<SUBMISSION>
<ACCESSION-NUMBER>0001136261-02-000014
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>4
<PERIOD>20020930
<FILING-DATE>20021030
<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>02802050
</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>FORM 10-Q
<TEXT>
<HTML>
<head>
<title>Q2 2003 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>

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

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

<FONT size="3"><B><p align="center">
   [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, 2002
</B></font></p>

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

<FONT size="3"><B><p align="center">
[&nbsp;&nbsp;]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
</B></font></p>
<FONT size="3"><B><p align="center">
 For the transition period from ________to _________
</B></font></p>
<FONT size="3"><B><p align="center">
                       <u>Commission file number 000-21783</u>
</B></font></p>
<FONT size="6" color="#0000FF"><B><p align="center">
                                  <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>



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

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

<FONT size="3"><B><p align="center"><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>
<FONT FACE="Times New Roman" SIZE="3">
<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 23,
2002 was 28,451,696.

<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>
<B><p align="center">
                                    8X8, INC.<br>
                                    FORM 10-Q<br>
                                TABLE OF CONTENTS
</P></B>

<P ALIGN="CENTER"><TABLE BORDER=0 CELLSPACING=1 CELLPADDING=2 WIDTH=675>
  <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, 2002 and March 31, 2002
</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 six<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         months ended September 30, 2002 and 2001
</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, 2002 and 2001
</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">8</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">14</A></CENTER>
</font>
</TD>
</TR>

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

  <TR vAlign=top>
<TD>
<FONT size="3">
Item 4.   Controls and Procedures

</font>
</TD>

<TD>
<FONT size="3">
<CENTER><A HREF="#controls">24</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 2.   Submission of Matters to a Vote of Securities Holders
</font>
</TD>

<TD>
<FONT size="3">
<CENTER><A HREF="#item2">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">25</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">26</A></CENTER>
</font>
</TD>
</TR>

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

  <TR vAlign=top>
<TD>
<FONT size="3"><B>
        Officer Certifications
</font></B>
</TD>

<TD>
<FONT size="3">
<CENTER><A HREF="#cert">27</A></CENTER>
</font>
</TD>
</TR>
</TABLE>


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

<B><P ALIGN="CENTER">
Part I -- FINANCIAL INFORMATION </P> </B>
<P ALIGN="CENTER"></P>
<B><P ALIGN="CENTER">ITEM 1.&#9;FINANCIAL STATEMENTS</P> </B>
<FONT FACE="Times New Roman" SIZE="3">
<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>

<A NAME="bs"></A>
<B><P ALIGN="CENTER">
                                    8X8, INC.
<br>
<br>
                      CONDENSED CONSOLIDATED BALANCE SHEETS
<br>
                            (In thousands, unaudited)</B>
<br>
<PRE><FONT FACE="Courier New">
<B>
                                                     September 30,    March 31,
                                                         2002          2002
                                                     ------------  ------------
ASSETS                                                                         </B>
Current assets:
  Cash and cash equivalents ....................... $      8,405  $     12,422
  Short-term investments...........................           77            --
  Accounts receivable, net ........................        1,457         1,239
  Inventory .......................................          116           733
  Other current assets ............................          819           612
                                                     ------------  ------------
    Total current assets ..........................       10,874        15,006
Property and equipment, net .......................        1,841         2,740
Intangibles and other assets ......................        1,898         1,907
                                                     ------------  ------------
                                                    $     14,613  $     19,653
                                                     ============  ============
<B>
LIABILITIES AND STOCKHOLDERS' EQUITY                                           </B>
Current liabilities:
  Accounts payable ................................ $        361  $        548
  Accrued compensation ............................          809           921
  Accrued warranty ................................          476           478
  Deferred revenue ................................        1,765         2,421
  Other accrued liabilities .......................          786           958
  Income taxes payable ............................          259           280
                                                     ------------  ------------
    Total current liabilities .....................        4,456         5,606
                                                     ------------  ------------
Commitments and contingencies (Notes 5 and 9)
Contingently redeemable common stock...............          702           813

Stockholders' equity:
  Common stock ....................................           28            27
  Additional paid-in capital ......................      150,811       150,612
  Deferred compensation ...........................          (24)          (30)
  Accumulated other comprehensive loss ............           --           (99)
  Accumulated deficit .............................     (141,360)     (137,276)
                                                     ------------  ------------
    Total stockholders' equity ....................        9,455        13,234
                                                     ------------  ------------
                                                    $     14,613  $     19,653
                                                     ============  ============

</PRE></FONT><FONT FACE="Times New Roman" SIZE="3">
<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>
<B><P ALIGN="CENTER">
                                    8X8, INC.
<br>
<br>
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<br>
                    (In thousands, except per share amounts)
<br>
                                   (Unaudited)</B>
<PRE><FONT FACE="Courier New">

<B>
                                                Three Months Ended        Six Months Ended
                                                   September 30,            September 30,
                                              --------------------     --------------------
                                                 2002       2001          2002       2001
                                              ---------  ---------     ---------  ---------</B>
Product revenues ........................... $   1,301  $   1,440     $   2,675  $   3,035
License and other revenues .................     1,141      2,486         3,035      4,491
                                              ---------  ---------     ---------  ---------
   Total revenues ..........................     2,442      3,926         5,710      7,526
                                              ---------  ---------     ---------  ---------

Cost of product revenues ...................       702        410         1,307      1,361
Cost of license and other revenues .........       280         24           536        111
                                              ---------  ---------     ---------  ---------
   Total cost of revenues ..................       982        434         1,843      1,472
                                              ---------  ---------     ---------  ---------
Gross profit ...............................     1,460      3,492         3,867      6,054
                                              ---------  ---------     ---------  ---------
Operating expenses:
  Research and development .................     2,078      2,697         4,470      6,565
  Selling, general and administrative ......     1,852      2,367         4,035      5,329
  Amortization of intangibles ..............        --        191            --        382
                                              ---------  ---------     ---------  ---------
   Total operating expenses ................     3,930      5,255         8,505     12,276
                                              ---------  ---------     ---------  ---------
Loss from operations .......................    (2,470)    (1,763)       (4,638)    (6,222)
Other income, net ..........................       511        112           554        456
Interest expense ...........................        --       (332)           --       (664)
                                              ---------  ---------     ---------  ---------
Net loss ................................... $  (1,959) $  (1,983)    $  (4,084) $  (6,430)
                                              =========  =========     =========  =========

Net loss per basic and diluted share........ $   (0.07) $   (0.07)    $   (0.14) $   (0.24)
                                              =========  =========     =========  =========

Basic and diluted shares outstanding........    28,387     26,958        28,316     26,864
                                              =========  =========     =========  =========


</PRE></FONT><FONT FACE="Times New Roman" SIZE="3">
<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>
<B><P ALIGN="CENTER">
                                    8X8, INC.
<br>
<br>
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<br>
                            (In thousands, unaudited)</B>
<PRE><FONT FACE="Courier New">

<B>
                                                                    Six Months Ended
                                                                        September 30,
                                                                 ----------------------
                                                                     2002        2001
                                                                 ----------  ----------</B>
Cash flows from operating activities:
Net loss ...................................................... $   (4,084) $   (6,430)
Adjustments to reconcile net loss to net cash
   used in operating activities:
       Depreciation and amortization ..........................        959       2,165
       Other ..................................................         98          85
Changes in assets and liabilities..............................       (949)     (1,056)
                                                                 ----------  ----------
      Net cash used in operating activities ...................     (3,976)     (5,236)
                                                                 ----------  ----------
Cash flows from investing activities:
   Purchases of property and equipment ........................        (84)       (123)
   Proceeds from sale of equipment ............................         31          55
   Short term investments -- trading activity, net.............        (77)         --
                                                                 ----------  ----------
      Net cash used in investing activities ...................       (130)        (68)
                                                                 ----------  ----------
Cash flows from financing activities:
   Proceeds from issuance of common stock .....................         89         204
                                                                 ----------  ----------
       Net cash provided by financing activities ..............         89         204
                                                                 ----------  ----------
Net decrease in cash and cash equivalents .....................     (4,017)     (5,100)
Cash and cash equivalents at the beginning of the period ......     12,422      24,126
                                                                 ----------  ----------
Cash and cash equivalents at the end of the period ............ $    8,405  $   19,026
                                                                 ==========  ==========
Supplemental non-cash disclosure:
   Common stock issued to satisfy interest obligations ........ $       --  $       97
                                                                 ==========  ==========


</PRE></FONT><FONT FACE="Times New Roman" SIZE="3">

<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>
<B><P ALIGN="CENTER">
                                    8X8, INC.
<br>
<br>
                    NOTES TO UNAUDITED CONDENSED CONSOLIDATED
<br>
                              FINANCIAL STATEMENTS       </B>


<FONT SIZE=3><B><P>1. DESCRIPTION OF THE BUSINESS </P>
</B><P ALIGN="JUSTIFY">8x8, Inc., or 8x8, and its subsidiaries (collectively,
the Company) develop and market communication technology for Internet Protocol,
or IP, telephony and video applications. The Company has three primary product
lines: voice and video semiconductors and related software; hosted Internet
Private Branch Exchange, or iPBX, solutions; and telecommunication services
software and consumer products.</P>
<P ALIGN="JUSTIFY">During the fiscal year ended March&nbsp;31, 2001, 8x8 formed
two subsidiaries, Netergy Microelectronics, Inc. (Netergy) and Centile, Inc.
(Centile) and reorganized its operations more clearly along its three product
lines. </P>

