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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K

(Mark One)

|  |  |                                                                                          
|- |  | -----------------------------------------------------------------------------------------
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934    
|  |  |                                                                                          
|  |  | For the fiscal year ended December 31, 2003                                              
|  |  |                                                                                          
|  |  | OR                                                                                       
|  |  |                                                                                          
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|  |  |                                                                                          
|  |  | For the Period from ______________ to ______________ .                                   

Commission File No. 000-31045

Raindance Communications, Inc.


(a Delaware Corporation)


I.R.S. Employer Identification Number 84-1407805
1157 Century Drive
Louisville, Colorado 80027
(800) 878-7326

Securities registered pursuant to Section 12(b) of the Act:
Not Applicable

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0015 Par Value Per Share

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

| |  |       |  |     
| |  | ----- |  | ----
| |  | Yes x |  | No o

As of March 1, 2004, there were 54,465,179 shares of the registrants
common stock outstanding and the aggregate market value of such shares held by
nonaffiliates of the registrant (based upon the closing sale price of such
shares on the Nasdaq National Market on June 30, 2003) was approximately
$104,384,089. Shares of the registrants common stock held by each current
executive officer and director and by each person who is known by the
registrant to own 10% or more of the outstanding common stock have been
excluded from this computation in that such persons may be deemed to be
affiliates of the registrant. Share ownership information of certain persons
known by the registrant to own greater than 10% of the outstanding common stock
for purposes of the preceding calculation is based solely on information on
Schedule 13G filed with the Commission and is as of December 31, 2003. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

DOCUMENTS INCORPORATED BY REFERENCE:

Information required by Part III (Items 10, 11, 12, 13 and 14) is
incorporated by reference to portions of the registrants definitive proxy
statement for the 2004 Annual Meeting of Stockholders, which will be filed with
the Securities and Exchange Commission within 120 days after the close of the
2003 year.

Certain exhibits filed with the registrants Registration Statement on
Form S-1 (File No. 333-30708) and Annual Report on Form 10-K (File No.
000-31045, for fiscal year ended December 31, 2000) are incorporated by
reference into Part IV of this report on Form 10-K.





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TABLE OF CONTENTS



|                                                                                |                                                                                                         |  |  |  |  |  |  | 
|------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                         
|                                                                                | ITEM 1. BUSINESS                                                                                       
|                                                                                | ITEM 2. PROPERTIES                                                                                     
|                                                                                | ITEM 3. LEGAL PROCEEDINGS                                                                              
|                                                                                | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                            
|PART II                                                                        
|                                                                                | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                          
|                                                                                | ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA                                                           
|                                                                                | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          
|                                                                                | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                    
|                                                                                | ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                       
|                                                                                | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           
|                                                                                | ITEM 9A. CONTROLS AND PROCEDURES                                                                       
|PART III                                                                       
|                                                                                | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                            
|                                                                                | ITEM 11. EXECUTIVE COMPENSATION                                                                        
|                                                                                | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|                                                                                | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                
|                                                                                | ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES                                                        
|PART IV                                                                        
|                                                                                | ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                  
|SIGNATURES                                                                     
|INDEPENDENT AUDITORS REPORT                                                   
|CONSOLIDATED BALANCE SHEETS                                                    
|CONSOLIDATED STATEMENTS OF OPERATIONS                                          
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                     
|EXHIBIT INDEX                                                                  
|Offer Letter - Donald F. Detampel, Jr.                                         
|Consent of KPMG LLP                                                            
|Certification of CEO Pursuant to Section 302                                   
|Certification of CFO Pursuant to Section 302                                   
|Certificaiton of CEO & CFO Pursuant to Section 906                             



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##### Table of Contents



RAINDANCE COMMUNICATIONS, INC.

Form 10-K

For the Fiscal Year Ended December 31, 2003

TABLE OF CONTENTS

|                              |  |                                                                                       |    |  |    |      |  | 
|----------------------------- |  | ------------------------------------------------------------------------------------- | -- |  | -- | ---- |  | 
|                              |  |                                                                                       |    |  |    | Page
|                              |  |                                                                                       |    |  |    |     
|PART I                       
|Item   1                      |  | Business                                                                              |    |  | 3  |     
|Item   2                      |  | Properties                                                                            |    |  | 10 |     
|Item   3                      |  | Legal Proceedings                                                                     |    |  | 10 |     
|Item   4                      |  | Submission of Matters to a Vote of Security Holders                                   |    |  | 10 |     
|PART II                      
|Item   5                      |  | Market for Registrants Common Equity and Related Stockholder Matters                 |    |  | 11 |     
|Item   6                      |  | Selected Consolidated Financial Data                                                  |    |  | 12 |     
|Item   7                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |    |  | 14 |     
|Item   7A                     |  | Quantitative and Qualitative Disclosures About Market Risk                            |    |  | 40 |     
|Item   8                      |  | Consolidated Financial Statements and Supplementary Data                              |    |  | 40 |     
|Item   9                      |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |    |  | 40 |     
|Item   9A                     |  | Controls and Procedures                                                               |    |  | 40 |     
|PART III                     
|Item   10                     |  | Directors and Executive Officers of the Registrant                                    |    |  | 41 |     
|Item   11                     |  | Executive Compensation                                                                |    |  | 41 |     
|Item   12                     |  | Security Ownership of Certain Beneficial Owners and Management                        |    |  | 41 |     
|Item   13                     |  | Certain Relationships and Related Transactions                                        |    |  | 41 |     
|Item   14                     |  | Principal Accounting Fees and Services                                                |    |  | 41 |     
|PART IV                      
|Item   15                     |  | Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K          |    |  | 42 |     
|SIGNATURES AND CERTIFICATIONS |  |                                                                                       | 44 | 

Our website address is www.raindance.com. Our registration statement on
Form S-1, annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K, as well as any amendments to those reports, are
available free of charge through our website as soon as reasonably practicable
after we file them with, or furnish them to, the SEC. Once at
www.raindance.com, go to Investor Center/SEC Filings and Financials.

2



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PART I

Unless the context requires otherwise, references in this report to
Raindance, the Company, we, us, and our refer to Raindance
Communications, Inc.

This Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, including without
limitation, statements regarding our strategies, future financial performance,
and future operations that involve risks and uncertainties. These
forward-looking statements include, but are not limited to, statements
regarding the extent and timing of future revenues and expenses and customer
demand, statements regarding the deployment of our products, and statements
regarding reliance on third parties. In some cases, these statements may be
identified by terminology such as may, will, should, believes,
anticipates, expects, plans, intends, estimates, predicts,
potential and words of similar import. Our actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to;
those discussed in this section and in the sections entitled Managements
Discussion and Analysis of Financial Condition and Results of Operations and
Additional Risk Factors that May Affect Our Operating Results and The Market
Price of Our Common Stock. All forward-looking statements included in this
Report are based on information available to us as of the date hereof and we
undertake no obligation to revise any forward-looking statements in order to
reflect any subsequent events or circumstances. Readers are urged to carefully
review and consider the various disclosures made in this report and in our
other reports filed with the SEC that attempt to advise interested parties of
certain risks and factors that may affect our business.

Our reports are available free of charge through our website as soon as
reasonably practicable after we file them with, or furnish them to, the SEC.
Our website address is www.raindance.com. Once at www.raindance.com, go to
Investor Center/SEC Filings and Financials.

Raindance and Raindance Communications are registered trademarks owned by
us. We also refer to trademarks of other corporations and organizations in
this document.




ITEM 1. BUSINESS

Overview

We provide remote communication services for everyday business meetings
and events. Virtually all of our communication services are based on
proprietary architecture that integrates traditional telephony technology with
real-time interactive web tools. Our continuum of interactive services includes
Reserverationless Conferencing, Web Conferencing Pro, Operator Assisted
Conferencing and Unlimited Conferencing. Additionally, in the fourth quarter
of 2003, we launched the beta version of our next-generation service, Raindance
Meeting Edition, which was recently released in March 2004. Reservationless
Conferencing provides for automated reservationless audio conferencing with
simple web controls and presentation tools. Web Conferencing Pro allows users
to integrate reservationless automated audio conferencing with advanced web
interactive tools over the web such as application sharing, web touring and
online whiteboarding. Operator Assisted Conferencing provides customers with
operator assistance during high profile conferencing events and additional
services such as call taping, digital replay and transcription, which we often
bundle with our Web Conferencing Pro service. Unlimited Conferencing offers
unlimited local toll access to our reservationless conferencing service for a
fixed monthly rate. Raindance Meeting Edition is our next-generation
communication service that integrates audio, web and video conferencing. Built
on multimedia architecture that integrates audio, web and multi-point video
technologies, we intend to leverage the infrastructure, technologies and
proprietary systems of our next-generation network and services to facilitate
the rapid deployment of service enhancements and additional business
communication solutions. We sell these services to businesses in various
markets as well as to resellers of conferencing and communications services,
through our direct and indirect sales channels. Our business model is largely
usage-based, which generally means that our customers only pay for the services
that they use. We also offer our customers monthly subscription rates based on
a fixed number of concurrent users. In addition, through our distribution
partners, we may also offer our services on a software license basis. We
operate as a single business segment.

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We were incorporated in Delaware in April 1997. We first recorded revenue
in 1998 and, excluding the fiscal year 2003, have incurred net losses every
year since inception and expect to incur net losses again in the near term.
Our principal executive offices are located at 1157 Century Drive, Louisville,
Colorado 80027.

