facility subjects us to
the risk of earthquakes</P>
</B><P ALIGN="JUSTIFY">Our corporate headquarters is located in the San
Francisco Bay area of Northern California, a region known for seismic activity.
A significant natural disaster, such as an earthquake, could have a material
adverse impact on our business, operating results, and financial condition.</P>
</FONT><B><P>PART II -- OTHER INFORMATION</P>
<FONT SIZE=2><P ALIGN="JUSTIFY"><A NAME="item1"></A>ITEM 1. LEGAL PROCEEDINGS
</P>
</B><P>On April 6, 2001, the Company, along with Sun Microsystems, Inc.,
Netscape Communications Canada Inc., Burntsand Inc., and Intraware Canada Inc.,
was sued by Milinx Business Services, Inc. and Milinx Business Group Inc.
(collectively, Milinx) in the Supreme Court of British Columbia, Canada (the
Court). Milinx has alleged that the Company failed to perform certain
contractual obligations and knowingly misrepresented the capabilities of its
products. The lawsuit seeks general, special, and aggravated damages totaling in
excess of $65 million Canadian dollars plus interest, costs, and any other
relief which the Court may choose to provide. Management believes that the
Company has valid defenses against the claims alleged by Milinx and intends to
continue its vigorous defense of this lawsuit. However, due to the nature of
litigation and because the lawsuit is in the pre-discovery stages, the Company
cannot determine the possible loss, if any, that may ultimately be incurred
either in the context of a trial or a negotiated settlement.  Should the Company
not prevail in the litigation, its operating results and financial condition
would be adversely impacted.</P>
<P ALIGN="JUSTIFY">The Company is also involved in various other legal claims
and litigation that have arisen in the normal course of the Company's
operations. While the results of such claims and litigation cannot be predicted
with certainty, the Company believes that the final outcome of such matters will
not have a significant adverse effect on the Company's financial position or
results of operations. However, should the Company not prevail in any such
litigation, its operating results and financial position could be adversely
impacted. <A NAME="item2"></A></P>
<B><P ALIGN="JUSTIFY"><A NAME="item6"></A>ITEM 6. EXHIBITS AND REPORTS ON FORM
8-K </P><DIR>

</B><P ALIGN="JUSTIFY">(a) See Exhibit Index. </P>
<P ALIGN="JUSTIFY">(b) Reports on Form 8-K. No Reports on Form 8-K were filed
during the quarter ended September 30, 2001. </P></DIR>

<B><P ALIGN="CENTER"><A NAME="sign"></A></P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">SIGNATURES </P>
</B><P ALIGN="JUSTIFY">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.</P>
<P ALIGN="JUSTIFY">Date: October 25, 2001 </P></FONT>
<TABLE CELLSPACING=0 BORDER=0 WIDTH=624>
<TR><TD WIDTH="36%" VALIGN="MIDDLE">&nbsp;</TD>
<TD WIDTH="64%" VALIGN="MIDDLE" COLSPAN=2>&nbsp;</TD>
</TR>
<TR><TD WIDTH="36%" VALIGN="MIDDLE">
<FONT SIZE=2><P>&nbsp;</FONT></TD>
<TD WIDTH="64%" VALIGN="MIDDLE" COLSPAN=2>
<FONT SIZE=2><P>8X8, INC. </FONT></TD>
</TR>
<TR><TD WIDTH="36%" VALIGN="MIDDLE">
<FONT SIZE=2><P>&nbsp;</FONT></TD>
<TD WIDTH="64%" VALIGN="MIDDLE" COLSPAN=2>
<I><FONT SIZE=2><P>(Registrant)</I> </FONT></TD>
</TR>
<TR><TD WIDTH="36%" VALIGN="MIDDLE">
<FONT SIZE=2><P>&nbsp;</FONT></TD>
<TD WIDTH="5%" VALIGN="MIDDLE">
<U><FONT SIZE=2><P>By:&nbsp;</U></FONT></TD>
<TD WIDTH="60%" VALIGN="MIDDLE">
<U><FONT SIZE=2><P>/s/ DAVID STOLL </U></FONT></TD>
</TR>
<TR><TD WIDTH="36%" VALIGN="MIDDLE">
<FONT SIZE=2><P>&nbsp;</FONT></TD>
<TD WIDTH="64%" VALIGN="MIDDLE" COLSPAN=2>
<FONT SIZE=2><P>David Stoll </FONT></TD>
</TR>
<TR><TD WIDTH="36%" VALIGN="MIDDLE">
<FONT SIZE=2><P>&nbsp;</FONT></TD>
<TD WIDTH="64%" VALIGN="MIDDLE" COLSPAN=2>
<I><FONT SIZE=2><P>Chief Financial Officer and Vice President of Finance<BR>
(Principal Financial and Accounting Officer) </I></FONT></TD>
</TR>
</TABLE>

<FONT SIZE=2><P><BR>
<BR>
</P>
<P><HR ALIGN="LEFT"></P>
<P><BR>
</P>
<B><P ALIGN="CENTER">EXHIBIT INDEX </P></B></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=626>
<TR><TD WIDTH="17%" VALIGN="BOTTOM">
<P><B><U><FONT SIZE=2>EXHIBIT No.</B></U> </FONT></TD>
<TD WIDTH="83%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P>EXHIBIT TITLE</B></U> </FONT></TD>
</TR>
<TR><TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P>3.1 </FONT></TD>
<TD WIDTH="83%" VALIGN="TOP">
<FONT SIZE=2><P>Form of Amended and Restated Certificate of Incorporation by
Registrant. </FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=2><P>&nbsp;</P>
<P>All other schedules are omitted because they are not required, are not
applicable or the information is included in the Condensed Consolidated
Financial Statements or notes thereto. <BR>
</P></FONT>