<UL>
<P ALIGN="JUSTIFY"><LI>Netergy 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's technologies are used to make IP telephones and to voice-enable
cable and digital subscriber line modems, wireless devices, and other
broadband technologies. </LI></P>
<P ALIGN="JUSTIFY"><LI>Centile develops and markets hosted iPBX solutions that
allow service providers to offer to small and medium-sized businesses over
broadband networks the features and functions that a user commonly expects to
find in a typical business phone system. The phone system software runs on
servers that are located at a central data center so that the only phone system
equipment that is required at the customer site are telephones. The phone system
can also be accessed and controlled from any web browser on the Internet.
</LI></P>
<P ALIGN="JUSTIFY"><LI>8x8 has a third product line that includes consumer
videophones, telephones and communication software that are being designed to
offer voice and video communication services that work over broadband data
connections and the Internet.</LI></P></UL>

<P ALIGN="JUSTIFY">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>
<P ALIGN="JUSTIFY">The possibility that the Company will not be able to meet its
obligations as and when they become due over the next twelve months raises
substantial doubt about the Company's ability to continue as a going concern.
Accordingly, the Company has been pursuing, and will
continue to pursue, the implementation of certain cost reduction strategies.
Additionally, the Company plans to seek additional financing and evaluate
financing alternatives during the next twelve months in order to meet its cash
requirements for the remainder of fiscal 2004. </P>
<B><P>2. BASIS OF PRESENTATION </P>
</B><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, 2002. 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 condensed consolidated 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, 2002 and notes thereto included in the Company's fiscal 2002 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>3. SHORT-TERM INVESTMENTS</P>
</B><P ALIGN="JUSTIFY">The Company's short-term investments primarily comprise
publicly traded corporate equity securities. All short-term investments are held
in the Company's name and are custodied with major financial institutions. The
specific identification method is used to compute the gains and losses on equity
securities. At September 30, 2002, all of the Company's short-term investments
were classified as trading securities. Unrealized gains and losses on these
investments are included in other income, net, in the condensed consolidated
statements of operations.</P>
<P ALIGN="JUSTIFY">Given the currently low yields on governmental and corporate
debt securities and money market funds, the Board of Directors (the Board)
believes that the Company may benefit from investing in other classes of
securities that may generate higher returns. Toward this end, in March 2002 the
Board authorized the Company to open securities trading accounts and make
investments of up to $1.0 million, as directed by the Company's Chairman, Joe
Parkinson, the  Chief Executive Officer, or the Chief Financial Officer. Mr.
Parkinson has agreed to personally reimburse 8x8 on a quarterly basis for any
losses resulting from his trading activities in order to maintain a minimum
investment account balance of $1.0 million. The Board has been assured of Mr.
Parkinson's ability to cover any such losses; however, should he be unable to do
so, it could have a material impact on the Company's cash flows and results of
operations. As part of the arrangement, the Board has expressed its intent, but
not obligation, to pay Mr. Parkinson a quarterly bonus in an amount equal to 25%
of the profits attributable to investments made on our behalf by Mr. Parkinson
to the extent such a bonus exceeds his salary for the corresponding period. The
Company or Mr. Parkinson can terminate this arrangement at any time. Under this
arrangement, the Company received $20,000 from Mr. Parkinson during the quarter
ended September 30, 2002; $6,000 was recorded as other income in the condensed
consolidated statements of operations to offset losses incurred and $14,000 was
payable to Mr. Parkinson at September 30, 2002. As of September 30, 2002,
$77,000 of the $1.0 million allocated for such investment activities was
invested in marketable equity securities. The remaining $923,000  was invested
in money market funds.</P>
<B><P ALIGN="JUSTIFY">4. BALANCE SHEET DETAIL</P></B>

<PRE><FONT FACE="Courier New">
<B>
                                         September 30,    March 31,
                                             2002          2002
                                         ------------  ------------</B>
Inventory (in thousands):
   Raw materials and work-in-process .. $         47  $        528
   Finished goods .....................           69           205
                                         ------------  ------------
                                        $        116  $        733
                                         ============  ============

</PRE></FONT><FONT FACE="Times New Roman" SIZE="3">

<B><P>5. CONVERTIBLE SUBORDINATED DEBENTURES </P></B>
<I><P>Issuance of the Debentures</P>
</I><P ALIGN="JUSTIFY">In December 1999, the Company issued $7.5 million of 4%
Series A and Series B convertible subordinated debentures (the Debentures) due
in December 2002. In conjunction with the issuance of the Debentures, the
lenders received warrants to purchase 531,915 8x8 common shares at $7.05 per
share and 105,634 shares at $35.50 per share (the Lender Warrants). The Company
also issued warrants to the placement agent to purchase 53,191 8x8 common shares
at $7.05 per share and 10,563 shares at $35.50 per share. The exercise price of
the warrants and the number of shares issuable upon exercise of the warrants are
subject to potential adjustment, in certain circumstances, including in the
event that the Company issues equity securities, convertible debt or other
equity instruments for consideration per share that is less than the five day
average closing bid price of the Company's common stock preceding such issuance
or in the event of the liquidation of the Company. All of the warrants expire in
December 2002. </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 costs of issuing the Debentures
totaled $864,000, including a non-cash charge for the value of warrants issued
to the placement agent. The debt discount and debt issuance costs were amortized
to interest expense on a straight-line basis over the term of the Debentures.
</P>
<I><P>Redemption of the Debentures and the Issuance of Contingently
Redeemable Common Stock</P>
</I><P ALIGN="JUSTIFY">In December 2001, the Company redeemed the Debentures for
$4.5 million in cash and 1,000,000 shares of common stock. Additionally, the
Company agreed to reduce the exercise price of the Lender Warrants to $0.898 per
share. This transaction resulted in an extraordinary gain of $779,000, net of
the incremental fair value of the repriced warrants, the write-off of
unamortized debt discount and debt issue costs, and other costs associated with
the early extinguishment of the Debentures. </P>
<P ALIGN="JUSTIFY">Under the terms of a registration rights agreement that the
Company and the lenders entered into in connection with the issuance of the
1,000,000 shares of common stock, the Company agreed to register the shares for
resale and maintain the effectiveness of the registration statement for
specified periods of time until the shares are resold or can be resold without
the registration statement (the Maintenance Requirements). The Company further
agreed that if it does not comply with the Maintenance Requirements in the
future, it may be required to pay cash penalties and redeem all or a portion of
the shares held by the lenders at the higher of $0.898 per share or the market
price of the Company's stock at the time of the redemption. The shares held by
the lenders at September 30, 2002 were recorded at their potential redemption
value at September 30, 2002 of $702,000 and classified as contingently
redeemable common stock due to the redemption rights described above. The
Company will not mark the contingently redeemable common stock to the higher of
$0.898 per share or market unless it becomes probable that the Company will not
be able to comply with the Maintenance Requirements.</P>

<B><P>6. 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
vested, unrestricted common shares outstanding during the period (denominator).
Due to net losses incurred for the periods presented, weighted average basic and
diluted shares outstanding for the respective periods are the same. The
following equity instruments were not included in the computations of net loss
per share because the effect on the calculations would be anti-dilutive (in
thousands):  </P>

<PRE><FONT FACE="Courier New">
<B>
                                            Three Months Ended
                                               September 30,
                                          --------------------
                                             2002       2001
                                          ---------  ---------</B>
Common stock options ...................     9,789      7,118
Warrants................................       701        701
Convertible subordinated debentures ....        --        638
Unvested restricted common stock .......        --          1
                                          ---------  ---------
                                            10,490      8,458
                                          =========  =========

</PRE></FONT><FONT FACE="Times New Roman" SIZE="3">

<B><P>7. COMPREHENSIVE LOSS</P>
</B><P ALIGN="JUSTIFY">Comprehensive loss, as defined, includes all changes in
equity (net assets) during a period from non-owner sources. The difference
between net loss and comprehensive 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, 2002 and 2001 were as follows (in thousands):
</P>

<PRE><FONT FACE="Courier New">
<B>
                                            Three Months Ended     Six Months Ended
                                               September 30,         September 30,
                                          --------------------  --------------------
                                             2002       2001       2002       2001
                                          ---------  ---------  ---------  ---------</B>
Net loss, as reported................... $  (1,959) $  (1,983) $  (4,084) $  (6,430)
Reclassification of gain included
   in net loss..........................        --       (185)        --       (115)
Cumulative translation adjustment.......        --        (56)         7         42
                                          ---------  ---------  ---------  ---------
Comprehensive loss...................... $  (1,959) $  (2,224) $  (4,077) $  (6,503)
                                          =========  =========  =========  =========

</PRE></FONT><FONT FACE="Times New Roman" SIZE="3">

<B><P ALIGN="JUSTIFY">8. SEGMENT REPORTING </P>
</B><P ALIGN="JUSTIFY">The Company has three reportable segments: Netergy,
Centile, and Corporate and Other. 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 costs are allocated between the segments.
Accounting policies are applied consistently to the segments, where applicable.
The Company's reportable segments have been determined based on the nature of
the operations and products offered to customers:</P>

<UL>
<P ALIGN="JUSTIFY"><LI>The Netergy segment primarily reflects the activity
associated with the sale and development of semiconductors, related software,
and product reference designs focused on the IP telephony and videoconferencing
markets.  In addition, the Netergy segment includes revenue derived from the
license of video monitoring technology to GE Interlogix, Inc. (formerly
Interlogix, Inc.). </LI></P></UL>


<UL>
<P ALIGN="JUSTIFY"><LI>The Centile segment reflects activity associated with the
development and sale of its hosted iPBX solution, as well as media hub systems.
</LI></P></UL>


<UL>
<P ALIGN="JUSTIFY"><LI>The Corporate and Other segment represent the business
activities of the parent entity, 8x8, Inc. The results for the Corporate and
Other segment principally reflect activities related to the development and
trial deployment of the Packet8 telephony service, sale of videophones,
unallocated corporate overhead expenses, and revenues and certain costs
associated with discontinued product lines. </LI></P></UL>