Remote Meeting Solutions

Our integrated audio, web and video conferencing services support various
types of meetings from a simple, on-the-fly audio conference to company-wide
online training initiatives. These flexible service offerings enable businesses
to choose the right solution to meet their specific needs.

Our remote communication services offer the following benefits:



| |  |  | Integrated Audio, Web and Video Functions.For everyday conference
calls, meeting moderators can use their personal ID to begin a phone
conference at anytime without a reservation or an operator. To add
another layer of interaction and group collaboration, moderators use
the same ID to begin a web conference with interactive features to
share rich visual content and encourage higher levels of participation.
We provide customers simple and convenient remote communications
solutions and with the release of Raindance Meeting Edition, we provide
our customers access to audio, web and video conferencing with one
telephone access number, one user ID, one technical support team and
one billing solution.                                                                                                                                                                                                                                                                                                                              
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Reliability and Security. We designed our facilities and
infrastructure to provide the scalability and reliability required to
meet the critical communication needs of our customers. We incorporate
telecommunications-grade reliability standards into our communication
technologies and design our infrastructure to accommodate more
participants and usage than we expect. We monitor servers in our data
center with redundant network connections. In addition to offering our
services in a secure socket layer, or SSL, environment with 128-bit
encryption, we provide a robust firewall configuration that offers
layered protection for customer data. Meeting moderators have the
ability to further ensure and monitor the security of their meetings
using several layers of security, including PIN codes, audio tones that
signal when a participant enters or exits, conference lock to prevent
additional participants from joining a conference, a participant count
feature and unique security codes created by the meeting moderator.
|
| |  |  | Flexible Pricing. Depending on the customers communication needs
and selected remote meeting solution, we offer a variety of pricing
models to accommodate estimated service usage as well as the customers
preferred method of payment. A large portion of our services are
usage-based, which generally means that our customers pay on a
per-minute, per-participant basis. In addition, we also offer our
customers monthly subscription rates based on a fixed number of
concurrent users. For our distribution partners, we may provide our
services through software licenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

We offer several levels of service depending on the customers needs. All
of our services can be used together or separately to create the ideal remote
meeting solution for each customer.

Our services include the following:

Raindance Meeting Edition. In the first quarter of 2004, our
next-generation services, which we call Raindance Meeting Edition, became
generally available to the public. Built on multimedia architecture, that we
call the SwitchTower network, Raindance Meeting Edition intuitively integrates
audio, web and video technologies into one seamless solution. Raindance Meeting
Edition includes innovative features that drive the complexity out of planning,
accessing and managing everyday remote meetings. In addition to easy-to-use
multi-point video, browser and application sharing features, Raindance Meeting
Edition unites directly with users desktops and provides seamless Outlook
integration. Meeting moderators can use our unique call-me feature to dial
themselves into the conference with no access numbers to remember and invite
participants using a one-click link. To engage participants in a fully
collaborative experience as if everyone were in the same room, meeting
moderators can allow participants to easily share documents and information in
a virtual public workspace, control participants interactivity with customized
settings and manage a roster of participants engaged in the audio, web and
video portions of the meeting.

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Web Conferencing Pro.Our Web Conferencing Pro service, available in
either Meeting or Seminar version, is a feature-rich web conferencing tool that
allows sales, marketing and training professionals to conduct meetings and
events online with both internal and external participants. Web Conferencing
Pro requires no downloads or plug-ins for meeting participants, allows
customers to customize the interface with their companys colors and logo and
offers a single, integrated interface enabling meeting moderators to control
both the phone and web functions.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Web Meeting.Using the Meeting version of our Web Conferencing Pro
service, Meeting moderators can choose to share a variety of visuals
online including collectively viewing and editing desktop applications,
displaying slide presentations, conceptualizing on a shared whiteboard
and leading a web tour. In addition, moderators can take advantage of
features that keep participants engaged and encourage interactivity, such
as annotation tools, text chat and polling.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Web Seminar.Our Web Conferencing Pro Seminar version builds upon
the features of the Meeting version with added automated management tools
to manage large or recurring online events. Web Seminar allows event
organizers, such as training or HR managers, to post meeting schedules,
manage participant registration and set automatic email reminders prior
to the event. In addition, Web Seminar includes additional features to
manage interaction with large groups, such as our online Q&A feature.

Reservationless Conferencing.Our Reservationless Conferencing combines
the reliability and universal availability of traditional audio conferencing
services with basic web presentations and controls. Using their dedicated
toll-free number and unique conference ID and PIN, meeting moderators can begin
a conference at any time with up to 125 participants from the phone or the web,
without prior reservations or operator assistance. By leveraging our basic web
presentation tools and controls, moderators also have the ability to share a
visual presentation, extend the reach of their conference by streaming audio
and synchronized slide presentations over the web and leverage a suite of
conference controls.

Operator-Assisted Conferencing.Our Operator-Assisted Conferencing service
provides a higher level of personalized operator support as well as unique
features for high-profile conferences and events that need special attention.
This service allows meeting moderators to contact an operator to schedule a
conference call, select the appropriate features for their event and provide
event management support. Operator-Assisted Conferencing provides features
such as an operator-led question and answer session with meeting participants,
call taping for later replay and fax services enabling moderators to distribute
additional printed materials before or after the conference. Operator-Assisted
Conferencing can be used in conjunction with Web Conferencing Pro Meeting or
Seminar to support events with up to 2,500 participants.

Unlimited Conferencing.Raindances Unlimited Conferencing service
provides small and medium-sized businesses a convenient way to conduct audio
and web conferences with a predictable, low price. Our fully automated,
flat-rate conferencing service allows meeting moderators to use their unique
conference ID and PIN to conference as often as they choose, all billed at one
fixed cost. With Unlimited Conferencing, moderators and participants dial into
the conference using their dedicated local exchange toll call number. Similar
to Raindance Reservationless Conferencing, Unlimited Conferencing requires no
reservations to initiate a conference with as many participants as the
moderators account allows. Unlimited Conferencing also includes phone and web
commands to control the conference and integrated web functions to share a
presentation, conduct Q&A and view online reports. This new service became
available in the first quarter of 2003.

Future Service Offerings

We intend to leverage the infrastructure, technologies, and proprietary
systems of our next-generation network and services to facilitate the rapid
deployment of service enhancements and additional business communication
solutions.

Customers

We have a diverse base of customers across numerous vertical markets, such
as computer software, business services, manufacturing and financial services.
As of December 31, 2003, we had 3,659 revenue generating customers. In 2003,
direct customers accounted for 85% of our revenue. In addition, we partner with
resellers, such as conferencing and communications providers, to leverage their
large and established customer bases. Some of our

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distribution partners also use our services internally. In 2003, we
generated 15% of our revenue from these relationships.

Additionally, our results typically fluctuate based on seasonal sales
patterns. Our operating results have shown decreases in our usage-based
services around certain holiday periods, such as during the spring, summer,
Thanksgiving, December and New Year holidays. We expect that our revenue during
these seasons will not grow at the same rates as compared to other periods of
the year because of decreased use of our services by business customers.

Technology

We have invested substantial human and capital resources to develop
proprietary systems and applications that integrate disparate telephony and
Internet communication technologies. Our layered approach to building
applications allows us to effectively leverage our existing infrastructure,
technologies and proprietary systems to accommodate changes in the marketplace.
We believe this gives us a competitive advantage by allowing us to quickly and
reliably develop new services and enhance our existing services based on
evolving market needs. We believe that our technological resources give us the
following benefits:



| |  | the ability to identify new and enhance existing web conferencing services;                                                                                      
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the ability to build integrated applications by combining traditional telephony, voice over Internet protocol (VoIP) and
Internet communication technologies; and
| 
| |  | the ability to build a reliable and scalable communication infrastructure.                                                                                       

The technologies that support our business fall into four areas described
below:

Data Infrastructure.Our data infrastructure provides Internet
connectivity between our end customers and our automated services. We run a
multi-home network infrastructure and operate our own private networks between
our on-premises data center and leased data centers. Our entire data
infrastructure is redundant with network cores consisting of some of the
industrys most advanced gigabit technology. All data circuits are delivered
over multiple local loop providers and travel to our data facilities over
disparate paths. Critical choke-points in our data architecture are load
balanced. With the architecture design we currently have in place, we have
maintained constant service availability at the data layer for our customers
connectivity. Currently we provide over 450 Mbits of data layer connectivity
to our customers over three separate Internet backbones.

Voice Infrastructure. Our voice infrastructure provides the telephony
connectivity to our customers that is required for the audio conferencing
aspects of our services. Our voice infrastructure consists mainly of
dynamically routed SS7 call processing systems that integrate closely with our
network providers. These logical layer connections are made over diverse local
loop fiber routes and connect to geographically disparate switching fabrics.
Currently we have over 500 T1 voice circuits in production from two service
providers. We have developed proprietary schemes and methodologies to provide
higher uptime statistics than systems utilizing single network architectures.
Over the past 18 months we have dedicated resources toward building a
conferencing platform based on VoIP technology. Our VoIP platform is currently
in production and we expect to transition some portion of our voice
conferencing traffic onto it throughout 2004.

Application Infrastructure.Our application infrastructure is developed
in-house and represents a substantial portion of our intellectual property and
a considerable competitive advantage. Our ability to offer our customers
integrated audio and web functionality is a hallmark of our proprietary
layering methodology. This functionality provides us an advantage over
competitors with less integrated offerings. Our application infrastructure is
largely Java based and is highly redundant and scalable.

