8X8 Inc/DE – IPO: ‘424B4’ on 7/2/97

As of:  Wednesday, 7/2/97   ·   Accession #:  891618-97-2813   ·   File #:  333-15627

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Initial Public Offering (IPO):  Prospectus   —   Rule 424(b)(4)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Final Prospectus Dated July 2, 1997                   79    522K 

Document Table of Contents

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                                        Filed Pursuant to Rule 424(b)(4)
                                            Registration Statement No. 333-15627

3,600,000 SHARES

Logo

COMMON STOCK

   All of the 3,600,000 shares of Common Stock offered hereby are being sold
by 8x8, Inc. ("8x8" or the "Company"). Prior to this offering (the "Offering"), 
there has been no public market for the Common Stock of the Company. See        
"Underwriting" for a discussion of the factors considered in determining the    
initial public offering price. The Company's Common Stock has been approved for 
quotation on the Nasdaq National Market under the symbol "EGHT."                

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"    
COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE         
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.        
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES 
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. 
================================================================================

                                                        [Enlarge/Download Table]

                                                                          Underwriting                      
                                                        Price to         Discounts and        Proceeds to   
                                                         Public          Commissions(1)        Company(2)   
                                                                                                            
------------------------------------------------------------------------------------------------------------
Per Share........................................   $6.50              $0.455               $6.045          
Total(3).........................................   $23,400,000        $1,638,000           $21,762,000     
============================================================================================================

(1) See "Underwriting" for information concerning indemnification of the        
Underwriters and other matters.                                         

(2) Before deducting expenses payable by the Company estimated at $1,300,000.   

(3) The Company has granted the Underwriters a 30-day option to purchase up to  
  540,000 additional shares of Common Stock solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the Price to  
 Public will total $26,910,000, the Underwriting Discounts and Commissions
 will total $1,883,700 and the Proceeds to Company will total $25,026,300.
See "Underwriting."                                                     

  The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to 
reject any order in whole or in part. It is expected that delivery of the       
certificates representing such shares will be made against payment therefor at  
the office of Montgomery Securities on or about July 8, 1997.                   

--------------------------- 

MONTGOMERY SECURITIES  DONALDSON, LUFKIN & JENRETTE 
                                      SECURITIES CORPORATION

July 2, 1997

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LOGO

------------------------

The Company intends to furnish its stockholders with annual reports   
containing financial statements audited by its independent accountants and      
quarterly reports for the first three quarters of each fiscal year containing   
unaudited financial information.                                                
------------------------

This Prospectus includes trademarks and trade names of the Company and
other corporations.                                                             
------------------------

    As used in this Prospectus, "8x8" and the "Company" refer to 8x8, Inc. and
its subsidiaries, unless the context otherwise indicates. Except as otherwise   
indicated, the information presented in this Prospectus assumes that (i) the    
Underwriters' over-allotment option is not exercised, (ii) all outstanding      
shares of the Company's Preferred Stock are converted into Common Stock upon the
closing of this Offering and (iii) the Company has filed an Amended and Restated
Certificate of Incorporation immediately after the closing of this Offering to  
eliminate the Company's currently existing classes of Preferred Stock and       
authorize undesignated Preferred Stock. See "Capitalization," "Description of   
Capital Stock" and "Underwriting."                                              
------------------------

   CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,    
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING            
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,   
SEE "UNDERWRITING."                                                             

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN  
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL   
MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."         

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PROSPECTUS SUMMARY

    The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information, including "Risk Factors" and 
Consolidated Financial Statements and Notes thereto, appearing elsewhere in this
Prospectus. The discussion in this Prospectus contains forward-looking          
statements. The outcome of the events described in such forward-looking         
statements is subject to risks and uncertainties. The Company's actual results  
may differ materially from those discussed in such forward-looking statements.  
Factors that may cause or contribute to such differences include those discussed
in sections entitled "Risk Factors," "Management's Discussion and Analysis of   
Financial Condition and Results of Operations" and "Business," as well as those 
discussed elsewhere in this Prospectus.                                         

THE COMPANY 

 8x8, Inc. ("8x8" or the "Company") designs, develops and markets highly
integrated, proprietary video compression semiconductors and associated software
to original equipment manufacturers ("OEMs") of corporate video conferencing    
systems. To address new opportunities, the Company is leveraging its strengths  
in semiconductor design and related software to develop and market video        
conferencing systems for the consumer market. The Company began shipping the    
VC100 (or "ViaTV"), the first product in its planned family of                  
VideoCommunicators, to the United States consumer market in February 1997. The  
VC100 connects to a television set and a standard touch-tone telephone adding   
video to an otherwise normal telephone call, without the need for a personal    
computer ("PC"). The Company has sold a limited number of VC100s in several     
foreign countries and is pursuing regulatory approvals which will permit the    
sale of the VC100 in additional foreign countries. There can be no assurance,   
however, that the Company will receive any such foreign regulatory approvals in 
a timely manner, if at all. See "Risk Factors -- Compliance with Regulations and
Industry Standards."                                                            

     The Company's video compression semiconductors combine, on a single chip, a
reduced instruction set computer ("RISC") microprocessor, a digital signal      
processor ("DSP"), specialized video processing circuitry, static random access 
memory ("RAM") and proprietary software to perform the real time compression and
decompression ("codec") of video and audio information and establish and        
maintain network connections in a manner consistent with international standards
for video telephony. These semiconductors are designed to provide video         
conferencing over a broad range of network types including POTS, integrated     
services digital networks ("ISDN"), local area networks ("LAN") and asymmetric  
digital subscriber lines ("ADSL"). Customers for the Company's video compression
semiconductors include PictureTel, Siemens, Sony, VideoServer, VCON and Vtel.   

The Company's VideoCommunicators are based on its proprietary         
semiconductor, software and systems technology. The VC100 is designed to be     
compliant with the H.324 international standard for video telephony over        
standard analog telephone lines (commonly known as plain old telephone service, 
or "POTS") and to be compatible with PC and non-PC based systems that adhere to 
the H.324 standard. The VC100 is designed to communicate with full duplex audio 
and video rates of up to 15 frames per second. In addition, the Company is      
currently demonstrating prototypes of two additional VideoCommunicators : a     
version of its VC100 that permits internet browsing and the VC200, which is a   
non-PC based POTS video phone and internet browser with a built-in liquid       
crystal display. The Company sells its VideoCommunicators through a direct      
marketing effort utilizing a combination of advertising, toll-free telemarketing
and direct mail supported by co-marketing relationships with third parties such 
as EFA, GTE and Hewlett-Packard. The Company also recently began marketing its  
VideoCommunicators through retail channels such as Comexpo, Fry's Electronics,  
J&R Computer World and Staples and catalogs such as Hello Direct and            
MicroWarehouse. In addition, Hammacher Schlemmer and Sharper Image have agreed  
to include the VC100 in their catalogs. See "Business -- Products" and          
"Business -- Licensing and Development Arrangements" for a discussion of the    
development status of the VC100, the version of the VC100 with internet browsing
capability, the VC200 and the successor products to the Company's video         
compression semiconductors and certain related licensing and development        
arrangements (including arrangements pursuant to which U.S. Robotics Access     
Corporation ("USR") and Kyushu Matsushita Electric Co., Ltd. ("KME") have       
licensed all or substantially all of the Company's technology underlying its    
VideoCommunicators). Although the Company has received certain revenues from    
licensing and development arrangements in the past, there can be no assurance   
that the Company will receive any revenues from such arrangements in the future.
In addition, KME, Leadtek, Truedox, USR and other licensees or purchasers of the
Company's technology, video compression semicon-                                

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ductors, software or board designs are using or may use such technology or      
components to manufacture and sell products that compete with the Company's     
VideoCommunicators.                                                             

  The proliferation of video conferencing products is dependent on several
factors including network bandwidth, advanced compression technologies and the  
acceptance of video telephony standards. Increases in available bandwidth       
improve the data carrying capacity of networks, while improvements in           
compression technologies utilize a given bandwidth more efficiently. Finally,   
video telephony standards are key to widespread adoption as they are designed to
permit the interoperability between systems offered by different vendors.       

    As a result of recent technological advances and the adoption of the H.324
standard for video telephony over POTS, consumer video phones are being         
developed by a number of suppliers. These products are being introduced in a    
variety of product configurations and physical forms (i.e., "form factors"),    
including those based on telephones and televisions and those based on the PC.  
An increasing number of PCs are being shipped with pre-installed H.324 compliant
software. Significant sales of such H.324 products, if achieved, should increase
the usefulness and demand for additional H.324 compliant video phones by        
providing potential video phone purchasers with other parties to call.          

    C-Phone and Leadtek recently began shipping to consumer electronics stores
products that are directly competitive with the Company's VC100. Leadtek is     
currently both a licensee of certain of the Company's technology and a purchaser
of the Company's video compression semiconductors. The Company expects that     
others will introduce products that compete with the Company's                  
VideoCommunicators in the future.                                               

    During fiscal years 1993 through 1995, the Company's revenues were derived
primarily from the sale of math co-processors. However, the Company's revenues  
from math co-processors subsequently declined and revenues from the Company's   
sale of video compression semiconductors increased, comprising the majority of  
the Company's total revenues during fiscal 1997. In the past, the Company has   
also derived revenues from certain licensing transactions. Nonetheless, there   
can be no assurance that the Company will receive revenues from the licensing of
its technology in the future. See "Business -- Licensing and Development        
Arrangements." Because the Company's video compression semiconductor business   
has not provided, and is not expected to provide, sufficient revenues to        
profitably operate the Company, the Company believes that its future            
profitability will be largely dependent on the success of its VideoCommunicator 
business. As a result, the Company believes that its historical operating       
results will not be comparable to, and should not be relied upon as an          
indication of, future operating results.                                        

    The Company was incorporated in February 1987 in California under the name
Integrated Information Technology, Inc. In April 1996, the Company changed its  
name to 8x8, Inc. and in December 1996 reincorporated in Delaware. The Company's
executive offices are located at 2445 Mission College Boulevard, Santa Clara, CA
95054, and its telephone number is (408) 727-1885.                              

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THE OFFERING

                                                        [Enlarge/Download Table]
                                                                                                 
Common Stock offered by the Company............. 3,600,000 shares                                
Common Stock to be outstanding after the         14,316,659 shares(1)                            
  Offering......................................                                                 
Use of Proceeds................................. For general corporate purposes including working
                                                 capital. See "Use of Proceeds."                 
Proposed Nasdaq National Market symbol.......... EGHT                                            

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                         YEAR ENDED MARCH 31,               
                                                           ------------------------------------------------ 
                                                            1993      1994      1995      1996       1997   
                                                           -------   -------   -------   -------   -------- 
                                                                                                            
CONSOLIDATED STATEMENT OF OPERATIONS DATA:                                                                  
  Total revenues.......................................... $31,082   $34,401   $19,929   $28,774   $ 19,146 
  Gross profit............................................  16,945    14,932     8,025    12,106      7,116 
  Income (loss) from operations...........................  (1,473)      243    (6,527)   (4,149)   (13,551)
  Net loss................................................    (841)     (348)   (5,881)   (3,217)   (13,613)
  Pro forma net loss per share............................                                         $  (1.14)
  Shares used in pro forma per share calculations.........                                           11,943 

                                                        [Enlarge/Download Table]

                                                                                            MARCH 31, 1997     
                                                                                       ------------------------
                                                                                       ACTUAL    AS ADJUSTED(2)
                                                                                       -------   --------------
                                                                                                               
CONSOLIDATED BALANCE SHEET DATA:                                                                               
  Working capital..................................................................... $ 4,654      $ 25,116   
  Total assets........................................................................  12,727        33,189   
  Total liabilities...................................................................   6,686         6,686   
  Stockholders' equity................................................................   6,041        26,503   

---------------                                                                 
(1) Excludes, as of March 31, 1997, (i) an aggregate of 2,291,150 shares of     
  Common Stock issuable on the exercise of outstanding options granted under
the Company's 1992 Stock Option Plan and 1996 Stock Plan and (ii) an    
 aggregate of 1,102,656 shares of Common Stock reserved for issuance under
   the Company's 1992 Stock Option Plan, 1996 Stock Plan, 1996 Director Option
    Plan and 1996 Employee Stock Purchase Plan. Subsequent to March 31, 1997 and
    prior to the date of this Prospectus, the Company (i) granted options for an
   additional 751,000 shares of Common Stock pursuant to its 1992 Stock Option
  Plan and 1996 Stock Plan and (ii) reserved an additional 500,000 shares of
Common Stock for issuance under its 1996 Stock Plan. See                
"Management -- Compensation Plans" and Note 6 of Notes to Consolidated  
Financial Statements.                                                   

(2) Adjusted to reflect the sale of 3,600,000 shares of Common Stock by the     
Company at the public offering price of $6.50 per share after deducting 
estimated underwriting discounts and commissions and estimated offering 
expenses. See "Use of Proceeds" and "Capitalization."                   

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

     Certain statements contained under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and under "Business," as well as 
other statements contained in this Prospectus regarding matters that are not    
historical facts are forward-looking statements. Because the outcome of the     
events described in such forward-looking statements is subject to risks and     
uncertainties, actual results may differ materially from those expressed in or  
implied by such forward-looking statements. Factors that could cause actual     
results to differ materially include, but are not limited to, those discussed   
herein under "Risk Factors." The Company undertakes no obligation to release    
publicly the result of any revisions to these forward-looking statements that   
may be made to reflect events or circumstances after the date hereof or to      
reflect the occurrence of unanticipated events.                                 

RISK FACTORS

     An investment in the shares of Common Stock being offered hereby involves a
high degree of risk. In addition to the other information in this Prospectus,   
the following risk factors should be considered carefully by potential          
purchasers in evaluating an investment in the Common Stock offered hereby.      

HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY; DEFERRED COMPENSATION   
EXPENSE                                                                         

 The Company recorded operating losses of $6.5 million, $4.1 million and
$13.6 million in the years ended March 31, 1995, 1996 and 1997, respectively.   
Revenues fluctuated from $19.9 million in fiscal 1995 to $28.8 million in fiscal
1996 to $19.1 million in fiscal 1997. In view of the Company's operating losses,
there can be no assurance that the Company will either become profitable or     
sustain profitability on an annual or quarterly basis. Future losses will likely
occur in the event that the Company's initial VideoCommunicators, particularly  
the VC100, do not achieve widespread consumer market acceptance, of which there 
can be no assurance.                                                            

The Company has recorded deferred compensation expense of $7.3 million
relating to certain stock option grants which were made during the period June  
through September 1996. The Company recognized $4.5 million of the deferred     
compensation expense during fiscal 1997, and will recognize the remainder over  
the related vesting period of the options (which is generally 48 months). The   
future compensation charges are subject to reduction for any employee who       
terminates employment prior to the expiration of such employee's option vesting 
period. See "Management's Discussion and Analysis of Financial Condition and    
Results of Operations" and Note 6 of Notes to Consolidated Financial Statements.

DEPENDENCE ON FUTURE VIDEOCOMMUNICATOR REVENUES                                 

 The Company believes that its business and future profitability will be
largely dependent on widespread market acceptance of its first                  
VideoCommunicator, the VC100. The Company's video compression semiconductor and 
related software business has not provided, and is not expected to provide,     
sufficient revenues to profitably operate the Company. The Company has sold a   
limited number of VC100s in several foreign countries and is pursuing regulatory
approvals which will permit the sale of the VC100 in additional foreign         
countries. There can be no assurance, however, that the Company will receive any
such foreign regulatory approvals for the VC100, or any regulatory approvals for
its other VideoCommunicators, in a timely manner, if at all. If the Company does
not receive such approvals in a timely manner, or if the VC100 product does not 
achieve sufficient market acceptance, it would have a material adverse effect on
the Company's business and operating results. See "Management's Discussion and  
Analysis of Financial Condition and Results of Operations" and "Business -- 8x8 
Strategy."                                                                      

POTENTIAL FLUCTUATIONS IN FUTURE OPERATING RESULTS                              

 The Company's future operating results are expected to fluctuate as the
Company proceeds with the development and marketing of its family of non-PC     
based VideoCommunicators. Moreover, because the Company's video compression     
semiconductor and related software business has not provided, and is not        
expected to provide, sufficient revenues to profitably operate the Company, the 
Company believes that its future profitability will be largely dependent on the 
success of its VideoCommunicator business. As a result, the Company believes    
that its historical operating results will not be comparable to, and should not 
be relied                                                                       

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upon as an indication of, future operating results. In addition, the Company's  
operating results have fluctuated significantly and may continue to fluctuate in
the future, on an annual and a quarterly basis, as a result of a number of      
factors, many of which are outside the Company's control, including changes in  
market demand, the timing of customer orders, competitive market conditions,    
lengthy sales cycles, new product introductions by the Company or its           
competitors, market acceptance of new or existing products, the cost and        
availability of components, the mix of the Company's customer base and sales    
channels, the mix of products sold, the level of international sales, continued 
compliance with industry standards and general economic conditions. The         
Company's gross margin is affected by a number of factors, including product    
mix, product pricing, the allocation between international and domestic sales,  
the percentage of direct sales and sales to distributors, and manufacturing and 
component costs. The Company may also be required to reduce prices in response  
to competitive pressure or other factors or increase spending to pursue new     
market opportunities. Any decline in average selling prices of a particular     
product which is not offset by a reduction in production costs or by sales of   
other products with higher gross margins would decrease the Company's overall   
gross margin and adversely affect the Company's operating results. In           
particular, in the event that the Company encounters significant price          
competition in the markets for its products, the Company could be at a          
significant disadvantage compared to its competitors, many of which have        
substantially greater resources, and therefore may be better able to withstand  
an extended period of downward pricing pressure. Moreover, the Company believes 
that the marketing of its family of VideoCommunicators may adversely impact its 
gross margins due in part to higher unit costs associated with initial          
production of its first products, including the VC100, as well as substantially 
different cost and pricing structures related to the manufacture and sale of    
consumer products.                                                              

    Variations in timing of sales may cause significant fluctuations in future
operating results. In addition, because a significant portion of the Company's  
business may be derived from orders placed by a limited number of large         
customers, the timing of such orders can also cause significant fluctuations in 
the Company's operating results. Anticipated orders from customers may fail to  
materialize, and delivery schedules may be deferred or canceled for a number of 
reasons, including changes in specific customer requirements. If sales do not   
meet the Company's expectations in any given quarter, the adverse impact of the 
shortfall on the Company's operating results may be magnified by the Company's  
inability to adjust spending to compensate for the shortfall. Announcements by  
the Company or its competitors of new products and technologies could cause     
customers to defer purchases of the Company's existing products, which would    
also have a material adverse effect on the Company's business and operating     
results.                                                                        

The Company's strategic shift towards the production and marketing of 
VideoCommunicators, such as the VC100, may result in substantially different    
patterns in operating results. For example, the Company's operating results may 
be subject to increased seasonality with sales higher during the Company's third
fiscal quarter, corresponding to the Christmas shopping season. The Company     
intends to spend substantial additional amounts on advertising, toll-free       
marketing and customer support. There can be no assurance as to the amount of   
such spending or that revenues adequate to justify such spending will result. As
a result of its shift to selling VideoCommunicators, the Company may experience 
different inventory, product return, price protection, receivable collection and
warranty cost patterns.                                                         

  As a result of these and other factors, it is likely that in some future
period the Company's operating results will be below the expectations of        
securities analysts or investors, which would likely result in a significant    
reduction in the market price for the Common Stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."                 

COMPETITION                                                                     

  The Company competes with independent manufacturers of video compression
semiconductors and, as a result of the recent introduction of the VC100, its    
initial VideoCommunicator, now competes with manufacturers of video conferencing
products targeted at the consumer market. The markets for the Company's products
are characterized by intense competition, declining average selling prices and  
rapid technological change. The competitive factors in the market for the       
Company's VideoCommunicators include audio and video quality, phone line        
connectivity at high transmission rates, ability to connect and maintain stable 
connections, ease of use, price, access to enabling technologies, product       
design, time-to-market, adherence to                                            

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industry standards, interoperability, strength of distribution channels,        
customer support, reliability and brand name. In addition to these factors, the 
Company's ability to compete depends upon its future success in developing and  
manufacturing new generations of video compression semiconductors that integrate
additional functions and reduce costs. Otherwise, competing semiconductor       
manufacturers may in the future have competitive advantages in cost, size and   
performance which could make systems based on competing semiconductors          
preferable to the Company's VideoCommunicators. The Company expects intense     
competition for its VideoCommunicators from the following segments:             

  Large consumer electronics manufacturers.  The Company will face intense
competition from many well known, established suppliers of consumer   
 electronics products, which may include Lucent Technologies, Matsushita
  Electric Industrial Co., Ltd. ("Matsushita"), Philips, Samsung and Sony.
    Many of these potential competitors sell television and telephone products
into which they may integrate video conferencing systems, thereby     
 eliminating a consumer's need to purchase a separate video conferencing
system, such as the VC100.                                            

    Licensees and purchasers of the Company's VideoCommunicator technology and
    components.  A number of companies have licensed portions of the Company's
   technology, including USR and KME, an affiliate of Matsushita, which have
each licensed all or substantially all of the Company's technology    
underlying its VideoCommunicators. Pursuant to the Company's license  
agreements with USR and KME, the Company has already received lump sum
   payments and will receive additional licensing revenues only in the event
     that such parties develop their own semiconductors or products based on the
Company's licensed technology. In connection with these licensing     
arrangements, each of USR and KME may be able to use the licensed     
     technology to manufacture and sell products that compete with the Company's
VideoCommunicators. The Company may in the future enter into similar  
    license agreements with respect to substantial portions of its technology.
See "Business -- Licensing and Development Arrangements." In addition,
    other companies have chosen or may choose to manufacture and sell products
  competitive with the Company's VideoCommunicators by incorporating video
  compression semiconductors purchased from the Company into products that
 are based on the Company's video phone reference board designs or other
video phone designs. For example, Leadtek, which is currently both a  
licensee of certain of the Company's technology and a purchaser of the
Company's video compression semiconductors, recently began shipping to
     consumer electronics stores a product that is directly competitive with the
Company's VC100.                                                      

Purchasers of other companies' video compression semiconductors and   
   reference designs.  Companies may choose to manufacture and sell products
     based upon video compression semiconductors manufactured by suppliers other
    than the Company or upon reference designs based upon such semiconductors.
Certain of these other suppliers of video compression semiconductors, 
     including Analog Devices, Chromatic Research, Lucent Technologies, Philips,
   Texas Instruments and Winbond Electronics, may have significantly greater
  resources than the Company. In order to increase the sale of their video
compression semiconductors, these manufacturers may provide marketing,
financial and other support to the purchasers of these products. One  
   company has publicly announced that it is developing a video conferencing
  product based upon Lucent Technologies' video compression semiconductors
and that it will be making available for sale to third parties a video
   phone reference design incorporating Lucent Technologies' semiconductors.
     In addition, another company has publicly announced that it is developing a
    similar product based on semiconductors from Analog Devices. The Company's
ability to compete depends upon its future success in developing and  
manufacturing new generations of video compression semiconductors that
integrate additional functions and reduce costs. Otherwise, competing 
   semiconductor manufacturers may in the future have competitive advantages
   in cost, size and performance which could make systems based on competing
semiconductors preferable to the Company's VideoCommunicators.        

   Personal computer system and software manufacturers.  Potential customers
    for the Company's VideoCommunicators may elect instead to buy PCs equipped
   with video conferencing capabilities, which are currently available. As a
result, the Company may face competition from Intel; PC system        
  manufacturers such as Apple, Compaq, IBM and Sony; PC software suppliers
such as Microsoft and Netscape; and PC add-on component suppliers.    

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   Existing manufacturers of video conferencing equipment.  Manufacturers of
  more expensive corporate video conferencing systems may enter the market
    for lower cost consumer video conferencing products. Potential competitors
include Compression Labs, C-Phone (which is shipping to consumer      
     electronics stores a product that is competitive with the Company's VC100),
PictureTel, Sony and Vtel.                                            

   Emerging suppliers of "internet appliances."  Potential customers for the
   Company's VideoCommunicators may elect instead to buy standalone internet
    access terminals which may provide some or all of the functionality of the
    Company's products. Consumer products for television-based internet access
    have recently been announced or introduced by companies such as Microsoft,
Philips and Sony.                                                     

    C-Phone and Leadtek recently began shipping to consumer electronics stores
products that are directly competitive with the Company's VC100. Leadtek is     
currently both a licensee of certain of the Company's technology and a purchaser
of the Company's video compression semi conductors. The Company expects that    
others will introduce products that compete with the Company's                  
VideoCommunicators in the future.                                               

The principal competitive factors in the market for video compression 
semiconductors include product definition, product design, system integration,  
chip size, functionality, time-to-market, adherence to industry standards, price
and reliability. The Company has a number of competitors in this market         
including Analog Devices, Chromatic Research, Lucent Technologies, Philips,     
Texas Instruments and Winbond Electronics. Certain of the Company's competitors 
for video compression semiconductors maintain their own semiconductor foundries 
and may therefore benefit from certain capacity, cost and technical advantages. 

Many of the Company's current and potential competitors have longer   
operating histories, are substantially larger, and have greater financial,      
manufacturing, marketing, technical and other resources. A number also have     
greater name recognition and a larger installed base of products than the       
Company. Competition in the Company's markets may result in significant price   
reductions. As a result of their greater resources, many current and potential  
competitors may be better able than the Company to initiate and withstand       
significant price competition or downturns in the economy. There can be no      
assurance that the Company will be able to continue to compete effectively, and 
any failure to do so would have a material adverse effect on the Company's      
business and operating results.                                                 

UNCERTAINTY OF MARKET ACCEPTANCE; LIMITS OF EXISTING TECHNOLOGY                 

   Previous efforts to sell consumer video phones have been unsuccessful and
there can be no assurance that the market for such products will develop. The   
Company has no reliable data to suggest that there will be significant customer 
demand for such products, including the Company's VideoCommunicators. For such  
products to achieve widespread consumer acceptance, the installed base must     
reach a critical mass. Failure of the market for consumer video telephony to    
develop or achieve critical mass would have a material adverse effect on the    
Company's business and operating results.                                       

   In addition, the data carrying capacity of standard analog phone lines is
limited. Currently, modems used for the symmetrical transmission of data over   
standard analog phone lines are limited to data transfer rates of up to 33.6    
kilobits per second ("Kbps"). Using such modems, the Company's VC100 may        
initially be capable of delivering video data at rates only up to 15 frames per 
second. This compares to 30 frames per second provided by television, 24 frames 
per second provided by movies and 24 or more frames per second provided by ISDN 
video teleconferencing. At rates less than approximately 24 frames per second,  
the human eye can detect degradation of video quality. Further, POTS            
infrastructure varies widely in configuration and integrity, which can result in
decreased rates of transmission and difficulties in establishing and maintaining
connections. Actual or perceived technical difficulties related to the H.324    
standard on POTS could have a material adverse effect on the Company's business 
and results of operations. See "Business -- Sales and Marketing."               

DEPENDENCE ON H.324 STANDARD FOR VIDEO TELEPHONY                                

  The H.324 standard has only recently received industry endorsement as an
international protocol for video telephony using POTS. The Company believes that
adherence to this standard is an important factor in the development of this    
marketplace and, if the H.324 standard is not widely implemented in the         
industry,                                                                       

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different vendors' products will not be compatible, which may deter or delay    
growth in the market and reduce the demand for consumer video telephony         
products. However, the emergence of industry standards may also lower barriers  
to entry and result in increased competition. There can be no assurance that the
H.324 standard will not change or be supplanted by other standard or            
non-standard video methods, which could render the Company's H.324 compliant    
products uncompetitive. There can be no assurance that, even with the H.324     
standard in place, a market for video telephony products compatible with H.324  
will develop. Further, the implementation of the H.324 standard by different    
manufacturers may vary. Such variation could degrade the quality and limit the  
interoperability of POTS based systems, which may inhibit widespread acceptance 
of consumer video telephony products.                                           

NO HISTORY OF CONSUMER MARKETING                                                

In recent years, the Company has been a provider of video compression 
semiconductors to OEMs of video conferencing systems. Accordingly, the Company  
has had no prior experience in marketing commercial quantities of consumer      
products such as its VideoCommunicators. In order to achieve significant market 
penetration and brand awareness for its VideoCommunicators, the Company must    
expand its sales and marketing efforts and further develop consumer marketing   
capabilities. There can be no assurance that the Company will be successful in  
these areas or that the Company will be able to achieve significant market      
penetration with its VideoCommunicators. See "Business -- Sales and Marketing." 

NO ASSURANCE OF FUTURE LICENSING REVENUES                                       

     The Company has in the past received substantial revenues from licensing of
technology. Licensing revenues (all of which were non-recurring) were $1.3      
million, $9.0 million and $3.9 million in the years ended March 31, 1995, 1996  
and 1997, respectively. There can be no assurance that the Company will receive 
revenues from licensing of its technology in the future.                        

PRODUCT CONCENTRATION; POTENTIAL LOSS OF SEMICONDUCTOR SALES; DEPENDENCE ON     
VIDEO CONFERENCING INDUSTRY                                                     

In the years ended March 31, 1995, 1996 and 1997, sales of video      
compression semiconductors and reference design boards accounted for            
approximately 38%, 59% and 76%, respectively, of the Company's total revenues.  
Pending widespread market acceptance of its VideoCommunicators, sales of video  
compression semiconductors will continue to account for a substantial portion of
total revenues. Moreover, successful introduction of VideoCommunicators may     
adversely affect sales of semiconductors to the Company's existing customers    
that currently, or may in the future, sell products that compete with the       
Company's VideoCommunicators.                                                   

Sales of the Company's existing compression semiconductors and        
VideoCommunicators are also dependent on the video conferencing industry. Thus, 
regardless of the success or failure of its VideoCommunicators, the Company will
continue to be substantially dependent on the video conferencing industry. Any  
reduction in the demand for the Company's video compression semiconductors      
(particularly prior to significant VideoCommunicator revenues) or any general   
decline in the market for video conferencing products could have a material     
adverse effect on the Company's business, and operating results. See            
"Business -- Sales and Marketing" and "Business -- Competition."                

DEPENDENCE ON KEY CUSTOMERS                                                     

Historically, a significant portion of the Company's sales has been to
relatively few customers, although the composition of these customers has       
varied. Product revenues from the Company's ten largest customers, in the years 
ended March 31, 1995, 1996 and 1997 accounted for approximately 44%, 39% and    
54%, respectively, of its total revenues. During these periods, excluding one   
company paying certain non-recurring licensing fees during the year ended March 
31, 1996, the Company had only two customers that accounted for 10% or more of  
total revenues: Compression Labs (during the year ended March 31, 1995) and     
ASCII, the Company's Japanese distributor (during the year ended March 31,      
1997). The Company has elected to terminate its                                 

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distribution relationship with ASCII effective June 30, 1997. Nonetheless, sales
of video compression semiconductors to relatively few customers may continue to 
account for a significant portion of its total revenues. Substantially all the  
Company's sales have been made, and are expected to be made, on a purchase order
basis. None of the Company's customers has entered into a long-term agreement   
requiring it to purchase the Company's products. The loss of, or any reduction  
in orders from, significant customers could have a material adverse effect on   
the Company's business and operating results. See "Business -- Sales and        
Marketing."                                                                     

RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCT INTRODUCTION              

The video compression semiconductor and video conferencing markets are
characterized by rapid changes in customer requirements, frequent introductions 
of new and enhanced products, and continuing and rapid technological            
advancement. To compete successfully, the Company must continue to design,      
develop, manufacture and sell new and enhanced products that provide            
increasingly higher levels of performance and reliability, take advantage of    
technological advancements and changes and respond to new customer requirements.
The Company's success in designing, developing, manufacturing and selling such  
products will depend on a variety of factors, including the identification of   
market demand for new products, product selection, timely implementation of     
product design and development, product performance, cost-effectiveness of      
products under development, effective manufacturing processes and the success of
promotional efforts.                                                            

The Company is currently a developer and supplier of video compression
semiconductors which it has sold since 1991. The Company was previously involved
in several other businesses which have since been discontinued. Prior product   
lines that were discontinued include math co-processors and Motions Picture     
Expert Group ("MPEG") semiconductors, discontinued in June 1995 and September   
1996, respectively. Prior development efforts that were discontinued include    
Intel compatible x86 microprocessors and graphics semiconductors, discontinued  
in June 1995 and during the quarter ended September 30, 1994, respectively. The 
Company discontinued its products and efforts in these areas in part because of 
rapid changes in the personal computer marketplace and severe price competition 
for certain of these components. See "Management's Discussion and Analysis of   
Financial Condition and Results of Operations."                                 