<P>The following table illustrates results by segment (in thousands):  </P>

<PRE><FONT FACE="Courier New">
<B>
                                            Three Months Ended     Six Months Ended
                                               September 30,         September 30,
                                          --------------------  --------------------
                                             2002       2001       2002       2001
                                          ---------  ---------  ---------  ---------
Revenues                                                                            </B>
Netergy................................. $   2,044  $   3,203  $   5,098  $   6,732
Centile ................................       325         85        476        106
Corporate and Other ....................        73        638        136        688
                                          ---------  ---------  ---------  ---------
   Total revenues ...................... $   2,442  $   3,926  $   5,710  $   7,526
                                          =========  =========  =========  =========<B>

Gross profit                                                                        </B>
Netergy................................. $   1,140  $   2,770  $   3,424  $   5,291
Centile ................................       285         85        369        106
Corporate and Other ....................        35        637         74        657
                                          ---------  ---------  ---------  ---------
   Total gross profit .................. $   1,460  $   3,492  $   3,867  $   6,054
                                          =========  =========  =========  =========<B>

Operating loss                                                                      </B>
Netergy................................. $  (1,127) $     (33) $  (1,662) $  (1,027)
Centile ................................      (508)    (1,435)    (1,276)    (3,802)
Corporate and Other ....................      (835)      (295)    (1,700)    (1,393)
                                          ---------  ---------  ---------  ---------
  Total operating loss ................. $  (2,470) $  (1,763) $  (4,638) $  (6,222)
                                          =========  =========  =========  =========<B>

Net income/(loss)                                                                   </B>
Netergy................................. $  (1,119) $      47  $  (1,569) $    (865)
Centile ................................      (513)    (1,477)    (1,346)    (3,711)
Corporate and Other ....................      (327)      (553)    (1,169)    (1,854)
                                          ---------  ---------  ---------  ---------
  Total net loss ....................... $  (1,959) $  (1,983) $  (4,084) $  (6,430)
                                          =========  =========  =========  =========

</PRE></FONT><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">There were no significant reconciling items between the
segments for the revenue, gross profit, operating loss, and net loss amounts.
</P>
<B><P>9. LEGAL PROCEEDINGS </P>
</B><P ALIGN="JUSTIFY">The Company is involved in various legal claims and
litigation that have arisen in the normal course of its operations. While the
results of such claims and litigation cannot be predicted with certainty, the
Company currently believes that the final outcome of such matters will not have
a materially significant adverse effect on the Company's financial position or
results of operations. However, should the Company not prevail in any such
litigation, it could have a materially adverse impact on the Company's operating
results, cash flows and financial position.</P>
<B><P>10. RECENT ACCOUNTING PRONOUNCEMENTS </P>
</B><P ALIGN="JUSTIFY">On October 3, 2001, the FASB issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets.&quot; SFAS No.
144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of."  SFAS No. 144 applies to all long-lived
assets (including discontinued operations) and consequently amends
Accounting Principles Board Opinion No. 30. SFAS No. 144 develops one accounting
model for long-lived assets that are to be disposed of by sale and 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 No. 144 expands
the scope of discontinued operations to include all components of an entity with
operations that (i) can be distinguished from the rest of the entity, and (ii)
will be eliminated from the ongoing operations of the entity in a disposal
transaction. The Company adopted SFAS No. 144 in the first quarter of fiscal
2003 and its adoption did not have a material impact on the Company's results of
operations.</P>
<P>In June 2002, the FASB issued SFAS No. 146, &quot;Accounting for Costs
Associated with Exit or Disposal Activities,&quot; which addresses accounting
for restructuring and similar costs. SFAS No. 146 supercedes previous accounting
guidance, principally Emerging Issues Task Force Issue (EITF) No. 94-3. SFAS No.
146 requires that  a liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF No. 94-3, a
liability for an exit cost was recognized at the date of the entity's commitment
to an exit plan. SFAS No. 146 also requires that the liability be initially
measured and recorded at fair value. SFAS No. 146 will be effective for exit or
disposal activities that are initiated after December 31, 2002. We do not expect
that the adoption of SFAS No. 146 will have a material impact on our results of
operations.</P>
<B><P><A NAME="mda"></A>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 and Section 21E of the Exchange Act, including
our statements regarding anticipated cost savings arising from the workforce
reduction implemented in July 2002;
our belief that we remain eligible to be quoted on the Nasdaq SmallCap Market
until April 7, 2003;
our expectation of receipt of last time buy
orders related to the end of life of our videoconferencing products and the
timing and ability to fulfill such last time buy orders; our cost estimates
under contracts accounted for using the percentage of completion method; factors
that could impact our gross margins; the sufficiency of cash and cash
equivalents and short-term investments to fund our ongoing obligations through
at least June 30, 2003, efforts to raise additional financing, the acquisition
of or investment in other businesses and products, commitment of resources, and
reduction in operating costs including the possible sale or cessation of certain
business segments and the possible further reduction of personnel and suspension
of salary increases and capital expenditures. 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 our good faith assumptions being
incorrect, our business expenses being greater than anticipated due to
competitive factors or unanticipated development or sales costs; revenues not
resulting in the manner anticipated due to a continued slow down in technology
spending, particularly in the telecommunications market; our failure to generate
investor interest or to sell certain of our assets or business segments. The
forward-looking statements may also be impacted by the additional risks faced by
us as described in this Report, including those set forth under the section
entitled "Factors that May Affect Future Results." All forward-looking
statements included in this Report are based on information available to us on
the date hereof, and we assume no obligation to update any such forward-looking
statements.</P>
<B><I><P ALIGN="JUSTIFY">OVERVIEW</B></I> </P>
<P ALIGN="JUSTIFY">8x8, Inc., or 8x8, and its subsidiaries (collectively, the
Company) develop and market telecommunication technology for Internet Protocol,
or IP, telephony and video applications. The Company has three product lines:
voice and video semiconductors and related software; software that implements
the functionality of a private branch exchange, or PBX, over data networks; and
telephones, videophones, and communication services that are being designed to
operate over broadband data connections and the Internet.</P>
<P ALIGN="JUSTIFY">The Company has two primary subsidiaries, Netergy
Microelectronics, Inc. (Netergy) and Centile, Inc. (Centile). Netergy provides
voice and video semiconductors and related communication software to original
equipment manufacturers, or OEMs, of telephones, terminal adapters, and other
endpoint communication devices and to other semiconductor companies. Centile
develops and markets hosted iPBX solutions that allow service providers to offer
to small and medium-sized businesses over broadband networks the features and
functions that are commonly found in a typical business phone system. 8x8, at
the parent company level, is developing its third product line that includes
consumer telephones, videophones, and communication software and services that
are being designed to operate over broadband data networks.  </P>
<P ALIGN="JUSTIFY">During the first quarter of fiscal 2003, we were notified by
Nasdaq that the bid price for our common stock must close at $1.00 per share or
more for a minimum of ten consecutive trading days during the ninety calendar
day period ending July 9, 2002 or we might be delisted.  As we were not in
compliance under the Nasdaq National Market minimum bid price listing standard
by July 9, 2002, we subsequently applied for and received authorization to
transfer to the Nasdaq SmallCap Market.  We began trading on the Nasdaq SmallCap
Market on July 26, 2002. As a result of our transfer to the Nasdaq SmallCap
Market, our delisting determination was extended an additional ninety days until
October 7, 2002. Although our common stock did not achieve a closing bid price
of $1.00 for at least ten consecutive trading days before October 7, 2002, we
believe that we have
met the initial listing criteria for the Nasdaq SmallCap Market as of October 7,
2002. As a result, we expect to remain eligible to be quoted on the Nasdaq SmallCap Market
for an additional 180-calendar day grace period, expiring on April 7, 2003,
subject to our compliance with the continued listing requirements during the
extended grace period.</P>
<P ALIGN="JUSTIFY">In July 2002, we notified our customers that we were
initiating an end of life program for our existing videoconferencing
semiconductor products, including LVP, VCP and VCPex, due to declining demand
and our inability to ensure the supply of videoconferencing semiconductor wafers
from Taiwan Semiconductor Manufacturing Corporation, our sole supplier of wafers
for these products. We anticipate receiving last time buy orders from customers
for the aforementioned products through October 31, 2002, with product shipments
anticipated through May 31, 2003. Revenues derived from sales of our
videoconferencing semiconductors were $1.1 million during the six months ended
September 30, 2002 and were $4.1 million during the fiscal year ended March 31,
2002.</P>
<P ALIGN="JUSTIFY">In July 2002, we reduced our workforce to further align our
cost structure with changing market conditions. The reduction totaled 13
employees, representing approximately 13% of our total workforce. We paid
approximately $98,000 in severance, which has been included in sales, general
and administrative and research and development costs, and anticipate that the
reduction will result in cost savings of approximately $1,000,000 over the next
twelve months. </P>
<B><I><P ALIGN="JUSTIFY">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, 2002 and 2001, respectively, expressed as a 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. </P>

<PRE><FONT FACE="Courier New">
<FONT size="2">
<B>
                                                Three Months Ended          Six Months Ended
                                                   September 30,              September 30,
                                         ---------------------------  --------------------------
                                               2002         2001           2002          2001
                                          ------------  ------------  ------------  ------------</B>

Product revenues .......................           53%           37%           47%           40%
License and other revenues .............           47%           63%           53%           60%
                                          ------------  ------------  ------------  ------------
   Total revenues ......................          100%          100%          100%          100%
                                          ------------  ------------  ------------  ------------