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<TYPE>EX-3.1
<SEQUENCE>4
<FILENAME>exh3-1.htm
<DESCRIPTION>EXHIBIT 3.1
<TEXT>
<HTML>
<HEAD>
<TITLE>Q2 2002 EXHIBIT 3.1</TITLE>
</HEAD>
<BODY>

<FONT SIZE=2><P ALIGN="RIGHT">EXHIBIT 3.1</P>
<P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT">STATE OF DELAWARE</P>
<P ALIGN="RIGHT"> SECRETARY OF STATE</P>
<P ALIGN="RIGHT">DIVISION OF CORPORATIONS</P>
<P ALIGN="RIGHT">FILED 12:14 PM 07/16/2001</P>
<P ALIGN="RIGHT">010343748 - 2676673</P>
</FONT><B><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">CERTIFICATE OF AMENDMENT</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">OF</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">AMENDED AND RESTATED</P>
<P ALIGN="CENTER">CERTIFICATE OF INCORPORATION</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">OF</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">NETERGY NETWORKS, INC.</P>
</B>
<P>&#9;&#9;Netergy Networks, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:</P>
<P>&#9;&#9;FIRST:&#9;That, at the meeting of the Board of Directors of said corporation on April 17, 2001, resolutions were duly adopted setting forth a proposed amendment to the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and directing its officers to submit said amendment to the stockholders of said corporation for consideration thereof.  The resolutions setting forth the proposed amendments are as follows:</P><DIR>
<DIR>
<DIR>
<DIR>

<P>WHEREAS, it is deemed to be advisable and in the best interest of the Corporation and its stockholders that the Corporation's Amended and Restated Certificate of Incorporation be amended to change the name of the Corporation to 8x8, Inc.</P>

<P>&#9;NOW, THEREFORE, BE IT RESOLVED, that Article I of the Corporation's Amended and Restated Certificate of Incorporation be amended to read as follows:</P>

<P>&#9;&quot;I.&#9;The name of this corporation is 8x8, Inc. (the &quot;Corporation&quot;).&quot;</P>

<P>&#9;RESOLVED FURTHER, that the officers of the Corporation be, and each of them hereby is, authorized, empowered and directed, on behalf of the Corporation, to submit the foregoing amendment to the stockholders of the Corporation for consideration thereof; and</P>

<P>&#9;RESOLVED FURTHER, that, following approval of the foregoing amendment by the stockholders of the Corporation, the officers of the Corporation be, and each of them hereby is, authorized, empowered and directed, on behalf of the Corporation, to prepare or cause to be prepared and to execute a Certificate of Amendment of the Corporation's Amended and Restated Certificate of Incorporation, to file or cause to be filed said Certificate of Amendment with the Delaware Secretary of State, and to execute such other documents and take such other actions as such officer or officers shall deem necessary, appropriate or advisable in order to carry out the intent and purposes of the foregoing resolutions.</P>
</DIR>
</DIR>
</DIR>
</DIR>

<P>&#9;&#9;SECOND:&#9;That, thereafter, by written consent of the holders of more than 50% of the issued and outstanding shares of Common Stock and Special Voting Stock, voting together as a single class, of said corporation, the necessary number of shares required by statute were voted in favor of the amendment.</P>
<P>&#9;&#9;THIRD:&#9;That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.</P>

<P>&#9;&#9;IN WITNESS WHEREOF, NETERGY NETWORKS, INC. has caused this certificate to be signed by David M. Stoll, its Chief Financial Officer, Vice President, Finance and Secretary this Seventeenth day of July, 2001.</P>

<P>&#9;&#9;&#9;&#9;&#9;</P>
<TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=638>
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<P>&#9;&#9;Netergy Networks, Inc.</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</TD>
</TR>
<TR><TD VALIGN="TOP">&nbsp;</TD>
</TR>
<TR><TD VALIGN="TOP">&nbsp;</TD>
</TR>
<TR><TD VALIGN="TOP">
<P>&#9;&#9;&#9;&#9;&#9;&#9;By:&#9;<U>\s\ David M. Stoll                      </U></TD>
</TR>
<TR><TD VALIGN="TOP"><DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>

<P>David M. Stoll<BR>
Chief Financial Officer, Vice President, Finance and Secretary</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
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<P>&nbsp;</P>
<P>&nbsp;</P>
<P ALIGN="CENTER">STATE OF DELAWARE</P>
<P ALIGN="CENTER">OFFICE OF THE SECRETARY OF STATE</P>
<P ALIGN="CENTER">--------------------------------</P>

<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>     I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "NETERGY NETWORKS, INC.", CHANGING ITS NAME FROM "NETERGY NETWORKS, INC." TO "8X8, INC.", FILED IN THIS OFFICE ON THE SIXTEENTH DAY OF JULY, A.D. 2001, AT 12:14 O'CLOCK P.M.</P>

<P>     A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS.</P>

<P>&nbsp;</P>
<P>&nbsp;</P>
<P>[SEAL]                               /s/ HARRIET SMITH WINDSOR</P>
<P>                                    --------------------------------------</P>
<P>                                    HARRIET SMITH WINDSOR, Secretary of State</P>

<P>                                    AUTHENTICATION: 1249342</P>

<P>                                              DATE: 07-18-01</P>
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