Business Infrastructure.We operate a largely custom and proprietary
business infrastructure layer that consists of custom real-time billing and
rating engines. These functions enable us to provide our customers with
critical business information and tools. Our architecture is designed to allow
us to use information from each of the other infrastructure layers described
above, and as a result, we can provide current billing information for
virtually any type of communication action that is enabled by our platform.
The business infrastructure layer uses Oracle 9i for all storage and runs on
multiple redundant and host standby servers. Our business layer also allows us
to adapt to changing requirements as next generation services mature.

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Research and Development

Our research and development efforts are currently focused on leveraging
the infrastructure, technologies, and proprietary systems of our
next-generation network and services to facilitate the rapid deployment of
service enhancements and additional business communication solutions to meet
the changing needs of our diverse customer base. We believe our success will
depend, in part, on our ability to develop and introduce new services and
enhancements. We have made, and expect to continue to make, significant
investments in research and development.

We expensed approximately $8.3 million, $7.6 million and $5.7 million
related to research and development activities in the years ended December 31,
2003, 2002 and 2001, respectively. As of March 1, 2004, we had a total of 58
full-time engineers and developers engaged in research and development
activities. We intend to devote substantial resources to research and
development for the next several years.

Sales and Marketing

Sales. We currently sell our services through a direct sales force and
indirect sales channels. As of March 1, 2004, we had 135 full-time employees
engaged in sales and marketing. Our direct sales force targets our services
primarily to large and medium-sized corporations with a proven need for
business communication services in diverse vertical markets, such as computer
software, business services, manufacturing and financial services. We also have
an account management team that is responsible for developing our relationships
and expanding opportunities within our existing customers. Our indirect sales
initiatives allow us to extend our reach to businesses of all sizes by
developing alternative distribution channels. The efforts of our indirect sales
group focus on partnering with resellers, such as conferencing and
communications providers, to leverage their large and established customer
bases and distribution channels. We private label or co-brand our services for
these partners depending on their requirements. A significant percentage of
our sales force compensation is commission based.

Marketing. We primarily focus our marketing efforts on aggressive direct
marketing programs aimed at our target customers. We seek to generate qualified
leads for our sales team, educate and retain existing customers, generate brand
awareness through proactive public relations and drive service enhancements
using research and customer feedback.

Customer Service

We offer customer support and operator assistance 24 hours a day, seven
days a week, free of charge, to our customers. Technical and customer support
is available through a toll-free telephone number and email request system. In
addition, our users can request operator help during a conference directly from
their computer or on their telephone. We also offer substantial self-serve
information databases in the form of frequently asked questions, and user and
quick reference guides hosted on our web site. As of March 1, 2004, we employed
25 full-time technical and customer support representatives to respond to
customer requests for support.

The vast majority of our requests for customer support are based on
general product functionality and basic technical assistance, such as browser
setting adjustments. The majority of our customer inquiries can be addressed
during an operations technicians initial contact with the customer. If the
issue cannot be resolved immediately, it will be escalated to our Level II
support team. If further help is required the issue will be immediately
transferred to our Level III support team. Once the issue is identified and a
timeline for a resolution is determined, the associated operations account
manager will contact the customer with the resolution plan. Additionally, all
customer incidents are tracked within our database for future reference and
technical pattern analysis.

Competition

The market for web conferencing services is relatively new, rapidly
evolving and intensely competitive. As the market for these services evolves,
more companies are expected to enter this market and invest significant
resources to develop services that compete with ours. As a result, we expect
that competition will continue to intensify and may result in price reductions,
reduced sales and gross profits, loss of market share and reduced acceptance of
our services.

We believe that the primary competitive factors in the web conferencing
services market include:

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| |  | pricing;                                                                                        
|- |  | ------------------------------------------------------------------------------------------------
| 
| |  | ease of use of services and breadth of features;                                                
| 
| |  | brand identity;                                                                                 
| 
| |  | quality and reliability of communication services;                                              
| 
| |  | compatibility with new and existing communication formats;                                      
| 
| |  | access to and penetration of distribution channels necessary to achieve broad distribution;     
| 
| |  | quality of customer service;                                                                    
| 
| |  | ability to develop and support secure formats for communication delivery;                       
| 
| |  | scalability of communication services; and                                                      
| 
| |  | challenges caused by bandwidth constraints and other limitations of the Internet infrastructure.

Our failure to adequately address any of the above factors could harm our
competitive position.

We are a premier provider of integrated web and audio conferencing
services. As such, we compete with stand-alone providers of traditional
teleconferencing and web conferencing services. Some of our current competitors
have entered and expanded, and other competitors or potential competitors may
enter or expand their positions in the web conferencing services market by
acquiring one of our competitors, by forming strategic alliances with these
competitors or by developing an integrated offering of services. For example,
Microsoft acquired Placeware, a competitor of ours, and Cisco Systems acquired
Latitude Communications, a competitor of ours. In addition, some large software
providers, such as Oracle and Macromedia, are also providing web conferencing
products in addition to their software offerings. Oracle is a large customer
of ours and has indicated its intent to discontinue using our services in the
near term. These companies have large and established customer bases,
substantial financial resources and established distribution channels that
could significantly harm our ability to compete.

In the web conferencing services market our principal competitors include
Centra Software, Microsoft/Placeware and WebEx. Some of these competitors offer
web conferencing services and software with a broader set of features than we
currently offer and may integrate teleconferencing services into their web
conferencing offerings. We also compete with resellers of web conferencing
services. There are also a number of private companies, such as
distance-learning companies, that have entered or may enter the web
conferencing services market. In the traditional teleconferencing market, our
principal competitors include AT&T, Global Crossing, MCI WorldCom and Sprint.
These companies currently offer teleconferencing services as part of a bundled
telecommunications offering, which may include video and data conferencing
services and other web conferencing services. We also compete with traditional
operator-assisted conferencing providers, such as Genesys, West Corp/Intercall
and PTEK/Premier Conferencing. In addition, we compete with resellers of these
services.

Intellectual Property

The success of our business is substantially dependent on the proprietary
systems that we have developed. Currently, we have five issued patents. These
patents cover functionality related to our Web Conferencing Pro service. We
also have twelve pending patent applications covering aspects of our existing
and next-generation services and infrastructure. There is no assurance that our
current and future patent applications will result in any patents being issued.
If they are issued, any patent claims allowed may not be sufficient enough to
protect our technology. In addition, any current or future patents may be
challenged, invalidated or circumvented and any right granted thereunder may
not provide meaningful protection to us. The failure of any patent to provide
protection for our technology would make it easier for other companies or
individuals to develop and market similar systems and services without
infringing upon any of our intellectual property rights. In addition, other
companies may claim that our technology infringes on their intellectual
property rights. For example, on August 19, 2003, Edisync Systems LLC, a
Colorado-based limited liability company, filed a lawsuit against us and some
of our competitors in the United

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States District Court for the District of Colorado alleging patent
infringement. In December 2003, we entered into a definitive settlement
agreement with the plaintiff for $0.3 million. We are not currently involved in
any other material legal proceedings. We may be subject to other claims
alleging intellectual property infringement. Claims of this nature could
require us to spend significant amounts of time and money to defend ourselves,
regardless of their merit. If any of these claims were to prevail, we could be
forced to pay damages, comply with injunctions, divert management attention and
resources, or halt or delay distribution of our services while we reengineer
them or seek licenses to necessary intellectual property, which might not be
available on commercially reasonable terms or at all. As the number of
competitors in our market grows, there is an increased risk that the
proprietary systems and software upon which our services rely may be
increasingly subject to third-party infringement claims.

To protect our proprietary rights, we also rely on a combination of
trademarks, service marks, trade secrets, copyrights, confidentiality
agreements with our employees and third parties, and protective contractual
provisions. Our protection efforts may prove to be unsuccessful and
unauthorized parties may copy or infringe upon aspects of our technology,
services or other intellectual property rights. In addition, these parties may
develop similar technology independently. Existing trade secret, copyright and
trademark laws offer only limited protection and may not be available in every
country in which we intend to offer our services. Policing unauthorized use of
our proprietary information is difficult. Each trademark, trade name or service
mark appearing in this report belongs to its holder. Raindance, Raindance
Communications, SwitchTower, OpenGo and our logo are trademarks or registered
trademarks owned by us; all other company and product names herein may be
trademarks of their respective owners.

Employees

As of March 1, 2004, we employed 244 full-time people. The employees
included 26 in general and administrative functions, 25 in customer service,
135 in sales and marketing and 58 in research and development. Our future
success depends in part on our ability to attract, retain and motivate highly
qualified technical and management personnel. Our employees are not represented
by a labor union or covered by any collective bargaining agreements. We
consider our employee relations to be good.

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ITEM 2. PROPERTIES

Our principal executive office is located in Louisville, Colorado where we
lease two facilities, which combined, approximate 43,500 square feet. One of
the buildings, representing approximately 36,500 square feet, is partially
owned by Paul Berberian, our chairman of the board and former chief executive
officer and president. This lease commenced in October 1999 and has a term of
ten years. Pursuant to this lease, we pay rent of $60,848 per month subject to
an annual adjustment for inflation based on the consumer price index. We also
pay the operating expenses related to this building, which are currently
$17,326 per month and vary on an annual basis. In connection with the
acquisition of Interact Conferencing, LLC, we also assumed a facility lease
obligation associated with a building that is partially owned by the former
president and chief executive officer of InterAct Conferencing who became an
officer of the Company upon the completion of the acquisition. This facility
is located in Roswell, Georgia and approximates 12,000 square feet. The lease
obligation commenced in May 2002 and has a maximum term of 5 years. Pursuant
to this lease we pay rent of $12,250 per month and also pay operating expenses
of approximately $2,500 per month which vary on an annual basis. Based on an
independent review of both of these properties and the related lease terms, we
believe our lease obligations are fair and reasonable. Additionally, the
Company leases office space for current or former satellite sales offices that
are typically less than 3,000 square feet in six other states. We currently
utilize one of these satellite facilities in California for a sales office and
sublease the others to third parties. At December 31, 2003, the Company
occupied three offices in Colorado, one in California and one in Georgia. We
believe that these existing facilities are adequate to meet current foreseeable
requirements or that suitable additional or substitute space will be available
on commercially reasonable terms.