Cost of product revenues ...............           54%           28%           49%           45%
Cost of license and other revenues .....           25%            1%           18%            2%
                                          ------------  ------------  ------------  ------------
   Total cost of revenues ..............           40%           11%           32%           20%
                                          ------------  ------------  ------------  ------------
Gross profit ...........................           60%           89%           68%           80%
                                          ------------  ------------  ------------  ------------
Operating expenses:
  Research and development .............           85%           69%           78%           87%
  Selling, general and administrative ..           76%           60%           71%           71%
  Amortization of intangibles ..........           --             5%           --             5%
                                          ------------  ------------  ------------  ------------
   Total operating expenses ............          161%          134%          149%          163%
                                          ------------  ------------  ------------  ------------
Loss from operations ...................         -101%          -45%          -81%          -83%
Other income, net ......................           21%            3%           10%            6%
Interest expense .......................           --            -8%           --            -9%
                                          ------------  ------------  ------------  ------------
Net loss ...............................          -80%          -50%          -71%          -86%
                                          ============  ============  ============  ============

</font size="2">
</PRE></FONT><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">The following discussion should be read in conjunction with
our condensed consolidated financial statements and the notes thereto: </P>
<B><I><P ALIGN="JUSTIFY">Revenues</B></I> </P>
<P ALIGN="JUSTIFY">Product revenues were $1.3 million in the second quarter of
fiscal 2003, a decrease of $100,000 from the $1.4 million reported in the second
quarter of fiscal 2002. Product revenues were $2.7 million for the six month
period ended September 30, 2002, a decrease of approximately $300,000 from the
$3.0 million reported in the prior year period. The decreases in the three and
six month periods ended September 30, 2002 as compared to the corresponding
periods in the prior year were due primarily to a decrease in unit shipments of
videoconferencing semiconductor products, offset partially by increased sales of
our IP telephony semiconductors and increases in average selling prices (ASPs)
of our videoconferencing semiconductor products. As a result, for the three
months ended September 30, 2002 as compared to the same period in the prior
year, we realized an overall decrease in videoconferencing semiconductor revenue
of $759,000, partially offset by a $523,000 increase in sales of our IP
telephony semiconductor products. For the six months ended September 30, 2002 as
compared to the same period in the prior year, we realized an overall decrease
in videoconferencing semiconductor revenue of $1.4 million, partially offset by
a $840,000 increase in sales of our IP telephony semiconductor products. </P>
<P ALIGN="JUSTIFY">Due to reduced demand and difficulties in ensuring supply, in
July 2002, we announced the end of life of our existing videoconferencing
semiconductor products, including VCP, VCPex, and LVP, that have historically
generated substantially all of our videoconferencing semiconductor product
revenues. We anticipate receiving last time buy orders from customers for the
aforementioned products through October 31, 2002, with product shipments
anticipated through May 31, 2003. Total videoconferencing semiconductor product
revenues approximated $404,000 and $1.1 million for the quarter and six month
period ended September 30, 2002, respectively. As a result of the end of life of
our existing videoconferencing semiconductor products, we will become more
dependent on the growth of revenues from sales of  our IP telephony
semiconductor products. </P>
<P ALIGN="JUSTIFY">License and other revenues were $1.1 million in the second
quarter of fiscal 2003, as compared to the $2.5 million reported in the second
quarter of fiscal 2002. License and other revenues, the majority of which are
considered to be non-recurring in nature, consist primarily of technology
licenses and related maintenance revenues, as well as royalties earned under
such licenses, and revenue derived under contracts to perform nonrecurring
development services. The decrease of approximately $1.4 million was due to the
following factors:</P>

<UL>
<P ALIGN="JUSTIFY"><LI>A decrease of approximately $637,000 in non-recurring
license and maintenance revenues associated with our license of SCE technology
to Lucent; </LI></P></UL>


<UL>
<P ALIGN="JUSTIFY"><LI>A decrease of approximately $535,000 in non-recurring
license and maintenance revenues from Netergy's IP telephony technology;
and</LI></P></UL>


<UL>
<P ALIGN="JUSTIFY"><LI>A decrease of approximately $500,000 in non-recurring
license revenues related to Netergy's videoconferencing technology.
</LI></P></UL>

<P ALIGN="JUSTIFY">These decreases were partially offset by:</P>

<UL>
<P ALIGN="JUSTIFY"><LI>A $180,000 increase in license and maintenance revenues
associated with Centile's hosted iPBX product; and</LI></P></UL>


<UL>
<P ALIGN="JUSTIFY"><LI>Approximately $285,000 of revenues recognized by Netergy
under a contract to develop our next-generation video compression semiconductor
product that is accounted for using the percentage of completion method.  Profit
estimates on this contract are revised periodically based on changes in facts;
any loss would be recognized immediately.  We have not recognized any loss to
date, but changes in our cost estimates could require us to recognize a loss in
a future period as the revenues under this contract are fixed.</LI></P></UL>

<P ALIGN="JUSTIFY">License and other revenues were $3.0 million for the six
month period ended September 30, 2002, a decrease of approximately $1.5 million,
primarily due to the reasons set forth above, compared to the $4.5 million
reported in the prior year period. </P>
<P ALIGN="JUSTIFY">Four customers represented more than 10% of our total
revenues for the quarter ended September 30, 2002. These customers represented
18%, 13%, 12% and 12% of our total revenues, respectively. During the same
period in the prior year we also had four customers represent greater than 10%
of our total revenues. Those percentages were 17%, 16%, 11%, and 10%,
respectively. Three customers represented 15%, 13%, and 11% of our total
revenues, respectively, for the six month period ended September 30, 2002. Two
customers represented 16% and 12% of our total revenues, respectively, for the
six month period ended September 30, 2001.</P>
<P ALIGN="JUSTIFY">Our revenue distribution by geographic region (based upon the
destination of shipments) was as follows: </P>

<PRE><FONT FACE="Courier New">
<B>
                                         Three Months Ended   Six Months Ended
                                            September 30,       September 30,
                                       ------------------  ------------------
                                          2002      2001      2002      2001   </B>
                                       --------  --------  --------  --------
   North America.....................       32%       40%       41%       38%
   Europe............................       30%       21%       33%       21%
   Asia Pacific......................       38%       39%       26%       41%
                                       --------  --------  --------  --------
                                           100%      100%      100%      100%
                                       ========  ========  ========  ========

</PRE></FONT><FONT FACE="Times New Roman" SIZE="3">

<B><I><P ALIGN="JUSTIFY">Cost of Revenues and Gross Profit </P>
</B></I><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 approximately $600,000 for the
second quarter of fiscal 2003 from $1.0 million for the quarter ended September
30, 2001 and product gross margins decreased from 72% to 46%. The decrease in
product gross margin and gross profit is due in large part to the fact that our
IP telephony semiconductors generally have lower gross margins than those
historically derived from sales of our videoconferencing semiconductors. Sales
of low margin video phones also put negative pressure on product gross profit in
the most recent quarter. Gross profit from product revenues decreased to
approximately $1.4 million for the six month period ended September 30, 2002
from $1.6 million during the corresponding period of the prior year due to a
decrease in product revenues and units shipped. </P>
<P ALIGN="JUSTIFY">Our product gross margin is affected by a number of factors
including product mix, product pricing, 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. Average selling
prices 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. To respond to competitive
pricing pressures, we will be required to introduce differentiated products and
continue to reduce costs as a means of maintaining or improving our margins. We
may not be successful in our development efforts or product cost reduction
measures and may face continued erosion of margins.</P>
<P ALIGN="JUSTIFY">Gross profit from license and other revenues, which were
largely nonrecurring, was $860,000 and $2.5 million in the second quarters of
fiscal 2003 and 2002, respectively.  Associated gross margins were 75% and 99%
in the second  quarters of fiscal 2003 and fiscal 2002, respectively. The
decrease in gross margin from fiscal 2002 to fiscal 2003 was due primarily to
costs incurred to perform development services under revenue generating
contracts in the second  quarter of fiscal 2003 that were included in the cost
of license and other revenues. Gross margins associated with license and other
revenues may be adversely impacted in the future if revenues derived from our
existing contract to perform nonrecurring engineering services associated with
the development of our next-generation video compression semiconductor product
increases as a percentage of total license and other revenues or if a change in
our cost estimates requires us to recognize a loss on this contract, as the
revenues under this contract are fixed.  Gross margin decreased from 98% during
the six months ended September 30, 2001 to 82% in the corresponding period in
the current fiscal year primarily due to the same reasons provided above.</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 $619,000 in the second
quarter of fiscal 2003 as compared to the second quarter of fiscal 2002, and
decreased by approximately $2.1 million in the first six months of fiscal 2003
as compared to the first six months of fiscal 2002. The significant decreases in
research and development expenses for the three and six month periods ended
September 30, 2002 as compared to the comparable periods in the prior year are
due to the following:</P>

<UL>
<P ALIGN="JUSTIFY"><LI>The shift in engineering resources from research and
development functions to revenue generating contracts; these costs approximated
$248,000 and $480,000 for the quarter and six month periods ended September 30,
2002, respectively, and were included in cost of license and other
revenue;</LI></P>
<P ALIGN="JUSTIFY"><LI>Lower compensation costs due to a reduction in research
and development personnel as compared to the comparable prior year
periods;</LI></P>
<P ALIGN="JUSTIFY"><LI>Lower depreciation expense due to the retirement of
assets;</LI></P>
<P ALIGN="JUSTIFY"><LI>Lower repair and maintenance costs due to the expiration
of certain annual maintenance contracts for third party software that were not
renewed; and</LI></P>
<P ALIGN="JUSTIFY"><LI>Our overall efforts to reduce discretionary operating
costs.  </LI></P></UL>

<B><I><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 $515,000 in
the second quarter of fiscal 2003 as compared to the same period in the prior
year and decreased by approximately $1.3 million in the first six months of
fiscal 2003 as compared to the first six months of fiscal 2002. The decreases in
selling, general and administrative expenses during the three and six month
periods ended September 30, 2002 as compared to the comparable periods in the
prior year are primarily attributable to:</P>