The Company plans to introduce additional VideoCommunicators and video
compression semiconductors. There can be no assurance that these or any future  
products will be successfully developed or introduced to the market. The Company
has in the past experienced delays in the development of new products and the   
enhancement of existing products, and such delays may occur in the future. If   
the Company is unable, due to resource constraints or technological or other    
reasons, to develop and introduce new or enhanced products in a timely manner,  
or if such new or enhanced products do not achieve sufficient market acceptance,
it would have a material adverse effect on the Company's business and operating 
results. See "Business -- Research and Development."                            

MANAGEMENT OF GROWTH                                                            

The development and marketing of the Company's VideoCommunicators will
continue to place a significant strain on the Company's limited personnel,      
management and other resources. The Company's ability to manage any future      
growth effectively will require it to attract, train, motivate and manage new   
employees successfully, to effectively integrate new employees into its         
operations and to continue to improve its operational, financial and management 
systems. In particular, the Company intends to hire additional research and     
development personnel and to further develop consumer marketing capabilities by 
increasing the size of its domestic and international sales and marketing staff.
The Company's failure to manage its growth effectively could have a material    
adverse effect on the Company's business and operating results. See             
"Business -- 8x8 Strategy."                                                     

DEPENDENCE ON PROPRIETARY TECHNOLOGY; RELIANCE ON THIRD PARTY LICENSES          

    The Company relies in part on trademark, copyright and trade secret law to
protect its intellectual property in the United States and abroad. The Company  
seeks to protect its software, documentation and                                

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other written materials under trade secret and copyright laws, which afford only
limited protection. There can be no assurance that the steps taken by the       
Company will prevent misappropriation of its technology. The Company also relies
in part on patent law to protect its intellectual property in the United States 
and abroad. The Company currently holds four United States patents, including   
patents relating to video compression and memory architecture technology, and   
has 13 United States patent applications pending. The Company has a number of   
foreign patent applications pending. There can be no assurance that any patent, 
trademark or copyright owned by the Company will not be invalidated,            
circumvented or challenged, that the rights granted thereunder will provide     
competitive advantages to the Company or that any of the Company's pending or   
future patent applications will be issued with the scope of the claims sought by
the Company, if at all. In addition, the laws of some foreign countries do not  
protect the Company's proprietary rights as fully as do the laws of the United  
States. Thus, effective intellectual property protection may be unavailable or  
limited in certain foreign countries. There can be no assurance that the        
Company's means of protecting its proprietary rights in the United States or    
abroad will be adequate or that competitors will not independently develop      
technologies that are similar or superior to the Company's technology, duplicate
the Company's technology or design around any patent of the Company. Moreover,  
litigation may be necessary in the future to enforce the Company's 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 the Company's business
and operating results.                                                          

     There has been substantial litigation in the semiconductor, electronics and
related industries regarding intellectual property rights, and there can be no  
assurance that third parties will not claim infringement by the Company of their
intellectual property rights. In addition, as is common in its industry, the    
Company has from time to time received notification from other companies of     
intellectual property rights held by those companies upon which the Company's   
products may infringe. For example, in 1996, the Company received an allegation 
of infringement from Elk Industries, Inc. If the Company were found to be       
infringing on the intellectual property rights of any third party, the Company  
could be subject to liabilities for such infringement, which could be material, 
and could be required to seek licenses from other companies or to refrain from  
using, manufacturing or selling certain products or using certain processes.    
Although holders of patents and other intellectual property rights often offer  
licenses to their patents or other intellectual property rights, no assurance   
can be given that licenses would be offered to the Company, that the terms of   
any offered license would be acceptable to the Company or that failure to obtain
a license would not have a material adverse effect on the Company's business and
operating results.                                                              

The Company relies upon certain technology, including hardware and    
software, licensed from third parties. There can be no assurance that the       
technology licensed by the Company will continue to provide competitive features
and functionality or that licenses for technology currently utilized by the     
Company or other technology which the Company may seek to license in the future 
will be available to the Company 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 the       
inability to license key new technology that may be developed, on commercially  
reasonable terms, would have a material adverse effect on the Company's business
and operating results.                                                          

LACK OF EXPERIENCE IN MANUFACTURING CONSUMER VIDEO TELEPHONY PRODUCTS           

   The Company is a fabless semiconductor manufacturer and has only recently
begun to manufacture consumer video telephony products. To achieve future       
profitability, the Company must be able to reliably manufacture its             
VideoCommunicators directly or through third party subcontract manufacturers, in
commercial quantities, on a cost effective basis and in a timely manner, of     
which there can be no assurance. In view of the Company's lack of manufacturing 
experience, there can be no assurance that unforeseen technical or other        
difficulties will not arise which could interfere with the manufacture thereof  
or prevent, or create delays in, marketing these products. Any delay in the     
manufacture of the VideoCommunicators, quality control                          

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problems, or inability to produce such products in commercial quantities or on a
cost effective basis could have a material adverse effect on the Company's      
business and operating results.                                                 

DEPENDENCE ON THIRD PARTY MANUFACTURERS; COMPONENT AVAILABILITY                 

    The Company uses independent foundries to fabricate, assemble and test its
video compression semiconductors. The Company does not have long-term purchase  
agreements with its semiconductor foundries, and purchases semiconductor wafers 
pursuant to purchase orders. Therefore these foundries are generally not        
obligated to supply products to the Company for any specific period, in any     
specific quantity or at any specific price. The Company secures assembly and    
test services on a purchase order basis as well.                                

The Company outsources the manufacture of its VideoCommunicators to   
subcontract manufacturers. These subcontract manufacturers procure components   
from their suppliers and perform assembly and testing of the Company's          
VideoCommunicators on a turnkey basis. There can be no assurance that the       
Company's contract manufacturers will be able to reliably manufacture the       
Company's products in volumes, on a cost effective basis or in a timely manner. 

The Company's reliance on independent semiconductor foundries and     
subcontract manufacturers involves a number of risks, including the lack of     
direct control over the manufacturing process, the absence or unavailability of 
adequate capacity, the unavailability of, or interruption in access to, certain 
process technologies (particularly in the case of semiconductors) and reduced   
control over delivery schedules, quality control, manufacturing yields and      
costs. In the event that the Company's foundries and subcontract manufacturers  
are unable or unwilling to continue to manufacture the Company's products in    
required volumes, on a cost effective basis, in a timely manner or at all, the  
Company will have to secure additional foundry or manufacturing capacity.       
Available semiconductor foundry and manufacturing capacity at times has been    
limited. Even if such additional capacity is available at commercially          
acceptable terms, the qualification process could be lengthy and could create   
delays in product shipments.                                                    

    Certain components necessary for the manufacture of the Company's products
are obtained from a single supplier or a limited group of suppliers. These      
include a digital camera, modem chips, certain application specific integrated  
circuits ("ASICs") and other semiconductor components. The Company does not     
maintain any long-term agreements with any of its suppliers of components.      
Because the purchase of certain key components may involve long lead times, in  
the event of unanticipated increases in demand for the Company's products, the  
Company could be unable to manufacture certain products in a quantity sufficient
to meet end user demand. A shortage of any key component could have a material  
adverse effect on the Company's business and operating results.                 

  These risks and the related difficulties that the Company may experience
due to its reliance on independent semiconductor foundries, subcontract         
manufacturers and component suppliers could have a material adverse effect on   
the Company's business and operating results.                                   

COMPLIANCE WITH REGULATIONS AND INDUSTRY STANDARDS                              

   The Company must comply with certain rules and regulations of the Federal
Communications Commission ("FCC") regarding electromagnetic radiation and       
standards established by Underwriters Laboratories, Inc., as well as similar    
regulations and standards applicable in other countries. The Company's          
VideoCommunicators must comply with these regulations and standards as a        
prerequisite to commercial sales. In February 1997, the Company's VC100 received
certification of compliance with applicable FCC regulations. The Company has    
also complied with similar regulations in several foreign countries and is      
pursuing regulatory approvals which will permit the sale of the VC100 in        
additional foreign countries. There can be no assurance, however, that the      
Company will receive any such foreign regulatory approvals for the VC100, or any
regulatory approvals for its other VideoCommunicators, in a timely manner, if at
all. As regulations and standards evolve, the Company may be required to modify 
its existing products or develop and support new versions of its products. The  
failure of the Company's products to comply, or delays in compliance, with the  
various existing and evolving government regulations and industry standards     
could delay or interrupt volume production of VideoCommunicators, which would   
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INTERNATIONAL OPERATIONS                                                        

  Sales to customers outside of the United States represented 40%, 49% and
54% of the total revenues in the years ended March 31, 1995, 1996 and 1997,     
respectively. Although the Company's VideoCommunicator sales outside of the     
United States are currently limited, international sales of the Company's       
semiconductors may continue to represent a substantial portion of the Company's 
total revenues for the foreseeable future. In addition, substantially all of the
Company's current products are, and substantially all of the Company's 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 changes in foreign government regulations and   
telecommunications standards, export license requirements, tariffs and taxes,   
other trade barriers, fluctuations in currency exchange rates, difficulty in    
collecting accounts receivable and difficulty in staffing and managing foreign  
operations. While international sales are typically denominated in U.S. dollars,
fluctuations in currency exchange rates could cause the Company's products to   
become relatively more expensive to customers in a particular country, leading  
to a reduction in sales or profitability in that country. Payment cycles for    
international customers may be longer than those for customers in the United    
States. The Company is also subject to geopolitical risks, such as political,   
social and economic instability, potential hostilities and changes in diplomatic
and trade relationships, in connection with its international operations. See   
"Business -- Sales and Marketing" and "Business -- Manufacturing."              

NEED FOR ADDITIONAL CAPITAL TO FINANCE GROWTH AND CAPITAL REQUIREMENTS          

While the Company expects that the proceeds from this Offering, its   
existing cash balances and the amounts, if any, generated from operations will  
be sufficient to meet its cash requirements for at least the next 12 months, the
Company is operating in a rapidly changing industry. There can be no assurance  
that the Company will not seek to exploit business opportunities that will      
require it to raise additional capital from equity or debt sources to finance   
its growth and capital requirements. In particular, the development and         
marketing of new products could require a significant commitment of resources,  
which could in turn require the Company to obtain additional financing earlier  
than otherwise expected. There can be no assurance that the Company will be able
to raise such capital on acceptable terms, if at all. If the Company is unable  
to obtain such additional capital, the Company may be required to reduce the    
scope of its planned product development and marketing, which could have a      
material adverse effect on the Company's business and operating results. See    
"Use of Proceeds" and "Management's Discussion and Analysis of Financial        
Condition and Results of Operations."                                           

DEPENDENCE ON KEY PERSONNEL                                                     

 The Company is highly dependent on the continued service of, and on its
ability to attract and retain, qualified technical, marketing, sales and        
managerial personnel. The competition for such personnel is intense,            
particularly in Silicon Valley, where the Company's principal office is located,
and the loss of any of such persons, as well as the failure to recruit          
additional key technical and sales personnel in a timely manner, would have a   
material adverse effect on the Company's business and operating results. There  
can be no assurance that the Company will be able to continue to attract and    
retain the qualified personnel necessary for the development of its business.   
The Company currently does not have employment contracts with any of its        
employees and does not maintain key person life insurance policies on any of its
employees. See "Business -- Employees" and "Management."                        

ANTI-TAKEOVER PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION, BYLAWS  
AND DELAWARE LAW                                                                

Certain provisions of the Company's Certificate of Incorporation and  
Bylaws, as in effect upon the closing of this Offering, may have the effect of  
making it more difficult for a third party to acquire, or discouraging a third  
party from attempting to acquire, control of the Company. Such provisions could 
limit the price that certain investors might be willing to pay in the future for
shares of the Company's Common Stock. Certain of these provisions eliminate the 
right of the stockholders to act by written consent without a meeting, eliminate
cumulative voting by stockholders in the election of directors and specify      
procedures for director nominations by stockholders and submission of other     
proposals for consideration at stockholder meetings. In addition, the           

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Company's Board of Directors has the authority to issue up to 5,000,000 shares  
of Preferred Stock and to determine the price, rights, preferences, privileges  
and restrictions of those shares without any further vote or action by the      
stockholders. The rights of the holders of Common Stock will be subject to, and 
may be adversely affected by, the rights of the holders of any Preferred Stock  
that may be issued in the future. The Company has no present plans to issue     
shares of Preferred Stock. Certain provisions of Delaware law applicable to the 
Company could also delay or make more difficult a merger, tender offer or proxy 
contest involving the Company, including Section 203 of the Delaware General    
Corporation Law, which prohibits a Delaware corporation from engaging in any    
business combination with any interested stockholder for a period of three years
unless certain conditions are met. Additionally, the issuance of Preferred      
Stock, while providing desirable flexibility in connection with possible        
acquisitions and other corporate purposes, may discourage bids for the Common   
Stock at a premium over the market price of the Common Stock and may adversely  
affect the market price of, and the voting and other rights of the holders of,  
the Common Stock. Such provisions could have the effect of delaying, deferring  
or preventing a change in control of the Company, including without limitation, 
discouraging a proxy contest or making more difficult the acquisition of a      
substantial block of the Company's Common Stock. These provisions could also    
limit the price that investors might be willing to pay in the future for shares 
of the Company's Common Stock. See "Description of Capital Stock -- Preferred   
Stock," "Description of Capital Stock -- Anti-Takeover of Provisions of         
Certificate of Incorporation and Bylaws" and "Description of Capital            
Stock -- Effect of Delaware Antitakeover Statute."                              

NO PRIOR TRADING MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE   

Prior to this Offering, there has been no public market for the Common
Stock and there can be no assurance that an active trading market will develop  
or be sustained after this Offering. The initial public offering price will be  
determined through negotiations between the Company and the representatives of  
the Underwriters based on several factors and may not be indicative of the      
market price of the Common Stock after this Offering. See "Underwriting." The   
market price of the shares of Common Stock is likely to be highly volatile and  
may be significantly affected by factors such as actual or anticipated          
fluctuations in the Company's operating results, announcements of technical     
innovations, new products or new contracts by the Company, its competitors or   
their customers, governmental regulatory action, developments with respect to   
patents or proprietary rights, general market conditions, changes in financial  
estimates by securities analysts and other factors, certain of which could be   
unrelated to, or outside the control of, the Company. 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 the Common Stock. In the past, following periods of volatility  
in the market price of a company's securities, securities class action          
litigation has been initiated against the issuing company. There can be no      
assurance that such litigation will not occur in the future with respect to the 
Company. Such litigation could result in substantial costs and a diversion of   
management's attention and resources, which would have a material adverse effect
on the Company's business and operating results. Any settlement or adverse      
determination in such litigation would also subject the Company to significant  
liability, which would have a material adverse effect on the Company's business 
and financial condition.                                                        

DILUTION                                                                        

 Purchasers of the Common Stock offered hereby will suffer immediate and
substantial dilution in the net tangible book value of the Common Stock from the
initial public offering price. To the extent outstanding options to purchase the
Company's Common Stock are exercised, there will be further dilution. See       
"Dilution."                                                                     

SHARES ELIGIBLE FOR FUTURE SALE                                                 

    Sale of substantial amounts of shares in the public market or the prospect
of such sales could adversely affect the market price of the Company's Common   
Stock. Upon completion of this Offering, the Company will have outstanding      
14,316,659 shares of Common Stock. Of the shares outstanding prior to this      
Offering,                                                                       

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with the exception of 166,083 shares which will be immediately eligible for sale
under Rule 144 promulgated pursuant to the Securities Act of 1933, as amended   
(the "Securities Act"), all shares of Common Stock held by current stockholders 
are subject to lock-up agreements under which the holders of such shares have   
agreed not to sell or otherwise dispose of any of their shares for a period of  
180 days after the date of this Prospectus without the prior written consent of 
Montgomery Securities. After the 180-day period, 9,866,023 shares held by       
current stockholders will be eligible for sale under Rule 144 or Rule 701. The  
remaining 684,553 shares held by existing stockholders will become eligible for 
sale from time to time in the future under Rule 144 or Rule 701. In addition,   
the Company intends to file a registration statement under the Securities Act,  
upon the effectiveness of this Offering or shortly thereafter, covering the sale
of shares of Common Stock reserved for issuance under its Key Personnel Plan,   
1992 Stock Option Plan, 1996 Stock Plan, 1996 Employee Stock Purchase Plan and  
1996 Director Option Plan. As of March 31, 1997, there were outstanding options 
to purchase a total of 2,291,150 shares of the Company's Common Stock, all of   
which are subject to 180-day lock-up agreements. A total of 483,388 shares      
issuable upon exercise of such options, as of March 31, 1997, will be eligible  
for sale into the public market 180 days after the date of this Prospectus. See 
"Management -- Compensation Plans," "Shares Eligible for Future Sale" and       
"Underwriting." Certain existing stockholders holding approximately 3,726,373   
shares of Common Stock, are also entitled to registration rights with respect to
their shares of Common Stock. See "Description of Capital Stock -- Registration 
Rights."                                                                        

USE OF PROCEEDS 

  The net proceeds to the Company from the sale of the 3,600,000 shares of
Common Stock offered by the Company hereby at the initial public offering price 
of $6.50 per share, after deducting estimated underwriting discounts and        
commissions and estimated offering expenses, will be $20.5 million ($23.7       
million if the Underwriters' over-allotment option is exercised in full).       

   Of the net proceeds of the Offering, the Company expects that through the
end of fiscal 1998 it will use approximately $8 to $10 million for product      
development, $8 to $9 million for marketing and $500,000 for capital equipment, 
with the balance being used for working capital and other purposes. A portion of
the net proceeds may also be used for investments in or acquisitions of         
complementary businesses, products or technologies, although no such            
transactions are currently under negotiation. Pending such uses, the Company    
plans to invest the net proceeds in short-term, interest-bearing, investment    
grade securities.                                                               

DIVIDEND POLICY 

     The Company has never declared or paid cash dividends on its capital stock.
The Company currently does not anticipate paying any cash dividends on its      
capital stock in the foreseeable future.                                        

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CAPITALIZATION

The following table sets forth the capitalization of the Company as of
March 31, 1997 (i) on an actual basis, (ii) on a pro forma basis to reflect the 
automatic conversion of all outstanding shares of Preferred Stock into Common   
Stock upon the closing of this Offering and the filing of the Amended and       
Restated Certificate of Incorporation immediately after the closing of the      
Offering to eliminate the Company's classes of Preferred Stock existing prior to
the closing of the Offering and authorize undesignated Preferred Stock and (iii)
as adjusted to reflect the receipt by the Company of the net proceeds from the  
sale of the 3,600,000 shares of Common Stock offered hereby at the initial      
public offering price of $6.50 per share, after deducting the estimated         
underwriting discounts and commissions and estimated offering expenses.         

                                                        [Enlarge/Download Table]

                                                                         MARCH 31, 1997           
                                                               ---------------------------------- 
                                                                                            AS    
                                                               ACTUAL      PRO FORMA     ADJUSTED 
                                                               -------     ---------     -------- 
                                                                         (IN THOUSANDS)           
                                                                                                  
Long-term debt, including current portion....................  $    --      $    --      $     -- 
Stockholders' equity:                                                                             
  Preferred Stock, par value $0.001 per share; actual:                                            
     5,411,820 shares authorized, 3,726,373 shares issued and                                     
     outstanding; pro forma and as adjusted: 5,000,000 shares                                     
     authorized, no shares issued or outstanding.............        4           --            -- 
  Common Stock, par value $0.001 per share, 40,000,000 shares                                     
     authorized; actual: 6,990,286 shares issued and                                              
     outstanding; pro forma: 10,716,659 shares issued and                                         
     outstanding; as adjusted: 14,316,659 shares issued and                                       
     outstanding (1).........................................        7           11            14 
  Additional paid-in capital.................................   23,291       23,291        43,750 
  Notes receivable from stockholders.........................   (1,078)      (1,078)       (1,078)
  Deferred compensation......................................   (2,781)      (2,781)       (2,781)
  Accumulated deficit........................................  (13,402)     (13,402)      (13,402)
                                                               -------      -------       ------- 
     Total stockholders' equity..............................    6,041        6,041        26,503 
                                                               -------      -------       ------- 
       Total capitalization..................................  $ 6,041      $ 6,041      $ 26,503 
                                                               =======      =======       ======= 

---------------                                                                 
(1) Excludes, as of March 31, 1997, (i) an aggregate of 2,291,150 shares of     
  Common Stock issuable on the exercise of outstanding options granted under
the Company's 1992 Stock Option Plan and 1996 Stock Plan and (ii) an    
 aggregate of 1,102,656 shares of Common Stock reserved for issuance under
   the Company's 1992 Stock Option Plan, 1996 Stock Plan, 1996 Director Option
    Plan and 1996 Employee Stock Purchase Plan. Subsequent to March 31, 1997 and
    prior to the date of this Prospectus, the Company (i) granted options for an
   additional 751,000 shares of Common Stock pursuant to its 1992 Stock Option
  Plan and 1996 Stock Plan and (ii) reserved an additional 500,000 shares of
Common Stock for issuance under its 1996 Stock Plan. See                
"Management -- Compensation Plans."                                     

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DILUTION

 The pro forma net tangible book value of the Company at March 31, 1997,
giving effect to the conversion of all outstanding shares of Preferred Stock    
into Common Stock upon the closing of this Offering, was approximately $6.0     
million, or $0.56 per share of Common Stock. "Pro forma net tangible book value"
per share represents the amount of total tangible assets of the Company less    
total liabilities, divided by the number of shares of Common Stock outstanding. 
After giving effect to the sale by the Company of 3,600,000 shares of Common    
Stock offered hereby (and after deducting the estimated underwriting discounts  
and commissions and estimated offering expenses) at the initial public offering 
price of $6.50 per share, the pro forma net tangible book value of the Company  
at March 31, 1997 would have been $26.5 million, or $1.85 per share. This       
represents an immediate increase in pro forma net tangible book value of $1.29  
per share to existing stockholders and an immediate dilution of $4.65 per share 
to new investors purchasing in this Offering. The following table illustrates   
this per share dilution:                                                        

                                                                [Download Table]
                                                                                   
Assumed initial public offering price................................        $6.50 
  Pro forma net tangible book value before this Offering............. $0.56        
  Increase per share attributable to new investors...................  1.29        
                                                                      -----        
Pro forma net tangible book value per share after this Offering......         1.85 
                                                                             ------
Dilution per share to new investors..................................        $4.65 
                                                                             ======

   The following table summarizes, on a pro forma basis as of March 31, 1997
the differences between the number of shares of Common Stock purchased from the 
Company, the total consideration paid or payable and the average price per share
paid or payable by the Company's existing stockholders and the new investors in 
this Offering with respect to the 3,600,000 shares of Common Stock to be sold by
the Company. The calculations in this table with respect to shares of Common    
Stock to be purchased by new investors in this Offering reflect the initial     
public offering price of $6.50 per share:                                       

                                                        [Enlarge/Download Table]

                                         SHARES PURCHASED       TOTAL CONSIDERATION     AVERAGE 
                                      ----------------------  -----------------------    PRICE  
                                        NUMBER       PERCENT    AMOUNT        PERCENT  PER SHARE
                                      ----------     -------  -----------     -------  ---------
                                                                                                
Existing stockholders................ 10,716,659       74.9%  $16,075,000       40.7%   $  1.50 
New investors........................  3,600,000       25.1    23,400,000       59.3       6.50 
                                      ----------      -----   -----------      -----     ------ 
          Total...................... 14,316,659      100.0%  $39,475,000      100.0%   $  2.76 
                                      ==========      =====   ===========      =====     ====== 

   The foregoing computations exclude as of March 31, 1997, (i) an aggregate
of 2,291,150 shares of Common Stock issuable on the exercise of outstanding     
options granted under the Company's 1992 Stock Option Plan and 1996 Stock Plan  
and (ii) an aggregate of 1,102,656 shares of Common Stock reserved for issuance 
under the Company's 1992 Stock Option Plan, 1996 Stock Plan, 1996 Director      
Option Plan and 1996 Employee Stock Purchase Plan. Subsequent to March 31, 1997 
and the prior to the date of this Prospectus, the Company (i) granted options   
for an additional 751,000 shares of Common Stock pursuant to its 1992 Stock     
Option Plan and 1996 Stock Plan and (ii) reserved an additional 500,000 shares  
of Common Stock for issuance under its 1996 Stock Plan. See                     
"Management -- Compensation Plans."                                             

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SELECTED CONSOLIDATED FINANCIAL DATA

    The selected consolidated statement of operations data presented below for
each of the years ended March 31, 1995, 1996 and 1997 and the selected          
consolidated balance sheet data as of March 31, 1996 and 1997 are derived from, 
and are qualified by reference to, the Consolidated Financial Statements and    
Notes thereto included elsewhere in this Prospectus. The selected consolidated  
statement of operations data for the years ended March 31, 1993 and 1994 and the
selected consolidated balance sheet data as of March 31, 1993, 1994 and 1995 are
derived from the audited historical financial statements of the Company, which  
are not included herein. The Company's future operating results are expected to 
fluctuate as the Company proceeds with the development, introduction and        
marketing of its family of VideoCommunicators. Moreover, because the Company's  
video compression semiconductor and related software business has not provided, 
and is not expected to provide, sufficient revenues to profitably operate the   
Company, the Company believes that its future profitability will be largely     
dependent on the success of its VideoCommunicator business. As a result, the    
Company believes that its historical operating results will not be comparable   
to, and should not be relied upon as an indication of, future operating results.
The data set forth below are qualified in their entirety by, and should be read 
in conjunction with, "Management's Discussion and Analysis of Financial         
Condition and Results of Operations" and the Consolidated Financial Statements  
and Notes thereto included elsewhere in this Prospectus.                        

                                                        [Enlarge/Download Table]

                                                                               YEAR ENDED MARCH 31,               
                                                                 ------------------------------------------------ 
                                                                  1993      1994      1995      1996       1997   
                                                                 -------   -------   -------   -------   -------- 
                                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)       
                                                                                                                  
CONSOLIDATED STATEMENT OF OPERATIONS DATA:                                                                        

  Total revenues................................................ $31,082   $34,401   $19,929   $28,774   $ 19,146 
  Cost of revenues..............................................  14,137    19,469    11,904    16,668     12,030 
                                                                 -------   -------   -------   -------    ------- 
  Gross profit..................................................  16,945    14,932     8,025    12,106      7,116 
  Operating expenses:                                                                                             
     Research and development...................................   7,005     6,540     8,107     7,714     10,510 
     Selling, general and administrative........................  11,413     8,149     6,445     7,938     10,098 
     Restructuring costs........................................      --        --        --       603         59 
                                                                 -------   -------   -------   -------    ------- 
          Total operating expenses..............................  18,418    14,689    14,552    16,255     20,667 
                                                                 -------   -------   -------   -------    ------- 
  Income (loss) from operations.................................  (1,473)      243    (6,527)   (4,149)   (13,551)
  Other income, net.............................................     282       189       611       952        120 
                                                                 -------   -------   -------   -------    ------- 
  Income (loss) before income taxes.............................  (1,191)      432    (5,916)   (3,197)   (13,431)
  Provision (benefit) for income taxes..........................    (350)      780       (35)       20        182 
                                                                 -------   -------   -------   -------    ------- 
  Net loss...................................................... $  (841)  $  (348)  $(5,881)  $(3,217)  $(13,613)
                                                                 =======   =======   =======   =======    ======= 
  Pro forma net loss per share(1)...............................                                         $  (1.14)
                                                                                                          ======= 
  Shares used in pro forma per share calculations(1)............                                           11,943 
                                                                                                          ======= 

                                                        [Enlarge/Download Table]

                                                                                    MARCH 31,                    
                                                                 ------------------------------------------------
                                                                  1993      1994      1995      1996       1997  
                                                                 -------   -------   -------   -------   --------
                                                                                  (IN THOUSANDS)                 
                                                                                                                 
CONSOLIDATED BALANCE SHEET DATA:                                                                                 
  Working capital............................................... $10,355   $10,683   $11,983   $ 9,333   $  4,654
  Total assets..................................................  24,586    21,908    20,644    23,067     12,727
  Total liabilities.............................................  11,920     9,579     6,661    11,693      6,686
  Total stockholders' equity....................................  12,666    12,329    13,983    11,374      6,041

---------------                                                                 
(1) See Note 1 of the Notes to the Consolidated Financial Statements for an     
explanation of the method used to determine the number of shares used to
compute pro forma per share amounts.                                    

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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW                                                                        

The Company was incorporated in February 1987 in California and       
reincorporated in Delaware in December 1996. The Company initially developed and
sold math co-processors compatible with systems based on Intel's                
microprocessors. During the years ended March 31, 1993 through 1995, the        
Company's revenues were derived primarily from the sale of math co-processors.  
As Intel's microprocessors eliminated the need for a separate math co-processor,
the Company's revenues from math co-processors declined.                        

In 1990, the Company began development of semiconductors and related  
software for the video conferencing and digital video playback markets. In      
fiscal 1995, 1996 and 1997, sales of the Company's video compression            
semiconductors and reference design boards accounted for 38%, 59% and 76%,      
respectively, of total revenues.                                                

 Since June 1995, the Company has been executing a new business strategy
designed to discontinue efforts unrelated to video conferencing. As part of this
strategy, the Company discontinued its efforts to develop Intel compatible x86  
microprocessors in June 1995, reduced its workforce in May 1996 and sold its    
remaining MPEG inventory in September 1996. To address new opportunities, the   
Company is leveraging its strengths in semiconductor design and related software
to develop and market video conferencing systems for the consumer market. The   
Company began shipping the VC100 (or "ViaTV"), the first product in its planned 
family of VideoCommunicators, to the United States consumer market in February  
1997. The VC100 connects to a television set and a standard touch-tone telephone
adding video to an otherwise normal telephone call, without the need for a PC.  
The Company has sold a limited number of VC100s in several foreign countries and
is pursuing regulatory approvals which will permit the sale of the VC100 in     
additional foreign countries. There can be no assurance, however, that the      
Company will receive any such foreign regulatory approvals for the VC100, or any
regulatory approvals for its other VideoCommunicators, in a timely manner, if at
all. See "Risk Factors -- Compliance with Regulations and Industry Standards."  
The Company is currently demonstrating prototypes of two additional             
VideoCommunicators: a version of its VC100 that permits internet browsing and   
the VC200, which is a non-PC based POTS video telephone and internet browser    
with a built-in liquid crystal display. See "Business -- Products" and          
"Business -- Licensing and Development Arrangements" for a discussion of the    
development status of the VC100, the version of the VC100 with internet browsing
capability, the VC200 and the successor products to the Company's video         
compression semiconductors and certain related licensing and development        
arrangements (including arrangements pursuant to which USR and KME have licensed
all or substantially all of the Company's technology underlying its             
VideoCommunicators). Although the Company has received certain revenues from    
licensing and development arrangements in the past, there can be no assurance   
that the Company will receive any revenues from such arrangements in the future.
In addition, KME, Leadtek, Truedox, USR and other licensees or purchasers of the
Company's technology, video compression semiconductors, software or board       
designs are using or may use such technology or components to manufacture and   
sell products that compete with the Company's VideoCommunicators.               