ITEM 3. LEGAL PROCEEDINGS

From time to time, we have been subject to legal proceedings and claims in
the ordinary course of business. On August 19, 2003, Edisync Systems LLC, a
Colorado-based limited liability company, filed a lawsuit against us and some
of our competitors in the United States District Court for the District of
Colorado alleging patent infringement. In December 2003, we entered into a
definitive settlement agreement with the plaintiff for $0.3 million, which we
had previously accrued in the third quarter of 2003. We are not currently party
to any other material legal proceedings.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 2003.

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PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information and Holders

Our common stock commenced trading under the trading symbol RNDC on The
Nasdaq National Market on May 17, 2001. Prior to that, our common stock traded
on The Nasdaq National Market under the trading symbol EVOK, which commenced
with our listing on July 25, 2000. The price for our common stock as of the
close of business on March 1, 2004 was $2.75 per share. As of March 1, 2004, we
had approximately 237 stockholders of record.

The following table sets forth the high and low sales prices per share of
our common stock as of the market close for the periods indicated:

|               |  |      |      |     |  |   |      | 
|-------------- |  | ---- | ---- | --- |  | - | ---- | 
|               |  | High |      | Low
|               |  |      |      |    
|2003:          |  |      |      |     |  |   |      | 
|First Quarter  |  | $    | 3.55 |     |  | $ | 1.30 | 
|Second Quarter |  | $    | 3.01 |     |  | $ | 1.80 | 
|Third Quarter  |  | $    | 3.19 |     |  | $ | 2.18 | 
|Fourth Quarter |  | $    | 3.24 |     |  | $ | 2.18 | 
|2002:          |  |      |      |     |  |   |      | 
|First Quarter  |  | $    | 6.13 |     |  | $ | 2.70 | 
|Second Quarter |  | $    | 5.75 |     |  | $ | 2.33 | 
|Third Quarter  |  | $    | 5.24 |     |  | $ | 2.01 | 
|Fourth Quarter |  | $    | 3.88 |     |  | $ | 2.72 | 

Dividends

We have never paid any cash dividends on our common stock. We intend to
retain all earnings for use in our business and do not anticipate paying any
cash dividends on our common stock in the foreseeable future. On October 9,
2001, we entered into a loan and security agreement with a bank, pursuant to
which we are prohibited from paying any dividends without the banks prior
written consent.

Securities Authorized for Issuance Under Equity Compensation Plans

The information required by this Item 201(d) of Regulation S-K regarding
securities authorized for issuance under equity compensation plans is
incorporated by reference in our definitive Proxy Statement to be filed in
connection with the Annual Meeting of Stockholders to be held on May 19, 2004.

Recent Sales of Unregistered Securities

In January 2003, MMC/GATX Partnership No. 1 (GATX) net exercised in full
a warrant, which we issued to GATX in January 1999, to purchase 50,769 shares
of our common stock. Pursuant to the net exercise provisions of the warrant, a
per share exercise price of $1.56, and a fair market value per share equal to
$3.5055 based on the thirty-day trailing average closing price of our stock at
the time of exercise, 28,176 shares of our common stock were issued to GATX
upon the exercise of the warrant. These securities were issued by us in
reliance on an exemption from registration contained in Rule 506 of Regulation
D of the Securities Act of 1933, as amended.

In April 2002, we acquired substantially all of the assets of InterAct
Conferencing, LLC (InterAct). In connection with the acquisition, we issued
to InterAct 2,198,581 shares of our common stock valued at $7.4 million. The
value of the common stock issued was determined based on the average market
price of our common stock over the three-day period before and after the terms
of the acquisition were agreed upon and announced. These securities were
issued by us in reliance on an exemption from registration contained in Section
4(2) of the Securities Act of 1933, as amended, and the rules and regulations
thereunder.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected historical consolidated financial data should be
read in conjunction with our consolidated financial statements and the notes to
such statements and Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in this Annual Report
on Form 10-K. The consolidated statement of operations data for each of the
years in the three year period ended December 31, 2003, and the balance sheet
data at December 31, 2003 and 2002 are derived from our financial statements,
which have been audited by KPMG LLP, independent auditors, and are included
elsewhere in this filing. The statement of operations data for the years ended
December 31, 2000 and 1999 and the balance sheet data at December 31, 2001,
2000 and 1999 are derived from our audited financial statements, which have
been audited by KPMG LLP, and are not included in this filing. We acquired
Contigo Software, Inc. in June 2000 in a transaction accounted for as a
purchase. The consolidated statement of operations data for each of the four
years ended December 31, 2003 and the consolidated balance sheet data as of
December 31, 2003, 2002, 2001 and 2000 include the results of operations of
Contigo subsequent to June 16, 2000 and the financial position of Contigo as of
such date, respectively. We acquired substantially all of the assets of
InterAct Conferencing, LLC in April 2002 in a transaction accounted for as a
purchase. The consolidated statement of operations data for each of the two
years ended December 31, 2003 and the consolidated balance sheet data as of
December 31, 2003 and 2002 include the results of operations of InterAct
subsequent to April 30, 2002 and the financial position of InterAct as of such
date, respectively. Historical results are not indicative of the results to be
expected in the future.

In 2002, Statement of Financial Accounting Standards No. 142 (SFAS 142),
Goodwill and Other Intangible Assets became effective and as a result,
amortization of goodwill ceased upon adoption of the Statement on January 1,
2002. Amortization expense related to goodwill would have been $12.2 million in
2003 and $26.5 million in 2002 at the prior amortization rate. In lieu of
amortization, we were required to perform an initial impairment review of our
goodwill in 2002 and are required to perform an annual impairment review
thereafter.

|                                                                               |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |        |         |   |          |        |          |   |          |       |         |  
|------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------- | ----------------------------- | ------ | ------------------------------------- | ------ | ---- | ------ | ------ | ------ | ---- | ------- | ------ | ------- | - | -------- | ------ | -------- | - | -------- | ----- | ------- | -
|                                                                               |                                                                                         |                               |        | Years Ended December 31,             
|                                                                               |                                                                                         |                               |        |                                      
|                                                                               |                                                                                         |                               |        | 2003                                  |        | 2002 |        | 2001   |        | 2000 |         | 1999  
|                                                                               |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |       
|                                                                               |                                                                                         |                               |        | (in thousands, except per share data)
|Statement of Operations Data:                                                  |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |        |         |   |          |        |          |   |          |      
|Revenue:                                                                       |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |        |         |   |          |        |          |   |          |      
|Service                                                                        |                                                                                         | $                             | 66,611 |                                       |        | $    | 60,651 |        |        | $    | 39,410  |        |         | $ | 18,022   |        |          | $ | 2,246    |      
|Software                                                                       |                                                                                         |                               | 4,000  |                                       |        |      |       |        |        |      |        |        |         |   |         |        |          |   |         |      
|                                                                               |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |        |         |   |          |        |          |   |          |      
|                                                                               | Total Revenue                                                                           |                               |        | 70,611                                |        |      |        | 60,651 |        |      |         | 39,410 |         |   |          | 18,022 |          |   |          | 2,246 |        
|                                                                               |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |        |         |   |          |        |          |   |          |      
|Cost of Revenue:                                                               |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |        |         |   |          |        |          |   |          |      
|Service                                                                        |                                                                                         |                               | 28,506 |                                       |        |      | 26,635 |        |        |      | 22,457  |        |         |   | 16,144   |        |          |   | 3,368    |      
|Software                                                                       |                                                                                         |                               |       |                                       |        |      |       |        |        |      |        |        |         |   |         |        |          |   |         |      
|                                                                               |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |        |         |   |          |        |          |   |          |      
|                                                                               | Total Cost of Revenue                                                                   |                               |        | 28,506                                |        |      |        | 26,635 |        |      |         | 22,457 |         |   |          | 16,144 |          |   |          | 3,368 |        
|                                                                               |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |        |         |   |          |        |          |   |          |      
|Gross profit (loss)                                                            |                                                                                         |                               | 42,105 |                                       |        |      | 34,016 |        |        |      | 16,953  |        |         |   | 1,878    |        |          |   | (1,122   | )    
|                                                                               |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |        |         |   |          |        |          |   |          |      
|Operating expenses:                                                            |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |        |         |   |          |        |          |   |          |      
|                                                                               | Sales and marketing                                                                     |                               |        | 19,687                                |        |      |        | 18,508 |        |      |         | 20,362 |         |   |          | 53,169 |          |   |          | 7,007 |        
|                                                                               | Research and development                                                                |                               |        | 8,289                                 |        |      |        | 7,599  |        |      |         | 5,704  |         |   |          | 8,011  |          |   |          | 1,006 |        
|                                                                               | General and administrative                                                              |                               |        | 7,202                                 |        |      |        | 7,515  |        |      |         | 7,397  |         |   |          | 8,441  |          |   |          | 1,822 |        
|                                                                               | Amortization of goodwill                                                                |                               |        |                                      |        |      |        |       |        |      |         | 26,506 |         |   |          | 14,534 |          |   |          |      |        
|                                                                               | Stock-based compensation expense                                                        |                               |        | 2,814                                 |        |      |        | 3,028  |        |      |         | 2,834  |         |   |          | 8,383  |          |   |          | 2,484 |        
|                                                                               | Asset impairment charges                                                                |                               |        |                                      |        |      |        | 138    |        |      |         | 4,576  |         |   |          |       |          |   |          |      |        
|                                                                               | Restructuring charges, contract termination
expenses, severance and litigation expenses |                               |        | 596                                   |        |      |        | 584    |        |      |         | 1,696  |         |   |          | 11,133 |          |   |          |      |        
|                                                                               |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |        |         |   |          |        |          |   |          |      
|                                                                               |                                                                                         | Total operating expenses      |        |                                       | 38,588 |      |        |        | 37,372 |      |         |        | 69,075  |   |          |        | 103,671  |   |          |       | 12,319  |  
|                                                                               |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |        |         |   |          |        |          |   |          |      
|                                                                               |                                                                                         | Income (loss) from operations |        |                                       | 3,517  |      |        |        | (3,356 | )    |         |        | (52,122 | ) |          |        | (101,793 | ) |          |       | (13,441 | )
|Interest income, net                                                           |                                                                                         |                               | 101    |                                       |        |      | 128    |        |        |      | 887     |        |         |   | 3,247    |        |          |   | 400      |      
|Other income (expense), net                                                    |                                                                                         |                               | (71    | )                                     |        |      | (126   | )      |        |      | (1,488  | )      |         |   | (207     | )      |          |   | (6       | )    
|                                                                               |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |        |         |   |          |        |          |   |          |      
|                                                                               |                                                                                         | Net income (loss)             |        |                                       | 3,547  |      |        |        | (3,354 | )    |         |        | (52,723 | ) |          |        | (98,753  | ) |          |       | (13,047 | )
|Preferred stock dividends and accretion of preferred stock
to redemption value |                                                                                         |                               |       |                                       |        |      |       |        |        |      |        |        |         |   | 1,725    |        |          |   | 100,000  |      
|                                                                               |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |        |         |   |          |        |          |   |          |      
|Net income (loss) attributable to common stockholders                          |                                                                                         | $                             | 3,547  |                                       |        | $    | (3,354 | )      |        | $    | (52,723 | )      |         | $ | (100,478 | )      |          | $ | (113,047 | )    
|                                                                               |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |        |         |   |          |        |          |   |          |      
|Net income (loss) per share:                                                   |                                                                                         |                               |        |                                       |        |      |        |        |        |      |         |        |         |   |          |        |          |   |          |      