<UL>
<P ALIGN="JUSTIFY"><LI>Lower compensation costs in the quarter ended September
30, 2002 due to a reduction in sales and administrative personnel as compared to
the prior year period; and</LI></P></UL>


<UL>
<P ALIGN="JUSTIFY"><LI>Lower legal, financial reporting, 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">Amortization of Intangibles</B></I> </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 were
being amortized on a straight-line basis over five and three years,
respectively. Amortization charged to operations during the three and six month
periods ended September 30, 2001 was $191,000 and $382,000, respectively. The
decrease in amortization as compared to the prior year period was due to the
cessation of amortization of intangibles as a result of the adoption of SFAS No.
142 at the beginning of fiscal 2003. </P>
<B><I><P ALIGN="JUSTIFY">Other Income, Net</B></I> </P>
<P ALIGN="JUSTIFY">In the second quarters of fiscal 2003 and 2002, other income,
net, was $511,000 and $112,000, respectively. The significant increase was due
primarily to the receipt of approximately $560,000 in Canadian research and
development and other tax credits generated by our former Canadian operations.
No further refundable tax credits are expected from Canada. The tax credit gain
was offset by the write off of approximately $92,000, which represented the
balance of the cumulative translation adjustment generated from the translation
of the financial statements of our Canadian subsidiary, which has been
substantially liquidated. </P>
<P ALIGN="JUSTIFY">During the six months ended September 30, 2002 and 2001,
other income, net, was $554,000 and $456,000, respectively. Apart from the tax
credit receipt in the second quarter of fiscal 2003 described above, other
income, net, consists primarily of interest income earned on our cash and cash
equivalents and foreign exchange gains and losses. Interest income has continued
to decrease due to significantly lower average cash and cash equivalent balances
combined with lower interest rates. See &quot;Item 3. Quantitative And
Qualitative Disclosures About Market Risk&quot; elsewhere in the Report for
further discussion of our exposure to currency risk.</P>

<B><I><P ALIGN="JUSTIFY">Interest Expense</B></I> </P>
<P ALIGN="JUSTIFY">Interest expense for the three and six month periods ended
September 30, 2001 consisted mainly of charges associated with the 4%
convertible subordinated debentures (the Debentures), as well as the
amortization of the related debt discount and debt issuance costs. We redeemed
the Debentures in December 2001.</P>

<B><I><P ALIGN="JUSTIFY">Provision for Income Taxes</B></I>
</P>
<P ALIGN="JUSTIFY">There were no tax provisions recorded during the three and
six month periods ended September 30, 2002 and 2001, due to net losses incurred.
</P>

<B><I><P>Related Party Transactions</P>
</B></I><P>In June 2002, STMicroelectronics NV and subsidiaries (STM), an
affiliate of the Company, acquired Alcatel Microelectronics NV (AME).  AME, now
a wholly owned subsidiary of STM, was a customer of Netergy and supplier of
semiconductors. The Company will now purchase semiconductors from STM.
Transactions between the Company and STM were not material during the three and
six months ended September 30, 2002.</P>
<P ALIGN="JUSTIFY">Given the currently low yields on governmental
and corporate debt securities and money market funds, our Board of Directors
(the Board) believes that we may benefit from investing in other classes of
securities that may generate higher returns. Toward this end, in March 2002 the
Board authorized us to open securities trading accounts and make investments of
up to $1.0 million on behalf of 8x8, Inc. as directed by the Company's Chairman,
Joe Parkinson, the Chief Executive Officer or the Chief Financial Officer. Mr.
Parkinson has agreed to personally reimburse 8x8 on a quarterly basis for any
losses resulting from his trading activities in order to maintain a minimum
investment account balance of $1.0 million. The Board has been assured of Mr.
Parkinson's ability to cover any such losses; however, should he be unable to do
so, it could have a material impact on our cash flows and results of operations.
As part of the arrangement, our Board has expressed its intent, but not
obligation, to pay Mr. Parkinson a quarterly bonus in an amount equal to 25% of
the profits attributable to investments made on our behalf by Mr. Parkinson to
the extent such a bonus exceeds his salary for the corresponding period. The
Company or Mr. Parkinson can terminate this arrangement at any time. Under this
arrangement, the Company received $20,000 from Mr. Parkinson during the quarter
ended September 30, 2002; $6,000 was recorded as other income in the Condensed
Consolidated Statements of Operations to offset losses and $14,000 was recorded
as payable to Mr. Parkinson. For the six month period ended September 30, 2002
the Company has recorded a total of $137,000 received from Mr. Parkinson to
offset losses. As of September 30, 2002, $77,000 of the $1.0 million allocated
for such investment activities was invested in marketable equity securities. The
remaining $923,000 was invested in money market funds.</P>
<B><I><P ALIGN="JUSTIFY">Recent Accounting Pronouncements</B></I> </P>
<P ALIGN="JUSTIFY">On October 3, 2001, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets.&quot; SFAS No.
144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of."  SFAS No. 144 applies to all long-lived
assets (including discontinued operations) and consequently amends
Accounting Principles Board Opinion No. 30. SFAS No. 144 develops one accounting
model for long-lived assets that are to be disposed of by sale and 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 No. 144 expands
the scope of discontinued operations to include all components of an entity with
operations that (i) can be distinguished from the rest of the entity, and (ii)
will be eliminated from the ongoing operations of the entity in a disposal
transaction. We adopted SFAS No. 144 in the first quarter of fiscal 2003 and its
adoption did not have a material impact on our results of operations. </P>
<P>In June 2002, the FASB issued SFAS No. 146, &quot;Accounting for Costs
Associated with Exit or Disposal Activities,&quot; which addresses accounting
for restructuring and similar costs. SFAS No. 146 supercedes previous accounting
guidance, principally Emerging Issues Task Force Issue (EITF) No. 94-3. SFAS No.
146 requires that  a liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF No. 94-3, a
liability for an exit cost was recognized at the date of the entity's commitment
to an exit plan. SFAS No. 146 also requires that the liability be initially
measured and recorded at fair value. SFAS No. 146 will be effective for exit or
disposal activities that are initiated after December 31, 2002. We do not expect
that the adoption of SFAS No. 146 will have a material impact on our results of
operations.</P>

<B><I><P ALIGN="JUSTIFY">Liquidity and Capital Resources</B></I> </P>
<P ALIGN="JUSTIFY">As of September 30, 2002, we had cash and cash equivalents
and short-term investments approximating $8.5 million, representing a decrease
of approximately $2.2 million from June 30, 2002. We currently have no bank
borrowing arrangements. </P>
<P ALIGN="JUSTIFY">Cash used in operations of approximately $4.0 million in the
first six months of fiscal 2003 is primarily attributable to the net loss of
$4.1 million, an increase in accounts receivable and other current assets of
$218,000 and $207,000, respectively, a $172,000 decrease in other accrued
liabilities, a $656,000 decrease in deferred revenue, and a $299,000 decrease in
accounts payable and accrued compensation. Cash used in operations was partially
offset by a $617,000 decrease in inventory and $1.1 million in non-cash items,
including depreciation and amortization. Cash used in operations of
approximately $5.2 million in the first six months of fiscal 2002 was primarily
attributable to the net loss of $6.4 million and decreases in accounts payable
of $594,000 and accrued compensation  of $490,000 and deferred revenue of $2
million. Cash used in operations was partially offset by decreases in accounts
receivable of $1.7 million and other current assets of $489,000, and non-cash
items, including depreciation and amortization of $2.2 million.</P>
<P ALIGN="JUSTIFY">Cash used in investing activities in the six months ended
September 30, 2002 was attributable to net purchases of marketable equity
securities of $77,000 and capital expenditures of $84,000, partially offset by
proceeds from the sale of equipment of $31,000. Cash used in investing
activities in the six months ended September 30, 2001 was attributable to
capital expenditures of $123,000 offset by proceeds from the sale of equipment
of $55,000.</P>
<P ALIGN="JUSTIFY">Cash provided by financing activities during the first six
months of fiscal 2003 as well as the first six months of fiscal 2002, consisted
primarily of proceeds resulting from the sale of common stock to employees
through our employee stock purchase and stock option plans. </P>
<P ALIGN="JUSTIFY">As of September 30, 2002, our principal commitments consisted
of obligations outstanding under noncancelable operating leases. At September
30, 2002, future minimum annual lease payments under noncancelable operating
leases, net of sublease income, were as follows (in thousands):</P>

<PRE><FONT FACE="Courier New">


Year ending March 31:
   Remaining 2003...................... $        723
   2004................................          503
   2005................................          326
   2006................................          291
   2007................................          265
   2008 and thereafter.................          973
                                         ------------
Total minimum payments................. $      3,081
                                         ============