 The Company's future operating results are expected to fluctuate as the
Company proceeds with the development and marketing of its VideoCommunicators.  
Moreover, because the Company's video compression semiconductor and related     
software business has not provided, and is not expected to provide, sufficient  
revenues to profitably operate the Company, the Company believes that its future
profitability will be largely dependent on the success of its VideoCommunicator 
business. As a result, the Company believes that its historical operating       
results will not be comparable to, and should not be relied upon as an          
indication of, future operating results. The successful development and         
marketing of the Company's VideoCommunicators are subject to a number of        
substantial risks and contingent on the achievement of numerous significant     
milestones, many of which are beyond the control of the Company. See "Risk      
Factors."                                                                       

     Historically, the Company has sold its video compression semiconductors and
related software to video conferencing OEMs and distributors. The Company sells 
its VideoCommunicators through a direct marketing effort utilizing a combination
of advertising, toll-free telemarketing and direct mail supported by            
co-marketing                                                                    

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arrangements with third parties. The Company also markets its VideoCommunicators
through retail channels and catalogs.                                           

  The Company believes that the development and marketing of its family of
VideoCommunicators may adversely impact its gross margins due in part to higher 
unit costs associated with initial production of its first products, including  
the VC100, as well as substantially different cost and pricing structures       
related to the manufacture and sale of consumer products.                       

RESULTS OF OPERATIONS                                                           

The following table sets forth certain items from the Company's       
consolidated statement of operations as a percentage of total revenues for the  
periods indicated. The data set forth below should be read in conjunction with  
the Consolidated Financial Statements and Notes thereto.                        

                                                        [Enlarge/Download Table]

                                                                     YEAR ENDED MARCH 31,     
                                                                   -------------------------  
                                                                   1995      1996      1997   
                                                                   -----     -----     -----  
                                                                                              
Total revenues.................................................... 100.0%    100.0%    100.0% 
Cost of revenues..................................................  59.7      57.9      62.8  
                                                                   -----     -----     -----  
Gross margin......................................................  40.3      42.1      37.2  
Operating expenses:                                                                           
  Research and development........................................  40.7      26.8      54.9  
  Selling, general and administrative.............................  32.3      27.6      52.7  
  Restructuring costs.............................................    --       2.1       0.3  
                                                                   -----     -----     -----  
          Total operating expenses................................  73.0      56.5     107.9  
                                                                   -----     -----     -----  
Loss from operations.............................................. (32.7)    (14.4)    (70.7) 
Other income, net.................................................   3.1       3.3       0.6  
                                                                   -----     -----     -----  
Loss before provision for income taxes............................ (29.6)    (11.1)    (70.1) 
Provision (benefit) for income taxes..............................  (0.2)      0.1       1.0  
                                                                   -----     -----     -----  
Net loss.......................................................... (29.4)%   (11.2)%   (71.1)%
                                                                   =====     =====     =====  

FISCAL YEARS ENDED MARCH 31, 1995, 1996 AND 1997                                

   Total Revenues. Total revenues consist of product sales and the licensing
of technology. Total revenues were $19.9 million, $28.8 million and $19.1       
million in fiscal 1995, 1996 and 1997, respectively. Product revenues fluctuated
primarily due to declining sales of the Company's discontinued line of math     
co-processors, fluctuating sales of the Company's video conferencing            
semiconductors and the discontinuation of MPEG semiconductor sales. The         
Company's math co-processor revenues declined from $10.9 million in fiscal 1995 
to $2.5 million in fiscal 1996 and to $206,000 in fiscal 1997, while total      
revenues from video conferencing semiconductors increased from $7.5 million in  
1995 to $13.1 million in fiscal 1996, then declined to $12.6 million in fiscal  
1997. MPEG semiconductor revenues declined from $3.8 million in fiscal 1996 to  
$2.0 million in fiscal 1997. In September 1996, the Company sold the last of its
MPEG inventory. Accordingly, the Company does not expect to derive any future   
product revenue from the sale of MPEG semiconductors. In fiscal 1995, 1996 and  
1997, total revenues from technology licensing (all of which were non-recurring)
were $1.3 million, $9.0 million and $3.9 million, respectively. Of the $9.0     
million technology licensing revenue in fiscal 1996, $6.8 million was derived   
from one customer. See "Business -- Licensing and Development Arrangements."    

     Gross Profit.  The cost of revenues consists of costs associated with wafer
fabrication, assembly and testing performed by third-party vendors and direct   
and indirect costs associated with purchasing, scheduling and quality assurance.
The Company's gross profit was $8.0 million, $12.1 million and $7.1 million, or 
40%, 42% and 37% of total revenues, in fiscal 1995, 1996 and 1997, respectively.
The gross profit for fiscal 1996 was favorably impacted by technology licensing 
revenues and adversely impacted by negative margin from sales of MPEG products. 
In fiscal 1997, the significant decline in gross margin relates primarily to    
charges associated                                                              

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with the write off of inventories related to the Company's exit from the MPEG   
market. In fiscal 1997, the Company sold all of its remaining MPEG inventory.   

Research and Development.  Research and development expenses consist  
primarily of personnel, mask and equipment costs necessary for the Company to   
conduct its development efforts. Research and development costs, including      
software development costs, are expensed as incurred. Research and development  
expenses were $8.1 million, $7.7 million and $10.5 million, or 41%, 27% and 55% 
of total revenues, in fiscal 1995, 1996 and 1997, respectively. A significant   
portion of research and development expenses during fiscal 1995 and 1996 was    
attributable to the development of products that were subsequently discontinued,
including an Intel compatible x86 microprocessor and graphics and MPEG          
semiconductors. During fiscal 1997, research and development expenses were      
concentrated on video compression semiconductors and VideoCommunicators.        

   Selling, General and Administrative.  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 advertising, sales commissions, trade shows and other marketing and     
promotional expenses. Selling, general and administrative expenses were $6.4    
million, $7.9 million and $10.1 million, or 32%, 28% and 53% of total revenues, 
in fiscal 1995, 1996 and 1997, respectively. Selling, general and administrative
expenses increased by $1.5 million in fiscal 1996 primarily due to higher       
compensation expenses and, to a lesser extent, higher legal and bad debt        
expenses. In fiscal 1997, selling, general and administrative expenses increased
by $2.2 million due primarily to compensation expense recognized on certain     
stock option grants and expenses associated with the Offering. See "Management's
Discussion and Analysis of Financial Condition and Results of                   
Operations -- Accounting for Stock-Based Compensation" and Note 6 of Notes to   
Consolidated Financial Statements.                                              

Restructuring Costs.  During fiscal 1996, the Company recorded        
restructuring charges related to discontinuing certain research and development 
activities not related to video conferencing products. These restructuring costs
related primarily to the write off of equipment associated with the discontinued
research and development efforts.                                               

During fiscal 1997, the Company recorded an additional charge for     
restructuring its operations by reducing its workforce. As of March 31, 1997,   
the Company's restructuring actions were fully completed and there were no      
remaining restructuring cost accruals.                                          

Other Income, Net.  In fiscal 1995, 1996 and 1997, other income was   
$611,000, $952,000 and $120,000, respectively. In fiscal 1995, other income     
consisted primarily of interest income. During fiscal 1996, the Company acquired
equity positions in four privately held companies. In fiscal 1996, the Company  
realized $727,000 of income by selling the stock of one of these entities. The  
Company's investment in each of these entities represents less than 15% of the  
outstanding voting stock of these entities and accordingly, the Company has     
accounted for these investments on a cost basis. As of March 31, 1997, these    
investments have been completely written off.                                   

Income Taxes.  In fiscal 1995, 1996 and 1997, the Company was not     
profitable and incurred no material income tax expense. The provision for income
taxes for fiscal 1997 primarily represents certain foreign withholding taxes.   

   At March 31, 1997, the Company had approximately $10.0 million of federal
net operating loss carryforwards and approximately $1.6 million of research and 
development tax credit carryforwards available to offset future tax liabilities;
such carryforwards expire beginning in the years 2011 and 2010, respectively.   
Under the ownership change limitation provisions of the Internal Revenue Code of
1986, as amended, the amount of, and benefit from, the net operating losses and 
credit carryforwards may be impaired or limited in certain circumstances.       

At March 31, 1997, the Company had gross deferred tax assets of       
approximately $8.8 million. The weight of available evidence indicates that it  
is more likely than not that the Company will not be able to realize its        
deferred tax assets and thus a full valuation reserve has been recorded at March
31, 1997.                                                                       

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QUARTERLY RESULTS                                                               

   The following tables set forth consolidated statements of operations data
for the eight quarters in the period ended March 31, 1997, both in dollar       
amounts and as percentages of total revenues. The data set forth has been       
derived from unaudited consolidated financial statements of the Company and has 
been prepared on the same basis as the audited financial statements, and in the 
opinion of management, includes all normal recurring adjustments that the       
Company considers necessary for a fair presentation of the results of the       
interim periods and should be read in conjunction with the Consolidated         
Financial Statements and Notes thereto. The operating results for any quarter   
are not necessarily indicative of results for future quarters. Further, because 
of the Company's planned reliance on its VideoCommunicators, the Company's      
historical operating results will not be comparable to, and should not be relied
upon as an indication of, future operating results.                             

                                                        [Enlarge/Download Table]

                                                                            QUARTER ENDED                                      
                                      -----------------------------------------------------------------------------------------
                                      JUNE 30,   SEPT. 30,   DEC. 31,   MARCH 31,   JUNE 30,   SEPT. 30,   DEC. 31,   MARCH 31,
                                        1995       1995        1995       1996        1996       1996        1996       1997   
                                      --------   ---------   --------   ---------   --------   ---------   --------   ---------
                                                                           (IN THOUSANDS)                                      
                                                                                                                               
Total revenues....................... $ 4,881     $ 7,241     $7,083     $ 9,569    $ 5,703     $ 4,372    $ 4,582     $ 4,489 
Cost of revenues.....................   4,184       3,741      3,019       5,724      7,503       1,942      1,283       1,302 
                                      -------      ------     ------      ------    -------      ------    -------             
Gross profit (loss)..................     697       3,500      4,064       3,845     (1,800)      2,430      3,299       3,187 
                                      -------      ------     ------      ------    -------      ------    -------             
Operating expenses:                                                                                                            
  Research and development...........   2,296       1,701      1,633       2,084      2,421       2,340      3,141       2,608 
  Selling, general and                                                                                                         
    administrative...................   1,803       1,575      2,243       2,317      3,247       1,733      2,003       3,115 
  Restructuring costs................     603          --         --          --         59          --         --          -- 
                                      -------      ------     ------      ------    -------      ------    -------             
        Total operating expenses.....   4,702       3,276      3,876       4,401      5,727       4,073      5,144       5,723 
                                      -------      ------     ------      ------    -------      ------    -------             
Income (loss) from operations........  (4,005)        224        188        (556)    (7,527)     (1,643)    (1,845)     (2,536)
Other income (expense), net..........     152         (72)       233         639         53          74        265        (272)
                                      -------      ------     ------      ------    -------      ------    -------             
Income (loss) before income taxes....  (3,853)        152        421          83     (7,474)     (1,569)    (1,580)     (2,808)
Provision for income taxes...........      --          --         --         (20)      (100)        (46)        --         (36)
                                      -------      ------     ------      ------    -------      ------    -------             
Net income (loss).................... $(3,853)    $   152     $  421     $    63    $(7,574)    $(1,615)   $(1,580)    $(2,844)
                                      =======      ======     ======      ======    =======      ======    =======             

                                                        [Enlarge/Download Table]

                                                                 AS A PERCENTAGE OF TOTAL REVENUES                            
                                     -----------------------------------------------------------------------------------------
                                                                           QUARTER ENDED                                      
                                     -----------------------------------------------------------------------------------------
                                     JUNE 30,   SEPT. 30,   DEC. 31,   MARCH 31,   JUNE 30,   SEPT. 30,   DEC. 31,   MARCH 31,
                                       1995       1995        1995       1996        1996       1996        1996       1997   
                                     --------   ---------   --------   ---------   --------   ---------   --------   ---------
                                                                                                                              
Total revenues......................   100.0%     100.0%      100.0%     100.0%      100.0%     100.0%      100.0%     100.0% 
Cost of revenues....................    85.7       51.7        42.6       59.8       131.6       44.4        28.0       29.0  
                                       -----      -----       -----      -----       -----      -----       -----      -----  
Gross margin........................    14.3       48.3        57.4       40.2       (31.6)      55.6        72.0       71.0  
                                       -----      -----       -----      -----       -----      -----       -----      -----  
Operating expenses                                                                                                            
  Research and development..........    47.0       23.5        23.0       21.8        42.5       53.5        68.6       58.1  
  Selling, general and                                                                                                        
    administrative..................    36.9       21.7        31.7       24.2        56.9       39.7        43.7       69.4  
  Restructuring costs...............    12.4         --          --         --         1.0         --          --         --  
                                       -----      -----       -----      -----       -----      -----       -----      -----  
        Total operating expenses....    96.3       45.2        54.7       46.0       100.4       93.2       112.3      127.5  
                                       -----      -----       -----      -----       -----      -----       -----      -----  
Income (loss) from operations.......  (82.0)        3.1         2.7       (5.8)     (132.0)     (37.6)      (40.3)     (56.5) 
Other income (expense), net.........     3.1       (1.0)        3.3        6.7         0.9        1.7         5.8       (6.1) 
                                       -----      -----       -----      -----       -----      -----       -----      -----  
Income (loss) before income taxes...  (78.9)        2.1         6.0        0.9      (131.1)     (35.9)      (34.5)     (62.6) 
Provision for income taxes..........      --         --          --       (0.2)       (1.7)      (1.0)         --       (0.8) 
                                       -----      -----       -----      -----       -----      -----       -----      -----  
Net income (loss)...................   (78.9)%      2.1%        6.0%       0.7%     (132.8)%    (36.9)%     (34.5)%    (63.4)%
                                       =====      =====       =====      =====       =====      =====       =====      =====  

The Company's technology licensing activities have contributed to     
fluctuations in the Company's quarterly revenues. Technology licensing revenues 
(all of which were non-recurring) for each of the eight quarters in the period  
ended March 31, 1997, were $150,000, $2.4 million, $2.9 million, $3.6 million,  
$1.3 million, $1.0 million, $650,000 and $843,000, respectively. In addition,   
revenues have fluctuated as the Company has introduced new or enhanced versions 
of its video compression semiconductors and as earlier products approached the  
end of their life cycle. In the quarter ended March 31, 1996, the Company       
realized both significant technology licensing revenues and "end of life"       
revenues related to the Company's prior generation of video compression         
semiconductors. In contrast, the quarter ended June 30, 1996 reflects licensing 
revenues of only $1.3 million and insignificant revenues related to these       
discontinued products.                                                          

In general, favorable gross margin fluctuations in the quarters ended 
September 30, 1995 and December 31, 1995 reflect the impact of technology       
license revenues, which have no material associated costs.                      

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However, in the quarter ended June 30, 1996 the unfavorable gross margin        
fluctuation was due primarily to a $4.0 million charge for inventories related  
to the Company's MPEG inventory. In September 1996, the Company sold its        
remaining MPEG inventory. Margins improved in the quarter ended December 31,    
1996 due primarily to discontinuation of MPEG sales and a fee of $471,000       
received from a customer for cancellation of an order.                          

    Operating expenses have fluctuated as the Company discontinued its efforts
to develop an Intel compatible x86 microprocessor in the quarter ended June 30, 
1995, reduced its workforce in the quarter ended June 30, 1996 and has focused  
its efforts on developing its video compression semiconductors and its          
VideoCommunicators. Operating expenses for the quarters ended June 30, 1996,    
September 30, 1996, December 31, 1996 and March 31, 1997 were also impacted by  
compensation charges taken by the Company for certain stock options repriced and
granted in fiscal 1997. See "Management's Discussion and Analysis of Financial  
Condition and Results of Operations -- Accounting for Stock-Based Compensation" 
and Note 6 of Notes to Consolidated Financial Statements.                       

The Company's operating results have fluctuated significantly and may 
continue to fluctuate in the future, on an annual and a quarterly basis, as a   
result of a number of factors, many of which are outside the Company's control, 
including changes in market demand, the timing of customer orders, competitive  
market conditions, lengthy sales cycles, new product introductions by the       
Company or its competitors, market acceptance of new or existing products, the  
cost and availability of components, the mix of the Company's customer base and 
sales channels, the mix of products sold, the level of international sales,     
continued compliance with industry standards and general economic conditions.   

    Variations in timing of sales can cause significant fluctuations in future
operating results. In addition, because a significant portion of the Company's  
business may be derived from orders placed by a limited number of large         
customers, the timing of such orders can also cause significant fluctuations in 
the Company's operating results. Anticipated orders from customers may fail to  
materialize, and delivery schedules may be deferred or canceled for a number of 
reasons, including changes in specific customer requirements. If sales do not   
meet the Company's expectations in any given quarter, the adverse impact of the 
shortfall on the Company's operating results may be magnified by the Company's  
inability to adjust spending to compensate for the shortfall. Announcements by  
the Company or its competitors of new products and technologies could cause     
customers to defer purchases of the Company's existing products, which would    
also have a material adverse effect on the Company's business and operating     
results.                                                                        

The Company's strategic shift towards the development and marketing of
VideoCommunicators such as the VC100 may result in substantially different      
patterns in operating results. For example, the Company's operating results may 
be subject to more heightened seasonality with sales higher during the Company's
third fiscal quarter, corresponding to the Christmas shopping season. The       
Company intends to spend substantial additional amounts on advertising,         
toll-free marketing and customer support. There can be no assurance as to the   
amount of such spending or that revenues adequate to justify such spending will 
result. As a result of its shift to selling VideoCommunicators, the Company may 
experience different inventory, product return, price protection and warranty   
cost patterns.                                                                  

  As a result of these and other factors, it is likely that in some future
period the Company's operating results will be below the expectations of        
securities analysts or investors, which would likely result in a significant    
reduction in the market price for the Common Stock. See "Risk                   
Factors -- Potential Fluctuations in Future Operations Results."                

ACCOUNTING FOR STOCK-BASED COMPENSATION                                         

     The Company accounts for its employee stock option plans in accordance with
the provisions of Accounting Principles Board Opinion No. 25. In October 1995,  
the Financial Accounting Standards Board issued Statement of Financial          
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based           
Compensation," which established a fair value based method of accounting for    
employee stock option plans. Had compensation costs for the Company's option    
plans been determined based on the fair market value of options at their grant  
dates as described in FAS 123, the Company's net loss would have been $3.7      
million and                                                                     

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$14.7 million for fiscal 1996 and fiscal 1997, respectively, and the Company's  
pro forma net loss per share would have been $1.23 per share for fiscal 1997.   

  The Company has recorded a deferred compensation expense of $7.3 million
relating to certain stock option grants which were made during the period June  
through September 1996. The Company recognized $4.5 million of the deferred     
compensation expense during fiscal 1997, and will recognize the remainder over  
the related vesting period of the options (which is generally 48 months). The   
future compensation charges are subject to reduction for any employee who       
terminates employment prior to the expiration of such employee's option vesting 
period. See Note 6 of Notes to Consolidated Financial Statements.               

LIQUIDITY AND CAPITAL RESOURCES                                                 

Since fiscal 1994, the Company has satisfied its liquidity needs      
principally from proceeds generated from two issuances of its equity securities 
and cash generated from operations in fiscal 1994 and prior years. At March 31, 
1994, the Company had cash, cash equivalents and short term investments of $9.2 
million, which decreased to $8.7 million at March 31, 1997. The Company         
currently has no bank borrowing arrangements.                                   

    The cash used by the Company for operations was $4.1 million, $625,000 and
$4.3 million in fiscal 1995, 1996 and 1997, respectively. Cash used in          
operations in fiscal 1995 reflects a net loss of $5.9 million that was partially
offset by noncash items and cash generated by changes in working capital. Cash  
used in operations in fiscal 1996 reflects a net loss of $3.2 million that was  
substantially offset by changes in working capital. Cash used in operations in  
fiscal 1997 reflects a net loss of $13.6 million that was partially offset by   
reductions in inventory and accounts receivable and a non-cash deferred         
compensation charge of $4.5 million.                                            

    During fiscal 1995, 1996 and 1997, the Company's capital expenditures were
$1.5 million, $1.0 million and $691,000, respectively. These capital            
expenditures related primarily to the acquisition of machinery, equipment and   
software. At March 31, 1997, the Company did not have any material capital      
commitments outstanding.                                                        

During fiscal 1995, 1996 and 1997, the Company's financing activities 
generated cash of $7.5 million, $608,000 and $3.9 million, respectively,        
primarily from the sale of the Company's equity securities.                     

     The Company expects that the anticipated net proceeds of this Offering, its
existing cash resources, and the amounts, if any, generated from operations,    
will be sufficient to meet the Company's cash requirements for at least the next
12 months. However, the Company is operating in a rapidly changing industry.    
There can be no assurance that the Company will not seek to exploit business    
opportunities that will require it to raise additional capital from equity or   
debt sources to finance its growth and capital requirements. There can be no    
assurance that the Company will be able to raise such capital on acceptable     
terms, if at all. See "Risk Factors -- Need for Additional Capital to Finance   
Growth and Capital Requirements."                                               

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BUSINESS

8x8, Inc. designs, develops and markets highly integrated, proprietary
video compression semiconductors and associated software to original equipment  
manufacturers ("OEMs") of corporate video conferencing systems. To address new  
opportunities, the Company is leveraging its strengths in semiconductor design  
and related software to develop and market video conferencing systems for the   
consumer market. The Company began shipping the VC100 (or "ViaTV"), the first   
product in its planned family of VideoCommunicators, to the United States       
consumer market in February 1997. The VC100 connects to a television set and a  
standard touch-tone telephone adding video to an otherwise normal telephone     
call, without the need for a PC. The Company has sold a limited number of VC100s
in several foreign countries and is pursuing regulatory approvals which will    
permit the sale of the VC100 in additional foreign countries. There can be no   
assurance, however, that the Company will receive any such foreign regulatory   
approvals in a timely manner, if at all. See "Risk Factors -- Compliance with   
Regulations and Industry Standards."                                            

     The Company's video compression semiconductors combine, on a single chip, a
reduced instruction set computer ("RISC") microprocessor, a digital signal      
processor ("DSP"), specialized video processing circuitry, static random access 
memory ("RAM") and proprietary software to perform the real time compression and
decompression ("codec")of video and audio information and establish and maintain
network connections in a manner consistent with international standards for     
video telephony. These semiconductors are designed to provide video conferencing
over a broad range of network types including standard analog telephone lines   
(commonly known as plain old telephone service or "POTS"), integrated services  
digital networks ("ISDN"), local area networks ("LAN") and asymmetric digital   
subscriber lines ("ADSL"). Customers for the Company's video compression        
semiconductors include PictureTel, Siemens, Sony, VideoServer, VCON and Vtel.   

The Company's VideoCommunicators are based on its proprietary         
semiconductor, software and systems technology. The VC100 is designed to be     
compliant with the H.324 international standard for video telephony over POTS   
and to be compatible with PC and non-PC based systems that adhere to the H.324  
standard. The VC100 is designed to communicate with full duplex audio and video 
rates of up to 15 frames per second. In addition, the Company is currently      
demonstrating prototypes of two additional VideoCommunicators: a version of its 
VC100 that permits internet browsing and the VC200, which is a non-PC based POTS
video phone and internet browser with a built-in liquid crystal display ("LCD").
The Company sells its VideoCommunicators through a direct marketing effort      
utilizing a combination of advertising, toll-free telemarketing and direct mail 
supported by co-marketing relationships with third parties such as EFA, GTE and 
Hewlett-Packard. The Company also recently began marketing its                  
VideoCommunicators through retail channels such as Comexpo, Fry's Electronics, J
& R Computer World and Staples and catalogs such as Hello Direct and            
MicroWarehouse. In addition, Hammacher Schlemmer and Sharper Image have agreed  
to include the VC100 in their catalogs. See "Business -- Products" and          
"Business -- Licensing and Development Arrangements" for a discussion of the    
development status of the VC100, the version of the VC100 with internet browsing
capability, the VC200 and the successor products to the Company's video         
compression semiconductors and certain related licensing and development        
arrangements (including arrangements pursuant to which USR and KME have licensed
all or substantially all of the Company's technology underlying its             
VideoCommunicators). Although the Company has received certain revenues from    
licensing and development arrangements in the past, there can be no assurance   
that the Company will receive any revenues from such arrangements in the future.
In addition, KME, Leadtek, Truedox, USR and other licensees or purchasers of the
Company's technology, video compression semiconductors, software or board       
designs are using or may use such technology or components to manufacture and   
sell products that compete directly with the Company's VideoCommunicators.      

INDUSTRY BACKGROUND                                                             

  The proliferation of video conferencing products is dependent on several
factors including network bandwidth, advanced compression technologies and the  
acceptance of video telephony standards. Increases in available bandwidth       
improve the data carrying capacity of networks, while improvements in           
compression technologies utilize a given bandwidth more efficiently. Finally,   
video telephony standards are key to widespread adoption as they are designed to
permit the interoperability between systems offered by different vendors.       

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 Since the first video conferencing products were introduced in the late
1970's, users have faced a tradeoff between the cost and availability of network
bandwidth and the quality of video images which can be transmitted over the     
network. High capacity connections, such as T1/E1 (1.5/2.0 megabits per second  
("Mbps")) and ISDN (128 kilobits per second ("Kbps")), provide greater bandwidth
but are significantly more costly and less available than ubiquitous analog POTS
lines which now offer one-way data transmission rates of up to 56.6 Kbps using  
technology such as x2 from USR, but remain limited to rates of up to 33.6 Kbps  
for the symmetrical data transmission required by video conferencing. The       
challenge faced by developers of video conferencing systems has been to provide 
the best possible image quality through the efficient compression of video and  
audio data for transmission over available network bandwidth. The proliferation 
of video communications equipment has been influenced by the adoption of        
international video telephony standards which, if complied with, will permit    
interoperability between systems offered by different vendors.                  

To date, nearly all video conferencing products have been targeted at 
corporate users with access to high bandwidth connections such as T1/E1 and     
ISDN. However, the vast majority of consumers continue to have limited access to
bandwidth beyond that provided by standard analog POTS lines. The Company       
believes that significant demand exists for inexpensive video phone products    
that would allow users to transmit video images with audio over normal telephone
lines. Several factors are contributing to the viability of consumer video      
phones, including:                                                              

   - Improved Bandwidth.  A number of technologies have been deployed or are
  under development which aim to increase the bandwidth available from
existing copper telephone lines. These include faster POTS modems 
     (currently limited to symmetrical data transmission rates of up to 33.6
Kbps) and residential ISDN and ADSL service.                      

     - Advanced Compression Techniques.  The quality of transmitted video images
       is a function of network bandwidth and the sophistication of the hardware
  and software used to compress and decompress the data. Because video
      images contain a large amount of information, video conferencing systems
 must compress the video and audio data to fit the available network
       bandwidth while attempting to maintain the quality and synchronization of
       audio and video. For example, a normal television signal contains 90 Mbps
   of information, which must be compressed by a factor of approximately
      2,700 to 1 to permit symmetrical transmission over POTS at 33.6 Kbps. By
using sophisticated compression algorithms and advanced DSP       
 semiconductors, video conferencing system manufacturers can achieve
improved video quality.                                           

- Adoption of Industry-Wide Standards.  Increased usage of video      
       conferencing in the corporate market has been facilitated by the adoption
     of the H.320 standard, which defined the video telephony protocols used
by systems connected over ISDN. The adoption of H.320 enabled     
     interoperability between systems from different vendors, encouraged new
    market entrants, and contributed to significantly lower system pricing
  and an increased installed base. The Company believes that the H.320
       standard expanded the market for business video conferencing systems over
   ISDN. Similarly, the H.324 standard for video telephony over POTS may
   result in expanded home use of video phones. Other standards, such as
       H.323, are being developed for communications over packet-based networks,
such as LANs.                                                     

 As a result of the above technological advances and the adoption of the
H.324 standard, low cost consumer POTS video phones are being developed by a    
number of suppliers. These products may be introduced in a variety of product   
configurations and physical forms (i.e., "form factors"), including those based 
on telephones and using a television for display, such as the VC100, or using an
LCD for display, such as the VC200, and those based on the PC. An increasing    
number of PCs are being shipped with pre-installed H.324 compliant software.    
Significant sales of such H.324 products, if achieved, should increase the      
usefulness of and demand for additional H.324 compliant video phones by         
providing potential video phone purchasers with other parties to call.          

8X8 STRATEGY                                                                    

  The Company's strategy is to leverage its expertise in video compression
semiconductors, software and system design and its understanding of video       
telephony standards to develop and market a family of cost                      

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effective VideoCommunicators for the consumer video conferencing market. Key    
elements of the Company's strategy include:                                     

  Leverage Proprietary Technology.  The Company provides highly integrated
video compression semiconductors and related software to manufacturers of video 
conferencing systems. The Company is leveraging its proprietary semiconductor   
and software expertise to develop its non-PC based VideoCommunicators to address
the United States consumer market. In addition, the Company intends to develop  
future generations of highly integrated semiconductor and software products for 
use in video conferencing systems developed both by the Company and its OEM     
customers. The Company's ongoing development efforts are targeted at reducing   
overall system costs continuously improving video and audio quality at varying  
bandwidths and ensuring compliance with emerging video telephony standards to   
encourage proliferation of its products.                                        

Broaden and Enhance VideoCommunicator Family.  The Company intends to 
develop a variety of consumer video conferencing products. The VC100, the       
Company's initial VideoCommunicator, is targeted at the United States consumer  
market and is based upon the Company's proprietary semiconductor and software   
technology. The VC100 connects to a television and standard touch-tone telephone
and adds video to an otherwise normal telephone call, without the need for a PC.
The Company is demonstrating prototypes of two additional VideoCommunicators: a 
version of its VC100 that permits internet browsing and the VC200, which is a   
POTS video telephone and internet browser with a built-in LCD display. The      
Company plans to extend its VideoCommunicator product line in the future by     
developing products in new form factors and products that are designed to comply
with emerging video telephony standards. The Company further intends to         
differentiate its products in the future by adding features which may include   
picture quality enhancements, caller identification ("caller ID"), pan/tilt/zoom
and auto-answer.                                                                

  Utilize Multiple Marketing Channels for VideoCommunicators.  The Company
sells its VideoCommunicators through a direct marketing channel, utilizing a    
combination of advertising, toll-free telemarketing and direct mail supported by
co-marketing relationships with third parties such as EFA, GTE and Hewlett-     
Packard. The direct marketing approach generally allows more rapid establishment
of brand recognition and introduction of new products, and enables competitive  
pricing and better management of working capital. The Company also recently     
began marketing its VideoCommunicators through retail channels such as Comexpo, 
Fry's Electronics, J&R Computer World and Staples and catalogs such as Hello    
Direct and MicroWarehouse. In addition, Hammacher Schlemmer and Sharper Image   
have agreed to include the VC100 in their catalogs. The Company intends to      
continue to sell its video compression semiconductor and software products to   
OEMs and distributors through its existing sales and marketing force.           

 Drive Price/Performance Improvements. Price/performance improvements in
end-user systems are important to expanding the consumer video conferencing     
market. By enhancing its proprietary semiconductor and software technologies,   
the Company intends to improve the price/performance of its consumer video      
phones by integrating a number of essential system functions onto future        
versions of its video compression semiconductors. The Company also intends to   
utilize off-the-shelf components when appropriate and to work closely with its  
key suppliers to achieve cost and performance advantages.                       