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|                                                      |  |   |        |                                       |  |      |        |      |  |      |        |      |  |   |        |   |  |   |         |   |  | 
|----------------------------------------------------- |  | - | ------ | ------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------- | - |  | 
|                                                      |  |   |        | Years Ended December 31,             
|                                                      |  |   |        |                                      
|                                                      |  |   |        | 2003                                  |  | 2002 |        | 2001 |  | 2000 |        | 1999
|                                                      |  |   |        |                                       |  |      |        |      |  |      |        |     
|                                                      |  |   |        | (in thousands, except per share data)
|Statement of Operations Data:                         |  |   |        |                                       |  |      |        |      |  |      |        |      |  |   |        |   |  |   |         |  
|Basic                                                 |  | $ | 0.07   |                                       |  | $    | (0.07  | )    |  | $    | (1.12  | )    |  | $ | (4.69  | ) |  | $ | (259.44 | )
|                                                      |  |   |        |                                       |  |      |        |      |  |      |        |      |  |   |        |   |  |   |         |  
|Diluted                                               |  | $ | 0.06   |                                       |  | $    | (0.07  | )    |  | $    | (1.12  | )    |  | $ | (4.69  | ) |  | $ | (259.44 | )
|                                                      |  |   |        |                                       |  |      |        |      |  |      |        |      |  |   |        |   |  |   |         |  
|Weighted average number of common shares outstanding: |  |   |        |                                       |  |      |        |      |  |      |        |      |  |   |        |   |  |   |         |  
|Basic                                                 |  |   | 52,672 |                                       |  |      | 50,502 |      |  |      | 47,280 |      |  |   | 21,443 |   |  |   | 436     |  
|Diluted                                               |  |   | 54,774 |                                       |  |      | 50,502 |      |  |      | 47,280 |      |  |   | 21,443 |   |  |   | 436     |  

---

|                                                    |  |                    |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         |  
|--------------------------------------------------- |  | ------------------ | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | -
|                                                    |  | As of December 31,
|                                                    |  |                   
|                                                    |  | 2003               |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                                                    |  |                    |         |      |  |      |         |      |  |     
|                                                    |  | (in thousands)    
|Balance Sheet Data:                                 |  |                    |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         |  
|Cash and cash equivalents                           |  | $                  | 39,607  |      |  | $    | 31,699  |      |  | $    | 34,222  |  |  | $ | 43,311  |  |  | $ | 89,234  |  
|Working capital                                     |  |                    | 37,179  |      |  |      | 31,622  |      |  |      | 31,567  |  |  |   | 38,871  |  |  |   | 79,989  |  
|Total assets                                        |  |                    | 122,557 |      |  |      | 113,005 |      |  |      | 110,252 |  |  |   | 158,824 |  |  |   | 110,408 |  
|Long-term debt, less current portion                |  |                    | 1,227   |      |  |      | 2,026   |      |  |      | 3,064   |  |  |   | 810     |  |  |   | 2,260   |  
|Restructuring reserve, less current portion         |  |                    | 187     |      |  |      | 518     |      |  |      | 914     |  |  |   | 2,952   |  |  |   |        |  
|Redeemable convertible preferred stock and
warrants |  |                    |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   | 111,322 |  
|Total stockholders equity (deficit)                |  |                    | 107,922 |      |  |      | 100,323 |      |  |      | 94,768  |  |  |   | 141,710 |  |  |   | (13,932 | )

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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Annual Report on Form 10-K contains forward-looking statements,
including without limitation, statements containing the words believes,
anticipates, expects, and words of similar import and statements regarding
our strategy, financial performance, and our operations that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in the subsection
entitled Additional Risk Factors that May Affect Our Operating Results and The
Market Price of Our Common Stock. Readers are urged to carefully review and
consider the various disclosures made in this report and in our other reports
filed with the SEC that attempt to advise interested parties of certain risks
and factors that may affect our business. You should read this analysis in
conjunction with our consolidated financial statements and related notes that
begin on page F-1.

Our reports are available free of charge through our website as soon as
reasonably practicable after we file them with, or furnish them to, the SEC.
Our website address is www.raindance.com. Once at www.raindance.com, go to
Investor Center/SEC Filings and Financials.

Overview

Throughout Managements Discussion and Analysis of Financial Condition and
Results of Operations and in our consolidated financial statements and related
notes that begin on page F-1, you will read about significant events that
materially impact earnings, revenue and other metrics of financial performance.
Significant events discussed in this Managements Discussion and Analysis
include a one-time software license we entered into in 2003, large subscription
agreements we entered into in 2002, one-time severance charges we incurred in
2003, a change in accounting treatment for costs associated with the
development of our next-generation service, which commenced in the third
quarter of 2003, restructuring charges and asset impairment charges we incurred
in 2002 and 2001, and a change in accounting treatment regarding goodwill
amortization that became effective January 1, 2002. These significant events
have materially impacted our business, operations and financial results. Some
of these events result from unique facts and circumstances or one-time events
that may not recur. While these items are important to understand and evaluate
financial results, other transactions, events or trends discussed later in this
Managements Discussion and Analysis and in the section entitled Additional
Risk Factors That May Affect Our Operating Results and The Market Price Of Our
Common Stock may also materially impact our business operations and financial
results. A complete understanding of these transactions, as well as the other
events and trends explained throughout this report, is necessary to evaluate
our financial condition, changes in financial condition and results of
operations.

As of December 31, 2003, we had an accumulated deficit of $168.4 million.
Our net income was $1.4 million and $0.6 million for the quarters ended
December 31, 2003 and 2002, respectively, and our net income was $3.5 million
and our net loss was $3.4 million for the years ended December 31, 2003 and
2002, respectively. Although we have achieved quarterly net income for five
consecutive quarters, we expect to incur net losses in subsequent quarters,
particularly due to an anticipated increase in sales and marketing expenditures
to support the release of our next-generation service and a one-time software
sale we had in 2003 that we do not expect to recur. We also expect that our
research and development costs will increase in 2004 due to a change in
accounting treatment of our software development costs, which will also
contribute to net losses in the future. We anticipate that our stock-based
compensation expense will increase significantly due to proposed changes in
accounting rules and regulations, further contributing to net losses.

The purchase by Voyant Technologies, Inc. of a license to our software
accounted for 14.5% of our fourth quarter 2003 revenue. Oracle Corporation, who
represented 7.2% of our 2003 revenue, has indicated its intent to discontinue
using our services in the near term. Our five largest customers represented
$17.7 million or 25.2% of our total 2003 revenue. Our ten largest customers
represented $22.5 million or 31.9% of our total 2003 revenue, which indicates a
diminishing financial concentration in our next five largest customers.