</PRE></FONT><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">As noted previously, we redeemed our convertible subordinated
debentures in December 2001. The consideration included the issuance of
1,000,000 shares of our common stock to the lenders. We have committed to
maintaining the effectiveness of the registration statement filed with the SEC
covering the resale of these shares. Should we fail to maintain the
effectiveness of the registration statement, we may be required to pay cash
penalties and redeem all or a portion of the shares at the higher of $0.898 or
the market price of our common stock at the time of the redemption which could
have a material adverse effect on our cash flows and results of operations. The
value of the shares still held by the lenders of $702,000 at September 30, 2002,
based upon the $0.898 per share minimum potential redemption price, is reflected
as contingently redeemable common stock in the condensed consolidated balance
sheet. </P>
<P ALIGN="JUSTIFY">Based upon our current expectations, we believe that our
current cash and cash equivalents and short-term investments, together with cash
generated from operations, will satisfy our expected working capital and capital
expenditure requirements through at least June 30, 2003. However, we believe we
will need additional working capital to fund operations shortly thereafter. The
possibility that we will not be able to meet our obligations as and when they
become due over the next twelve months raises substantial doubt about our
ability to continue as a going concern.
Accordingly, we have been pursuing, and will
continue to pursue, the implementation of certain cost reduction strategies.
Additionally, we plan to seek
additional financing and evalute financing alternatives during the next
twelve months in order to meet our cash requirements for the remainder of fiscal
2004. 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 reduce our operating costs
and other expenditures, including 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 and they may experience significant dilution. New investors may
demand rights, preferences or privileges senior to those of existing holders of
our common stock. If we are not successful in these actions, we may be forced to
cease operations.</P>
<B><P><A NAME="market"></A>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 the majority of our surplus cash and cash
equivalents in money market funds that bear variable interest rates, and,
accordingly, fluctuations in interest rates do not have an impact on the fair
values of such investments. However, given the currently low yields on such
money market funds and other low-risk governmental and corporate debt
securities, in March 2002 our Board of Directors authorized us to open
securities trading accounts and make investments in other classes of securities
that may generate higher returns. The amount allocated for such investments was
$1.0 million to be invested on behalf of 8x8, Inc. at the direction of the
Company's Chairman, Joe Parkinson, the  Chief Executive Officer, or the Chief
Financial Officer. Mr. Parkinson has agreed to personally reimburse 8x8 on a
quarterly basis for any losses resulting from his trading activities in order to
maintain a minimum investment account balance of $1.0 million. The Board has
been assured of Mr. Parkinson's ability to cover any such losses; however,
should he be unable to do so, it could have a material impact on our cash flows
and results of operations. </P>
<I><P>FACTORS THAT MAY AFFECT FUTURE RESULTS</P>
</I><B><P ALIGN="JUSTIFY">We will need to raise additional capital to support
our operations, and failure to do so in a timely manner may cause us to
implement additional cost reduction strategies </P>
</B><P ALIGN="JUSTIFY">As of September 30, 2002, we had approximately $8.5
million in cash and cash equivalents and short-term investments. Although we
believe that our current cash and cash equivalents and short-term investments
will satisfy our expected working capital and capital expenditure requirements
through at least June 30, 2003, 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. The possibility that we will not be
able to meet our obligations as and when they become due over the next twelve
months raises substantial doubt about our ability to continue as a going concern.
Accordingly, we have been pursuing, and will
continue to pursue, the implementation of certain cost reduction strategies.
Additionally, we plan to seek additional financing and evaluate financing alternatives
during the next twelve months in order to meet our cash requirements for the
remainder of fiscal 2004. 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 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 and they may experience significant dilution. New investors may demand
rights, preferences or privileges senior to those of existing holders of our
common stock. If we are not successful in these actions we may be forced to
cease operations.</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 $2.5
million in the quarter ended September 30, 2002 and we ended the period with an
accumulated deficit of $141 million.  In addition, we recorded operating losses
of $10.0 million and $74.4 million for the fiscal years ended March&nbsp;31,
2002 and 2001, respectively.  We expect that we 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 an operating profit.
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 in the future.</P>
<B><P>We may not be able to maintain our listing on the Nasdaq SmallCap
Market</P>
</B><P ALIGN="JUSTIFY">In April 2002, we were notified by the Nasdaq staff that
the bid price for our common stock must close at $1.00 per share or more for a
minimum of ten consecutive trading days during the ninety calendar day period
ending July 9, 2002 or we might be delisted.  As we were not in compliance under
the Nasdaq National Market minimum bid price listing standard by July 9, 2002,
we transferred to and began trading on the Nasdaq SmallCap Market on July 26,
2002. As a result of our transfer to the Nasdaq SmallCap Market, our delisting
determination was extended an additional ninety days until October 7, 2002.
Although our common stock did not achieve a closing bid price of $1.00 for at
least ten consecutive trading days before October 7, 2002, we believe that we have
met the initial
listing criteria for the Nasdaq SmallCap Market as of October 7, 2002. As a
result, we expect to remain eligible to be quoted on the Nasdaq SmallCap Market for an
additional 180-calendar day grace period, expiring on April 7, 2003, subject to
our compliance with the continued listing requirements during the extended grace
period.  However, there is no assurance that we will be able to maintain the
continued listing requirements, and, as a result, may be delisted from trading
on that system. 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>
<LI>result in a decrease in the trading price of our common stock;</LI></UL>


<UL>
<LI>lessen interest by institutions and individuals in investing in our common
stock; </LI></UL>


<UL>
<LI>make it more difficult to obtain analyst coverage; and</LI></UL>


<UL>
<P ALIGN="JUSTIFY"><LI>make it more difficult for us to raise capital in the
future.</LI></P></UL>

<B><P ALIGN="JUSTIFY">If we fail to maintain effectiveness of a registration
statement for the resale of shares of our common stock issued in connection with
the redemption of our previously outstanding convertible debt, we may be forced
to pay a cash penalty or redeem all or a portion of the shares, causing our
business to suffer</P>
</B><P ALIGN="JUSTIFY">Under the terms of a registration rights agreement we
entered into in connection with the redemption of our outstanding convertible
debt, we agreed to register the 1,000,000 shares of our common stock issued to
the former note holders for resale. If we fail to maintain the effectiveness of
the registration statement, we may be required to pay cash penalties and may be
required to redeem all or a portion of the shares of common stock held by the
former note holders. Under the agreement, the redemption price would be the
higher of $0.898 or the market price of our common stock at the time of the
redemption.  If we are required to pay a cash penalty or to redeem any of the
shares, this will deplete our cash reserves, which may cause significant harm to
our business, results of operations and financial condition.</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 IP telephony
technology and products.  Our videoconferencing semiconductor business has not
provided sufficient revenues to profitably operate our business, and we have
notified our customers of the end of life of these products. 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 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 business has been adversely affected by the downturn
in the telecommunications industry and these developments will continue to
impact our revenues and operating results</P>
</B><P ALIGN="JUSTIFY">Through the end of 2000, the telecommunications market
was experiencing rapid growth spurred by a number of factors including
deregulation in the industry, entry of a large number of new emerging service
providers, growth in data traffic and the availability of significant capital
from the financial markets. In 2001 and 2002, the telecommunications industry
experienced a reversal of some of these trends, marked by a dramatic reduction
in current and projected future capital expenditures by service providers,
financial difficulties and, in some cases, bankruptcies experienced by emerging
service providers, as well as a sharp contraction in the availability of
capital. These conditions caused a substantial reduction in demand for
telecommunications equipment and related software, which has had a resulting
impact on demand for Netergy's IP telephony semiconductor and software products
and for Centile's hosted iPBX solution. If our current or potential customers
are forced to defer or further curtail their capital spending programs, sales of
our hosted iPBX and eSLEE products to telecommunication service providers and
sales of our IP telephony semiconductors to manufacturers of telecommunication
equipment may continue to 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
experienced consolidation. The loss of one or more of our current or potential
telecommunication service provider or telecommunication equipment OEM 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>
<P ALIGN="JUSTIFY">We expect the developments described above to continue to
affect our business for at least the next several quarters in the following
manner:</P>

<UL>
<P ALIGN="JUSTIFY"><LI>our ability to accurately forecast revenue will be
diminished;</LI></P>
<P ALIGN="JUSTIFY"><LI>our revenues could be reduced; and</LI></P>
<P ALIGN="JUSTIFY"><LI>our losses may increase because operating expenses are
largely based on anticipated revenue trends and a high percentage of our
expenses are and will continue to be fixed in the short-term.</LI></P></UL>

<P>Our business, operating results and financial condition could be materially
and adversely impacted by any one or a combination of the above.</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>
<LI>changes in market demand;</LI>
<LI>the timing of customer orders;</LI>
<LI>competitive market conditions;</LI>
<LI>lengthy sales cycles and/or regulatory approval cycles;</LI>
<LI>new product introductions by us or our competitors;</LI>
<LI>market acceptance of new or existing products;</LI>
<LI>the cost and availability of components;</LI>
<LI>the mix of our customer base and sales channels;</LI>
<LI>the mix of products sold;</LI>
<LI>the management of inventory;</LI>
<LI>the level of international sales;</LI>
<LI>continued compliance with industry standards; and</LI>
<LI>general economic conditions.</LI></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 percentages 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, our product end of life announcement, and
other factors, gross profit as a percentage of revenue for our videoconferencing
semiconductor products will continue to decrease. Average selling prices
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. Because a significant portion of our
business may be derived from orders placed by a limited number of large
customers, including original equipment manufacturers, the timing of such orders
can 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 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.  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
investors, which would likely result in a significant reduction in the market
price of our common stock.</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, 2002 and 2001, respectively, accounted for approximately 81% and 86% of
total revenues.  Revenues from our ten largest customers for the fiscal years
ended March&nbsp;31, 2002 and 2001, accounted for approximately 73% and 48%,
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>
<LI>the identification of market demand for new products;</LI>
<LI>the scalability of our IP telephony software products;</LI>
<LI>product and feature selection;</LI>
<LI>timely implementation of product design and development;</LI>
<LI>product performance;</LI>
<LI>cost-effectiveness of products under development;</LI>
<LI>effective manufacturing processes; and</LI>
<LI>success of promotional efforts.</LI></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 products may cause our revenue and operating results to vary </P>
</B><P ALIGN="JUSTIFY">Our IP telephony software and semiconductor products,
including our hosted iPBX Packet8 telephony service and our Audacity family of
semiconductors, 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. We do not possess the capital infrastructure required to
invest in extensive marketing or advertising campaigns that may be required in
order to sell these products. 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>
<LI>the size of the network deployment;</LI>
<LI>the complexity of our customers' network environments;</LI>
<LI>our customers' skill sets;</LI>
<LI>the hardware and software configuration and customization necessary to
deploy our products; and</LI>
<LI>our customers' ability to finance their purchase of our products.</LI></UL>