PRODUCTS                                                                        

The Company develops, markets and sells a variety of video compression
semiconductors and related software and reference boards. The Company is        
currently developing a family of non-PC based VideoCommunicators, including its 
recently introduced VC100, which incorporate the Company's proprietary          
semiconductor, software and systems technologies. The Company from time to time 
enters into licensing and development arrangements with other corporations which
are designed to promote the design, development, manufacture and sale of the    
Company's products. Such arrangements may enable these corporations to use this 
technology to produce products that compete with the Company's VideoCommunicator
products. See "Business -- Licensing and Development Arrangements" and "Risk    
Factors -- Competition."                                                        

VideoCommunicator Systems                                                   

The Company's initial VideoCommunicator, the VC100, connects to a     
television and standard touch-tone telephone and adds video to an otherwise     
normal telephone call, without the need for a PC. The VC100, targeted at United 
States consumer markets, is based primarily upon the Company's existing         
technology and is                                                               

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designed to be compliant with the H.324 international standard for video        
telephony over POTS and to be compatible with PC and non-PC based systems that  
adhere to the H.324 standard. The VC100 is designed to communicate with full    
duplex audio and video rates of up to 15 frames per second. The VC100, which is 
based on the Company's Low bit-rate Videophone Processor ("LVP") semiconductor  
and proprietary software, includes an integrated digital camera and a V.34 modem
and displays video in either full or quarter screen format, as well as          
simultaneous remote and self-view mode. The VC100 is controlled through the     
touch-tone keypad of the user's telephone and menu driven instructions that     
appear on the television screen.                                                

The Company is demonstrating prototypes of two additional             
VideoCommunicators: a version of its VC100 that permits internet browsing and   
the VC200, which is a non-PC based POTS video phone and internet browser with a 
built-in LCD display. The Company plans to extend its VideoCommunicator product 
line in the future by developing products in new form factors and products that 
are designed to comply with emerging video telephony standards. The Company     
further intends to differentiate its products by adding features which may      
include picture quality enhancements, caller ID, pan/tilt/zoom and auto-answer. 
See "Business -- Research and Development."                                     

     Moreover, because the Company's video compression semiconductor and related
software business has not provided, and is not expected to provide, sufficient  
revenues to profitably operate the Company, the Company believes that its future
profitability will be largely dependent on the success of its VideoCommunicator 
business. The Company has sold a limited number of VC100s in several foreign    
countires and is pursuing regulatory approvals which will permit the sale of the
VC100 in additional foreign countries. There can be no assurance, however, that 
the Company will receive any such foreign regulatory approvals in a timely      
manner, if at all. See "Risk Factors -- Compliance with Regulations and Industry
Standards." The Company recently began demonstrating prototypes of its version  
of the VC100 with internet browsing capability and its VC200, with numerous     
technical and other milestones remaining before commercial introduction is      
possible. See "Risk Factors -- Dependence on Future VideoCommunicator Revenues" 
and "Risk Factors -- Rapid Technological Change, Dependence on New Product      
Introduction."                                                                  

Video Compression Semiconductors                                            

   The Company's video compression semiconductors are based on the Company's
proprietary architecture, which is protected in part by various patents and     
trade secret protections. See "Business -- Intellectual Property." This         
architecture combines, on a single chip, a custom RISC microprocessor, a high   
performance DSP core, specialized video processing circuitry, static RAM memory 
and proprietary software, which together perform the core processing functions  
required by video conferencing and other digital video applications.            

  The table below describes the Company's video compression semiconductors
and their applications:                                                         
------------------------                                                        
-------------------------------------                                           

                                                        [Enlarge/Download Table]
                                                                                                          
---------------------------------------------------                                                       
----------------------------------------------------------------------------------------------------------
  PRODUCT               DESCRIPTION                        APPLICATIONS                                   
----------------------------------------------------------------------------------------------------------
  Video Communications  H.320 compression semiconductor    -  PC ISDN video conferencing add-in boards    
  Processor("VCP")      for ISDN video conferencing        -  ISDN group video conferencing systems       
                        systems;                           -  LAN video conferencing systems              
                        or H.323 semiconductor for LAN     -  Internet phone calls                        
                        video conferencing systems or                                                     
                        Internet phone calls                                                              
----------------------------------------------------------------------------------------------------------
  Low bit-rate          H.324 compression semiconductor    -  Consumer video telephones for POTS          
  Videophone            for POTS video conferencing        -  PC video phone add-in boards for POTS       
  Processor("LVP")      systems                                                                           
----------------------------------------------------------------------------------------------------------
  Multimedia Encoding   Compression semiconductor for      -  Cameras with embedded compression           
  Processor("MEP")      video capture and encoding         -  Video capture PC add-in boards              
                        systems                                                                           
----------------------------------------------------------------------------------------------------------
  Video to PCI          Interface chip which connects the  -  PC (POTS, ISDN or LAN-based) video          
  Interface             VCP/LVP/MEP devices to the PCI        conferencing boards                         
  Chip("VPIC")          bus                                                                               
----------------------------------------------------------------------------------------------------------

    VCP -- Video Communications Processor.  The Company's VCP is an integrated
video compression semiconductor, which allows OEMs to develop video conferencing
systems based on the H.320 standard for                                         

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ISDN video conferencing or on the H.323 standard for LAN video conferencing or  
internet phone calls. In recent quarters, the VCP accounted for the majority of 
the Company's semiconductor product sales. The Company's proprietary RISC and   
DSP technology allows a single VCP semiconductor to output up to 24 frames per  
second of H.320 based video over an ISDN line. The VCP includes video processing
circuitry that compresses and decompresses video images. Systems designed using 
multiple VCPs are capable of providing higher frame rates, thus providing for   
video quality approaching that of a television. The VCP can reside on PC add-in 
cards or non-PC based corporate conference room systems.                        

LVP -- Low bit-rate Videophone Processor.  The LVP semiconductor is   
designed to support H.324 based video phones using standard POTS phone lines.   
Systems based on the LVP benefit from the same RISC and DSP technology found in 
the Company's VCP product, and are designed to deliver video at up to 15 frames 
per second over a standard POTS telephone line. The LVP can be designed into    
systems in a variety of form factors, including non-PC based systems that       
utilize a telephone and either television or a LCD display. The LVP can also be 
designed into PC video phone add-in boards. The LVP is the core compression     
semiconductor inside the Company's VC100 and VC200 products.                    

   MEP -- Multimedia Encoding Processor.  The MEP is designed for multimedia
compression applications which require high processing power to compress high   
bandwidth digital video, such as cameras with embedded compression, PC add-in   
boards for video capture and editing and CD-ROM title development.              

     VPIC -- Video to PCI Interface Chip.  The VPIC is a companion semiconductor
to the Company's video compression semiconductors. The VPIC provides a direct   
interface between the Company's compression semiconductors and the high speed   
PCI expansion bus found in PCs. By providing a direct path into the PC's graphic
display memory, the VPIC allows PC board designers to improve the performance   
and quality of their designs based on the Company's compression semiconductors. 

The Company is currently designing a future generation of its video   
compression semiconductors and related software. To date, the Company has       
focused its semiconductor research and development efforts principally on       
development of the successor to the VCP compression semiconductor and the       
related software. See "Business -- Research and Development."                   

Application Software                                                        

The Company's semiconductors are sold with its proprietary application
specific software, which addresses the unique system requirements of various    
international video telephony standards. This software, which is a combination  
of microcode assembly and C firmware, enables the Company's proprietary         
semiconductor architecture to implement multiple compression standards such as  
H.320, H.323, H.324 and MPEG. In many cases, by enhancing its application       
software, the Company can improve the quality of transmitted video images,      
address emerging standards and add user features to its existing video          
compression semiconductors. The Company supplies an Application Programmers     
Interface ("API") with its software to allow limited customization through an   
external microprocessor or host controller. The Company also sells non-exclusive
licenses for the source code for its software to customers who wish to modify   
the software by adding their own features and controls. Development kits are    
also licensed to customers allowing them to write, compile and develop software 
for the Company's proprietary semiconductor architecture.                       

Reference Boards and Designs                                                

The Company provides a range of printed circuit boards and designs as 
reference boards or reference designs to its customers which serve as examples  
for targeted applications. Each reference board and reference design is provided
with schematics, complete documentation, video processor software and           
board-level software diagnostics. This allows the customer to leverage the      
Company's systems design expertise. These reference boards and reference designs
enable customers to more quickly introduce new products and improve the         
Company's technical support capabilities. Examples of the Company's reference   
board designs include the DVC5, which is designed for H.320 systems, and the    
DVC8, which is designed for H.324 systems. Each of the Company's reference      
boards and reference designs specifies the use of one of the Company's video    
compression semiconductors on the board or within the design, as the case may   
be.                                                                             

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TECHNOLOGY                                                                      

  The Company has developed the following video conferencing technologies:

Semiconductor Architecture                                                  

     The Company's video compression semiconductors share a common architectural
foundation. This architecture has been specifically tailored to video           
conferencing applications which must simultaneously compress and transmit video 
and audio data from one side of a video call while receiving and decompressing  
video and audio data from the remote side. This architecture integrates two core
processors running in parallel: a 33 million instructions per second ("MIPS")   
32-bit RISC microprocessor and a 128-bit Single Instruction Multiple Data       
("SIMD") DSP. The Company's video compression semiconductors currently in       
production are manufactured using 0.5 micron, 3-layer metal complementary metal 
oxide semiconductor ("CMOS") process technology. Follow-on versions are being   
designed using 0.35 micron process technology.                                  

The Company's RISC processor core uses a proprietary instruction set  
specifically designed for video conferencing applications. The RISC core        
controls the overall chip operation and manages the input/output interface      
through a variety of specialized ports which connect the chip directly to       
external host, audio and network subsystems. This core is programmable in the C 
programming language and allows customers to add their own features and         
functionality to the device software provided by the Company.                   

   The second processor is a proprietary DSP core. This DSP core is a 2 BOPS
(billion operations per second) SIMD processor which implements the             
computationally intensive video and audio processing routines. Variable length  
32 and 64 bit microcode instructions of the DSP core provide the flexibility to 
improve algorithm performance, enhance video and audio quality and maintain     
compliance with changing digital video standards. Unlike many competing         
semiconductors which use hardwired building blocks to implement each step in the
compression/decompression (codec) process, the Company's DSP core uses microcode
software routines to implement the fundamental processing steps which form the  
basis of H.320, H.323 and H.324 standards-based video conferencing systems, thus
allowing upgrades through changes in software only.                             

In addition to the RISC and DSP cores, all of the Company's video     
compression semiconductors share a common set of video processing capabilities  
which are fundamental to enhancing video quality. Digital video inputs directly 
into the chip and passes through a series of digital filters designed to resize,
re-color and remove noise from the images in preparation for compression. These 
semiconductors also incorporate proprietary interlacing and resizing filters at 
the output stage.                                                               

Application Software Development                                            

The Company's proprietary application specific software, sold with the
Company's semiconductor products, addresses the unique system requirements of   
the various international video telephony standards. This software is a         
combination of microcode assembly (for the DSP core) and compiled C code (for   
the RISC core). By refining its software, the Company can enhance picture       
quality, address new standards and add significant user features. In addition,  
several of the Company's customers have licensed source code to which they add  
proprietary features, custom interfaces and, in some cases, algorithm           
improvements. See "Business -- Licensing and Development Arrangements."         

Algorithm Expertise                                                         

  The Company has devoted significant resources to develop video and audio
codec algorithms to meet international video telephony standards. While the     
H.32x standards clearly specify the syntax requirements of a standards-compliant
decoder, and thus what constitutes a valid H.32x bitstream, they do not specify 
the methods by which an H.32x encoder achieves this result. The flexibility of  
the Company's video compression                                                 

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semiconductor architecture allows the Company to apply its core algorithm       
expertise to develop products for a variety of video conferencing applications. 
The Company's algorithm expertise enables the following:                        

    - Video Coding Efficiency and Video Quality.  By improving its proprietary
       motion search algorithms and optional coding modes which are tuned to the
      capabilities of the Company's semiconductor architecture, the Company is
      able to enhance video quality for H.32x video conferencing applications.

    - Integrated Control of Real-Time Systems.  Video conferencing systems are
   inherently complex due to the convergence of video, audio and control
   information. The Company's proprietary semiconductor architecture and
    interrupt-driven control firmware manage these varying data streams in
    concert thereby reducing the complexity of the external system design.

   - Proprietary Rate Buffer Control.  The real-time management of video and
   audio buffer occupancy has a significant effect on the performance of
      video conferencing systems, especially at low bit-rates. The Company has
      developed a suite of proprietary adaptive rate-buffer control algorithms
       which dynamically controls the occupancy rate of these buffers and allows
for efficient use of available network bandwidth.                 

SALES AND MARKETING                                                             

   The Company markets its semiconductors through its own direct sales force
as well as through distributors. The Company's direct sales force supports      
domestic and international sales and operates from the Company's headquarters in
Santa Clara, California and a European office in London. As of March 31, 1997,  
the Company employed 22 persons in sales and marketing. These persons provide   
direct account support for OEM and distributor customers of the Company's       
semiconductors. The Company's sales and marketing personnel typically provide   
support to such OEM customers through sales literature, periodic training,      
customer symposia, pre-sales support and joint sales calls. As of March 31,     
1997, the Company marketed its video compression semiconductors through seven   
distributors in Europe and the Pacific Rim. For the years ended March 31, 1996  
and 1997, sales by the Company to distributors accounted for approximately 18%  
and 25% of total revenues, respectively, with ASCII, the Company's Japanese     
distributor, accounting for 7% and 13% of total revenues, respectively. The     
Company has elected to terminate its distribution relationship with ASCII       
effective June 30, 1997, which termination the Company believes will not have a 
material adverse effect on the Company's business or operating results. See     
"Business -- Licensing and Development Arrangements" for a discussion of certain
licensing and development arrangements (including arrangements pursuant to which
USR and KME have licensed substantially all of the Company's technology         
underlying the Company's VideoCommunicators). Although the Company has received 
certain revenues from licensing and development arrangements in the past, there 
can be no assurance that the Company will receive any revenues from such        
arrangements in the future. In addition, KME, Leadtek, Truedox, USR and other   
licensees or purchasers of the Company's technology, video compression          
semiconductors, software or board designs are using or may use such technology  
or components to manufacture and sell products that compete directly with the   
Company's VideoCommunicators.                                                   

 The Company utilizes several marketing programs to support the sale and
distribution of its products, including participation in industry trade shows   
and conferences. The Company also publishes technical articles, distributes     
sales and product literature and has an active public relations plan to         
encourage coverage of the Company's products and technology by editors of trade 
journals.                                                                       

     The Company sells its VideoCommunicators through a direct marketing effort,
utilizing a combination of advertising, toll-free telemarketing and direct mail 
supported by co-marketing relationships with third parties such as EFA, GTE and 
Hewlett-Packard. The direct marketing approach generally allows more rapid      
establishment of brand recognition and introduction of new products and enables 
competitive pricing and better management of working capital. The Company also  
recently began marketing its VideoCommunicators through retail channels such as 
Comexpo, Fry's Electronics, J&R Computer World and Staples and catalogs such as 
Hello Direct and MicroWarehouse. In addition, Hammacher Schlemmer and Sharper   
Image have agreed to include the VC100 in their catalogs. The Company intends to
continue to sell its video compression semiconductor and software products to   
OEMs and distributors through its existing sales and marketing force.           

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In recent years, the Company has been a provider of video compression 
semiconductors to OEMs of video conferencing systems. As such, the Company has  
only recently begun marketing its VideoCommunicators. In order to achieve       
significant market penetration and brand awareness for its VideoCommunicators,  
the Company must expand its sales and marketing efforts and further develop     
consumer marketing capabilities. There can be no assurance that the Company will
be able to expand its sales and marketing efforts or further develop consumer   
marketing capabilities or that the Company will be able to achieve significant  
market penetration with its VideoCommunicators. Failure of the Company to       
successfully expand its sales and marketing efforts, or to sufficiently extend  
consumer marketing capabilities or to generate significant sales of the VC100   
would have a material adverse effect on the Company's business and operating    
results. See "Risk Factors -- Potential Fluctuations in Future Operating        
Results," "Risk Factors -- Uncertainty of Market Acceptance; Limits of Existing 
Technology," "Risk Factors -- No History of Consumer Marketing" and "Risk       
Factors -- Management of Growth."                                               

MARKETS AND CUSTOMERS                                                           

The Company provides highly integrated, proprietary semiconductors and
associated software sold primarily to OEMs of corporate video conferencing      
systems. The Company sells its VCP semiconductors and related software and      
reference designs primarily to OEMs of ISDN office video conferencing systems   
that use the H.320 standard, including PictureTel, Siemens, Sony, VideoServer,  
VCON and Vtel. The Company sells its LVP semiconductors and related software and
reference board designs to OEMs of POTS video conferencing systems for the      
consumer market using the H.324 standard, such as KME, Leadtek, Sony and        
Truedox. To address new opportunities, the Company is expanding its product     
lines by developing a family of non-PC based VideoCommunicators for the consumer
market. The VC100, the Company's initial VideoCommunicator, began shipping to   
the United States consumer market in February 1997 and is based upon the        
Company's proprietary semiconductor and software technology. See                
"Business -- Products" and "Business -- Licensing and Development Arrangements" 
for a discussion of the status of the VC100, the version of the VC100 with      
internet browsing capability, the VC200 and the successor products to the       
Company's video compression semiconductors and certain related licensing and    
development arrangements (including arrangements pursuant to which USR and KME  
have licensed all or substantially all of the Company's technology underlying   
its VideoCommunicators). Although the Company has received certain revenues from
licensing and development arrangements in the past, there can be no assurance   
that the Company will receive any revenues from such arrangements in the future.
In addition, KME, Leadtek, Truedox, USR and other licensees or purchasers of the
Company's technology, video compression semiconductors, software or board       
designs are using or may use such technology or components to manufacture and   
sell products that compete directly with the Company's VideoCommunicators.      

Historically, a significant portion of the Company's sales has been to
relatively few customers, although the composition of these customers has       
varied. Product revenues from the Company's ten largest customers in the years  
ended March 31, 1995, 1996 and 1997 accounted for approximately 44%, 39% and    
54%, respectively, of its total revenues. During these periods, excluding one   
company paying certain non-recurring licensing fees in fiscal 1996, the Company 
had only two customers that accounted for 10% or more of total revenues:        
Compression Labs (during the year ended March 31, 1995) and ASCII, the Company's
Japanese distributor (during the year ended March 31, 1997). The Company has    
elected to terminate its distribution relationship with ASCII effective June 30,
1997, which termination the Company believes will not have a material adverse   
effect on the Company's business or operating results. In addition, the Company 
has recently been, and will continue in the foreseeable future to be,           
substantially dependent on the video conferencing industry. The loss of, or any 
reduction in orders from, a significant customer, or any reduction in demand for
the Company's video compression semiconductors (particularly prior to           
significant VideoCommunicator revenues) or any general decline in the market for
video conferencing products, could have a material adverse effect on the        
Company's business and operating results. See "Risk Factors -- Product          
Concentration; Potential Loss of Semiconductor Sales; Dependence on Video       
Conferencing Industry" and "Risk Factors -- Dependence on Key Customers."       

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MANUFACTURING                                                                   

    The Company uses independent foundries to fabricate, assemble and test its
video compression semiconductors. The Company does not have long-term purchase  
agreements with its semiconductor foundries, and purchases semiconductor wafers 
pursuant to purchase orders. Therefore these foundries are generally not        
obligated to supply products to the Company for any specific period, in any     
specific quantity or at any specific price. The Company secures assembly and    
test services on a purchase order basis as well.                                

     The Company has only recently begun to manufacture consumer video telephony
products. The Company outsources the manufacture of its VideoCommunicators to   
subcontract manufacturers. These subcontract manufacturers procure components   
from their suppliers and perform assembly and testing of the Company's          
VideoCommunicators on a turnkey basis. There can be no assurance that the       
Company will be able to reliably manufacture its VideoCommunicators in volumes, 
on a cost effective basis or in a timely manner. See "Risk Factors -- Lack of   
Experience in Manufacturing Consumer Video Telephony Products."                 

The Company's reliance on subcontract foundries and system subcontract
manufacturers, its manufacture of semiconductors, its purchase of components    
from third parties and its reliance on foreign subcontract manufacturers involve
a number of risks. There can be no assurance that certain risks associated with 
these practices and activities will not have a material adverse effect on the   
Company's business and operating results. See "Risk Factors -- Dependence on    
Third Party Manufacturers; Component Availability" and "Risk                    
Factors -- International Operations."                                           

RESEARCH AND DEVELOPMENT                                                        

    As of March 31, 1997, the Company had 53 employees engaged in research and
development. Research and development expenses in the years ended March 31,     
1995, 1996 and 1997 were $8.1 million, $7.7 million and $10.5 million,          
respectively. The Company's development of new products and the enhancement of  
existing products is essential to its success. Accordingly, the Company         
anticipates that research and developments expenses will continue to increase in
the foreseeable future. However, such expenses may fluctuate from quarter to    
quarter depending on a wide range of factors, including the status of and       
prospects for various development projects.                                     

    The Company's current and future research and development efforts relating
primarily to video compression semiconductors have and will continue to focus on
the Company's next generation of these products. Areas of emphasis will include 
an enhanced version of its video compression semiconductor architecture intended
to provide higher performance, enhanced functionality and further integration of
certain essential system functions. This integration is designed to permit      
improved system price/performance. Future software developments may focus on    
emerging video telephony standards, picture quality enhancements and additional 
features supporting both the Company's systems products and its OEM customer    
products.                                                                       

Research and development efforts relating to the VC100, the Company's 
initial VideoCommunicator, are directed towards picture quality enhancements,   
internet browsing, caller ID, pan/tilt/zoom and auto-answer. To expand its      
family of VideoCommunicators, the Company is developing new form factors and    
broadening its video conferencing systems to ISDN and LAN as well as internet   
phone calls.                                                                    

     Although the Company is a developer of video compression semiconductors and
systems, the Company was previously involved in several other businesses which  
have since been discontinued. Prior product lines that were discontinued include
math co-processors and MPEG semiconductors, discontinued in June 1995 and       
September 1996, respectively. Prior development efforts that were discontinued  
include Intel compatible x86 microprocessors and graphics semiconductors,       
discontinued in June 1995 and during the quarter ended September 30, 1994,      
respectively. The Company has discontinued its products and efforts in these    
areas in part because of rapid changes in the personal computer marketplace and 
severe price reduction for certain of these components.                         

The video compression semiconductor and video conferencing markets are
characterized by rapid changes in customer requirements, frequent introductions 
of new and enhanced products, and continuing and rapid technological            
advancement. To compete successfully, the Company must continue to design,      
develop, manufacture and sell new and enhanced products that provide            
increasingly higher levels of performance and reliability, take advantage of    
technological advancements and changes and respond to new customer              

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requirements in a timely manner. The Company's success in designing, developing,
manufacturing and selling such products will depend on a variety of factors. In 
addition, the development and marketing of the Company's VideoCommunicators is  
at an early stage and, as a result, the Company must achieve numerous           
significant milestones and overcome substantial risks in order to successfully  
achieve widespread market acceptance of its VideoCommunicators. There can be no 
assurance that VideoCommunicators can be successfully developed, introduced to  
the market or achieve market acceptance. The Company has in the past experienced
delays in the development of new products and the enhancement of existing       
products, and such delays may occur in the future. If the Company is unable, due
to resource constraints or technological or other reasons, to develop and       
introduce new or enhanced products in a timely manner, or if such new or        
enhanced products do not achieve sufficient market acceptance, it would have a  
material adverse effect on the Company's business and operating results. See    
"Risk Factors -- Dependence on Future VideoCommunicator Revenues" and "Risk     
Factors -- Rapid Technological Change; Dependence on New Product Introduction." 

LICENSING AND DEVELOPMENT ARRANGEMENTS                                          

The Company from time to time enters into licensing and development   
arrangements with other corporations that are designed to promote the design,   
development, manufacture and sale of the Company's products. Such arrangements  
may enable these corporations to use the Company's technology to produce        
products that compete with the Company's VideoCommunicators. See "Risk          
Factors -- Competition." The Company's most significant licenses are with USR   
and KME.                                                                        

On May 5, 1997, the Company entered into a license agreement with USR.
Pursuant to the agreement, the Company has granted to USR, for an initial       
license fee plus certain royalties, a license to make, use and sell systems and 
products containing the Company's proprietary technology relating to its        
VideoCommunicators and its PC-related video conferencing products. As a result, 
USR has a license to all of the Company's technology underlying its             
VideoCommunicators. USR is prohibited under the agreement from selling the      
Company's semiconductors on the open market. Both parties have also agreed to   
license to each other any enhancements to the technology which are developed by 
either party, unless USR elects to discontinue sharing at any time or the       
Company elects to discontinue sharing (which it may do at any time following    
June 30, 2000). Any enhancements or other technology developed by USR cannot be 
sublicensed by the Company or incorporated into semiconductors which the Company
sells on the open market in component form, but can be incorporated into        
semiconductors that the Company uses in the VideoComunicators. Pursuant to the  
Company's agreement with USR, the Company is prohibited, until May 5, 1998, from
licensing the technology to others, except in limited circumstances.            

 The KME agreement provides to KME, for a license fee previously paid in
full to the Company, all of the source code and object code of the H.324        
software for 8x8's LVP semiconductor product and related development software,  
as well as certain board schematics (the "H.324 Technology"), and grants KME a  
perpetual, nonexclusive, nonassignable worldwide license to make, use or sell   
products with the H.324 Technology. Under this arrangement, KME also has a      
nonassignable option, upon payment of additional consideration, to obtain the   
Company's LVP and VCP semiconductor technology for use only on systems assembled
by KME or its affiliates, which would include any entity controlled directly or 
indirectly by Matsushita. As a result, KME has a license to substantially all of
the Company's technology underlying its VideoCommunicators. In addition, KME    
must pay to the Company a royalty for any LVP or VCP semiconductor it           
manufactures or any product wherein KME uses any part of the LVP or VCP         
semiconductor technology. Both parties agree to license to the other party, at  
no charge, any enhancements to the H.324 Technology or the LVP or VCP           
semiconductor made by either party, until such time as KME decides to           
discontinue sharing of enhancements.                                            

    In addition to the above technology and licensing arrangements intended to
promote the Company's products, in the past the Company has entered into certain
other technology licensing arrangements in connection with the discontinuation  
of certain products or development efforts. See "Business -- Research and       
Development."                                                                   

In the years ended March 31, 1995, 1996 and 1997, technology licensing
revenues (all of which were non-recurring) were $1.3 million, $9.0 million and  
$3.9 million, respectively. See "Management's Discussion and Analysis of        
Financial Condition and Results of Operations." Although a number of the        
Company's current                                                               

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technology licensing arrangements (including the license arrangements with USR  
and KME described above) may result in future payments to the Company, the      
Company has no way to determine the amount of such payments, if any, as their   
receipt by the Company is dependent upon many factors (such as successful       
product development and introduction by the licensee) largely outside of the    
Company's control.                                                              

In March 1996, 8x8 entered into an investment agreement (the "VidUs   
Agreement") with certain of its employees to form VidUs, Inc. ("VidUs"), whose  
officers include Michael Noonen and Sandra L. Abbott, as a subsidiary of 8x8.   
VidUs is currently developing technology by which a digital camera transfers    
data to a computer port using the Company's MEP semiconductor and reference     
board design video compression capabilities (the "CompressionCam Concept"). See 
"Business -- Products" for a discussion of the Company's products, including its
MEP semiconductor and its reference board designs. Pursuant to the VidUs        
Agreement and a later related agreement, the Company contributed $157,500 and   
certain employees of 8x8 contributed a total of $77,500 for shares of the common
stock of VidUs at a rate of one dollar per share, the price approved by VidUs'  
Board of Directors. Each of 8x8, Keith R. Barraclough, Paul Voois and Michael   
Noonen owns approximately 67%, 2%, 1% and 11%, respectively, of VidUs common    
stock. The remaining 19% of VidUs common stock is owned by other employees of   
8x8. The Company has agreed to register under the Securities Act shares of VidUs
in an initial public offering once VidUs has had several quarters of operating  
profits and overall profitability and has forecasted profits for each of the    
quarters over the succeeding two years. Also in connection with the VidUs       
Agreement, the Company will own all patents related to the CompressionCam       
Concept as developed by 8x8 as of March 1996, but has provided VidUs with a     
royalty-free, nonexclusive, nonassignable license to make, have made, use and   
sell products which incorporate the CompressionCam Concept. Neither the Company 
nor VidUs has any obligation to share with the other party any patent developed 
by it after the formation of VidUs. The Company believes that the value of the  
CompressionCam Concept at the time of the formation of VidUs was not material.  

COMPETITION                                                                     

  The Company competes with independent manufacturers of video compression
semiconductors and, with the introduction of the VC100, its initial             
VideoCommunicator, now competes with manufacturers of video conferencing        
products targeted at the United States consumer market. The markets for the     
Company's products are characterized by intense competition, declining average  
selling prices and rapid technological change. The competitive factors in the   
market for the Company's VideoCommunicators include audio and video quality,    
phone line connectivity at high transmission rates, ability to connect and      
maintain stable connections, ease of use, price, access to enabling             
technologies, product design, time-to-market, adherence to industry standards,  
interoperability, strength of distribution channels, customer support,          
reliability and brand name. In addition to these factors, the Company's ability 
to compete depends upon its future success in developing and manufacturing new  
generations of video compression semiconductors that integrate additional       
functions and reduce costs. Otherwise, competing semiconductor manufacturers may
in the future have competitive advantages in cost, size and performance which   
could make systems based on competing semiconductors preferable to the Company's
VideoCommunicators. The Company expects intense competition for its             
VideoCommunicators from the following segments:                                 

  Large consumer electronics manufacturers.  The Company will face intense
competition from many well known, established suppliers of consumer   
  electronics products, which may include Lucent Technologies, Matsushita,
Philips, Samsung and Sony. Many of these potential competitors sell   
television and telephone products into which they may integrate video 
   conferencing systems, thereby eliminating a consumer's need to purchase a
separate video conferencing system, such as the VC100.                

    Licensees and purchasers of the Company's VideoCommunicator technology and
    components.  A number of companies have licensed portions of the Company's
   technology, including USR and KME, an affiliate of Matsushita, which have
each licensed all or substantially all of the Company's technology    
underlying its VideoCommunicators. Pursuant to the Company's license  
agreements with USR and KME, the Company has already received lump sum
   payments and will receive additional licensing revenues only in the event
     that such parties develop their own semiconductors or products based on the
Company's licensed technology. In connection with these licensing     
arrangements, each of USR and KME may be able to use the licensed     
technology to manufacture and sell products that compete directly     

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    with the Company's VideoCommunicators. The Company may in the future enter
     into similar license agreements with respect to substantial portions of its
  technology. See "Business -- Licensing and Development Arrangements." In
     addition, other companies have chosen or may choose to manufacture and sell
     products competitive with the Company's VideoCommunicators by incorporating
   video compression semiconductors purchased from the Company into products
that are based on the Company's video phone reference board designs or
    other video phone designs. For example, Leadtek, which is currently both a
licensee of certain of the Company's technology and a purchaser of the
Company's video compression semiconductors, recently began shipping to
     consumer electronics stores a product that is directly competitive with the
Company's VC100.                                                      

Purchasers of Other Companies' Video Compression Semiconductors and   
  Reference Designs. Companies may choose to manufacture and sell products
     based upon video compression semiconductors manufactured by suppliers other
    than the Company or upon reference designs based upon such semiconductors.
Certain of these other suppliers of video compression semiconductors, 
     including Analog Devices, Chromatic Research, Lucent Technologies, Philips,
   Texas Instruments and Winbond Electronics, may have significantly greater
  resources than the Company. In order to increase the sale of their video
compression semiconductors, these manufacturers may provide marketing,
financial and other support to the purchasers of these products. One  
   company has publicly announced that it is developing a video conferencing
  product based upon Lucent Technologies' video compression semiconductors
and that it will be making available for sale to third parties a video
   phone reference design incorporating Lucent Technologies' semiconductors.
     In addition, another company has publicly announced that it is developing a
    similar product based on semiconductors from Analog Devices. The Company's
ability to compete depends upon its future success in developing and  
manufacturing new generation of video compression semiconductors that 
integrate additional functions and reduce costs. Otherwise, competing 
   semiconductor manufacturers may in the future have competitive advantages
   in cost, size and performance which could make systems based on competing
semiconductors preferable to the Company's VideoCommunicators.        

   Personal computer system and software manufacturers.  Potential customers
    for the Company's VideoCommunicators may elect instead to buy PCs equipped
   with video conferencing capabilities, which are currently available. As a
result, the Company may face competition from Intel; PC system        
  manufacturers such as Apple, Compaq, IBM and Sony; PC software suppliers
such as Microsoft and Netscape; and PC add-on component suppliers.    