While our business model is largely usage-based, which generally means
that our customers only pay for the services they use, our non-usage revenue,
such as from subscriptions and software licenses, may fluctuate based on the
timing of new subscription agreements, the expiration and renewal of existing
agreements and the timing of and revenue recognition associated with software
licenses. This fluctuation can significantly impact our financial results,

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particularly revenue, gross margins and net income because these
subscriptions and software licenses have virtually no variable cost of revenue
expense. In addition, opportunities to license our software have arisen
infrequently and are difficult to predict, and currently we do not anticipate
any significant software license revenue beyond 2003. As a result, the impact
this revenue has on our business and financial results is not consistent and
should not be relied on as indicative of our future performance. In the quarter
ended December 31, 2003, 22.3% of our revenue was non-usage based as compared
to 19.8% in the quarter ended December 31, 2002. In the year ended December 31,
2003, 14.1% of our revenue was non-usage based as compared to 15.6% in the year
ended December 31, 2002. We expect our non-usage based revenue to approximate
7% to 12% of our total revenue in the first quarter of 2004.

Our next-generation service, Raindance Meeting Edition, was recently
released in March 2004. Currently, it is difficult to predict with certainty
the impact Raindance Meeting Edition will have on our business, operations or
financial results, the market in general and our existing customer base.

On April 17, 2002, we entered into a definitive agreement to acquire
substantially all of the assets of InterAct Conferencing, LLC (InterAct), a
nationwide reseller of audio and web conferencing services. On April 30, 2002,
we completed the acquisition. In connection with the acquisition, we assumed
certain liabilities of InterAct as of April 30, 2002, consisting primarily of
accounts payable and a $0.1 million line of credit. We also assumed a facility
lease obligation of approximately $0.7 million associated with a building that
is partially owned by the former president and chief executive officer of
InterAct who became an officer of our company upon the completion of the
acquisition. Effective May 1, 2002, the results of InterActs operations are
included in our consolidated financial statements. The aggregate purchase
consideration paid to InterAct was approximately $7.8 million, which was
comprised of $3.8 million in cash and 1,200,982 shares of our common stock
valued at $4.0 million. In addition, we incurred $0.1 million in acquisition
related expenses. An additional 997,599 shares of our common stock were deemed
to represent contingent purchase consideration and accordingly, we recorded
$3.4 million in deferred stock-based compensation, which is being expensed over
three years, which began in May 2002. The value of the common stock issued was
determined based on the average market price of our common stock over the
three-day period before and after the terms of the acquisition were agreed upon
and announced. The purchase price of $7.9 million was allocated as follows:
$1.0 million was allocated to the net assets acquired and $6.9 million was
allocated to goodwill.

Statement of Operations Overview

The following describes how we recognize revenue for the services and
software we offered as of December 31, 2003:



| |  | Reservationless Conferencing Revenue. Revenue for our Reservationless
Conferencing service is generally based upon the actual time that each
participant is on the phone or logged onto the web. For example, a
customer is charged a per-minute, per-user fee for each participant
listening and viewing a live or recorded simulcast. In addition, we
charge customers a one-time fee to upload visuals for a phone
conference or a recorded simulcast. We recognize usage revenue from
our Reservationless Conferencing services in the period the call or
simulcast of the call is completed. We recognize revenue associated
with any initial set-up fees ratably over the term of the contract.                                                                                                                                                                                                                                                                                                                                                              
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Web Conferencing Pro Revenue. Revenue for our Web Conferencing Pro
service is derived from subscription and usage fees in addition to
event fees or, in more limited cases, a software license fee. Revenue
from subscriptions is recognized monthly regardless of usage, while
usage fees are based upon either connections or minutes used. Event
fees are generally hourly charges that are recognized as the events
take place. We recognize revenue associated with any initial set-up
fees ratably over the term of the contract. Revenue from software
license agreements is either recognized upon shipment of the software
when all the following criteria have been met: persuasive evidence of
an arrangement exists, delivery has occurred, the fee is fixed or
determinable, collectibility is probable, and vendor specific
objective evidence is available for the fair value of all undelivered
elements, or recognized ratably over the software support period if we
do not have vendor specific objective evidence for all undelivered
elements.
| 
| |  | Operator Assisted Revenue. Revenue for our Operator Assisted
Conferencing service is generally based upon the actual time that each
participant is on the phone. In addition, we charge customers a fee
for additional services such as call taping, digital replay,
participant lists and transcription services. We recognize usage
revenue and related fees from our Operator Assisted Conferencing
service in the period the call is completed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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| |  | Unlimited Conferencing. Revenue from Unlimited Conferencing is derived
from a flat, fixed charge per month depending on the conference size
limit selected by the customer. The fixed monthly charge is recognized
as revenue in full each month. This service provides small and
medium-sized businesses with a convenient way to conduct audio and web
conferences with a predictable price. Conference moderators and
participants dial into the conference using their dedicated local
exchange toll call number as opposed to a toll-free number ordinarily
used with our Reservationless Conferencing service. This service
became available in the first quarter of 2003.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our cost of revenue consists primarily of telecommunication expenses,
depreciation of network and data center equipment, Internet access fees and
fees paid to network providers for bandwidth, equipment maintenance contract
expenses, compensation and benefits for operations personnel and allocated
overhead. Our telecommunication expenses are variable and directly correlate to
the use of our services and primarily are incurred when our customers use our
Reservationless Conferencing service. A change in our mix of Reservationless
Conferencing and Web Conferencing Pro or our next generation service revenue
will affect our gross profit as our cost of revenue is typically higher on our
Reservationless Conferencing service as a result of price compression for this
service. Our depreciation, Internet access and bandwidth expenses, equipment
maintenance expenses and compensation expenses generally increase as we
increase our capacity and build our infrastructure. We plan to continue to
make investments in our infrastructure and increase our capacity; however, we
expect capital expenditures in 2004 to be lower than the capital expenditures
in 2003 due to the investments that we made associated with the release of
Raindance Meeting Edition that we do not expect to recur in 2004. We expect our
cost of revenue to increase in 2004 primarily due to an increase in variable
costs. We expect that our current capacity and infrastructure, coupled with the
capital expenditures we have made and we expect to make, will accommodate our
revenue projections through the end of 2004. We have a limited number of
sources for our telephony services. One of our suppliers is WorldCom, which
currently conducts business under the MCI brand name, and which filed for
Chapter 11 bankruptcy protection in July 2002. If MCI was to terminate or
interrupt its services, we may experience difficulties or delays in obtaining
alternative sources on commercially reasonable terms and may experience an
increase in our variable telephony cost.

We incur sales and marketing expenses that consist primarily of the
salaries, commissions and benefits for our sales and marketing personnel,
remote sales offices expenses, product and market research, sales lead
generation and telemarketing expenses and allocated overhead. We expect sales
and marketing expenses to increase in absolute dollars and as a percentage of
revenue as we expand our sales force and increase our marketing initiatives in
2004 to support the release of Raindance Meeting Edition.

We incur research and development expenses that consist primarily of
salaries and benefits for research and development personnel, equipment
maintenance contract expenses and allocated overhead. We expense research and
development costs as they are incurred, except for certain capitalized costs
associated with internally developed software. We capitalized $0.4 million,
$0.2 million, $0.2 million and $0.1 million of internally developed software in
the first, second, third and fourth quarters of 2003, respectively. We expect
to continue to capitalize costs associated with internally developed software
in 2004; however, we expect to see a decrease in capitalized costs in 2004 as
compared to 2003 because we will no longer capitalize costs associated with our
next-generation service. Based on plans developed in the third quarter of 2003
regarding the external distribution of software, we changed the accounting
treatment of costs associated with the development of our next-generation
service from SOP 98-1 to SFAS 86. Since the second quarter of 2001 we had
capitalized, pursuant to SOP 98-1, $2.8 million in costs associated with our
next-generation service, $1.3 million of which was related to internal
development and $1.5 million of which was related to contract development. We
also expect to continue to make investments in research and development and
anticipate that these expenditures will increase in absolute dollars in 2004.

We incur general and administrative expenses that consist primarily of
expenses related to finance, human resources, administrative and general
management activities, including legal, accounting and other professional fees,
in addition to other general corporate expenses. We expect general and
administrative expenses to remain relatively flat in terms of absolute dollars;
however, we expect them to decrease as a percentage of revenue in 2004.