<P ALIGN="JUSTIFY">As a result, it is difficult for us to predict the quarter in
which our customers may purchase our IP telephony products, and our revenue and
operating results may vary significantly from quarter to quarter.</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. Our future success depends upon the
continued services of our executive officers and other key employees who have
critical industry experience and relationships that we rely on to implement our
business plan. Most of our officers or key employees are not bound by employment
agreements for any specific term. However, we have provided Joe Parkinson, our
Chairman and former Chief Executive Officer, through a resolution of our Board
of Directors, with severance benefits that vest over time as a retention device.
Similarly, the Board of Directors authorized severance arrangements with Bryan
R. Martin, our Chief Executive Officer, Dr. Philip Bednarz, Chief Executive
Officer of Netergy Microelectronics, Inc. (Netergy) and certain other vice-presidents of
Netergy, however, all of these arrangements are fully vested. The
loss of the services of any of our officers or key employees could delay the
development and introduction of, and negatively impact our ability to sell our
products which 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 depend on contract 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>We outsource the manufacturing of our semiconductor products to
independent foundries and as such do not have internal manufacturing
capabilities to meet our customers' demands. Our primary semiconductor
manufacturer has been Taiwan Semiconductor Manufacturing Corporation (TSMC).
TSMC recently informed us that, subject to a transition period that we
anticipate will last until December 31, 2002, they will no longer supply us with
wafers for our existing videoconferencing semiconductor products, including LVP,
VCP and VCPex.  As a result, we have notified our customers of the end of life
of our videoconferencing products.  In addition, we have shifted the manufacture
of our voice over IP semiconductors from TSMC to an affiliate of
STMicroelectronics NV. STMicroelectronics NV, or its contract manufacturer,
TSMC, will be the sole manufacturer of our semiconductor products.
Furthermore, to the extent TSMC is utilized, 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
contract 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. For our consumer videophones, IP telephones and media hub devices
that are used with our hosted iPBX and Packet8 telephony service, we rely on the
availability of these semiconductor products.  These devices are also sourced
solely from certain overseas contract manufacturers and partners, and are not
available from any other manufacturer.</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.
For instance, our customers rely upon our ability to meet committed delivery
dates, and any disruption in the supply of our products could result in legal
action from our customers, loss of customers or harm to our ability to attract
new customers. Any of these factors could have a material adverse effect on our
business, operating results, and financial condition.</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
Packet8 telephony service 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. Our Packet8 telephony
service depends on the availability of third party network service providers
that provide telephone numbers and PSTN call termination services to our
software.  Many of these network service providers are financially affected by
the downturn in the telecommunications industry and may be forced to terminate
the services that we depend on.  The time to interface our technology to another
network service provider and qualify this new service could have a material
adverse effect on our business, operating results, and financial condition. </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 and Packet8 telephony service must
successfully integrate with products from other vendors, such as gateways to
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,
Packet8 telephony service 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 Packet8 telephony service products, 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 we have.  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 few,
if any, companies possess 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-nine
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, financial condition, 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 us of third-party patents will not be asserted or prosecuted
against the Company.</P>
<P ALIGN="JUSTIFY">We rely upon certain technology, including hardware and
software, licensed from third parties. There can be no assurance that the
technology licensed by us will continue to provide competitive features and
functionality or that licenses for technology currently utilized by us or other
technology which we may seek to license in the future will be available to us on
commercially reasonable terms or at all. The loss of, or inability to maintain
existing licenses could result in shipment delays or reductions until equivalent
technology or suitable alternative products could be developed, identified,
licensed and integrated, and could harm our business.  These licenses are on
standard commercial terms made generally available by the companies providing
the licenses.  The cost and terms of these licenses individually are not
material to our business.</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. 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, digital subscriber lines, and wireless local
loop, may not be used for telephony unless such networks and technologies can
provide reliability and quality consistent with these standards.<B> </P>
<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. Our IP telephony products rely heavily on
standards such as SIP, H.323, MGCP 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. These standards, as well as
audio and video compression standards, continue to evolve. 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 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 or to improve their performance.  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 foundry 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">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">We recorded sales to international customers of 68% and
59% of total revenues during the three and six month periods ended September 30,
2002, respectively. Sales to customers outside of the United States during the
years ended March&nbsp;31, 2002 and 2001 were 61% and 69% of total revenues,
respectively. The following table illustrates our net revenues by geographic
area expressed as a percentage of total revenues for the corresponding period.
Revenues are attributed to countries based on the destination of shipment: </P>

<PRE><FONT FACE="Courier New">
<B>
                                         Three Months Ended   Six Months Ended
                                            September 30,       September 30,
                                       ------------------  ------------------
                                          2002      2001      2002      2001   </B>
                                       --------  --------  --------  --------
   North America.....................       32%       40%       41%       38%
   Europe............................       30%       21%       33%       21%
   Asia Pacific......................       38%       39%       26%       41%
                                       --------  --------  --------  --------
                                           100%      100%      100%      100%
                                       ========  ========  ========  ========

</PRE></FONT><FONT FACE="Times New Roman" SIZE="3">

<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 other trade barriers, potentially adverse tax
consequences, fluctuations in currency exchange rates, greater difficulty in
collecting accounts receivable and longer collection periods, the impact of
recessions in economies outside of the United States, 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.  Taiwan in particular is subject to a high rate of
natural disasters, such as earthquakes or typhoons, which could have significant
impact on our suppliers and customers due to a delay in operations within that
country.  In addition, Taiwan's tenuous relationship with mainland China is a
source of continuing concern due to potential hostilities.  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">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>
<LI>actual or anticipated fluctuations in our operating results;</LI>
<LI>announcements of technical innovations;</LI>
<LI>loss of key personnel;</LI>
<LI>new products or new contracts by us, our competitors or their
customers;</LI>
<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; and</LI>
<LI>the potential delisting of our common stock.</LI></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>
<B><P ALIGN="JUSTIFY">We may face interruption of production and services due to
increased security measures in response to recent and potential future terrorist
activities</P>
</B><P ALIGN="JUSTIFY">Our business depends on the free flow of products and
services through the channels of commerce.  Recently, in response to terrorists'
activities and threats aimed at the United States, transportation, mail,
financial and other services have been slowed or stopped altogether.  Further
delays or stoppages in transportation, mail, financial or other services,
particularly any such delays or stoppages which harm our ability to obtain an
adequate supply of wafers and products from our independent suppliers, could
harm our business, results of operations and financial condition.  Furthermore,
we may experience an increase in operating costs, such as costs for
transportation, insurance and security as a result of the terrorist activities
and potential activities.  We may also experience delays in receiving payments
from customers that have been affected by the terrorist activities and potential
activities.  The United States economy in general is being adversely affected by
terrorist activities and potential terrorist activities.  Any economic downturn
could adversely impact our results of operations, impair our ability to raise
capital or otherwise adversely affect our ability to grow our business.
Moreover, we cannot determine whether other attacks may occur in the future and
the effects of such attacks on our business.</P>

<B><P ALIGN="JUSTIFY"><A NAME="controls"></A>ITEM 4. CONTROLS AND PROCEDURES
</P>
</B><P ALIGN="JUSTIFY">Based on their evaluation, as of a date within ninety
days of the filing of this Report on Form 10-Q, the Company's Chief Executive
Officer and Chief Financial Officer have concluded that the Company's disclosure
controls and procedures (as defined in Rules 13a-14 and 15d-14 under the
Securities Exchange Act of 1934) are effective. There have been no significant
changes in internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses. </P>

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

<B><P ALIGN="CENTER">PART II -- OTHER INFORMATION</P>
<P ALIGN="JUSTIFY"><A NAME="item2"></A>ITEM 2. SUBMISSION OF MATTERS TO A VOTE
OF SECURITIES HOLDERS</P>
</B><P ALIGN="JUSTIFY">The Company's 2002 Annual Meeting of Stockholders was
held on July 23, 2002 at the Company's principal executive offices in Santa
Clara, California.  At the meeting, 19,918,689 shares of the Company's common
stock were present in person and by proxy.  The number of votes present in
person or by proxy represented approximately 71% of eligible votes associated
with outstanding votable securities.</P>
<P ALIGN="JUSTIFY">The voting results by proposal were as follows:</P>
<P ALIGN="JUSTIFY">PROPOSAL 1.  Each person elected as a Director will serve
until the next annual meeting of stockholders or until such person's successor
is elected and qualified.  The following nominees for Director were
elected:</P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=522>
<TR><TD WIDTH="37%" VALIGN="TOP">
<U><FONT SIZE=3><P>Name of Nominee</U></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="28%" VALIGN="TOP">
<U><FONT SIZE=3><P>Votes Cast For</U></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="29%" VALIGN="TOP">
<U><FONT SIZE=3><P>Votes Withheld</U></FONT></TD>
</TR>
<TR><TD WIDTH="37%" VALIGN="TOP">
<FONT SIZE=3><P>Dr. Bernd Girod</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="28%" VALIGN="TOP">
<FONT SIZE=3><P>19,525,788</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=3><P>392,901</FONT></TD>
</TR>
<TR><TD WIDTH="37%" VALIGN="TOP">
<FONT SIZE=3><P>Guy Hecker</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="28%" VALIGN="TOP">
<FONT SIZE=3><P>19,534,738</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=3><P>383,951</FONT></TD>
</TR>
<TR><TD WIDTH="37%" VALIGN="TOP">
<FONT SIZE=3><P>Christos Lagomichos</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="28%" VALIGN="TOP">
<FONT SIZE=3><P>19,472,488</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=3><P>446,201</FONT></TD>
</TR>
<TR><TD WIDTH="37%" VALIGN="TOP">
<FONT SIZE=3><P>Bryan R. Martin</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="28%" VALIGN="TOP">
<FONT SIZE=3><P>19,534,738</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=3><P>383,951</FONT></TD>
</TR>
<TR><TD WIDTH="37%" VALIGN="TOP">
<FONT SIZE=3><P>Joe Parkinson</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="28%" VALIGN="TOP">
<FONT SIZE=3><P>19,503,238</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=3><P>415,451</FONT></TD>
</TR>
<TR><TD WIDTH="37%" VALIGN="TOP">
<FONT SIZE=3><P>William P. Tai</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="28%" VALIGN="TOP">
<FONT SIZE=3><P>19,534,738</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=3><P>383,951</FONT></TD>
</TR>
</TABLE></CENTER> </P>