   Existing manufacturers of video conferencing equipment.  Manufacturers of
  more expensive corporate video conferencing systems may enter the market
    for lower cost consumer video conferencing products. Potential competitors
     include Compression Labs, C-Phone (which is shipping to consumer electronic
     stores a product that is competitive with the Company's VC100), PictureTel,
Sony and Vtel.                                                        

   Emerging suppliers of "Internet appliances."  Potential customers for the
   Company's VideoCommunicators may elect instead to buy standalone internet
    access terminals which may provide some or all of the functionality of the
    Company's products. Consumer products for television-based Internet access
    have recently been announced or introduced by companies such as Microsoft,
Philips and Sony.                                                     

    C-Phone and Leadtek recently began shipping to consumer electronics stores
products that are directly competitive with the Company's VC100. Leadtek is     
currently both a licensee of certain of the Company's technology and a purchaser
of the Company's video compression semiconductors. The Company expects that     
others will introduce products that compete with the Company's                  
VideoCommunicators in the future.                                               

The principal competitive factors in the market for video compression 
semiconductors include product definition, product design, system integration,  
chip size, functionality, time-to-market, adherence to industry standards, price
and reliability. The Company has a number of competitors in this market,        
including Analog Devices, Chromatic Research, Lucent Technologies, Philips,     
Texas Instruments and Winbond Electronics. Certain of the Company's competitors 
for video compression semiconductors maintain their own semiconductor foundries 
and may therefore benefit from certain capacity, cost and technical advantages. 

Many of the Company's current and potential competitors have longer   
operating histories, are substantially larger, and have greater financial,      
manufacturing, marketing, technical and other resources. A number               

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also have greater name recognition and a larger installed base of products than 
the Company. Competition in the Company's markets may result in significant     
price reductions. As a result of their greater resources, many current and      
potential competitors may be better able than the Company to initiate and       
withstand significant price competition or downturns in the economy. There can  
be no assurance that the Company will be able to continue to compete            
effectively, and any failure to do so would have a material adverse effect on   
the Company's business and operating results.                                   

INTELLECTUAL PROPERTY                                                           

    The Company relies in part on trademark, copyright and trade secret law to
protect its intellectual property in the United States and abroad. The Company  
seeks to protect its software, documentation and other written materials under  
trade secret and copyright laws, which afford only limited protection. There can
be no assurance that the steps taken by the Company will prevent                
misappropriation of its technology. The Company also relies in part on patent   
law to protect its intellectual property in the United States and abroad. The   
Company currently holds four United States patents, including patents relating  
to video compression and memory architecture technology, and has 13 United      
States patent applications pending. The Company has a number of foreign patent  
applications pending. There can be no assurance that any patent, trademark or   
copyright owned by the Company will not be invalidated, circumvented or         
challenged, that the rights granted thereunder will provide competitive         
advantages to the Company or that any of the Company's pending or future patent 
applications will be issued with the scope of the claims sought by the Company, 
if at all. In addition, the laws of some foreign countries do not protect the   
Company's proprietary rights as fully as do the laws of the United States. Thus,
effective intellectual property protection may be unavailable or limited in     
certain foreign countries. There can be no assurance that the Company's means of
protecting its proprietary rights in the United States or abroad will be        
adequate or that competition will not independently develop technologies that   
are similar or superior to the Company's technology, duplicate the Company's    
technology or design around any patent of the Company. Moreover, litigation may 
be necessary in the future to enforce the Company's 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 the Company's business and operating    
results.                                                                        

     There has been substantial litigation in the semiconductor, electronics and
related industries regarding intellectual property rights, and there can be no  
assurance that third parties will not claim infringement by the Company of their
intellectual property rights. In addition, as is common in its industry, the    
Company has from time to time received notification from other companies of     
intellectual property rights held by those companies upon which the Company's   
products may infringe. For example, in 1996, the Company received an allegation 
of infringement from Elk Industries, Inc. If the Company were found to be       
infringing on the intellectual property rights of any third party, the Company  
could be subject to liabilities for such infringement, which could be material, 
and could be required to seek licenses from other companies or to refrain from  
using, manufacturing or selling certain products or using certain processes.    
Although holders of patents and other intellectual property rights often offer  
licenses to their patents or other intellectual property rights, no assurance   
can be given that licenses would be offered to the Company, that the terms of   
any offered license would be acceptable to the Company or that failure to obtain
a license would not have a material adverse effect on the Company's business and
operating results.                                                              

The Company relies upon certain technology, including hardware and    
software, licensed from third parties. There can be no assurance that the       
technology licensed by the Company will continue to provide competitive features
and functionality or that licenses for technology currently utilized by the     
Company or other technology which the Company may seek to license in the future 
will be available to the Company 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 the       
inability to license key new technology that may be developed, on commercially  
reasonable terms, would have a material adverse effect on the Company's business
and operating results.                                                          

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EMPLOYEES                                                                       

    As of March 31, 1997, the Company employed a total of 98 people, including
11 in manufacturing operations, 53 in research and development, 22 in sales and 
marketing and 12 in general and administrative capacities. The Company also     
employs a number of temporary employees and consultants on a contract basis.    
None of the Company's employees is represented by a labor union with respect to 
his or her employment by the Company. The Company has not experienced any work  
stoppages and considers its relations with its employees to be good.            

The Company's future success will depend, in part, upon its ability to
attract and retain qualified personnel. Competition for qualified personnel in  
the electronics and communications industries is intense, and there can be no   
assurance that the Company will be successful in retaining its key employees or 
that it will be able to attract skilled personnel as the Company grows. See     
"Risk Factors -- Management of Growth" and "Risk Factors -- Dependence on Key   
Personnel."                                                                     

FACILITIES                                                                      

   The Company's principal operations are located in an approximately 61,767
square foot facility in Santa Clara, California. A portion of this facility has 
been subleased. This lease expires in April 1999. The Company also leases 2,267 
square feet in London, England. This lease expires in January 1999 and the      
Company has no option to extend the lease. The Company's existing facilities are
adequate to meet its current needs.                                             

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS                                                

    The following table sets forth certain information regarding the executive
officers and directors of the Company as of the date of this Prospectus:        

                                                        [Enlarge/Download Table]

            NAME              AGE                            POSITION                          
----------------------------  ----  -----------------------------------------------------------
                                                                                               
Joe Parkinson(1)............   51   Chairman of the Board and Chief Executive Officer          
Keith R. Barraclough........   31   President and Chief Operating Officer and Director         
Paul Voois..................   30   Executive Vice President and Director                      
Sandra L. Abbott............   50   Chief Financial Officer and Vice President, Finance        
David Harper................   50   Vice President, European Operations                        
Bryan R. Martin.............   29   Chief Technical Officer and Vice President, Engineering    
Chris McNiffe...............   35   Vice President, Marketing and Sales                        
Michael Noonen..............   34   Vice President, Business Development                       
Samuel Wang.................   47   Vice President, Manufacturing and Director                 
Bernd Girod.................   39   Director                                                   
Richard M. Chang(1)(2)......   56   Director                                                   
Akifumi Goto(1).............   53   Director                                                   
Y.W. Sing(2)................   42   Vice Chairman of the Board                                 
William Tai.................   35   Director                                                   

---------------                                                                 
(1) Member of the Compensation Committee.                                       

(2) Member of the Audit Committee.                                              

Joe Parkinson has served as Chairman of the Board and Chief Executive 
Officer of the Company since June 1995. From October 1994 to June 1995, Mr.     
Parkinson served as a consultant to Micron Technology, Inc. ("Micron"), a       
manufacturer of semiconductor memory products, personal computers and circuit   
board assemblies. From October 1985 to October 1994, he served as Chairman of   
the Board and Chief Executive Officer of Micron, and from July 1980 to October  
1985 he served as President of Micron. Mr. Parkinson is a director of Ultratech 
Stepper, Inc. Mr. Parkinson received a B.A. from Columbia College, a J.D. from  
Tulane University and a L.L.M. in Taxation from New York University.            

    Keith R. Barraclough was promoted to President and Chief Operating Officer
and became a director of the Company in January 1997. From April 1996 to the    
present, he has also served as a director of VidUs, Inc. ("VidUs"), a subsidiary
of the Company engaged in the design of integrated camera and video compression 
solutions. Mr. Barraclough served as Director of Videophone Development of the  
Company from September 1995 to January 1997, and as Strategic Marketing Manager 
from January 1995 to September 1995. From April 1993 to January 1995, Mr.       
Barraclough served as Manager of Semiconductor Development at Media Vision      
Technology, Inc., a manufacturer of multimedia products. From 1988 to April     
1993, Mr. Barraclough held a position as engineer at IBM. Mr. Barraclough       
received a B.S. in Electrical Engineering from University College, London and a 
M.S. in Electrical Engineering from Imperial College, London.                   

Dr. Paul Voois was promoted to Executive Vice President and became a  
director of the Company in January 1997. From April 1996 to the present, he has 
also served as a director of VidUs. Dr. Voois served as Manager of Multimedia   
Codec Development of the Company from April 1996 to January 1997, as Technical  
Lead of the Company's H.324 Development Group from November 1995 to April 1996, 
and as a member of the technical staff of the Company from September 1994 to    
November 1995. From January 1990 to December 1993, Dr. Voois was a research     
assistant in Electrical Engineering at Stanford University. Dr. Voois received a
B.S. in Electrical Engineering from Penn State University, and a M.S. and a     
Ph.D. in Electrical Engineering from Stanford University.                       

  Sandra L. Abbott joined the Company as Controller in April 1991, and was
promoted to Chief Financial Officer and Vice President, Finance in June 1995.   
From February 1990 to March 1991, Ms. Abbott served as                          

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Controller for InfoChip Systems, Inc, a semiconductor manufacturer. Prior to    
1990, Ms. Abbott held Controller positions at MRP, Inc. (a subsidiary of U.S.   
West), Free-Flow Packaging, Inc. and Weitek Corporation. Ms. Abbott received a  
B.A. from University California, Riverside and a M.B.A. from Santa Clara        
University.                                                                     

David Harper joined the Company in May 1990 and was promoted to Vice  
President, European Operations in March 1991. From 1988 to 1990, Mr. Harper was 
Chief Executive Officer of Dialog Semiconductor, a European ASIC manufacturer.  
Prior to 1988, Mr. Harper held various sales management positions at GEC Plessey
Semiconductor, LSI Logic Corp. and General Electric Company. Mr. Harper received
a B.S. in Electrical Engineering from the University of Manchester Institute of 
Science and Technology.                                                         

     Bryan R. Martin was promoted to Chief Technical Officer and Vice President,
Engineering of the Company in August 1995. Mr. Martin served as Video Project   
Manager of the Company from April 1995 to August 1995, and as an integrated     
circuit designer for the Company from April 1990 to August 1995. Mr. Martin     
received a B.S. and a M.S. in Electrical Engineering from Stanford University.  

 Chris McNiffe has served as Vice President, Marketing and Sales for the
Company since July 1995. From June 1992 to July 1995, Mr. McNiffe held various  
sales and marketing management positions at the Company. From July 1986 to June 
1992, Mr. McNiffe held a position as sales manager at NCR Corporation, a        
computer products and services provider. From 1982 to 1986, Mr. McNiffe was a   
design engineer at RCA Corporation. Mr. McNiffe received a B.S. in Electrical   
Engineering from Rutgers University.                                            

   Michael Noonen has served as Vice President, Business Development for the
Company since May 1996. From April 1996 to the present, he has also served as   
Chief Executive Officer of VidUs. From July 1992 to April 1995, Mr. Noonen held 
various sales management positions at the Company. From August 1990 to July     
1992, Mr. Noonen served as an Area Sales Manager for NCR Corporation, a computer
products and services provider. Prior to 1992, Mr. Noonen was a field           
application engineer for Seattle Silicon Corporation, a software developer. Mr. 
Noonen received a B.S. in Electrical Engineering from Colorado State University.

    Dr. Samuel Wang has served as Vice President, Manufacturing and a director
of the Company since October 1995. From 1984 to October 1995, Mr. Wang served as
Executive Vice President and a director of ICT Inc., a manufacturer of          
programmable logic devices. From 1981 to 1983 Mr. Wang was a Senior Engineering 
Manager at National Semiconductor Corporation, and from 1978 to 1980 he was a   
staff engineer at Intel Corporation. Mr. Wang received a B.S. in Physics from   
the National Tsing Hua University, Taiwan, and a M.S. and Ph.D. in Solid State  
Electronics from Princeton University.                                          

Dr. Bernd Girod has served as a director of the Company since November
1996. Dr. Girod has been a Chaired Professor of Electrical                      
Engineering/Telecommunications at the University of Enlangen-Nuremberg in       
Germany since October 1993. In May 1993, he co-founded Vivo Software, Inc., a   
developer of video compression software, and has served as Chief Scientist since
then. From June 1990 to September 1993, Dr. Girod was Professor of Computer     
Graphics and Technical Director of the Academy of Media Arts in Cologne,        
Germany, jointly appointed with the Computer Science Section of Cologne         
University. From January 1988 to May 1990, he was employed at the Massachusetts 
Institute of Technology, first as a Visiting Scientist and then as an Assistant 
Professor with the Media Laboratory. Dr. Girod received a M.S. in Electrical    
Engineering from the Georgia Institute of Technology and a Doctoral degree from 
the University of Hannover, Germany.                                            

Dr. Richard M. Chang has been a director of the Company since February
1987. He has served in various marketing and manufacturing management positions 
at Hewlett-Packard Company, an electronics component and system manufacturer,   
since 1970. Dr. Chang received a B.S. in Physics from the California Institute  
of Technology and a Ph.D. in Applied Physics from Stanford University.          

  Akifumi Goto has been a director of the Company since September 1996. He
has served as President and Chief Executive Officer of Sanyo Semiconductor      
Corporation ("Sanyo"), a semiconductor manufacturer, since February 1993. From  
February 1983 to January 1993, Mr. Goto served as Executive Vice President of   

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Sanyo. Mr. Goto received a B.S. in Electrical Engineering from Tamagawa         
University and a M.B.A. from Santa Clara University.                            

    Dr. Y.W. Sing has served as a director of the Company since February 1987,
and has served as Vice Chairman of the Board since July 1995. Dr. Sing          
co-founded the Company in February 1987 and was Vice President of Engineering   
until December 1989. From December 1989 to July 1995, he served as the Company's
Executive Vice President, and in July 1995 became the Company's Vice Chairman of
the Board. In April 1997, Dr. Sing resigned as an employee of the Company but   
remains as Vice Chairman of the Board. For six years prior to 1987, Dr. Sing    
worked for Weitek Corporation, a semiconductor manufacturer, where he served as 
senior technical manager. From 1979 to 1981, Dr. Sing was a member of the       
technical staff at Hewlett-Packard Company. Dr. Sing holds a B.S. from National 
Taiwan University and a M.S. and Ph.D. in Electrical Engineering from the       
University of California at Berkeley.                                           

  William Tai has been a director of the Company since April 1994. Mr. Tai
has been associated with the Walden Group of Venture Capital Funds, a venture   
capital firm, since September 1991, most recently as a General Partner of       
several funds. From August 1987 to September 1991, Mr. Tai was employed by Alex.
Brown & Sons Incorporated, most recently as Vice President. Mr. Tai is also a   
director of Network Peripherals, Inc. and Award Software International, Inc. Mr.
Tai received a B.S. in Electrical Engineering from the University of Illinois   
and a M.B.A. from Harvard Business School.                                      

BOARD COMMITTEES                                                                

     The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee makes recommendations to the Board concerning the    
compensation for the Company's officers and directors and the administration of 
the Company's 1992 Stock Option Plan, Key Personnel Plan, 1996 Stock Plan, 1996 
Director Option Plan and 1996 Employee Stock Purchase Plan. The Audit Committee 
reviews the Company's financial controls, evaluates the scope of the annual     
audit, reviews audit results, consults with management and the Company's        
independent auditors prior to the presentation of financial statements to       
stockholders and, as appropriate, initiates inquiries into aspects of the       
Company's financial affairs.                                                    

DIRECTOR COMPENSATION                                                           

Directors receive no cash remuneration for serving on the Board of    
Directors but are reimbursed for reasonable expenses incurred by them in        
attending Board and Committee meetings upon approval of such reimbursement by   
the Board of Directors. Directors are eligible to receive stock options under   
the Company's 1992 Stock Option Plan, Key Personnel Plan and 1996 Stock Plan.   
Effective upon the closing of this Offering, the Company has adopted the 1996   
Director Option Plan and, in the future, non-employee directors will be eligible
to receive stock options under this plan. See "Management -- Compensation       
Plans."                                                                         

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION                     

    The Compensation Committee of the Board of Directors currently consists of
Messrs. Parkinson, Chang and Goto. No member of the Compensation Committee or   
executive officer of the Company has a relationship that would constitute an    
interlocking relationship with executive officers or directors of another       
entity.                                                                         

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS                             

    The Company's Amended and Restated Certificate of Incorporation limits the
liability of directors to the fullest extent permitted by the Delaware General  
Corporation Law (the "Delaware Law"). Under the Delaware Law, a director's      
liability to a company or its stockholders may not be limited with respect to   
(i) any breach of his duty of loyalty to the company or its stockholders, (ii)  
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) unlawful payments or dividends or unlawful stock
repurchases or redemptions or (iv) transactions from which the director derived 
an improper personal benefit.                                                   

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    The Company's Bylaws provide that the Company shall indemnify its officers
and directors and may indemnify its employees and other agents to the fullest   
extent permitted under the Delaware Law. The Company has also entered into      
agreements to indemnify its directors and executive officers. The Company's     
Bylaws also permit it to secure insurance on behalf of any officer, director,   
employee or other agent for any liability arising out of his or her actions,    
regardless of whether the Delaware Law would permit indemnification.            

There is no pending litigation or proceeding involving any director,  
officer, employee or agent of the Company where indemnification will be required
or permitted. The Company is not aware of any pending or threatened litigation  
or proceeding that might result in a claim for such indemnification.            

EXECUTIVE COMPENSATION                                                          

   The following table sets forth in summary form information concerning the
compensation awarded to, earned by, or paid for services rendered to the Company
in all capacities during the fiscal year ended March 31, 1997 by (i) the        
Company's Chief Executive Officer and Chief Operating Officer and (ii) the      
Company's other four most highly compensated executive officers whose salary and
bonus for such fiscal year exceeded $100,000 and who served as executive        
officers of the Company at March 31, 1997 (collectively, the "Named Executive   
Officers"):                                                                     

SUMMARY COMPENSATION TABLE

                                                        [Enlarge/Download Table]

                                                                              LONG TERM               
                                               ANNUAL COMPENSATION           COMPENSATION             
                                      -------------------------------------  ------------             
                                                               OTHER ANNUAL   SECURITIES     ALL OTHER
                                                               COMPENSATION   UNDERLYING      COMPEN- 
    NAME AND PRINCIPAL POSITION       SALARY($)     BONUS($)      ($)(1)      OPTIONS(#)     SATION($)
------------------------------------  ---------     --------   ------------  ------------    ---------
                                                                                                      
Joe Parkinson, Chairman and Chief                                                                     
  Executive Officer.................   150,000        9,322            --      1,000,000(2)         --
Keith R. Barraclough, President and                                                                   
  Chief Operating Officer...........   123,962      120,650            --        250,000(3)         --
Paul Voois, Executive Vice                                                                            
  President.........................   121,191      190,034            --        250,000(4)         --
Samuel Wang, Vice President,                                                                          
  Manufacturing.....................   150,000      150,000            --        157,400(5)         --
Chris McNiffe, Vice President,                                                                        
  Marketing and Sales...............   150,000      150,000            --        176,400(6)         --
Bryan R. Martin, Chief Technical                                                                      
  Officer, and Vice President,                                                                        
  Engineering.......................   130,192      151,675            --        160,400(7)         --

---------------                                                                 
(1) Excludes perquisites and other personal benefits which for each Named       
  Executive Officer did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus for such officer.                               

(2) Includes a grant of options for 500,000 shares issued pursuant to a         
   repricing of options on June 24, 1996 accomplished through the cancellation
of then existing options and the issuance of new options. See "Certain  
Transactions."                                                          

(3) Includes grants of options for an aggregate of 35,000 shares issued pursuant
to a repricing of options on June 24, 1996 accomplished through the     
  cancellation of then existing options and the issuance of new options. See
"Certain Transactions."                                                 

(4) Includes grants of options for an aggregate of 31,000 shares issued pursuant
to a repricing of options on June 24, 1996 accomplished through the     
  cancellation of then existing options and the issuance of new options. See
"Certain Transactions."                                                 

(5) Includes a grant of options for 100,000 shares issued pursuant to a         
   repricing of options on June 24, 1996 accomplished through the cancellation
of then existing options and the issuance of new options. See "Certain  
Transactions."                                                          

(6) Includes grants of options for an aggregate of 119,000 shares issued        
    pursuant to a repricing of options on June 24, 1996 accomplished through the
  cancellation of then existing options and the issuance of new options. See
"Certain Transactions."                                                 

(7) Includes grants of options for an aggregate of 103,000 shares issued        
    pursuant to a repricing of options on June 24, 1996 accomplished through the
  cancellation of then existing options and the issuance of new options. See
"Certain Transactions."                                                 

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Option Grants and Holdings                                                  

The following table provides information with respect to stock option 
grants to each of the Named Executive Officers during the fiscal year ended     
March 31, 1997:                                                                 

OPTION GRANTS IN LAST FISCAL YEAR 

                                                        [Enlarge/Download Table]

                                                                                         POTENTIAL REALIZABLE 
                                               INDIVIDUAL GRANTS                           VALUE AT ASSUMED   
                         --------------------------------------------------------------  ANNUAL RATES OF STOCK
                         NUMBER OF      PERCENT OF                                        PRICE APPRECIATION  
                         SECURITIES        TOTAL                                                  FOR         
                         UNDERLYING   OPTIONS GRANTED                                       OPTION TERM(1)    
                          OPTIONS     TO EMPLOYEES IN      EXERCISE OR       EXPIRATION  ---------------------
         NAME            GRANTED(#)     FISCAL YEAR     BASE PRICE ($/SH.)      DATE      5%($)       10%($)  
-----------------------  ----------   ---------------   ------------------   ----------  --------   ----------
                                                                                                              
Joe Parkinson..........    500,000(3)       18.2%             $ 0.50(2)        06/15/05  $157,223   $  398,435
Joe Parkinson..........    250,000(4)        9.1%             $ 0.50           06/24/06  $ 78,612   $  169,743
Joe Parkinson..........    250,000(5)        9.1%             $ 0.50           06/24/06  $ 78,612   $  169,743
Keith R. Barraclough...     20,000(6)        0.7%             $ 0.50(2)        12/11/05  $  6,289   $   15,937
Keith R. Barraclough...     15,000(7)        0.5%             $ 0.50(2)        01/27/05  $  4,717   $   11,953
Keith R. Barraclough...     25,000(8)        0.9%             $ 5.00           10/21/06  $ 78,612   $  169,743
Keith R. Barraclough...    170,000(9)        6.2%             $ 6.80           01/20/07  $727,002   $1,842,366
Keith R. Barraclough...     20,000(6)        0.7%             $ 0.50           06/24/06  $  6,289   $   15,937
Paul Voois.............     20,000(6)        0.7%             $ 0.50(2)        08/14/05  $  6,289   $   15,937
Paul Voois.............      5,000(6)        0.2%             $ 0.50           05/20/06     1,572        3,984
Paul Voois.............      6,000(7)        0.2%             $ 0.50(2)        10/27/04  $  1,887   $    4,781
Paul Voois.............     20,000(9)        0.7%             $ 0.50           06/24/06  $  6,289   $   15,937
Paul Voois.............      4,000(9)        0.1%             $ 0.50           07/17/06  $  1,258   $    3,187
Paul Voois.............     25,000(8)        0.9%             $ 5.00           10/21/06  $ 78,612   $  169,743
Paul Voois.............    170,000(9)        6.2%             $ 6.80           01/20/07  $727,002   $1,842,366
Samuel Wang............    100,000(10)        3.6%            $ 0.50(2)        10/16/05  $ 31,445   $   79,687
Samuel Wang............     57,400(11)        2.1%            $ 0.50           06/24/06  $ 18,049   $   45,740
Chris McNiffe..........    100,000(11)        3.6%            $ 0.50(2)        07/10/05  $ 31,445   $   79,687
Chris McNiffe..........      2,000(11)        0.1%            $ 0.50(2)        02/22/04  $    629   $    1,594
Chris McNiffe..........     15,000(12)        0.5%            $ 0.50(2)        07/08/02  $  4,717   $   11,953
Chris McNiffe..........      2,000(13)        0.1%            $ 0.50(2)        08/05/04  $    629   $    1,594
Chris McNiffe..........     57,400(11)        2.1%            $ 0.50           06/24/06  $ 18,049   $   45,740
Bryan R. Martin........    100,000(11)        3.6%            $ 0.50(2)        08/14/05  $ 31,445   $   79,687
Bryan R. Martin........      3,000(11)        0.1%            $ 0.50(2)        02/22/04  $    943   $    2,391
Bryan R. Martin........     57,400(11)        2.1%            $ 0.50           06/24/06  $ 18,049   $   45,740

---------------                                                                 
(1) Potential gains are net of the exercise price but before taxes associated 
    with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Securities and Exchange 
     Commission and do not represent the Company's estimate or projection of the
    future Common Stock price. Actual gains, if any, on stock option exercises
   are dependent on the future financial performance of the Company, overall
    market conditions and the option holders' continued employment through the
vesting period.                                                       

(2) These options were issued pursuant to a repricing of options on June 24,  
     1996 accomplished through the cancellation of then existing options and the
issuance of new options. See "Certain Transactions."                  

 (3) The options were granted under the Key Personnel Plan and vest at a rate of
   1/3 of the shares at the end of one year and 1/24 of the remaining shares
 at the end of each month thereafter, subject to continued service as an
     employee, consultant or director. The term of each option is ten years. The
    exercise price of each option granted is equal to the fair market value of
the Common Stock of the Company on the date of grant. See             
"Management -- Compensation Plans."                                   

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 (4) The options were granted under the Key Personnel Plan and vest at a rate of
   1/48 of the shares at the end of each month, subject to continued service
as an employee, consultant or director. The term of each option is ten
years. The exercise price of each option granted is equal to the fair 
   market value of the Common Stock of the Company on the date of grant. See
"Management -- Compensation Plans."                                   

(5) The options were granted under the Key Personnel Plan. This option shall    
    vest at a rate of 1/36 of the shares at the end of each month, commencing in
April 1997; provided, however, that vesting shall be accelerated in full
upon an initial public offering of the Company's Common Stock occurring 
prior to December 31, 1997 for which either the initial public offering 
price or the highest bid price on the secondary market for the month    
  thereafter is greater than $6.00 per share. The term of each option is ten
    years. The exercise price of each option granted is equal to the fair market
value of the Common Stock of the Company on the date of grant. See      
"Management -- Compensation Plans" and "Certain Transactions."          

(6) The options were granted under the 1992 Stock Option Plan and vest at a   
   rate of 1/48 of the shares at the end of each month, subject to continued
    service as an employee, consultant or director. The term of each option is
   ten years. The exercise price of each option granted is equal to the fair
   market value of the Common Stock of the Company on the date of grant. See
"Management -- Compensation Plans."                                   

(7) The options were granted under the 1992 Stock Option Plan and vest at a   
    rate of 1/4 of the shares at the end of one year and 1/36 of the remaining
     shares at the end of each month thereafter, subject to continued service as
    an employee, consultant or director. The term of each option is ten years.
     The exercise price of each option granted is equal to the fair market value
of the Common Stock of the Company on the date of grant. See          
"Management -- Compensation Plans."                                   

(8) The options were granted under the 1992 Stock Option Plan and vest in full
on October 21, 2000, subject to continued service as an employee,     
     consultant or director. The options vest in full on June 30, 1997 dependent
    upon certain milestones reached by Messrs. Barraclough and Voois. The term
   of each option is ten years. The exercise price of each option granted is
  equal to the fair market value of the Common Stock of the Company on the
date of grant. See "Management -- Compensation Plans."                

(9) The options were granted under the 1996 Stock Plan and vest at a rate of  
   1/48 of the shares at the end of each month, subject to continued service
as an employee, consultant or director. The term of each option is ten
years. The exercise price of each option granted is equal to the fair 
   market value of the Common Stock of the Company on the date of grant. See
"Management -- Compensation Plans."                                   

(10) The options were granted under the Key Personnel Plan and vest at a rate of
   1/4 of the shares at the end of one year and 1/36 of the remaining shares
 at the end of each month thereafter, subject to continued service as an
     employee, consultant or director. The term of each option is ten years. The
    exercise price of each option granted is equal to the fair market value of
the Common Stock of the Company on the date of grant. See             
"Management -- Compensation Plans."                                   

(11) The options were granted under the Key Personnel Plan and vest at a rate of
   1/48 of the shares at the end of each month, subject to continued service
as an employee, consultant or director. The term of each option is ten
years. The exercise price of each option granted is equal to the fair 
   market value of the Common Stock of the Company on the date of grant. See
"Management -- Compensation Plans."                                   

(12) The options were granted under the Key Personnel Plan and vest at a rate of
   1/5 of the shares at the end of one year and 1/48 of the remaining shares
 at the end of each month thereafter, subject to continued service as an
     employee, consultant or director. The term of each option is ten years. The
    exercise price of each option granted is equal to the fair market value of
the Common Stock of the company on the date of grant. See             
"Management -- Compensation Plans."                                   

(13) The options were granted under the Key Personnel Plan and vest at a rate of
   1/24 of the shares at the end of each month, subject to continued service
as an employee, consultant or director. The term of each option is ten
years. The exercise price of each option granted is equal to the fair 
   market value of the Common Stock of the Company on the date of grant. See
"Management -- Compensation Plans."                                   

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   The following table provides information with respect to option exercises
during the year ended March 31, 1997 and the value of stock options held as of  
March 31, 1997 by each of the Named Executive Officers.                         

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

                                                        [Enlarge/Download Table]

                                                             NUMBER OF SECURITIES                                 
                                                            UNDERLYING UNEXERCISED        VALUE OF UNEXERCISED    
                                                                    OPTIONS               IN-THE-MONEY OPTIONS    
                               SHARES                      AT FISCAL YEAR END(#)(1)       AT FISCAL YEAR END($)   
                            ACQUIRED FOR      VALUE       ---------------------------  ---------------------------
           NAME             EXERCISE(#)   REALIZED($)(1)  EXERCISABLE   UNEXERCISABLE  EXERCISABLE   UNEXERCISABLE
--------------------------  ------------  --------------  -----------   -------------  -----------   -------------
                                                                                                                  
Joe Parkinson.............    1,000,000     $        0           --             --             --             --  
Keith R. Barraclough(2)...           --             --       18,750         36,250      $ 118,125      $ 228,375  
Keith R. Barraclough(3)...           --             --            0         25,000      $       0      $  45,000  
Keith R. Barraclough(4)...           --             --        7,083        162,917      $       0      $       0  
Paul Voois(2).............           --             --       17,126         37,874      $ 107,894      $ 238,606  
Paul Voois(3).............           --             --            0         25,000      $       0      $  45,000  
Paul Voois(4).............           --             --        7,083        162,917      $       0      $       0  
Samuel Wang...............      157,400     $        0           --             --             --             --  
Chris McNiffe.............      176,400     $        0           --             --             --             --  
Bryan R. Martin...........      160,400     $        0           --             --             --             --  

---------------                                                                 
(1) Calculated by determining the difference between the exercise price of the  
 Common Stock ($0.50) and the fair market value of the Common Stock on the
date of exercise ($0.50).                                               

(2) Calculated by determining the difference between the fair market value of   
   the Common Stock as of March 31, 1997 ($6.80) and the exercise price of the
underlying options as of March 31, 1997 ($0.50).                        

(3) Calculated by determining the difference between the fair market value of   
   the Common Stock as of March 31, 1997 ($6.80) and the exercise price of the
underlying options as of March 31, 1997 ($5.00).                        