Since our inception, we have used stock-based compensation for employees,
consultants and members of our Board of Directors to attract and retain strong
business and technical personnel. During the three months ended December 31,
2003 we did not record any deferred stock-based compensation, however, during
the year ended December 31, 2003, we recorded $1.2 million of deferred
stock-based compensation. We also expensed $0.6 million and $2.8 million
related to stock-based compensation in the quarter and year ended December 31,
2003, respectively. The $1.2 million of the deferred stock-based compensation
relates to 750,000 shares of restricted stock

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issued in February 2003 to certain executives and key employees under our
Executive Performance-Based Compensation Arrangement, as approved by the Board
of Directors in February 2003. The restricted stock will vest in full on the
sixth anniversary of its issuance, subject to accelerated vesting upon the
achievement of certain financial or product-based performance milestones, or,
in the Boards discretion, upon a change in control of the Company.
Accordingly, the $1.2 million deferred stock-based compensation charge is being
expensed ratably over six years, which charges will be accelerated when it
becomes apparent that the financial or product-based milestones will be
achieved. However, the resignation of the Companys former President and Chief
Executive Officer effective December 31, 2003 and the resulting cancellation of
200,000 shares of restricted stock granted to him under the plan triggered the
reversal of the unamortized portion of his restricted stock grant compensation
expense in the amount of $0.3 million. Stock-based compensation amounts are
based on the excess of the fair value of our common stock on the date of grant
or sale over the option exercise price or stock purchase price. Compensation
expense related to stock options is amortized over the vesting period of the
options, which generally is four years. In connection with the acquisition of
InterAct, we recorded $3.4 million of deferred stock-based compensation related
to the issuance of 997,599 shares of common stock simultaneously with the
closing of the InterAct acquisition, which are being held in escrow and will be
released annually in equal one-third increments beginning in May 2003.
Accordingly, the deferred stock-based compensation related to the 997,599
shares is being expensed over three years, which began in May 2002. The release
of the stock from escrow is contingent upon the satisfaction of certain
employment obligations to us by Carolyn Bradfield, the former president and
chief executive officer of InterAct. The value of these escrowed shares was
determined based on the average market price of our common stock over the
three-day period before and after the terms of the acquisition were agreed upon
and announced. Taking into account the forfeiture upon his termination of
200,000 shares of restricted stock issued to our former President and Chief
Executive Officer, assuming that no additional shares of the restricted stock
granted under our Executive Performance-Based Compensation Arrangement will be
forfeited, and taking into account the recording of approximately $0.9 million
of deferred stock-based compensation in January 2004 associated with the
issuance of 275,000 shares of restricted stock to our new President and Chief
Executive Officer (see note 18 to the financial statements), we expect to incur
stock-based compensation expense of approximately $1.8 million in 2004, $0.8
million in 2005, $0.3 million in 2006, and $0.1 million each in 2007 and 2008,
respectively, for common stock issued or stock options awarded to our employees
and members of our Board of Directors under our equity plans through December
31, 2003 plus the restricted stock issued to our President and Chief Executive
Officer in January 2004.

Other Data  Non-GAAP Financial Measure

We evaluate operating performance based on several factors, including our
primary internal financial measure of earnings before interest, taxes,
depreciation, amortization and stock-based compensation expense (adjusted
EBITDA). This analysis eliminates the effects of considerable amounts of
depreciation and stock-based compensation. Since our initial public offering,
we have reported adjusted EBITDA, a financial measure that is not defined by
Generally Accepted Accounting Principles (GAAP). Certain restructuring charges,
asset impairment charges and loss on sale of common stock historically
presented in this non-GAAP financial performance measure have been removed from
adjusted EBITDA for such prior periods to conform to the presentation of
adjusted EBITDA for the year ended December 31, 2003.

The calculation of adjusted EBITDA is as follows (in thousands):

|                                                                |  |                          |        |      |  |      |        |   |  |   |         |  
|--------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                                                |  | Years Ended December 31,
|                                                                |  |                         
|                                                                |  | 2003                     |        | 2002 |  | 2001
|                                                                |  |                          |        |      |  |     
|Net income (loss)                                               |  | $                        | 3,547  |      |  | $    | (3,354 | ) |  | $ | (52,723 | )
|Add: depreciation, amortization and other
income (expense), net |  |                          | 10,265 |      |  |      | 10,360 |   |  |   | 35,027  |  
|Add: stock-based compensation expense                           |  |                          | 2,814  |      |  |      | 3,028  |   |  |   | 2,834   |  
|                                                                |  |                          |        |      |  |      |        |   |  |   |         |  
|Adjusted EBITDA (loss)                                          |  | $                        | 16,626 |      |  | $    | 10,034 |   |  | $ | (14,862 | )
|                                                                |  |                          |        |      |  |      |        |   |  |   |         |  

The trends depicted by this calculation indicate that we have been
successful in reducing our net loss and generating net income as well as
increasing adjusted EBITDA, primarily as a result of our efforts to control
operating costs while simultaneously increasing revenue. For the year ended
December 31, 2003, as compared with the year

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ended December 31, 2002, our net loss decreased by $6.9 million, resulting
in $3.5 million in net income for the current year. For the year ended
December 31, 2002, as compared with the year ended December 31, 2001, our net
loss decreased by $49.4 million, resulting in $3.4 million in net loss for the
year ended December 31, 2002. For the year ended December 31, 2003, as
compared with the year ended December 31, 2002, adjusted EBITDA increased by
$6.6 million. For the year ended December 31, 2002, as compared with the year
ended December 31, 2001, adjusted EBITDA increased by $24.9 million.

Adjusted EBITDA should be considered in addition to, not as a substitute
for, net income (loss) and other measures of financial performance reported in
accordance with GAAP. We believe that adjusted EBITDA is a useful performance
metric for our investors and is a measure of operating performance and
liquidity that is commonly reported and widely used by financial and industry
analysts, investors and other interested parties because it eliminates
significant non-cash charges to earnings. In addition, many sophisticated
financial institutions and banks use adjusted EBITDA as a performance metric in
their lending practices. For example, adjusted EBITDA is used by our bank to
determine our compliance with a financial covenant articulated in our loan and
security agreement. However, adjusted EBITDA as used by us may not be
comparable to similarly titled measures reported by other companies.

The funds depicted by adjusted EBITDA are not available for our
discretionary use due to debt service, debt maturities and other commitments
that we have made. Cash flow calculated in accordance with GAAP is as follows:
net cash provided by operations was $18.2 million and $7.2 million for the
years ended December 31, 2003 and 2002, respectively, and net cash used by
operations was $9.7 million for the year ended December 31, 2001; net cash used
by investing activities was $10.3 million, $9.6 million and $3.7 million for
the years ended December 31, 2003, 2002 and 2001, respectively; net cash
provided by financing activities was less than $0.1 million for the year ended
December 31, 2003, and net cash used by financing activities was $0.1 million
and net cash provided by financing activities was $4.4 million for the years
ended December 31, 2002 and 2001, respectively.

Results of Operations

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Revenue.Total revenue increased by $10.0 million to $70.6 million for the
year ended December 31, 2003 from $60.6 million for the year ended December 31,
2002. The increase was due in part to the addition of new customers and an
increase in usage from our existing customer base, which was partially offset
by pricing pressure we are experiencing for some of our services, particularly
our Reservationless Conferencing Service. In addition, we first recognized
significant revenue from our Operator Assisted Conferencing service in the
first quarter of 2003. We also recognized $1.1 million and $2.9 million in
revenue in the third and fourth quarters of 2003, respectively, associated with
the sale of a Web Conferencing Pro license. This license was entered into
contemporaneously with our agreement to purchase $10.3 million in hardware from
the licensee, who is also our primary hardware vendor, through December 2005.
Opportunities to license our software have traditionally arisen infrequently
and are difficult to predict; thus we do not currently project any significant
software licensing revenue beyond 2003. Total minutes attributable to our
usage-based services were 636.1 million and 453.0 million for the years ended
December 31, 2003 and 2002, respectively, which represents a 40.4% increase in
minutes. Usage-based revenue increased by 18.5% in 2003 from 2002, which
indicates that our average price per usage based minute declined by
approximately 15.4% or .0174 cents per minute in 2003. We expect this trend to
continue in the foreseeable future, however, we have seen pricing pressure at a
reduced rate in the latter months of 2003 and early in 2004 as compared to
early 2003, and therefore have lowered our per usage based minute prices at a
reduced rate as compared to the same period during the prior year.

Cost of Revenue.Cost of revenue increased $1.9 million to $28.5 million
for the year ended December 31, 2003 from $26.6 million for the year ended
December 31, 2002. Telecommunications costs increased $0.5 million for the
year ended December 31, 2003 over the year ended December 31, 2002 due to an
increase in minutes from our Reservationless Conferencing and Web Conferencing
Pro communication services, partially offset by volume discounts received from
our long distance telephony providers, as well as an overall improvement in the
utilization of our infrastructure. Total depreciation expense increased $0.5
million for the year ended December 31, 2003 due to additional hardware and
software being placed into service in 2003, partially offset by allocated
depreciation due to decreased headcount over the same period in the previous
year. Salaries expense decreased $0.4 million due to decreased headcount in
the year ended December 31, 2003 from the year ended December 31, 2002.
Conversely, expense associated with our Operator Assisted Conferencing service
increased $1.1 million in the current year, which coincides with our growth in
revenue from this service. Maintenance and repairs expense increased $0.2

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million for the year ended December 31, 2003 from the year ended December
31, 2002 primarily due to an increase in gross property and equipment. The
primary positive drivers that affect our gross profit are reductions in our
long distance rates, a general improvement in our infrastructure utilization,
the sale of subscriptions and software licenses with virtually no corresponding
variable cost of revenue expense, all of which are or may be partially offset
by pricing pressure we are experiencing on the sale of our Reservationless
Conferencing service.

Sales and Marketing.Sales and marketing expense increased $1.2 million
to $19.7 million for the year ended December 31, 2003 from $18.5 million for
the year ended December 31, 2002. Commissions and bonus expense increased $0.8
million for the year ended December 31, 2003 as compared to the year ended
December 31, 2002 in connection with an increase in revenues in the current
year. Recruiting expense increased $0.2 million for the year ended December 31,
2003 as compared to the year ended December 31, 2002 due to increased headcount
over the same period in the previous year. Outside service expense increased
$1.5 million for the year ended December 31, 2003 as compared to the year ended
December 31, 2002 due to the beta launch of our next-generation service in the
fourth quarter of 2003. Offsetting these increases, bad debt expense decreased
$0.8 million for the year ended December 31, 2003 as compared with the year
ended December 31, 2002 due to fewer bankruptcy filings within our customer
base, as well as a general improvement in our accounts receivable aging, which
resulted in a reduction of our bad debt reserve. Expenses related to
telemarketing, lead generation and market research decreased $0.5 million for
the year ended December 31, 2003 from 2002.