<FONT SIZE=3><P ALIGN="JUSTIFY">PROPOSAL 2. The ratification and appointment of
PricewaterhouseCoopers LLP as independent auditors of the Company for the fiscal
year ending March 31, 2003 was approved by the stockholders with 19,727,767
voting in favor, 131,198 voting against and 59,724 abstaining.</P>
<P ALIGN="JUSTIFY">PROPOSAL 3. The amendment of the Company's 1996 Director
Option Plan (the &quot;Director Plan&quot;) to (i) increase the aggregate number
of shares of common stock from 500,000 shares to 1,000,000 shares, and (ii)
provide for an increase in the number of shares granted as non-discretionary
option grants under the Director Plan was approved by the stockholders with
18,220,359 voting in favor, 1,536,823 voting against and 161,507 abstaining.</P>

<B><P ALIGN="JUSTIFY"><A NAME="item6"></A>ITEM 6. EXHIBITS
AND REPORTS ON FORM 8-K </P></B>


<P ALIGN="JUSTIFY">(a) Exhibits. </P>

<P ALIGN="CENTER">
<TABLE BORDER=0 CELLSPACING=1 CELLPADDING=7 WIDTH=650>
<TR><TD WIDTH="15%" VALIGN="BOTTOM">
<FONT SIZE=3><B><P><U>EXHIBIT No.</B></U>
</FONT></TD>
<TD WIDTH="85%" VALIGN="BOTTOM">
<FONT SIZE=3><B><P><U>EXHIBIT TITLE</B></U>
</FONT></TD>
</TR>

<TR><TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>
99.1
</FONT></TD>
<TD WIDTH="85%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">
Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.</P>
</FONT></TD>
</TR>

<TR><TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>
99.2
</FONT></TD>
<TD WIDTH="85%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.</P>
</FONT></TD>
</TR>
</TABLE></P>

<P ALIGN="JUSTIFY">(b) Reports on Form 8-K. </P>


<P ALIGN="CENTER">
<TABLE BORDER=0 CELLSPACING=1 CELLPADDING=7 WIDTH=650>
<TR><TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>
i)
</FONT></TD>
<TD WIDTH="85%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">
On July 10, 2002, we filed a Current Report on Form 8-K
dated July 10, 2002 announcing that the Company had applied for listing on the
Nasdaq SmallCap Market.</P>
</FONT></TD>
</TR>

<TR><TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>
ii)
</FONT></TD>
<TD WIDTH="85%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">
Only July 24, 2002, we filed a Current Report on Form
8-K dated July 24, 2002 announcing that James Sullivan had been appointed Chief
Financial Officer of the Company, replacing David Stoll.</P>
</FONT></TD>
</TR>
</TABLE> </P>

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


<B><P ALIGN="CENTER"><A NAME="sign"></A>SIGNATURES </P>
</B><P>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 29, 2002</P>
<B><P ALIGN="CENTER"></P></B>
<P ALIGN="RIGHT"><TABLE CELLSPACING=0 BORDER=0 WIDTH=336>
<TR><TD VALIGN="MIDDLE">
<P>8X8, INC. </TD>
</TR>
<TR><TD VALIGN="MIDDLE">
<I><P>(Registrant)</I> </TD>
</TR>
<TR><TD VALIGN="MIDDLE">
<U><P>By: /S/      JAMES SULLIVAN</U></TD>
</TR>
<TR><TD VALIGN="MIDDLE">
<P>James Sullivan </TD>
</TR>
<TR><TD VALIGN="MIDDLE">
<I><P>Chief Financial Officer, Vice President of Finance and
Secretary<BR>
(Principal Financial and Accounting Officer) </I></TD>
</TR>
</TABLE>
</P>


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


<B><P ALIGN="CENTER"><A NAME="cert"></A>OFFICER CERTIFICATIONS</P></DIR>


</B><P ALIGN="JUSTIFY">I, Bryan R. Martin, certify that: </P>
<OL>

<P ALIGN="JUSTIFY"><LI>I have reviewed this quarterly report on Form 10-Q of
8x8, Inc.;</LI></P>
<P ALIGN="JUSTIFY"><LI>Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this quarterly report; </LI></P>
<P ALIGN="JUSTIFY"><LI>Based on my knowledge, the financial statements, and
other financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this quarterly
report; </LI></P>
<P ALIGN="JUSTIFY"><LI>The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:</LI></P>
<P ALIGN="JUSTIFY">a)&#9;designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;</P>
<P ALIGN="JUSTIFY">b)&#9;evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and</P>
<P ALIGN="JUSTIFY">c) &#9;presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date; </P>
<P ALIGN="JUSTIFY"><LI>The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent functions):</LI></P>
<P ALIGN="JUSTIFY">a)&#9;all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and</P>
<P ALIGN="JUSTIFY">b)&#9;any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and</P>
<P ALIGN="JUSTIFY"><LI>The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.</LI></P></OL>

<P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">October 29, 2002</P>
<P ALIGN="JUSTIFY"><U>/S/ BRYAN R. MARTIN</U></P>
<P ALIGN="JUSTIFY">Bryan R. Martin</P>
<P ALIGN="JUSTIFY">President and Chief Executive Officer</P>
</FONT><P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">&nbsp;</P>


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


<FONT SIZE=3><P ALIGN="JUSTIFY">I, James Sullivan, certify that: </P>
<OL>
<BR>
<P ALIGN="JUSTIFY"><LI>I have reviewed this quarterly report on Form 10-Q of
8x8, Inc.;</LI></P>
<P ALIGN="JUSTIFY"><LI>Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this quarterly report; </LI></P>
<P ALIGN="JUSTIFY"><LI>Based on my knowledge, the financial statements, and
other financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this quarterly
report; </LI></P>
<P ALIGN="JUSTIFY"><LI>The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:</LI></P>
<P ALIGN="JUSTIFY">a)&#9;designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;</P>
<P ALIGN="JUSTIFY">b)&#9;evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and</P>
<P ALIGN="JUSTIFY">c) &#9;presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date; </P>
<P ALIGN="JUSTIFY"><LI>The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent functions):</LI></P>
<P ALIGN="JUSTIFY">a)&#9;all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and</P>
<P ALIGN="JUSTIFY">b)&#9;any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and</P>
<P ALIGN="JUSTIFY"><LI>The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.</LI></P></OL>

<P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">October 29, 2002</P>
<P ALIGN="JUSTIFY"><U>/S/ JAMES SULLIVAN</U></P>
<P ALIGN="JUSTIFY">James Sullivan</P>
<P ALIGN="JUSTIFY">Chief Financial Officer, Vice President of Finance and
Secretary </P>
<P ALIGN="JUSTIFY">&nbsp;</P>

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

</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>4
<FILENAME>exh99-1.htm
<DESCRIPTION>EXHIBIT
<TEXT>
<HTML>
<head>
<title>Q2 2003 Exhibit 99.1</title>
</head>
<body bgcolor=white>
<font FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">Exhibit 99.1</P>
<P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="CENTER">CERTIFICATION PURSUANT TO</P>
<P ALIGN="CENTER">18 U.S. C. SECTION 1350,</P>
<P ALIGN="CENTER">AS ADOPTED PURSUANT TO </P>
<P ALIGN="CENTER">SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</P>
<P ALIGN="JUSTIFY">In connection with the Quarterly Report of 8x8, Inc. (the
"Company") on Form 10-Q for the period ended September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Bryan R. Martin, President and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that: </P>
<OL>

<P ALIGN="JUSTIFY"><LI>The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and </LI></P>
<P ALIGN="JUSTIFY"><LI>The information contained in the Report fairly presents,
in all material respects, the financial condition and results of operations of
the Company. </LI></P></OL>

<P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY"><U>/S/ BRYAN R. MARTIN</U></P>
<P ALIGN="JUSTIFY">Bryan R. Martin</P>
<P ALIGN="JUSTIFY">President and Chief Executive Officer</P>
<P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">&nbsp;</P>

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

</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>5
<FILENAME>exh99-2.htm
<DESCRIPTION>EXHIBIT
<TEXT>
<HTML>
<head>
<title>Q2 2003 Exhibit 99.2</title>
</head>
<body bgcolor=white>
<font FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">Exhibit 99.2</P>
<P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="CENTER">CERTIFICATION PURSUANT TO</P>
<P ALIGN="CENTER">18 U.S. C. SECTION 1350,</P>
<P ALIGN="CENTER">AS ADOPTED PURSUANT TO </P>
<P ALIGN="CENTER">SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</P>
<P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">In connection with the Quarterly Report of 8x8, Inc. (the
"Company") on Form 10-Q for the period ended September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
James Sullivan, Chief Financial Officer, Vice President of Finance and Secretary
of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that: </P>
<OL>

<P ALIGN="JUSTIFY"><LI>The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and </LI></P>
<P ALIGN="JUSTIFY"><LI>The information contained in the Report fairly presents,
in all material respects, the financial condition and results of operations of
the Company. </LI></P></OL>

<P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY"><U>/S/ JAMES SULLIVAN</U></P>
<P ALIGN="JUSTIFY">James Sullivan</P>
<P ALIGN="JUSTIFY">Chief Financial Officer, Vice President of Finance and
Secretary </P></FONT>

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


</BODY>
</HTML>

</TEXT>
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