(4) Calculated by determining the difference between the fair market value of   
   the Common Stock as of March 31, 1997 ($6.80) and the exercise price of the
underlying options as of March 31, 1997 ($6.80).                        

COMPENSATION PLANS                                                              

1992 Stock Option Plan                                                      

The Company's 1992 Stock Option Plan (the "1992 Plan") was adopted in 
January 1992. The 1992 Plan provides for the grant to employees of the Company  
(including officers and employee directors) of incentive stock options within   
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and for the grant of nonstatutory stock options to employees and       
consultants of the Company. The 1992 Plan is administered by the Board of       
Directors or a Committee of the Board of Directors (the "Administrator"), which 
selects the optionees, determines the number of shares to be subject to each    
option and determines the exercise price of each option. The 1992 Plan          
authorizes the issuance of up to 2,000,000 shares of Common Stock. As of March  
31, 1997, 253,892 shares had been issued under the 1992 Plan, options for       
1,581,825 shares were outstanding and 164,283 shares remained available for     
future grants. The exercise price of all incentive stock options granted under  
the 1992 Plan must be at least equal to the fair market value per share of the  
Common Stock on the date of grant. The exercise price of all nonstatutory stock 
options granted under the 1992 Plan is determined by the Administrator. With    
respect to any participant who owns stock possessing more than 10% of the voting
power of all classes of stock of the Company, the exercise price of any         
incentive stock option granted must equal at least 110% of the fair market value
on the grant date and the maximum term of the option must not exceed five years.
The term of all other options granted under the 1992 Plan may not exceed ten    
years.                                                                          

   In the event of a merger of the Company with or into another corporation,
the 1992 Plan requires that each outstanding option be assumed or an equivalent 
option substituted by such successor corporation or a                           

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parent or subsidiary of such successor corporation. If the successor corporation
refuses to assume or substitute for the options, the optionee will have the     
right to exercise the option as to all or a portion of the stock subject        
thereto, including shares which would not otherwise be exercisable. Unless      
terminated sooner, the 1992 Plan will terminate ten years from its effective    
date. The Board has authority to amend or terminate the 1992 Plan, provided no  
such action would impair the rights of the holder of any outstanding options    
without the written consent of such holder.                                     

Key Personnel Plan                                                          

    The Company's Key Personnel Plan (the "Key Personnel Plan") was adopted in
July 1995. The Key Personnel Plan provides for the grant to employees of the    
Company (including officers and employee directors) of incentive stock options  
within the meaning of Section 422 of the Code, and for the grant of nonstatutory
stock options to employees and consultants of the Company. The Key Personnel    
Plan is administered by the Board of Directors or a Committee of the Board of   
Directors (the "Administrator"), which selects the optionees, determines the    
number of shares to be subject to each option and determines the exercise price 
of each option. The Key Personnel Plan authorizes the issuance of up to         
2,199,925 shares of Common Stock. As of March 31, 1997, 2,199,925 shares had    
been issued under the Key Personnel Plan and no shares remained available for   
future grants. The exercise price of all incentive stock options granted under  
the Key Personnel Plan must be at least equal to the fair market value of the   
Common Stock on the date of grant. The exercise price of all nonstatutory stock 
options granted under the Key Personnel Plan is determined by the Administrator.
With respect to any participant who owns stock possessing more than 10% of the  
voting power of all classes of stock of the Company, the exercise price of any  
incentive stock option granted must equal at least 110% of the fair market value
on the grant date and the maximum term of the option must not exceed five years.
The term of all other options granted under the Key Personnel Plan may not      
exceed ten years.                                                               

   In the event of a merger of the Company with or into another corporation,
the Key Personnel Plan requires that each outstanding option be assumed or an   
equivalent option substituted by such successor corporation or a parent or      
subsidiary of such successor corporation. If the successor corporation refuses  
to assume or substitute for the options, the optionee will have the right to    
exercise the option as to all or a portion of the stock subject thereto,        
including shares which would not otherwise be exercisable.                      

1996 Stock Plan                                                             

   The Company's 1996 Stock Plan (the "1996 Plan") was adopted in June 1996.
The 1996 Plan provides for the grant to employees of the Company (including     
officers and employee directors) of incentive stock options within the meaning  
of Section 422 of the Code, and for the grant of nonstatutory stock options and 
stock purchase rights ("Rights") to employees and consultants of the Company.   
The 1996 Plan is administered by the Board of Directors or a Committee of the   
Board of Directors (the "Administrator"), which selects the optionees,          
determines the number of shares to be subject to each option or Right and       
determines the exercise price of each option or Right. The 1996 Plan authorizes 
the issuance of up to 1,500,000 shares of Common Stock, to be increased annually
on the first day of each of the Company's fiscal years during the term of the   
plan in an amount equal to 5% of the Company's Common Stock issued and          
outstanding at the close of business on the last day of the immediately         
preceding fiscal year (the "Annual Replenishment"), with only the initial       
1,500,000 shares and subsequent annual increases in an amount equal to the      
lesser of (i) 1,000,000 shares, or (ii) the number of shares subject to the     
Annual Replenishment to be available for issuance as "incentive stock options"  
qualified under Section 422 of the Code. As of March 31, 1997, 2,302 shares had 
been issued under the 1996 Plan, options for 709,325 shares were outstanding and
288,373 shares remained available for future grants. The exercise price of all  
incentive stock options granted under the 1996 Plan must be at least equal to   
the fair market value of the Common Stock on the date of grant. The exercise    
price of all nonstatutory stock options granted under the 1996 Plan shall be    
determined by the Administrator. With respect to any participant who owns stock 
possessing more than 10% of the voting power of all classes of stock of the     
Company, the exercise price of any incentive stock option granted must equal at 
least 110% of the fair market value on the grant date and the maximum term of an
incentive stock option must not exceed five years. The term of all other options
granted under the 1996 Plan may not exceed ten years.                           

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   In the event of a merger of the Company with or into another corporation,
or the sale of all or substantially all of the assets of the Company, the 1996  
Plan requires that each outstanding option be assumed or an equivalent option   
substituted by the successor corporation or a parent or subsidiary of such      
successor corporation. If the successor corporation refuses to assume or        
substitute for the options, the optionee will have the right to exercise the    
option or Right as to all or a portion of the stock subject thereto, including  
shares which would not otherwise be exercisable. Unless terminated sooner, the  
1996 Plan will terminate ten years from its effective date. The Board has       
authority to amend or terminate the 1996 Plan, provided no such action would    
impair the rights of the holder of any outstanding options without the written  
consent of such holder.                                                         

1996 Director Option Plan                                                   

   The Company's 1996 Director Option Plan (the "Director Plan") was adopted
in June 1996 and will become effective upon the closing of this Offering. A     
total of 150,000 shares of Common Stock has been reserved for issuance under the
Director Plan. The Director Plan provides for the grant of nonstatutory stock   
options to all nonemployee directors of the Company ("Outside Directors"). The  
grants may be made at the discretion of the Board of Directors or a Committee   
appointed by the Board of Directors. In addition, grants will be made pursuant  
to an automatic, nondiscretionary grant mechanism. The Director Plan provides   
that each Outside Director shall be granted a nonstatutory stock option to      
purchase 16,000 shares of Common Stock on the date upon which such person first 
becomes an Outside Director or, if later, on the effective date of the Director 
Plan (the "First Option"). Thereafter, each Outside Director shall be           
automatically granted an option to purchase 4,000 shares of Common Stock on the 
date such Outside Director is reelected to the Board of Directors by the        
Company's stockholders at the Company's annual meeting of stockholders or       
otherwise (a "Subsequent Option"), if on such date, such Outside Director shall 
have served on the Company's Board of Directors for at least six (6) months. The
Director Plan provides that each option shall become exercisable in installments
over a period of four (4) years from the date of grant. The exercise price per  
share of all options granted under the Director Plan shall be equal to the fair 
market value of a share of the Company's Common Stock on the date of grant.     
Options granted to Outside Directors under the Director Plan have a ten year    
term, or shorter upon termination of an Outside Director's status as a director.
In the event of the merger or sale of substantially all of the assets of the    
Company, all outstanding options shall be assumed or substituted by the         
successor corporation, or if they are not assumed or substituted for, they shall
become fully vested and exercisable. If the options are assumed or substituted  
for, they shall also become fully exercisable if the director is terminated     
other than upon voluntary termination. If not terminated earlier, the Director  
Plan will have a term of ten years.                                             

1996 Employee Stock Purchase Plan                                           

   The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted in June 1996 and will become effective upon the closing of this         
Offering. A total of 500,000 shares of Common Stock has been reserved for       
issuance under the Purchase Plan, to be increased annually on the first day of  
each of the Company's fiscal years during the term of the Purchase Plan in an   
amount equal to (i) 500,000 shares minus (ii) the number of shares available for
issuance under the Purchase Plan as of such date, all of which share numbers are
subject to adjustment upon changes in capitalization of the Company. The        
Purchase Plan, which is intended to qualify under Section 423 of the Code, will 
be implemented by an offering commencing on the date of the closing of this     
Offering and ending on the last business day in the period ending October 31,   
1998. Each twenty-four month offering period will consist of four purchase      
periods of approximately six months duration. Employees are eligible to         
participate if they are regularly employed by the Company for at least twenty   
hours per week and more than five months in any calendar year.                  

The Purchase Plan permits eligible employees to purchase Common Stock 
through payroll deductions, which may not exceed 10% of an employee's base      
compensation, including commissions but exclusive of bonuses and overtime, at a 
price equal to 85% of the fair market value of the Common Stock at the beginning
of each offering period or the end of a six month purchase period, whichever is 
lower. In the event of a merger of the Company with or into another corporation,
or the sale of all or substantially all of the assets of the Company, the       
Purchase Plan provides that a new exercise date shall be set for each option    
under the plan, which exercise date shall occur before the date of the merger or
asset sale. In the event that the fair market value of the Company's Common     
Stock at the end of any six month purchase period is lower than the fair        

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market value of the Company's Common Stock at the beginning of the offering     
period, Purchase Plan participants will be automatically withdrawn from such    
offering period and re-enrolled in the new offering period commencing           
immediately thereafter. Unless terminated sooner, the Purchase Plan will        
terminate ten years after its effective date. The Board of Directors has        
authority to amend or terminate the Purchase Plan provided no such action may   
adversely affect the rights of any participant.                                 

Change of Control                                                           

   In the event of an individual or corporate entity and any related parties
cumulatively acquiring at least 35% of the Company's fully diluted stock (a     
"Change of Control"), all stock options or stock subject to repurchase by the   
Company held by officers under any stock option plan shall vest immediately     
without regard to the term of the option. In addition, in the event of a Change 
of Control, each officer shall be entitled to one (1) year severance pay and    
continuing medical benefits for life after leaving the Company, provided that   
such medical benefits shall cease should such officer accept employment with a  
competing company.                                                              

Profit Sharing Plan                                                         

  In July 1995, the Company's Board of Directors approved a profit sharing
plan which provides for additional compensation to all employees of the Company 
based on the Company's quarterly income before income taxes. The profit sharing 
plan is effective beginning in the year ended March 31, 1996 and provides for   
payments of up to 15% of the Company's quarterly income before income taxes.    
Additionally, the plan provides for payment of certain discretionary bonuses    
based on criteria established by management.                                    

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CERTAIN TRANSACTIONS

In September 1996, the Company sold an aggregate of 363,640 shares of 
Series D Preferred Stock to Sanyo Semiconductor Corporation ("Sanyo"), a        
manufacturer of semiconductors, at a price of $5.50 per share. Akifumi Goto,    
President of Sanyo, became a director of the Company in connection with this    
transaction. During the fiscal year ended March 31, 1997, the Company's product 
revenues included $106,000 in sales to Sanyo, and the Company purchased $408,000
in inventory from Sanyo.                                                        

     In July 1996, certain officers and directors of the Company exercised their
stock options under the Company's Key Personnel Plan pursuant to a restricted   
stock purchase agreement. The officers and directors exercised an aggregate of  
2,156,800 shares of Common Stock at a purchase price of $0.50 per share by      
payment of partial recourse promissory notes. The following officers and        
directors exercised shares of Common Stock under the Company's Key Personnel    
Plan: 122,400 shares exercised by Sandra Abbott; 122,400 shares exercised by    
David Harper; 160,400 shares exercised by Bryan Martin; 176,400 shares exercised
by Chris McNiffe; 125,400 shares exercised by Michael Noonen; 1,000,000 shares  
exercised by Joe Parkinson; 292,400 shares exercised by Y.W. Sing; and 157,400  
shares exercised by Samuel Wang.                                                

    In April 1994, the Company sold an aggregate of 681,820 shares of Series C
Preferred Stock to National Semiconductor Corporation ("NSC"), a semiconductor  
manufacturer, at a price of $11.00 per share. Also in April 1994, the Company   
entered into various joint development and supply agreements with NSC, which    
were terminated by mutual agreement between the parties in June 1996. As part of
this termination, the Company licensed, on a non-exclusive, royalty free basis, 
its Intel compatible x86 microprocessor technology to NSC. During the year ended
March 31, 1995, the company recognized contract revenue and related costs under 
these agreements of $294,000 and $229,000, respectively and purchased $868,000  
in inventory from NSC. Additionally, the Company subleases to NSC a portion of  
its facilities under a month to month sublease arrangement. Proceeds from the   
sublease are recorded as a reduction to operating expenses and aggregated       
$207,000, $205,000 and $276,000 during the years ended March 31, 1995, 1996 and 
1997, respectively.                                                             

In March 1996, 8x8 entered into an investment agreement (the "VidUs   
Agreement") with certain of its employees to form VidUs, Inc. ("VidUs"), whose  
officers include Michael Noonen and Sandra L. Abbott as a subsidiary of 8x8.    
VidUs is currently developing technology by which a digital camera transfers    
data to a computer port using the Company's MEP semiconductor and reference     
board design video compression capabilities (the "CompressionCam Concept"). See 
"Business -- Products" for a discussion of the Company's products, including its
MEP semiconductor and its reference board designs. Pursuant to the VidUs        
Agreement and a later related agreement, the Company contributed $157,500 and   
certain employees of 8x8 contributed an aggregate of $77,500 for shares of the  
common stock of VidUs at a rate of one dollar per share, the price approved by  
VidUs' Board of Directors. Each of 8x8, Keith R. Barraclough, Paul Voois and    
Michael Noonen owns approximately 67%, 2%, 1% and 11%, respectively, of VidUs   
common stock. The remaining 19% of VidUs common stock is owned by other         
employees of 8x8. The Company has agreed to register under the Securities Act   
shares of VidUs in an initial public offering once VidUs has had several        
quarters of operating profits and overall profitability and has forecasted      
profits for each of the quarters over the succeeding two years. Also in         
connection with the VidUs Agreement, the Company will own all patents related to
the CompressionCam Concept as developed by 8x8 as of March 1996, but has        
provided VidUs with a royalty-free, nonexclusive, nonassignable license to make,
have made, use and sell products which incorporate the CompressionCam Concept.  
Neither the Company nor VidUs has any obligation to share with the other party  
any patent developed by it after the formation of VidUs. The Company believes   
that the value of the CompressionCam Concept at the time of the formation of    
VidUs was not material.                                                         

  In May 1997, the Company entered into a nonbinding letter of intent (the
"U.K. Letter") with 8x8, Ltd., the Company's U.K. subsidiary, and certain       
employees of 8x8, Ltd., including David Harper. Pursuant to the U.K. Letter, the
Company and Mr. Harper will own approximately 70% and 11%, respectively, of the 
common stock of 8x8, Ltd. The stock will be sold to 8x8, Ltd. employees at book 
value, subject to repurchase upon termination of employment prior to an initial 
public offering. Also in connection with the U.K. Letter, the Company will      
provide 8x8 Ltd. a non-exclusive, royalty-bearing, nonassignable license to     
make, have made, use and sell products which incorporate any of the Company's   
technology (other than technology obtained                                      

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from the Company's licensees). In addition, the U.K. Letter specifies that so   
long as the Company owns at least 50% of 8x8, Ltd., the Company and 8x8, Ltd.   
will share all technology developed or acquired (other than from licensees) by  
the other party for three years following the date of the U.K. Letter; provided,
however, that any technology developed by 8x8, Ltd. during such three year term 
shall be assigned to the Company. The transactions contemplated by the U.K.     
Letter are subject to negotiation of a definitive agreement.                    

In June 1996, certain officers and directors had their options to buy 
Common Stock repriced to $0.50 per share through the cancellation of then       
existing options and the issuance of new options. The following summarizes the  
number of shares repriced, the exercise price per share before such repricing   
and persons associated with the repriced shares: Joe Parkinson had 500,000      
shares repriced from $2.50 per share; Keith R. Barraclough had 35,000 shares    
repriced from $2.50 per share; Paul Voois had 31,000 shares repriced from $2.50 
per share; Y.W. Sing had 235,000 shares repriced from $2.50 per share; Sandra L.
Abbott had 65,000 shares repriced from $2.50 per share; David Harper had 25,000 
shares repriced from $2.50 per share, and 40,000 shares repriced from $1.00 per 
share; Bryan R. Martin had 103,000 shares repriced from $2.50 per share; Chris  
McNiffe had 119,000 shares repriced from $2.50 per share; Michael Noonen had    
68,000 shares repriced from $2.50 per share; Samuel Wang had 100,000 shares     
repriced from $2.50 per share; and William Tai had 25,000 shares repriced from  
$2.50 per share.                                                                

     In June 1996, the Company granted options to purchase 500,000 shares of its
Common Stock at an exercise price of $0.50 per share to Joe Parkinson, the      
Chairman and Chief Executive Officer of the Company. The Company has recognized 
deferred compensation expense with respect to these options. See "Management's  
Discussion and Analysis of Financial Condition and Results of Operations" and   
Note 6 of Notes to Consolidated Financial Statements. Of this option, 250,000   
shares shall vest, subject to Mr. Parkinson's continued service as an employee, 
consultant or director, at a rate of 1/36 of the shares at the end of each      
month, commencing in April 1997; provided, however, that vesting shall be       
accelerated in full upon an initial public offering of the Company's Common     
Stock occurring prior to December 31, 1997 for which either the initial public  
offering price or the highest bid price on the secondary market for the month   
thereafter is greater than $6.00 per share. The remaining 250,000 shares shall  
vest at a rate of 1/48 of the shares at the end of each month, subject to Mr.   
Parkinson's continued service as an employee, consultant or director.           

  In July 1996, certain officers and directors of the Company entered into
partial recourse promissory notes in connection with the purchase of the        
Company's Common Stock (at a price of $0.50 per share) through the exercise of  
stock options granted under the Key Personnel Plan. The following summarizes the
amount of the promissory note entered into by each officer and/or director and  
the persons associated with them: Joe Parkinson, $500,000; Y.W. Sing, $146,200; 
Sandra L. Abbott, $61,200; David Harper, $61,200; Bryan R. Martin, $80,200;     
Chris McNiffe, $88,200; Michael Noonen, $62,700; and Samuel Wang, $78,700. Each 
of these promissory notes have an interest rate of 6.4% per year, and are       
secured by the shares of the Company's Common Stock held by such respective     
officers. Principal and interest on these promissory notes are due and payable  
in June 2001.                                                                   

     The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been otherwise        
obtained from unaffiliated third parties. All future transactions, including    
loans (if any), between the Company and its officers, directors and principal   
stockholders and their affiliates will be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested outside    
directors of the Board of Directors, and will be on terms no less favorable to  
the Company than could have been obtained from unaffiliated third parties.      

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 31, 1997, and as 
adjusted to reflect the sale of the shares of Common Stock offered hereby and   
the automatic conversion of all outstanding shares of Preferred Stock into      
Common Stock upon the closing of this Offering, by (i) each person (or group of 
affiliated persons) who is known by the Company to own beneficially 5% or more  
of the Company's Common Stock, (ii) each of the Company's directors, (iii) each 
of the Named Executive Officers and (iv) all directors and officers as a group. 
Except as indicated in the footnotes to the table, the persons named in the     
table have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them, subject to community property laws   
where applicable, and the address of each listed stockholder is c/o 8x8, Inc.,  
2445 Mission College Boulevard, Santa Clara, CA 95054.                          

                                                        [Enlarge/Download Table]

                                                                            PERCENTAGE OF TOTAL      
                                                                               SHARES(1)(2)          
                                                                      -------------------------------
                                                   NUMBER OF SHARES    BEFORE                 AFTER  
                NAME AND ADDRESS                  BENEFICIALLY OWNED  OFFERING               OFFERING
------------------------------------------------  ------------------  --------               --------
                                                                                                     
Y.W. Sing(3)(4).................................       1,036,400          9.7%                  7.2% 
Joe Parkinson(3)(5).............................       1,000,000          9.3                   7.0  
National Semiconductor Corporation..............         681,820          6.4                   4.8  
  2900 Semiconductor Drive                                                                           
  Santa Clara, CA 95051                                                                              
Deby Investments, Ltd.(6).......................         600,000          5.6                   4.2  
  General Electronics Building FSSTL 96                                                              
  Sheung Shui, N.T. Hong Kong                                                                        
Richard M. Chang(3).............................         453,334          4.2                   3.2  
Akifumi Goto(3)(7)..............................         363,640          3.4                   2.5  
David Harper(8).................................         222,400          2.1                   1.6  
Chris McNiffe(9)................................         176,400          1.6                   1.2  
Bryan Martin(10)................................         172,900          1.6                   1.2  
Samuel Wang(3)(11)..............................         157,400          1.5                   1.1  
Sandra L. Abbott(12)............................         153,400          1.4                   1.1  
Michael Noonen(13)..............................         125,400          1.2                     *  
William Tai(3)(14)..............................          38,750            *                     *  
Keith Barraclough(3)(15)........................          35,208            *                     *  
Paul Voois(3)(16)...............................          33,583            *                     *  
Bernd Girod(3)(17)..............................           3,125            *                     *  
All directors and executive officers as a group                                                      
  (14 persons) (18).............................       3,971,940         36.8                  27.6  

---------------                                                                 
*  Less than 1%                                                             
(1)Percentage of ownership is based on (i) 10,716,659 shares of Common Stock  
outstanding as of March 31, 1997, plus any shares issuable pursuant to  
    options held, as of March 31, 1997, by the person or class in question which
may be exercised within 60 days of March 31, 1997, and (ii) 14,316,659  
  shares of Common Stock outstanding after completion of this Offering, plus
any shares issuable pursuant to options held by the person or class in  
question which may be exercised within 60 days of March 31, 1997.       
(2) Assumes no exercise of the Underwriters' over-allotment option.           
(3) The named person is a director of the Company.                            
(4) In May 1997, the Company exercised its right of repurchase in respect of  
46,638 of these shares.                                               
 (5) Includes 661,458 shares that were, as of March 31, 1997, subject to a right
  of repurchase in favor of the Company which expires ratably through June
24, 2000.                                                             
 (6) The beneficial owner of the shares held by Deby Investments, Ltd. is Samuel
Fang.                                                                 

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(7) Includes 363,640 shares beneficially held by Sanyo Semiconductor          
     Corporation. Mr. Goto is the President and Chief Executive Officer of Sanyo
Semiconductor Corporation.                                            
(8) Includes 61,220 shares that were, as of March 31, 1997, subject to a right
  of repurchase in favor of the Company which expires ratably through June
24, 2000.                                                             
 (9) Includes 106,428 shares that were, as of March 31, 1997, subject to a right
  of repurchase in favor of the Company which expires ratably through June
24, 2000.                                                             
(10) Includes 107,741 shares that were, as of March 31, 1997, subject to a right
  of repurchase in favor of the Company which expires ratably through June
24, 2000.                                                             
(11) Includes 111,220 shares that were, as of March 31, 1997, subject to a right
  of repurchase in favor of the Company which expires ratably through June
24, 2000.                                                             
(12) Includes 84,554 shares that were, as of March 31, 1997, subject to a right 
  of repurchase in favor of the Company which expires ratably through June
24, 2000.                                                             
(13) Includes 87,678 shares that were, as of March 31, 1997, subject to a right 
  or repurchase in favor of the Company which expires ratably through June
24, 2000.                                                             
(14) Includes (i) 13,750 shares issuable pursuant to stock options which may be 
     exercised within 60 days of March 31, 1997, and (ii) 25,000 shares issuable
   upon exercise of stock options to purchase the following number of shares
   from the persons indicated: Y.W. Sing, 7,000 shares; Chi-Shin Wang, 7,000
shares; Samuel Fang, 7,000 shares; and Richard Chang, 4,000 shares.   
(15) Includes 35,208 shares issuable pursuant to stock options which may be     
exercised within 60 days of March 31, 1997.                           
(16) Includes 33,583 shares issuable pursuant to stock options which may be     
exercised within 60 days of March 31, 1997.                           
(17) Includes 3,125 shares issuable pursuant to stock options which may be      
exercised within 60 days of March 31, 1997.                           
(18) Includes (i) 1,221,965 shares that were, as of March 31, 1997, subject to a
   right of repurchase in favor of the Company which expires ratably through
   June 24, 2000, (ii) 46,638 shares that were repurchased by the Company in
   May 1997 and (iii) 85,666 shares issuable pursuant to stock options which
may be exercised within 60 days of March 31, 1997.                    

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DESCRIPTION OF CAPITAL STOCK

Upon the closing of this Offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, par value $0.001 per 
share and 5,000,000 shares of Preferred Stock, par value $0.001 per share.      

COMMON STOCK                                                                    

 As of March 31, 1997, as adjusted for the conversion of all outstanding
shares of Preferred Stock into Common Stock upon the closing of this Offering,  
there were 10,716,659 shares of Common Stock outstanding held of record by      
approximately 220 stockholders. As of March 31, 1997, there were options to     
purchase 2,291,150 shares of Common Stock outstanding. The holders of Common    
Stock are entitled to one vote per share on all matters to be voted on by the   
stockholders. Subject to preferences that may be applicable to outstanding      
shares of Preferred Stock, if any, the holders of Common Stock are entitled to  
receive ratably such dividends as may be declared from time to time by the Board
of Directors out of funds legally available therefor. In the event of the       
liquidation, dissolution or winding up of the Company, the holders of Common    
Stock are entitled to share ratably in all assets remaining after payment of    
liabilities, subject to prior liquidation rights of Preferred Stock, if any,    
then outstanding. The Common Stock has no preemptive conversion rights or other 
subscription rights. There are no redemption or sinking funds provisions        
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable, and the shares of Common Stock to be outstanding upon   
completion of this Offering will be fully paid and non-assessable.              

PREFERRED STOCK                                                                 

Pursuant to the Company's Amended and Restated Certificate of         
Incorporation, the Board of Directors has the authority, without further action 
by the stockholders, to issue up to 5,000,000 shares of Preferred Stock in one  
or more series and to fix the designations, powers, preferences, privileges, and
relative participating, optional or special rights and the qualifications,      
limitations or restrictions thereof, including dividend rights, conversion      
rights, voting rights, terms of redemption and liquidation preferences, any or  
all of which may be greater than the rights of the Common Stock. The Board of   
Directors, without stockholder approval, can issue Preferred Stock with voting, 
conversion or other rights that could adversely affect the voting power and     
other rights of the holders of Common Stock. Preferred Stock could thus be      
issued quickly with terms calculated to delay or prevent a change in control of 
the Company or make removal of management more difficult. Additionally, the     
issuance of Preferred Stock may have the effect of decreasing the market price  
of the Common Stock, and may adversely affect the voting and other rights of the
holders of Common Stock. At present, there are no shares of Preferred Stock     
outstanding and the Company has no plans to issue any of the Preferred Stock.   
See "Risk Factors -- Anti-Takeover Provisions of the Company's Certificate of   
Incorporation, Bylaws and Delaware Law."                                        

REGISTRATION RIGHTS                                                             

   Under the terms of the Amended and Restated Registration Rights Agreement
dated as of September 6, 1996 among the Company and certain holders of its      
securities (the "Rights Agreement"), following the closing of this Offering, the
holders of 3,726,373 shares of Common Stock (the "Registrable Securities") will 
be entitled to certain rights with respect to the registration of such shares of
Common Stock under the Securities Act. Under the Rights Agreement, if the       
Company proposes to register any of its Common Stock under the Securities Act,  
certain holders of Registrable Securities are entitled to notice of such        
registration and to include their Registrable Securities therein; provided,     
among other conditions, that the underwriters have certain rights to limit the  
number of shares included in any such registration. Beginning six months after  
the closing of this Offering, the holders of at least fifty percent (50%) of the
Registrable Securities have the right to require the Company, on not more than  
two occasions, to file a registration statement under the Securities Act in     
order to register all or any part of their Registrable Securities, subject to   
certain conditions and limitations. The Company may, in certain circumstances,  
defer such registration and the underwriters have the right, subject to certain 
limitations, to limit the number of shares included in such registrations.      
Further, the holders of Registrable Securities may require the Company to       
register all or any portion of their                                            

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Registrable Securities on Form S-3, when such form becomes available to the     
Company, subject to certain conditions and limitations.                         

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS  

  The Company's Amended and Restated Certificate of Incorporation provides
that all stockholder actions must be effected at a duly called annual or special
meeting and may not be effected by written consent. The Company's Bylaws provide
that, except as otherwise required by law, special meetings of the stockholders 
can only be called pursuant to a resolution adopted by a majority of the Board  
of Directors, by the chief executive officer of the Company or by stockholders  
holding shares in the aggregate entitled to cast not less than 10% of the votes 
at such meeting. In addition, the Company's Bylaws establish an advance notice  
procedure for stockholder proposals to be brought before an annual meeting of   
stockholders, including proposed nomination of persons for election to the      
Board. Stockholders at an annual meeting may only consider proposals or         
nominations specified in the notice of the meeting or brought before the meeting
by or at the direction of the Board of Directors or by a stockholder who was a  
stockholder of record on the record date for the meeting, who is entitled to    
vote at the meeting and who had delivered timely written notice in proper form  
to the Company's Secretary of the stockholder's intention to bring such business
before the meeting.                                                             

    The foregoing provisions of the Company's Amended and Restated Certificate
of Incorporation and Bylaws are intended to enhance the likelihood of continuity
and stability in the composition of the Board of Directors and in the policies  
formulated by the Board of Directors and to discourage certain types of         
transactions which may involve an actual or threatened change of control of the 
Company. Such provisions are designed to reduce the vulnerability of the Company
to an unsolicited acquisition proposal and, accordingly, could discourage       
potential acquisition proposals and could delay or prevent a change in control  
of the Company. Such provisions are also intended to discourage certain tactics 
that may be used in proxy fights but could, however, have the effect of         
discouraging others from making tender offers for the Company's shares and,     
consequently, may also inhibit fluctuations in the market price of the Company's
shares that could result from actual or rumored takeover attempts. These        
provisions may also have the effect of preventing changes in the management of  
the Company. See "Risk Factors -- Anti-Takeover Provisions of the Company's     
Certificate of Incorporation, Bylaws and Delaware Law."                         

EFFECT OF DELAWARE ANTI-TAKEOVER STATUE                                         

   The Company is subject to Section 203 of the Delaware General Corporation
Law (the "Antitakeover Law"), which regulates corporate acquisitions. The       
Antitakeover Law prevents certain Delaware corporations, including those whose  
securities are listed for trading on the Nasdaq National Market, from engaging, 
under certain circumstances in a "business combination" with any "interested    
stockholder" for three years following the date that such stockholder became an 
interested stockholder. For purposes of the Antitakeover Law, a "business       
combination" includes, among other things, a merger or consolidation involving  
the Company and the interested stockholder and the sale of more than ten percent
(10%) of the Company's assets. In general, the Antitakeover Law defines an      
"interested stockholder" as any entity or person beneficially owning 15% or more
of the outstanding voting stock of the Company and any entity or person         
affiliated with or controlling or controlled by such entity or person. A        
Delaware corporation may "opt out" of the Antitakeover Law with an express      
provision in its original certificate of incorporation or an express provision  
in its certificate of incorporation or bylaws resulting from amendments approved
by the holders of at least a majority of the Company's outstanding voting       
shares. The Company has not "opted out" of the provisions of the Antitakeover   
Law. See "Risk Factors -- Antitakeover Provisions of the Company's Certificate  
of Incorporation, Bylaws and Delaware Law."                                     

TRANSFER AGENT AND REGISTRAR                                                    

The Transfer Agent and Registrar for the Common Stock is American     
Securities Transfer & Trust, Inc. Its telephone number is (303) 234-5300.       

LISTING                                                                         

The Company's Common Stock has been approved for listing on the Nasdaq
National Market under the trading symbol "EGHT."                                

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SHARES ELIGIBLE FOR FUTURE SALE 

   Upon completion of this Offering, the Company will have 14,316,659 shares
of Common Stock outstanding. Of this amount, the 3,600,000 shares offered hereby
and 166,083 shares will be available for immediate sale in the public market as 
of the date of this Prospectus. Approximately 9,900,000 additional shares will  
be available for sale in the public market following the expiration of the      
180-day lockup agreements with the Representatives of the Underwriters or the   
Company, subject in some cases to compliance with the volume and other          
limitations of Rule 144.                                                        

                                                        [Enlarge/Download Table]

                           SHARES                                                              
    DAYS AFTER DATE       ELIGIBLE                                                             
  OF THIS PROSPECTUS      FOR SALE                            COMMENT                          
-----------------------  ----------  ----------------------------------------------------------
                                                                                               
Upon Effectiveness.....   3,766,083  Freely tradeable shares sold in Offering and shares       
                                     saleable under Rule 144(k) that are not subject to 180-day
                                     lockup                                                    
180 days...............   9,866,023  Lockup released; shares saleable under Rule 144, 144(k) or
                                     701                                                       
Thereafter.............     684,553  Restricted securities held for one year or less           

In general, under Rule 144 a person (or persons whose shares are      
aggregated) who has beneficially owned shares for at least one year is entitled 
to sell within any three-month period commencing 90 days after the date of this 
Prospectus a number of shares that does not exceed the greater of (i) 1% of the 
then outstanding shares of Common Stock (approximately 143,000 shares           
immediately after this Offering) or (ii) the average weekly trading volume      
during the four calendar weeks preceding such sale, subject to the filing of a  
Form 144 with respect to such sale. A person (or persons whose shares are       
aggregated) who is not deemed to have been an affiliate of the Company at any   
time during the 90 days immediately preceding the sale who has beneficially     
owned his or her shares for at least two years is entitled to sell such shares  
pursuant to Rule 144(k) without regard to the limitations described above.      
Persons deemed to be affiliates must always sell pursuant to Rule 144, even     
after the applicable holding periods have been satisfied.                       

  The Company is unable to estimate the number of shares that will be sold
under Rule 144, as this will depend on the market price for the Common Stock of 
the Company, the personal circumstances of the sellers and other factors. Prior 
to this Offering, there has been no public market for the Common Stock, and     
there can be no assurance that a significant public market for the Common Stock 
will develop or be sustained after this Offering. Any future sale of substantial
amounts of the Common Stock in the open market may adversely affect the market  
price of the Common Stock offered hereby.                                       

The Company, its directors, executive officers, stockholders with     
registration rights and certain other stockholders have agreed pursuant to the  
Underwriting Agreement and other agreements that they will not sell any Common  
Stock without the prior consent of Montgomery Securities for a period of 180    
days from the date of this Prospectus (the "180-day Lockup Period"), except that
the Company may, without such consent, grant options and sell shares pursuant to
the 1992 Plan, the Key Personnel Plan, the 1996 Plan, the Director Plan and the 
Purchase Plan.                                                                  

    The Company intends to file a registration statement on Form S-8 under the
Securities Act to register certain shares of Common Stock subject to outstanding
options or reserved for issuance under the 1992 Plan, the Key Personnel Plan,   
the 1996 Plan, the Director Plan and the Purchase Plan within 180 days after the
date of this Prospectus, thus permitting the resale of such shares by           
nonaffiliates in the public market without restriction under the Securities Act.

   Any employee or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the  
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule   
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to    
sell their Rule 701 shares without having to comply with the Rule 144 holding   
period restrictions, in each case commencing 90 days after the date of this     
Prospectus. As of March 31, 1997, the holders of options exercisable into       
approximately 483,388 shares of Common Stock will be eligible to sell their     
shares in reliance upon Rule 701 or pursuant to the Form S-8 upon the expiration
of the 180-day Lockup Period.                                                   

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     In addition, after this Offering, the holders of 3,726,373 shares of Common
Stock will be entitled to certain rights with respect to registration of such   
shares under the Securities Act. Registration of such shares under the          
Securities Act would result in such shares becoming freely tradeable without    
restriction under the Securities Act (except for shares purchased by affiliates 
of the Company) immediately upon the effectiveness of such registration. See    
"Description of Capital Stock -- Registration Rights."                          

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UNDERWRITING

The underwriters named below (the "Underwriters"), represented by     
Montgomery Securities and Donaldson, Lufkin & Jenrette Securities Corporation   
(the "Representatives"), have severally agreed, subject to the terms and        
conditions set forth in the Underwriting Agreement, to purchase from the Company
the number of shares of Common Stock indicated below opposite their respective  
names at the initial public offering price less the underwriting discount set   
forth on the cover page of this Prospectus. The Underwriting Agreement provides 
that the obligations of the Underwriters are subject to certain terms and       
conditions precedent and that the Underwriters are committed to purchase all of 
such shares, if any are purchased.                                              

                                                        [Enlarge/Download Table]

                                                                            NUMBER OF
                               UNDERWRITER                                   SHARES  
--------------------------------------------------------------------------  ---------
                                                                                     
Montgomery Securities.....................................................  1,325,000
Donaldson, Lufkin & Jenrette Securities Corporation.......................  1,325,000
Alex. Brown & Sons Incorporated...........................................    110,000
Cowen & Company...........................................................    110,000
Hambrecht & Quist LLC.....................................................    110,000
Oppenheimer & Co., Inc....................................................    110,000
Robertson, Stephens & Company LLC.........................................    110,000
Cruttenden Roth Incorporated..............................................     50,000
Furman Selz LLC...........................................................     50,000
Hampshire Securities Corporation..........................................     50,000
Nutmeg Securities, Ltd....................................................     50,000
Piper Jaffray Inc.........................................................     50,000
Unterberg Harris..........................................................     50,000
H.C. Wainwright & Co., Inc................................................     50,000
Wessels, Arnold & Henderson...............................................     50,000
                                                                            ---------
          Total...........................................................  3,600,000
                                                                            =========

The Representatives have advised the Company that the Underwriters    
initially propose to offer the Common Stock to the public on the terms set forth
on the cover page of this Prospectus. The Underwriters may allow to selected    
dealers a concession of not more than $0.25 per share, and the Underwriters may 
allow, and any such dealers may reallow, a concession of not more than $0.10 per
share to certain other dealers. After the initial public offering, the price and
concessions and reallowances to dealers may be changed by the Representatives.  
The Common Stock is offered subject to receipt and acceptance by the            
Underwriters and to certain other conditions, including the right to reject     
orders in whole or in part.                                                     

   The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 540,000 additional shares of Common Stock to cover over-allotments, if any,  
at the same price per share as the initial 3,600,000 shares to be purchased by  
the Underwriters. To the extent the Underwriters exercise this option, each of  
the Underwriters will be committed, subject to certain conditions, to purchase  
such additional shares in approximately the same proportion as set forth in the 
above table. The Underwriters may purchase such shares only to cover over-      
allotments made in connection with this Offering.                               

 The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities, under the
Securities Act, or will contribute to payments to the Underwriters may be       
required to make in respect thereof.                                            

  Each director and officer of the Company and certain of other holders of
Common Stock prior to this Offering, as well as certain other holders of        
options, warrants or other rights to purchase Common Stock, have agreed not to  
sell, offer to sell, or otherwise dispose of any rights with respect to any     
shares of Common Stock, any options or warrants to purchase Common Stock, or any
securities convertible or exchangeable for Common Stock, owned directly by such 
holders or with respect to which they have power of disposition for a           

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period of 180 days after the date of this Prospectus without the prior written  
consent of Montgomery Securities. Montgomery Securities may, in its sole        
discretion and at any time without notice, release all or any portion of the    
securities subject to these lock-up agreements. In addition, the Company has    
agreed not to sell, offer to sell, contract to sell or otherwise sell or dispose
of any shares of Common Stock or any rights to acquire Common Stock, other than 
pursuant to the 1992 Plan, the Key Personnel Plan, the 1996 Plan, the Director  
Plan and the Purchase Plan, upon exercise of outstanding options and warrants,  
for a period of 180 days after the Effective Date without the prior consent of  
Montgomery Securities. See "Shares Eligible for Future Sale."                   

In connection with this offering, certain Underwriters may engage in  
passive market making transactions in the Common Stock on the Nasdaq National   
Market immediately prior to the commencement of sales in this offering, in      
accordance with Rule 103 under Regulation M. Passive market making consists of  
displaying bids on the Nasdaq National Market that are limited by the bid prices
of independent market makers and completing purchases in response to order flow 
at prices limited by such bids. Net purchases by a passive market maker on each 
day are limited to a specified percentage of the passive market maker's average 
daily trading volume in the Common Stock during a specified period and must be  
discontinued for any day in which such limit is reached. Passive market making  
may stabilize the market price of the Common Stock at a level above that which  
might otherwise prevail and, if commenced, may be discontinued at any time.     

     Montgomery Associates 1992, L.P. ("Montgomery Associates"), an affiliate of
Montgomery Securities, purchased 84,545 shares of the Company's Series D        
Preferred Stock in an October 1996 financing. Montgomery Associates has agreed  
not to sell, transfer, assign, pledge or hypothecate such shares for a period of
one year. The National Association of Securities Dealers has deemed that the    
difference between the purchase price of those 84,545 shares and the initial    
offering price of the Shares to be additional underwriting compensation.        

     Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price has been        
determined through negotiations among the Company and the Representatives. Among
the factors to be considered in such negotiations were the history of, and      
prospects for, the Company and the industry in which it competes, an assessment 
of the Company's management, the present state of the Company's development, the
prospects for future earnings of the Company, the prevailing market conditions  
at the time of this Offering, market valuations of publicly traded companies    
that the Company and the Representatives believe to be comparable to the        
Company, and other factors deemed relevant. See "Risk Factors -- No Prior       
Trading Market for Common Stock; Potential Volatility of Stock Price" and "Risk 
Factors -- Dilution."                                                           

LEGAL MATTERS 

    The validity of the issuance of shares of Common Stock offered hereby will
be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, P.C.        
("WSGR"), Palo Alto, California. Certain legal matters in connection with this  
Offering will be passed upon for the Underwriters by Gunderson Dettmer Stough   
Villeneuve Franklin & Hachigian, LLP, Menlo Park, California. As of the date of 
this Prospectus, Jeffrey D. Saper, a member of WSGR, beneficially owns 4,550    
shares of the Company's Preferred Stock.                                        

EXPERTS 

   The consolidated financial statements of the Company as of March 31, 1996
and 1997 and for each of the years ended March 31, 1995, 1996 and 1997, included
in this Prospectus have been so included in reliance on the report of Price     
Waterhouse LLP, independent accountants, given on the authority of such firm as 
experts in auditing and accounting.                                             

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ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement, of
which this Prospectus constitutes a part, under the Securities Act with respect 
to the shares of Common Stock offered hereby. This Prospectus omits certain     
information contained in the Registration Statement, and reference is made to   
the Registration Statement and the exhibits thereto for further information with
respect to the Company and the Common Stock offered hereby. Statements contained
herein concerning the provisions of any documents are not necessarily complete, 
and in each instance reference is made to the copy of such document filed as an 
exhibit to the Registration Statement. Each such statement is qualified in its  
entirety by such reference. The Registration Statement, including exhibits filed
therewith, may be inspected without charge at the public reference facilities   
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,   
N.W., Washington, D.C. 20549 and at the regional offices of the Commission      
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and       
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.  
Copies of such materials may be obtained from the Public Reference Section of   
the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, 
D.C. 20549 at prescribed rates. The Commission maintains a Web site             
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as the Company, that file         
electronically with the Commission. Information concerning the Company is also  
available for inspection at the offices of the Nasdaq National Market, Reports  
Section, 1735 K Street, N.W., Washington, D.C. 20006.                           

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8X8, INC. 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                        [Enlarge/Download Table]

                                                                                       PAGE
                                                                                       ----
                                                                                           
Report of Independent Accountants..................................................... F-2 
Consolidated Balance Sheets........................................................... F-3 
Consolidated Statements of Operations................................................. F-4 
Consolidated Statements of Stockholders' Equity....................................... F-5 
Consolidated Statements of Cash Flows................................................. F-6 
Notes to Consolidated Financial Statements............................................ F-7 

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REPORT OF INDEPENDENT ACCOUNTANTS 

To the Board of Directors and Stockholders of                                   
8x8, Inc.                                                                       

In our opinion, the accompanying consolidated balance sheets and the  
related consolidated statements of operations, of stockholders' equity and of   
cash flows present fairly, in all material respects, the financial position of  
8x8, Inc. and its subsidiaries at March 31, 1996 and 1997 and the results of    
their operations and their cash flows for each of the three years in the period 
ended March 31, 1997, in conformity with generally accepted accounting          
principles. These financial statements are the responsibility of the Company's  
management; our responsibility is to express an opinion on these financial      
statements based on our audits. We conducted our audits of these statements in  
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a 
test basis, evidence supporting the amounts and disclosures in the financial    
statements, assessing the accounting principles used and significant estimates  
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed 
above.                                                                          

PRICE WATERHOUSE LLP                                                            
San Jose, California                                                            
May 1, 1997, except for note 4,                                                 
which is as of May 15, 1997                                                     

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8X8, INC. 

CONSOLIDATED BALANCE SHEETS 

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                                                                 PRO FORMA  
                                                                                               STOCKHOLDERS'
                                                                               MARCH 31,          EQUITY    
                                                                           -----------------     MARCH 31,  
                                                                            1996      1997         1997     
                                                                           -------   -------   -------------
                                                                                                (UNAUDITED) 
                                                                                                            
ASSETS                                                                                                      
Current assets:                                                                                             
  Cash and cash equivalents..............................................  $ 4,652   $ 8,722                
  Short-term investments.................................................    5,241         2                
  Accounts receivable, net...............................................    2,884       834                
  Accounts receivable from related parties...............................      695       178                
  Inventory..............................................................    7,270     1,178                
  Prepaid expenses and other assets......................................      284       354                
                                                                           -------   -------                
          Total current assets...........................................   21,026    11,268                
Property and equipment, net..............................................    1,526     1,344                
Deposits and other assets................................................      515       115                
                                                                           -------   -------                
                                                                           $23,067   $12,727                
                                                                           =======   =======                
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                        
Current liabilities:                                                                                        
  Accounts payable.......................................................  $ 5,581   $ 1,146                
  Accounts payable to related parties....................................       --       233                
  Accrued compensation...................................................    1,779       926                
  Accrued warranty.......................................................    1,058     1,603                
  Deferred revenue.......................................................      200       363                
  Other accrued liabilities..............................................    1,541       689                
  Income taxes payable...................................................    1,534     1,654                
                                                                           -------   -------                
          Total current liabilities......................................   11,693     6,614                
                                                                           -------   -------                
Commitments and contingencies (Notes 4 and 5)                                                               
Minority interest........................................................       --        72                
                                                                           -------   -------                
Stockholders' equity:                                                                                       
  Preferred stock, $0.001 par value; 5,411,820 shares authorized actual;                                    
     5,000,000 shares authorized pro forma (unaudited)...................                                   
     Series A convertible noncumulative preferred stock, $0.001 par                                         
      value; 1,260,000 shares issued and outstanding actual; none issued                                    
      and outstanding pro forma (unaudited)..............................        1         1      $    --   
     Series B convertible noncumulative preferred stock, $0.001 par                                         
      value; 1,100,000 shares issued and outstanding actual; none issued                                    
      and outstanding pro forma (unaudited)..............................        1         1           --   
     Series C convertible noncumulative preferred stock, $0.001 par                                         
      value; 681,820 shares issued and outstanding actual; none issued                                      
      and outstanding pro forma (unaudited)..............................        1         1           --   
     Series D convertible noncumulative preferred stock, $0.001 par                                         
      value; 684,553 shares issued and outstanding actual; none issued                                      
      and outstanding pro forma (unaudited)..............................       --         1           --   
  Common stock, $0.001 par value; 40,000,000 shares authorized; 4,782,021                                   
     and 6,990,286 shares issued and outstanding actual; 10,716,659                                         
     shares issued and outstanding pro forma (unaudited).................        5         7           11   
  Additional paid-in capital.............................................   11,155    23,291       23,291   
  Notes receivable from stockholders.....................................       --    (1,078)      (1,078)  
  Deferred compensation..................................................       --    (2,781)      (2,781)  
  Retained earnings (accumulated deficit)................................      211   (13,402)     (13,402)  
                                                                           -------   -------      -------   
          Total stockholders' equity.....................................   11,374     6,041      $ 6,041   
                                                                                                  =======   
                                                                           -------   -------                
                                                                           $23,067   $12,727                
                                                                           =======   =======                

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

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8X8, INC. 

CONSOLIDATED STATEMENTS OF OPERATIONS 

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                                    YEAR ENDED MARCH 31,       
                                                              -------------------------------- 
                                                               1995        1996         1997   
                                                              -------     -------     -------- 
                                                                                               
Product revenues............................................. $16,933     $17,772     $ 12,771 
Product revenues from related parties........................   1,692       2,037        2,521 
License revenues.............................................   1,010       7,215        3,854 
License revenues from related parties........................     294       1,750           -- 
                                                              -------     -------      ------- 
          Total revenues.....................................  19,929      28,774       19,146 

Cost of product revenues.....................................  11,904      16,668       12,030 
                                                              -------     -------      ------- 

Gross profit.................................................   8,025      12,106        7,116 
                                                              -------     -------      ------- 

Operating expenses:                                                                            
  Research and development...................................   8,107       7,714       10,510 
  Selling, general and administrative........................   6,445       7,938       10,098 
  Restructuring costs........................................      --         603           59 
                                                              -------     -------      ------- 
          Total operating expenses...........................  14,552      16,255       20,667 
                                                              -------     -------      ------- 

Loss from operations.........................................  (6,527)     (4,149)     (13,551)

Other income, net............................................     611         952          120 
                                                              -------     -------      ------- 

Loss before income taxes.....................................  (5,916)     (3,197)     (13,431)

Provision (benefit) for income taxes.........................     (35)         20          182 
                                                              -------     -------      ------- 
Net loss..................................................... $(5,881)    $(3,217)    $(13,613)
                                                              =======     =======      ======= 

Pro forma net loss per share (unaudited).....................                         $  (1.14)
                                                                                       ======= 

Shares used in pro forma per share calculations                                                
  (unaudited)................................................                           11,943 
                                                                                       ======= 

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

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8X8, INC. 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                     PREFERRED STOCK                                                             
                        --------------------------------------------------------------------------                               
                            SERIES A           SERIES B           SERIES C           SERIES D         COMMON STOCK     ADDITIONAL
                        -----------------  -----------------  -----------------  -----------------  -----------------   PAID-IN  
                         SHARES    AMOUNT   SHARES    AMOUNT   SHARES    AMOUNT   SHARES    AMOUNT   SHARES    AMOUNT   CAPITAL  
                        ---------  ------  ---------  ------  ---------  ------  ---------  ------  ---------  ------  ----------
                                                                                                                                 
Balance at March 31,                                                                                                             
  1994................. 1,260,000   $  1   1,100,000   $  1          --   $ --          --   $ --   4,543,187   $  5    $  3,013 
Issuance of common                                                                                                               
  stock upon exercise                                                                                                            
  of options...........        --     --          --     --          --     --          --     --      14,199     --          35 
Repurchase of common                                                                                                             
  stock................        --     --          --     --          --     --          --     --      (6,665)    --          -- 
Issuance of Series C                                                                                                             
  convertible                                                                                                                    
  noncumulative                                                                                                                  
  preferred stock......        --     --          --     --     681,820      1          --     --          --     --       7,499 
Net loss...............        --     --          --     --          --     --          --     --          --     --          -- 
                        ---------   ----   ---------   ----   ---------   ----   ---------   ----   ---------   ----     ------- 
Balance at March 31,                                                                                                             
  1995................. 1,260,000      1   1,100,000      1     681,820      1          --     --   4,550,721      5      10,547 
Issuance of common                                                                                                               
  stock upon exercise                                                                                                            
  of options...........        --     --          --     --          --     --          --     --     246,389      1         609 
Repurchase of common                                                                                                             
  stock................        --     --          --     --          --     --          --     --     (15,089)    (1)         (1)
Net loss...............        --     --          --     --          --     --          --     --          --     --          -- 
                        ---------   ----   ---------   ----   ---------   ----   ---------   ----   ---------   ----     ------- 
Balance at March 31,                                                                                                             
  1996................. 1,260,000      1   1,100,000      1     681,820      1          --     --   4,782,021      5      11,155 
Issuance of common                                                                                                               
  stock upon exercise                                                                                                            
  of options...........        --     --          --     --          --     --          --     --   2,188,265      2       1,095 
Issuance of common                                                                                                               
  stock................        --     --          --     --          --     --          --     --      20,000     --          10 
Issuance of Series D                                                                                                             
  convertible                                                                                                                    
  noncumulative                                                                                                                  
  preferred stock......        --     --          --     --          --     --     684,553      1          --     --       3,764 
Deferred compensation                                                                                                            
  related to stock                                                                                                               
  options..............        --     --          --     --          --     --          --     --          --     --       7,267 
Net loss...............        --     --          --     --          --     --          --     --          --     --          -- 
                        ---------   ----   ---------   ----   ---------   ----   ---------   ----   ---------   ----     ------- 
Balance at March 31,                                                                                                             
  1997................. 1,260,000   $  1   1,100,000   $  1     681,820   $  1     684,553   $  1   6,990,286   $  7    $ 23,291 
                        =========   ====   =========   ====   =========   ====   =========   ====   =========   ====     ======= 



                            NOTES                   RETAINED                                                                     
                          RECEIVABLE   DEFERRED     EARNINGS                                                                     
                             FROM      COMPEN-    (ACCUMULATED                                                                   
                         STOCKHOLDERS   SATION      DEFICIT)      TOTAL                                                          
                         ------------  --------   ------------   -------                                                         
                                                                                                                                 
Balance at March 31,                                                                                                             
  1994.................    $     --    $     --     $  9,309     $12,329                                                         
Issuance of common                                                                                                               
  stock upon exercise                                                                                                            
  of options...........          --          --           --          35                                                         
Repurchase of common                                                                                                             
  stock................          --          --           --          --                                                         
Issuance of Series C                                                                                                             
  convertible                                                                                                                    
  noncumulative                                                                                                                  
  preferred stock......          --          --           --       7,500                                                         
Net loss...............          --          --       (5,881)     (5,881)                                                        
                             ------      ------      -------     -------                                                         
Balance at March 31,                                                                                                             
  1995.................          --          --        3,428      13,983                                                         
Issuance of common                                                                                                               
  stock upon exercise                                                                                                            
  of options...........          --          --           --         610                                                         
Repurchase of common                                                                                                             
  stock................          --          --           --          (2)                                                        
Net loss...............          --          --       (3,217)     (3,217)                                                        
                             ------      ------      -------     -------                                                         
Balance at March 31,                                                                                                             
  1996.................          --          --          211      11,374                                                         
Issuance of common                                                                                                               
  stock upon exercise                                                                                                            
  of options...........      (1,078)         --           --          19                                                         
Issuance of common                                                                                                               
  stock................          --          --           --          10                                                         
Issuance of Series D                                                                                                             
  convertible                                                                                                                    
  noncumulative                                                                                                                  
  preferred stock......          --          --           --       3,765                                                         
Deferred compensation                                                                                                            
  related to stock                                                                                                               
  options..............          --      (2,781)          --       4,486                                                         
Net loss...............          --          --      (13,613)    (13,613)                                                        
                             ------      ------      -------     -------                                                         
Balance at March 31,                                                                                                             
  1997.................    $ (1,078)   $ (2,781)    $(13,402)    $ 6,041                                                         
                             ======      ======      =======     =======                                                         

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

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8X8, INC. 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                   YEAR ENDED MARCH 31,        
                                                            ---------------------------------- 
                                                              1995         1996         1997   
                                                            --------     --------     -------- 
                                                                                               
Cash flows from operating activities:                                                          
  Net loss................................................. $ (5,881)    $ (3,217)    $(13,613)
  Adjustments to reconcile net loss to net cash used in                                        
     operating activities:                                                                     
     Depreciation and amortization.........................    1,000          775          866 
     Loss on disposition of capital equipment..............       --          541            7 
     Deferred income taxes.................................    1,905           --           -- 
     Amortization of deferred compensation.................       --           --        4,486 
     Writedown of nonmarketable equity investment..........       --           --          400 
     Other.................................................       --           --           (5)
     Changes in assets and liabilities:                                                        
       Accounts receivable, net............................      663         (384)       2,567 
       Inventory...........................................    3,264       (5,788)       6,092 
       Income taxes receivable.............................   (2,241)       2,241           -- 
       Prepaid expenses and other assets...................      114          175          (70)
       Accounts payable....................................   (1,704)       3,827       (4,202)
       Accrued compensation................................      133          575         (853)
       Accrued warranty....................................     (641)           1          545 
       Deferred revenue....................................        2         (565)         163 
       Other accrued liabilities...........................     (893)       1,174         (852)
       Income taxes payable................................      185           20          120 
                                                            --------     --------     -------- 
          Net cash used in operating activities............   (4,094)        (625)      (4,349)
                                                            --------     --------     -------- 
Cash flows from investing activities:                                                          
  Acquisitions of property and equipment...................   (1,492)      (1,013)        (691)
  Proceeds from the sale of equipment......................      138           --           -- 
  Sales of short-term investments -- available for sale....   16,681       21,711        5,168 
  Purchases of short-term investments -- available for                                         
     sale..................................................  (27,114)     (16,583)          -- 
  Sales of short-term investments -- trading...............       --           64           71 
  Purchase of nonmarketable equity investments.............       --         (400)          -- 
                                                            --------     --------     -------- 
          Net cash provided by (used in) investing                                             
            activities.....................................  (11,787)       3,779        4,548 
                                                            --------     --------     -------- 
Cash flows from financing activities:                                                          
  Proceeds from issuance of convertible noncumulative                                          
     preferred stock, net..................................    7,500           --        3,765 
  Proceeds from issuance of common stock, net..............       35          608           29 
  Proceeds from minority interest in subsidiary............       --           --           77 
                                                            --------     --------     -------- 
          Net cash provided by financing activities........    7,535          608        3,871 
                                                            --------     --------     -------- 
Net increase (decrease) in cash and cash equivalents.......   (8,346)       3,762        4,070 
Cash and cash equivalents beginning of the year............    9,236          890        4,652 
                                                            --------     --------     -------- 
Cash and cash equivalents end of the year.................. $    890     $  4,652     $  8,722 
                                                            ========     ========     ======== 

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

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8X8, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:                  

THE COMPANY                                                                     

8x8, Inc. (the "Company" or "8x8") was incorporated in California in  
February 1987 as Integrated Information Technology, Inc. and formally changed   
its name to 8x8, Inc. on April 5, 1996. The Company designs, develops and       
markets highly integrated proprietary video compression semiconductors and      
associated software for video phones and video conferencing. The Company also   
designs, manufactures, and markets video phones for use by the consumer market. 

On December 3, 1996, the Company was reincorporated in Delaware and   
exchanged each share of each series of stock of the predecessor company for 1   
share of each corresponding series of stock of the Delaware successor. These    
financial statements have been prepared giving effect to the reincorporation for
all periods presented.                                                          

FISCAL YEAR                                                                     

   The Company's fiscal year ends on the Thursday closest to March 31. Prior
to fiscal 1996, the Company's fiscal year ended on March 31. For purposes of    
these consolidated financial statements, the Company has indicated its fiscal   
year as ending on March 31.                                                     

PRINCIPLES OF CONSOLIDATION                                                     

   The consolidated financial statements include the accounts of the Company
and its wholly and majority owned subsidiaries. All significant inter-company   
accounts and transactions have been eliminated.                                 

USE OF ESTIMATES                                                                

     The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates  
and assumptions that affect the reported amounts of assets and liabilities and  
disclosure of contingent assets and liabilities at the date of the consolidated 
financial statements and the reported amounts of revenues and expenses during   
the reporting period. Actual results could differ from those estimates.         

REVENUE RECOGNITION                                                             

    Revenues from product sales to equipment manufacturers and other end users
are recognized upon shipment. License revenues are generally recognized upon the
delivery of the licensed technology provided no significant future obligations  
exist and collection is probable. Revenues generated by sales to distributors   
under agreements allowing certain rights of return are deferred for financial   
reporting purposes until the products are sold by the distributors. Revenues    
generated by sales to distributors when no rights of return exist are recognized
upon shipment.                                                                  

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS                               

   The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.                        

 Management determines the appropriate classification of debt and equity
securities at the time of purchase and reevaluates the classification at each   
reporting date. At March 31, 1996, the Company classified its investments       
subject to Statement of Financial Accounting Standards No. 115 (FAS 115) either 
as available-for-sale or as trading. At March 31, 1997, the Company classified  
its investments subject to FAS 115 as trading. The cost of the Company's        
investments is determined based upon specific identification. Investments       
classified as available-for-sale are reported at fair value with unrealized     
gains and losses, net of                                                        

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8X8, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

related tax, if any, recorded as a separate component of stockholders' equity.  
At March 31, 1996, the Company's investments classified as available-for-sale   
were primarily comprised of commercial paper with a maturity of less than 12    
months. At March 31, 1996, the fair value of the Company's investments          
classified as available-for-sale approximated cost. The investments classified  
as trading are reported at fair value with realized and unrealized gains and    
losses from investments subject to FAS 115 being reported in the statement of   
operations. The cost and fair value of investments classified as trading were   
not material at March 31, 1996 and 1997. Realized and unrealized gains and      
losses were immaterial for the years ended March 31, 1995, 1996 and 1997.       

INVENTORY                                                                       

Inventory is stated at the lower of standard cost, which approximates 
actual cost, using the first-in, first-out method or market.                    

NONMARKETABLE EQUITY INVESTMENTS                                                

Nonmarketable equity investments of less than 20% of the investee's   
outstanding voting stock are accounted for on the cost method, because the      
Company does not have an ability to significantly influence the operating and   
financial policies of the investees. Loss resulting from impairment in the value
of investments which is other than a temporary decline is recorded in the period
in which such loss occurs.                                                      

PROPERTY AND EQUIPMENT                                                          

  Property and equipment are stated at cost less accumulated depreciation.
Depreciation and amortization are computed using the straight-line method, based
upon the shorter of the estimated useful lives, ranging from three to five      
years, or the lease term of the respective assets as follows:                   

                                                        [Enlarge/Download Table]
                                                                                            
Machinery and computer equipment.......... 3 years                                          
Furniture and fixtures.................... 5 years                                          
Licensed software......................... 3 years                                          
Leasehold improvements.................... shorter of lease term or useful life of the asset

WARRANTY EXPENSE                                                                

     The Company provides for the estimated cost which may be incurred under its
product warranties upon revenue recognition.                                    

RESEARCH AND SOFTWARE DEVELOPMENT COSTS                                         

Research and development costs are charged to operations as incurred. 
Software development costs incurred prior to the establishment of technological 
feasibility are included in research and development and are expensed as        
incurred. The Company defines establishment of technological feasibility as the 
completion of a working model. Software development costs incurred subsequent to
the establishment of technological feasibility through the period of general    
market availability of the product are capitalized, if material. To date, all   
software development costs have been expensed as incurred.                      

FOREIGN CURRENCY TRANSLATION                                                    

The U.S. dollar is the functional currency of the Company's foreign   
subsidiary. Exchange gains and losses resulting from transactions denominated in
currencies other than the U.S. dollar are included in the results of operations 
for the year. To date, such amounts have not been material. Total assets of the 
Company's foreign                                                               

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8X8, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

subsidiary were $320,000, $479,000, and $429,000 as of March 31, 1995, 1996 and 
1997, respectively. The Company does not undertake any foreign currency hedging 
activities.                                                                     

INCOME TAXES                                                                    

Income taxes are accounted for using the asset and liability approach.
Under the asset and liability approach, a current tax liability or asset is     
recognized for the estimated taxes payable or refundable on tax returns for the 
current year. A deferred tax liability or asset is recognized for the estimated 
future tax effects attributed to temporary differences and carry forwards. The  
deferred tax assets are reduced, if necessary, by the amount of benefits that,  
based on available evidence, are not expected to be realized.                   

CONCENTRATION OF CREDIT RISK                                                    

   Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,    
short-term investments and trade accounts receivable. The Company places its    
cash, cash equivalents and short-term investments primarily in market rate      
accounts, certificates of deposit, U.S. Treasury bonds and commercial paper. The
Company sells its products to original equipment manufacturers and distributors 
throughout the world. The Company performs ongoing credit evaluations of its    
customers' financial condition and maintains an allowance for uncollectible     
accounts receivable based upon the expected collectibility of all accounts      
receivable. At March 31, 1996 three customers accounted for 26%, 18% and 11% of 
accounts receivable. At March 31, 1997 three customers accounted for 16%, 15%,  
and 10% of accounts receivable.                                                 

ACCOUNTING FOR STOCK-BASED COMPENSATION                                         

    In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation" which established a fair value based method of accounting for     
stock-based compensation plans and requires additional disclosure for those     
companies who elect not to adopt the new method of accounting. FAS 123 is       
applicable to the Company for fiscal 1997. The Company has elected to continue  
to account for employee stock awards in accordance with Accounting Principles   
Board Opinion No. 25 and to provide additional disclosures as required by FAS   
123.                                                                            

PRO FORMA NET LOSS PER SHARE (UNAUDITED)                                        

    Pro forma net loss per share is computed using the weighted average number
of common and common equivalent shares outstanding during the periods assuming  
the conversion of all shares of the Company's Convertible Preferred Stock into  
Common Stock which will occur upon the consummation of the offering contemplated
by this prospectus ("the Offering"). Pursuant to the requirements of the        
Securities and Exchange Commission, common equivalent shares relating to        
preferred stock (using the if-converted method) and stock options (using the    
treasury stock method and assuming the initial public offering price) issued    
subsequent to September 30, 1995 have been included in the computations for all 
periods presented.                                                              

Historical net loss per share data has not been presented since such  
amounts are not deemed to be meaningful due to the significant change in the    
Company's capital structure which will occur in connection with the Offering.   

PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)                                      

   If the Offering is consummated, all shares of convertible preferred stock
outstanding at the closing date will automatically convert into an aggregate of 
3,726,373 shares of Common Stock.                                               

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8X8, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The pro forma effect of the above mentioned transactions has been reflected
in the accompanying unaudited pro forma stockholders' equity as of March 31,    
1997.                                                                           

CERTAIN RECLASSIFICATIONS                                                       

   Certain prior year balances have been reclassified to conform with fiscal
1997 presentation.                                                              

RECENT ACCOUNTING PRONOUNCEMENT                                                 

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share". This Statement 
is effective for the Company's fiscal year ending March 31, 1998. The Statement 
redefines earnings per share under generally accepted accounting principles.    
Under the new standard, primary earnings per share is replaced by basic earnings
per share and fully diluted earnings per share is replaced by diluted earnings  
per share. The Company does not expect the adoption of this Statement to have a 
significant impact on the currently reported loss per share.                    

NOTE 2 -- BALANCE SHEET COMPONENTS (IN THOUSANDS):                              

                                                        [Enlarge/Download Table]

                                                                        MARCH 31,       
                                                                   -------------------- 
                                                                      1996       1997   
                                                                   ----------   ------- 
                                                                                        
Accounts receivable:                                                                    
  Accounts receivable.............................................  $  3,404    $ 1,208 
     Less: allowance for doubtful accounts........................      (520)      (374)
                                                                     -------    ------- 
                                                                    $  2,884    $   834 
                                                                     =======    ======= 
Inventories:                                                                            
  Raw materials...................................................  $    262    $   418 
  Work-in-process.................................................     6,231        613 
  Finished goods..................................................       777        147 
                                                                     -------    ------- 
                                                                    $  7,270    $ 1,178 
                                                                     =======    ======= 
Property and equipment:                                                                 
  Machinery and computer equipment................................  $  4,005    $ 3,254 
  Furniture and fixtures..........................................       729        671 
  Licensed software...............................................     1,782      2,137 
  Leasehold improvements..........................................       532        554 
                                                                     -------    ------- 
                                                                       7,048      6,616 
  Less: accumulated depreciation and amortization.................    (5,522)    (5,272)
                                                                     -------    ------- 
                                                                    $  1,526    $ 1,344 
                                                                     =======    ======= 

NOTE 3 -- TRANSACTIONS WITH RELATED PARTIES:                                    

     During fiscal 1995, the Company issued 681,820 shares of Series C Preferred
Stock to National Semiconductor Corporation ("National") for $11.00 per share   
(see Note 6). This transaction resulted in National obtaining a seat on 8x8's   
Board of Directors. During fiscal 1995, the Company recognized contract revenue 
and related costs of $294,000 and $229,000, respectively, under development     
agreements with National. Also, the Company purchased $868,000 in inventory from
National during fiscal 1995. Additionally, the Company subleases to National a  
portion of its facilities under a month to month sublease arrangement. Proceeds 
from the sublease are recorded as a reduction to operating expenses and         
aggregated $207,000, $205,000 and $276,000 during the fiscal years ended March  
31, 1995, 1996 and 1997, respectively.                                          

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8X8, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    During the fiscal years ended March 31, 1995, 1996 and 1997, the Company's
product revenues included $897,000, $2,037,000 and $2,415,000, respectively, in 
sales to ASCII Corporation ("ASCII") which distributes the Company's products in
Japan and is one of the Company's stockholders. An executive of ASCII is also on
the Company's Board of Directors.                                               

     During the fiscal year ended March 31, 1997, the Company's product revenues
included $106,000 in sales to Sanyo Corporation ("Sanyo") which is one of the   
Company's stockholders. Additionally, the Company purchased $408,000 in         
inventory from Sanyo during fiscal 1997. An executive of Sanyo is also on the   
Company's Board of Directors.                                                   

    During the year ended March 31, 1995, the Company sold $795,000 of product
to Mitsui Comtek Corporation, which is one of the Company's stockholders.       

    During fiscal 1996, the Company licensed certain technologies to VideoCore
Technology ("VideoCore"), a company founded by one of 8x8's former officers, in 
exchange for $600,000 in cash and a 10% equity interest in VideoCore. This      
license agreement also provided for potential future license fees and royalty   
fees payable to the Company. VideoCore was subsequently acquired by another     
entity.                                                                         

 During fiscal 1996, the Company licensed certain technologies to Enable
Semiconductor, a company founded by another of 8x8's former officers, in        
exchange for $1,000,000 in cash and a 10% equity interest in that company.      

During fiscal 1997, the Company and certain of its employees, but not 
including its Chief Executive Officer or its Chief Financial Officer, formed    
VidUs, Inc. ("VidUs"). The Company owns 67% of VidUs and the Company's employees
own the remaining 33%. VidUs is engaged in the design of integrated camera and  
video compression solutions. VidUs has been consolidated in the Company's       
financial statements since inception.                                           

NOTE 4 -- INCOME TAXES:                                                         

   Loss before income taxes includes $62,000, $51,000, and $74,000 of income
of a foreign subsidiary for the fiscal years ended March 31, 1995, 1996 and     
1997, respectively. The components of the consolidated provision (benefit) for  
income taxes consisted of the following (in thousands):                         

                                                        [Enlarge/Download Table]

                                                            YEARS ENDED MARCH 31,     
                                                       -------------------------------
                                                        1995        1996        1997  
                                                       -------     -------     -------
                                                                                      
Current:                                                                              
  Federal............................................. $(1,962)    $    --     $    --
  State...............................................      --          --          --
  Foreign.............................................      22          20         182
                                                          ----     -------         ---
                                                        (1,940)         20         182
                                                          ----     -------         ---
Deferred:                                                                             
  Federal.............................................   1,905          --          --
  State...............................................      --          --          --
                                                          ----     -------         ---
                                                         1,905          --          --
                                                          ----     -------         ---
                                                       $   (35)    $    20     $   182
                                                          ====     =======         ===

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8X8, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Deferred tax assets are comprised of the following (in thousands):    

                                                        [Enlarge/Download Table]

                                                                       MARCH 31,      
                                                                  ------------------- 
                                                                   1996        1997   
                                                                  -------     ------- 
                                                                                      
Deferred revenue................................................. $    85     $    64 
Inventory reserves...............................................   1,543         833 
Section 263A adjustments.........................................     292          99 
Allowance for doubtful accounts..................................     220         148 
Warranty reserve.................................................     449         634 
Research and development credit carryforwards....................   1,200       1,573 
Net operating loss carryforwards.................................     594       3,780 
Other............................................................     386       1,650 
                                                                  -------     ------- 
                                                                    4,769       8,781 
Valuation allowance..............................................  (4,769)     (8,781)
                                                                  -------     ------- 
          Total.................................................. $    --     $    -- 
                                                                  =======     ======= 

  Based on factors which include the lack of significant history of recent
profits, the fact that the market in which the Company competes is intensely    
competitive and characterized by rapidly changing technology, and the lack of   
carryback capacity to realize these assets, the weight of available evidence    
indicates that it is more likely than not that it will not be able to realize   
its deferred tax assets and thus a full valuation allowance has been recorded at
March 31, 1997.                                                                 

     At March 31, 1997, the Company had approximately $10,000,000 of federal net
operating loss carryforwards for tax reporting purposes available to offset     
future taxable income; such carryforwards expire at various dates beginning     
2011. In addition, at March 31, 1997, the Company had research and development  
credit carryforwards for federal and state tax reporting purposes of            
approximately $1,573,000 which begin expiring in 2010. Under the Tax Reform Act 
of 1986, the amounts of and benefits from net operating losses and credits that 
can be carried forward may be impaired or limited in certain circumstances.     
Events which may cause limitations in the amount of net operating losses that   
the Company may utilize in any one year include, but are not limited to, a      
cumulative ownership change of more than 50% over a three year period.          

 A reconciliation of the tax provision (benefit) to the amounts computed
using the statutory U.S. federal income tax rate of 34% is as follows (in       
thousands):                                                                     

                                                                [Download Table]

                                                   YEARS ENDED MARCH 31,      
                                                ---------------------------   
                                                 1995      1996      1997     
                                                -------   -------   -------   
                                                                              
Provision (benefit) at statutory rate.......... $(2,012)  $(1,087)  $(4,567)  
State income taxes before valuation allowance,                                
  net of federal benefit.......................    (328)     (177)     (344)  
Research and development credits...............    (366)     (243)     (373)  
Valuation allowance............................   2,307     1,414     4,012   
Non-deductible compensation....................      --        --     1,525   
Other..........................................     364       113       (71)  
                                                 ------   -------   -------   
Provision (benefit) for income taxes........... $   (35)  $    20   $   182   
                                                 ======   =======   =======   

In August 1995, the Internal Revenue Service (the "IRS") asserted a   
deficiency against the Company for the taxable year 1992 in the amount of       
approximately $1,365,000, together with a penalty in the amount of approximately
$273,000 plus accrued interest. The IRS alleged that as of March 31, 1992, the  
Company had accumulated earnings beyond the reasonable needs of the Company's   
business. The Company did not make any payments and in accordance with IRS      
procedures formally protested this assessment on October 30, 1995.              

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8X8, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On May 15, 1997 the Company received a notice from the IRS dated May 7, 1997    
indicating that the IRS has fully reversed its August 1995 notice of deficiency.

NOTE 5 -- LEASE COMMITMENTS:                                                    

The Company leases its facility under a non-cancelable operating lease
agreement expiring in April 1999. This agreement provides for annual increments 
of rent in predetermined amounts and requires the Company to pay property taxes,
insurance and normal maintenance costs.                                         

    Future minimum lease payments under this non-cancelable operating lease as
of March 31, 1997 are as follows (in thousands):                                

                                                                [Download Table]

                           YEAR ENDING MARCH 31,                                   
---------------------------------------------------------------------------        
                                                                                   
1998.......................................................................  $  981
1999.......................................................................   1,299
2000.......................................................................     103
                                                                             ------
Total minimum payments.....................................................  $2,383
                                                                             ======

   Rent expense for all operating leases for the years ended March 31, 1995,
1996 and 1997 was $776,000, $767,000 and $717,000, respectively.                

NOTE 6 -- STOCKHOLDERS' EQUITY:                                                 

PREFERRED STOCK                                                                 

     As of March 31, 1997 the Company had issued 3,726,373 shares of convertible
noncumulative preferred stock, of which 1,260,000 shares, 1,100,000 shares,     
681,820 and 684,553 shares have been designated as Series A, B, C and D,        
respectively. The Series A, B, C and D preferred stock were sold for $0.50,     
$2.00, $11.00 and $5.50 per share, respectively, representing fair market value 
of the stock at the date of issuance, as determined by the Board of Directors.  

Each share of preferred stock is convertible into one share of common 
stock, subject to adjustment for dilution, and will be automatically converted  
into common stock in the event of the closing of an underwritten public offering
of at least $5,000,000. The preferred stock has voting rights equal to common   
stock on an as-if converted basis.                                              

     Holders of the Series A, B, C and D preferred stock are entitled to receive
noncumulative dividends at a rate of $0.05, $0.20, $1.10 and $0.55 per share per
annum, respectively, when and as declared by the Board of Directors, prior to   
payment of dividends on common stock.                                           

In the event of liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, holders of the Series A, B, C and D preferred  
stock shall be entitled to receive $0.50, $2.00, $11.00 and $5.50 per share,    
respectively, plus any declared but unpaid dividends, prior to any distribution 
to the holders of common stock. To date, no dividends have been declared.       

    The Company has reserved 3,726,373 shares of its common stock for issuance
upon conversion of the outstanding preferred stock.                             

On October 21, 1996 the Company's Board of Directors approved that    
effective upon the closing of the Offering, the Company will be authorized to   
issue five million shares of undesignated preferred stock. The Board of         
Directors will have the authority to issue the undesignated preferred stock in  
one or more series and to fix the rights, preferences, privileges and           
restrictions thereof.                                                           

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8X8, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1987 INCENTIVE STOCK PLAN                                                       

In 1987, the Company adopted an Incentive Stock Plan ("the 1987 Plan")
which was subsequently terminated by the Board of Directors in January 1992. The
Company had reserved 2,962,000 shares of its common stock for issuance under the
1987 Plan. The 1987 Plan provided for grants of stock purchase rights at prices 
equal to the fair market value of stock as determined by the Company's Board of 
Directors. Stock purchase rights granted under the plan generally vested over   
five years. During the years ended March 31, 1995 and 1996, unvested shares     
aggregating 6,665 and 15,089, respectively, were repurchased at prices ranging  
from $0.10 to $0.40 per share. In January 1992, on termination, all unissued    
shares under the 1987 Plan were canceled. At March 31, 1997, all shares of      
common stock purchased under the 1987 Plan were fully vested.                   

1992 STOCK OPTION PLAN                                                          

    In January 1992, the Board of Directors adopted the 1992 Stock Option Plan
("the 1992 Plan") and reserved 1,000,000 shares of the Company's common stock   
for issuance under this plan. In August 1994, the Board of Directors authorized 
an increase in the number of shares of the Company's common stock reserved for  
issuance under the 1992 Plan to 2,000,000 shares. The 1992 Plan provides for    
granting incentive and nonstatutory stock options to employees at prices equal  
to the fair market value of the stock at the grant dates as determined by the   
Company's Board of Directors. Options generally vest over periods ranging from  
two to four years. Vesting for certain options accelerates if certain predefined
milestones are met.                                                             

KEY PERSONNEL PLAN                                                              

 In July 1995, the Board of Directors adopted the Key Personnel Plan and
reserved 2,000,000 shares of the Company's common stock for issuance under this 
plan. In June 1996, the Board of Directors authorized an increase in the number 
of shares of the Company's common stock reserved for issuance under the Key     
Personnel Plan to 2,200,000 shares. The Key Personnel Plan provides for granting
incentive and nonstatutory stock options to officers of the Company at prices   
equal to the fair market value of the stock at the grant dates as determined by 
the Company's Board of Directors. Options generally vest over periods ranging   
from two to four years. Vesting for certain options accelerates if certain      
predefined milestones are met.                                                  

1996 STOCK PLAN                                                                 

    In June 1996, the Board of Directors adopted the 1996 Stock Plan (the 1996
Plan) and reserved 1,000,000 shares of the Company's common stock for issuance. 
This amount is to be increased annually on the first day of each of the         
Company's fiscal years commencing November 1, 1997 in an amount equal to 5% of  
the Company's common stock issued and outstanding at the end of the immediately 
preceding fiscal year subject to certain maximum limitations. The 1996 Plan     
provides for granting incentive and nonstatutory stock options to employees at  
prices equal to the fair market value of the stock at the grant dates as        
determined by the Company's Board of Directors. Options generally vest over a   
period of not more than five years.                                             

1996 DIRECTOR OPTION PLAN                                                       

   The Company's 1996 Director Option Plan ("the Director Plan") was adopted
in June 1996 and will become effective upon the closing of the Offering. A total
of 150,000 shares of common stock have been reserved for issuance under the     
Director Plan. The Director Plan provides for the grant of nonstatutory stock   
options to certain nonemployee directors of the Company ("the Outside           
Directors"). The Director Plan provides that each Outside Director shall be     
granted a nonstatutory stock option to purchase 16,000 shares of common stock on
the date upon which such person first becomes an Outside Director or, if later, 
on the effective date of the Director Plan. Thereafter, each Outside Director   
shall be automatically granted an option to purchase 4,000 shares of common     
stock on the date such Outside Director is reelected to the Board of Directors, 
if on such date, such Outside Director shall have served on the Company's Board 
of Directors for at                                                             

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8X8, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

least six months. The Director Plan provides that each option shall become      
exercisable in monthly installments over a period of one year from the date of  
grant. The exercise price per share of all options granted under the Director   
Plan shall be equal to the fair market value of a share of the Company's common 
stock on the date of grant. Options granted to Outside Directors under the      
Director Plan have a ten year term, or shorter upon termination of an Outside   
Director's status as a director. If not terminated earlier, the Director Plan   
will have a term of ten years.                                                  

Option activity under the Company's various currently effective stock 
option plans is summarized as follows:                                          

                                                        [Enlarge/Download Table]

                                                                                       WEIGHTED 
                                                                                       AVERAGE  
                                                         OPTIONS     SHARES SUBJECT    EXERCISE 
                                                        AVAILABLE      TO OPTIONS       PRICE   
                                                        FOR GRANT      OUTSTANDING    PER SHARE 
                                                        ----------   ---------------  ----------
                                                                                                
Balance at March 31, 1994..............................    205,384         787,350         $2.31
Increase in options available for grant................  1,000,000              --            --
Granted................................................   (423,367)        423,367         $2.50
Exercised..............................................         --         (14,199)        $2.50
Returned to plan.......................................     98,168         (98,168)        $2.27
                                                         ---------         -------         -----
Balance at March 31, 1995..............................    880,185       1,098,350         $2.38
Increase in options available for grant................  2,000,000              --            --
Granted................................................ (2,973,550)      2,973,550         $2.50
Exercised..............................................         --        (246,389)        $2.48
Returned to plan.......................................  1,264,754      (1,264,754)        $2.49
                                                         ---------         -------         -----
Balance at March 31, 1996..............................  1,171,389       2,560,757         $2.46
Increase in options available for grant................  1,200,000              --            --
Granted................................................ (4,947,462)      4,947,462         $1.68
Exercised..............................................         --      (2,188,265)        $0.50
Cancellation of options available for grant............        (75)             --            --
Returned to plan.......................................  3,028,804      (3,028,804)        $2.32
                                                         ---------         -------         -----
Balance at March 31, 1997..............................    452,656       2,291,150         $2.83
                                                         ---------         -------         -----
Options exercisable at March 31, 1997..................         --         483,388         $0.74

  The weighted average fair value of options granted during the year ended
March 31, 1996 and 1997 as computed under the Black-Scholes option pricing model
was $0.60 and $0.40, respectively. Significant option groups outstanding at     
March 31, 1997 and related weighted average exercise price and contractual life 
information are as follows:                                                     

                                                                [Download Table]

         STOCK OPTIONS OUTSTANDING              STOCK OPTIONS 
-------------------------------------------      EXERCISABLE  
                                 WEIGHTED       --------------
                 NUMBER           AVERAGE           NUMBER    
             OUTSTANDING AT     CONTRACTUAL     EXERCISABLE AT
EXERCISE       MARCH 31,           LIFE           MARCH 31,   
 PRICE            1997            (YEARS)            1997     
--------     --------------     -----------     --------------
                                                              
 $ 0.50         1,431,000           8.59            464,801   
 $ 5.00            75,200           9.63                 --   
 $ 6.80           784,950           9.81             18,587   
                ---------                           -------   
                2,291,150                           483,388   
                =========                           =======   

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8X8, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    During the year ended March 31, 1997, options to purchase 2,156,800 shares
under the Key Personnel Plan were exercised for partial recourse notes. At March
31, 1997, approximately 1,295,994 shares issued under this plan were not vested 
and are subject to repurchase at their original issuance price of $0.50 if the  
employee departs prior to vesting.                                              

In June 1996, the Board of Directors approved a proposal under which  
employees elected to cancel approximately 2,467,000 options in exchange for     
grants of new options with an exercise price equal to the then current fair     
market value as determined by the Board of Directors.                           

In conjunction with the Offering, the Company has recorded a deferred 
compensation charge of approximately $7,267,000 with respect to the options     
repriced and certain additional options granted in fiscal 1997. The Company     
recognized $4,486,000 of said amount as compensation expense in the fiscal year 
ended March 31, 1997. The Company will recognize the balance of this deferred   
compensation over the related vesting period of the options (which is generally 
48 months). The balance of this deferred compensation is subject to reduction   
for any employee who terminates employment prior to the expiration of such      
employee's option vesting period.                                               

1996 EMPLOYEE STOCK PURCHASE PLAN                                               

     The Company's 1996 Stock Purchase Plan ("the Purchase Plan") was adopted in
June 1996 and will become effective upon the closing of the Offering. Under the 
Purchase Plan a total of 500,000 shares of common stock have been reserved for  
issuance to participating employees who meet eligibility requirements.          

The Purchase Plan permits eligible employees to purchase common stock 
through payroll deductions, which may not exceed 10% of an employee's base      
compensation, including commissions, bonuses and overtime, at a price equal to  
85% of the fair market value of the common stock at the beginning of each       
offering period or the end of a six month purchase period, whichever is lower.  
In the event of a merger of the Company with or into another corporation or the 
sale of all or substantially all of the assets of the Company, the Purchase Plan
provides that a new exercise date shall be set for each option under the plan   
which exercise date shall occur before the date of the merger or asset sale.    

CERTAIN PRO FORMA DISCLOSURES                                                   

    The Company accounts for its stock plans in accordance with the provisions
of Accounting Principles Board Opinion No. 25. Had compensation cost for the    
Company's stock plans been determined based on the fair value of options at     
their grant dates, as prescribed in FAS 123, the Company's net loss would have  
been as follows:                                                                

                                                                [Download Table]

                                                       YEAR ENDED MARCH 31,     
                                                   ---------------------------- 
                                                      1996             1997     
                                                   -----------     ------------ 
                                                                                
Net loss:                                                                       
  As reported....................................  $(3,217,000)    $(13,613,000)
  Pro forma as adjusted..........................   (3,685,000)     (14,744,000)
Pro forma net loss per share:                                                   
  As reported....................................                  $      (1.14)
  As adjusted....................................                         (1.23)

     For the purposes of the above noted FAS 123 pro forma disclosures, the fair
value of each option grant has been estimated on the date of grant using the    
minimum value method with the following assumptions used for grants during the  
applicable period: dividend yield and volatility of 0.0% for both years,        
risk-free interest rates of 5.1% to 6.7% for options granted during the year    
ended March 31, 1996 and 5.7% to 6.5% for options granted during the year ended 
March 31, 1997 and a weighted average expected option term of five years for    
both years.                                                                     

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8X8, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -- EMPLOYEE BENEFITS PLANS:                                              

401(K) SAVINGS PLAN                                                             

In April 1991, the Company adopted a 401(k) savings plan (the "Savings
Plan") covering substantially all of its U.S. employees. Under the Savings Plan,
eligible employees may contribute up to the maximum allowed by the IRS from     
their compensation to the Savings Plan with the Company matching participants'  
contributions up to $300 per employee per year at a dollar for dollar rate of   
the employee contribution. The Company matching vests over 3 years. To date, the
Company's contributions have not been material.                                 

PROFIT SHARING PLAN                                                             

  In July 1995, the Company's Board of Directors approved a profit sharing
plan which provides for additional compensation to all employees of the Company 
based on quarterly income before income taxes. The profit sharing plan is       
effective beginning in fiscal 1996 and provides for payments of up to 15% of    
total quarterly income before income taxes. Charges related to this plan were   
not material for the fiscal years ended March 31, 1996 or 1997.                 

NOTE 8 -- GEOGRAPHIC AREA AND SIGNIFICANT CUSTOMER INFORMATION:                 

    The Company's export sales to Europe represented 26%, 17% and 21% of total
revenues in fiscal years 1995, 1996 and 1997, respectively. The Company's export
sales to the Asia Pacific region represented 14%, 32% and 33% of total revenues 
in fiscal years 1995, 1996 and 1997, respectively.                              

Product sales to one customer accounted for 13% of the Company's total
revenues for the fiscal year ended March 31, 1995. During the fiscal year ended 
March 31, 1996, product sales to no customer accounted for 10% or more of the   
Company's total revenues. During the fiscal year ended March 31, 1997, product  
sales to one customer accounted for 13% of the Company's total revenues. During 
the fiscal years ended March 31, 1995 and 1997, license revenues from no        
customer accounted for 10% or more of the Company's total revenues. License     
revenues from one customer accounted for approximately 24% of the Company's     
total revenues for the year ended March 31, 1996.                               

NOTE 9 -- RESTRUCTURING COSTS AND INVENTORY CHARGES:                            

  During fiscal 1996, the Company recorded restructuring charges resulting
from the Company's decision to reduce the scope of its research and development 
activities by eliminating certain product development efforts. The restructuring
costs related primarily to a write off of equipment associated with the         
terminated development efforts.                                                 

During fiscal 1997, the Company recorded an additional charge for     
restructuring its operations by reducing its workforce by approximately 25%. As 
of March 31, 1997, the Company's restructuring actions were fully completed and 
there were no remaining restructuring cost accruals.                            

  During the quarter ended June 30, 1996, the Company recorded a charge of
$4.0 million related to its MPEG inventories. In September 1996, the Company    
sold its remaining MPEG inventory.                                              

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APPENDIX -- DESCRIPTION OF GRAPHICS 

OUTSIDE FRONT COVER                                                             

Graphic: 8x8, Inc. logo.                                              

INSIDE FRONT COVER                                                              

Graphic: 8x8, Inc. logo.                                              

GATE FOLD                                                                       

The graphic heading reads "Silicon, software and systems for video    
conferencing." Underneath this heading, and to the left, there is a picture of  
the VC100, the first product in the Company's planned family of                 
VideoCommunicators. To the right of this picture is the following text: "8x8 is 
developing a family of VideoCommunicator products. The initial                  
VideoCommunicator, the VC100, is compliant with the H.324 standard for POTS     
video telephony and connects to a television and touch-tone phone to add video  
to an otherwise normal telephone call." Underneath the heading, and to the      
right, there is a picture of the Company's VCP and LVP semiconductor products.  
To the left of this picture is the following text: "8x8's video compression     
semiconductors combine, on a single chip, a RISC microprocessor, a high         
performance digital signal processor, specialized video processing circuitry,   
static RAM memory and proprietary software to perform the real time compression 
and decompression of video and audio information and establish and maintain     
network connections in a manner consistent with international standards for     
video telephony." Underneath the text at the top of the page are four pictures  
demonstrating the use of the Company's VideoCommunicator product.               

   Underneath these four pictures is the following text: "8x8, Inc. designs,
develops and markets highly integrated, proprietary video compression           
semiconductors and associated software to manufacturers of corporate video      
conferencing systems. To address new opportunities, the Company is leveraging   
its strengths in semiconductor design and related software to develop and market
video conferencing systems for the consumer market."                            

 In the bottom right hand corner of the gate fold is the 8x8, Inc. logo.

INSIDE BACK COVER                                                               

In the middle of the page is a picture of a prototype of the Company's
VC200 Product (desktop phone with LCD display). Underneath the picture is the   
following text: "VC200 PROTOTYPE." In the bottom right hand corner of the inside
back cover is the 8x8, Inc. logo.                                               

OUTSIDE BACK COVER                                                              

Graphic: 8x8, Inc. logo.                                              

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======================================================                          

No dealer, sales representative or any other person has been authorized to give 
any information or to make any representations in connection with this Offering 
other than those contained in this Prospectus, and, if given or made, such      
information or representations must not be relied upon as having been authorized
by the Company or any of the Underwriters. This Prospectus does not constitute  
an offer to sell or a solicitation of any offer to buy any securities other than
the shares of Common Stock to which it relates or an offer to, or a solicitation
of, any person in any jurisdiction where such an offer or solicitation would be 
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder   
shall, under any circumstances, create any implication that there has been no   
change in the affairs of the Company or that information contained herein is    
correct as of any time subsequent to the date hereof.                           

----------------------------

TABLE OF CONTENTS 
----------------------------

                                                                [Download Table]

                                        Page
                                        ----
                                            
Prospectus Summary....................    3 
Risk Factors..........................    6 
Use of Proceeds.......................   16 
Dividend Policy.......................   16 
Capitalization........................   17 
Dilution..............................   18 
Selected Consolidated Financial             
  Data................................   19 
Management's Discussion and Analysis        
  of Financial Condition and Results        
  of Operations.......................   20 
Business..............................   26 
Management............................   40 
Certain Transactions..................   50 
Principal Stockholders................   52 
Description of Capital Stock..........   54 
Shares Eligible for Future Sale.......   56 
Underwriting..........................   58 
Legal Matters.........................   59 
Experts...............................   59 
Additional Information................   60 
Index to Consolidated Financial             
  Statements..........................  F-1 

Until July 27, 1997 (25 days after the date of this Prospectus), all  
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in       
addition to the obligation of dealers to deliver a Prospectus when acting as    
Underwriters and with respect to their unsold allotments or subscriptions.      

======================================================

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3,600,000 SHARES

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COMMON STOCK

----------------------------
PROSPECTUS
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MONTGOMERY SECURITIES 

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
July 2, 1997

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Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘424B4’ Filing		Date		First		Last			Other Filings
		10/21/00		45
		6/30/00		35					10-Q,  8-K,  8-K/A
		6/24/00		52		53
		10/31/98		48
		5/5/98		35
		3/31/98		70					10-K
		12/31/97		45		51			10-Q
		11/1/97		74
		7/27/97		79
		7/8/97		1
Filed on:		7/2/97		1		79
		6/30/97		11		45			10-Q
		5/15/97		62		73
		5/7/97		73
		5/5/97		35
		5/1/97		62
		3/31/97		5		77
		12/31/96		24
		12/3/96		67
		10/21/96		73
		9/30/96		24
		9/6/96		54
		6/30/96		23		77
		6/24/96		43		44
		4/5/96		67
		3/31/96		6		77
		12/31/95		23
		10/30/95		72
		9/30/95		23		69
		6/30/95		24
		3/31/95		6		77
		9/30/94		11		34
		3/31/94		19		75
		3/31/93		19		20
		3/31/92		72
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