Research and Development.Research and development expense increased $0.7
million to $8.3 million for the year ended December 31, 2003 from $7.6 million
for the year ended December 31, 2002. Personnel and payroll related expenses
increased $0.1 million for the year ended December 31, 2003 over the year ended
December 31, 2002 due to increased headcount in connection with the development
of our next-generation service that took place in 2003, offset by an increase
in capitalized internally-developed software. Outside services increased $0.5
million for the year ended December 31, 2003 as compared to the year ended
December 31, 2002 also in connection with the development of our
next-generation service that took place in 2003. There was a slight variance in
other expenses; primarily a $0.2 million increase in repairs and maintenance
for the year ended December 31, 2003 as compared to the year ended December 31,
2002. Based on plans developed in the third quarter of 2003 regarding the
external distribution of software, we changed the accounting treatment of costs
associated with the development of our next-generation service from SOP 98-1 to
SFAS 86. As a result, we expect personnel and payroll related expenses and
outside services expense to increase in 2004 as compared to 2003.

General and Administrative.General and administrative expense decreased
$0.3 million to $7.2 million for the year ended December 31, 2003 as compared
to $7.5 million for the year ended December 31, 2002. Legal and litigation
expenses increased $0.5 million for the year ended December 31, 2003 as
compared to the year ended December 31, 2002, partially due to a lawsuit that
was filed against us in the third quarter of 2003 (see note 10(d) to the
financial statements). Offsetting this increase was a reduction in various
expenses, including personnel and payroll related expenses and allocated
depreciation expense due to decreased headcount.

Stock-Based Compensation Expense.Stock-based compensation expense
decreased $0.2 million to $2.8 million for the year ended December 31, 2003 as
compared to $3.0 million for the year ended December 31, 2002. Prior to our
initial public offering, options and stock purchase rights were granted at less
than the estimated initial public offering price resulting in deferred
compensation charges, which are being recognized over the applicable vesting
periods, which generally are four years. During the first quarter of 2003 we
recorded $1.2 million of deferred stock-based compensation that relates to
750,000 shares of restricted stock issued to certain executives and key
employees in February 2003 under our Executive Performance-Based Compensation
Arrangement. The restricted stock grants vest in full on the sixth anniversary
of their issuance, subject to accelerated vesting upon the achievement of
certain financial or product-based performance milestones, or in the Boards
discretion, upon a change in control of the Company. Accordingly, the $1.2
million deferred stock-based compensation charge is being expensed ratably over
six years, with such charges being accelerated when it becomes apparent that
the financial or product-based milestones will be achieved. However, the
resignation of our former President and Chief Executive Officer effective
December 31, 2003 and the resulting cancellation of 200,000 shares of
restricted stock granted to him under the plan triggered the reversal of the
unamortized portion of his restricted stock grant compensation expense in the
amount of $0.3 million, as none of the acceleration milestones were achieved by
this time. In connection with the acquisition of InterAct, we recorded $3.4
million of deferred stock-based compensation related to the issuance of 997,599
shares of common stock simultaneously with the closing of the InterAct
acquisition, which are being held in escrow and will be released annually in
equal one-third increments beginning in May 2003. Accordingly, the deferred
stock-based compensation related to the 997,599 shares is being expensed over

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three years, which began in May 2002. The release of the stock from escrow
is contingent upon the satisfaction of certain employment obligations to us by
Carolyn Bradfield, the former president and chief executive officer of
InterAct. The value of these escrowed shares was determined based on the
average market price of our common stock over the three-day period before and
after the terms of the acquisition were agreed upon and announced.

Asset Impairment Charges.In the fourth quarter of 2002, we identified
and removed from service equipment that was no longer required or had become
obsolete. The asset write-offs were determined under the long-lived assets to
be disposed of by sale model. For a discussion of the methodology used to
determine the amount of the impairment charge under this model, see the section
entitled Critical Accounting Policies and Estimates below and the notes to
our consolidated financial statements beginning on page F-8. We completed the
sale and disposal of the assets in 2003. In connection with the plan of
disposal, the carrying amount of the assets exceeded the fair value of the
assets less cost to sell, and as a result, we recorded an impairment loss of
$186,000 in the fourth quarter of 2002.

In the fourth quarter of 2002, we recorded a reversal of $48,000 based
upon revised estimates of the cash to be received upon complete dissolution and
liquidation of Evoke Communications Europe.

Severance.In October 2003 our President and Chief Executive Officer
entered into a separation agreement to terminate his employment as of December
31, 2003. Pursuant to the terms of the separation agreement, we recognized
approximately $0.6 million in the fourth quarter of 2003 related to severance
costs. In addition, 200,000 shares of common stock issued to him in February
2003 under the Executive Performance-Based Compensation Arrangement were
subject to forfeiture and were cancelled as of December 31, 2003, which
triggered the reversal of the deferred portion of his restricted stock grant
compensation expense in the amount of $0.3 million. In addition, a $1.5
million cash compensation commitment allocated to our former President and
Chief Executive Officer under the Executive Performance-Based Compensation
Arrangement was cancelled as of the termination of his employment.

Restructuring Charges.In the fourth quarter of 2000, we began an
assessment of our cost structure and in December 2000, our Board of Directors
approved a plan of restructuring, which was announced in January 2001. In
connection with this restructuring, we streamlined our operations to focus on
our core web conferencing service offerings. Additionally, in connection with
streamlining operations, we refocused our marketing strategy, reduced our
workforce and closed several leased office facilities. In connection with this
restructuring we recorded restructuring charges of $0.2 million and $0.4
million in the first and second quarter of 2002, respectively. At December 31,
2003, our restructuring reserves totaled $0.5 million, of which $0.3 million is
current and solely relates to lease expenses related to the subleased property,
which will be relieved as payments are made. We may be required to record
additional restructuring charges in the future if subtenants of these
properties default on their commitments to us. The actual cost savings we
anticipated as a result of this restructuring effort have been realized with
the exception of the restructuring costs associated with the closure of remote
sales facilities. Due to the real estate market that existed, it took us longer
than expected to sublease or otherwise terminate our lease obligations in
certain cities. We will continue to monitor and adjust, as warranted, the
restructuring reserve associated with remote sales facilities based on current
facts and circumstances.

Other Income, net.Interest income decreased $0.2 million to $0.3 million
for the year ended December 31, 2003 from $0.5 million for the year ended
December 31, 2002. The decrease was related to lower interest rates in 2003
compared to 2002. Interest expense decreased $0.2 million to $0.1 million for
the year ended December 31, 2003 from $0.3 million for the year December 31,
2002. The decrease was due to refinancing our outstanding term loan with a
lower interest rate and a decreasing principal balance on which interest is
calculated.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Revenue.Total revenue increased by $21.2 million to $60.6 million for the
year ended December 31, 2002 from $39.4 million for the year ended December 31,
2001. The increase was primarily due to the addition of new customers,
including the customers we acquired as a result of the acquisition of InterAct
in the second quarter of 2002, and was partially offset by pricing pressure we
were experiencing for some of our services, particularly our Reservationless
Conferencing service. Our largest customer, Qwest Communications, transitioned
its use of our Reservationless Conferencing service to its network in August
2002 and this transition decreased our revenue from it for this service as we
decreased our price per minute commensurate with our cost of revenue decline.
We also entered into several large Web Conferencing Pro subscription agreements
with large telephony carriers in 2002 such as Qwest

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and Bell Canada, which partially explained the increase in non-usage based
revenue in absolute dollars. Qwest represented 14.3% of revenue in 2002,
despite the transition of Reservationless Conferencing minutes off of our
network. Qwests percentage of revenue decreased significantly in the first
quarter of 2003 due to the expiration of a subscription contract for our Web
Conferencing Pro service that had been transitioned to a usage-based model.
Since our restructuring announced in January 2001, we have focused on our core
web conferencing service offerings. Accordingly, the second quarter of 2001 was
the final quarter in which revenue was generated from legacy services as we
satisfied commitments made to customers.

Cost of Revenue.Cost of revenue increased $4.1 million to $26.6 million
for the year ended December 31, 2002 from $22.5 million for the year ended
December 31, 2001. Telecommunications costs increased $5.2 million for the
year ended December 31, 2002 over the year ended December 31, 2001. This
increase resulted from additional telephony charges consistent with increased
use of our Reservationless Conferencing service. Outside services increased
$0.3 million to $0.5 million for the year ended December 31, 2002 from $0.2
million for the year ended December 31, 2001. This increase is the result of
expenses associated with a co-location site we established in September 2001 to
house some of our equipment off-site. Maintenance and repairs expense decreased
$0.3 million for the year ended December 31, 2002 from the year ended December
31, 2001. This decrease resulted primarily from the reduction of maintenance
costs associated with legacy equipment we took out of service in the second
quarter of 2001. Depreciation expense decreased $1.1 million for the year
ended December 31, 2002 from the year ended December 31, 2001. This decrease
resulted primarily from the write down of specific long-lived assets to their
fair value in the second quarter of 2001. The primary reasons for our gross
profit improvement were an increase in our subscription-based revenue or
non-usage based revenue, on which we generate higher margins, and a general
improvement in our infrastructure utilization.

Sales and Marketing.Sales and marketing expense decreased $1.9 million
to $18.5 million for the year ended December 31, 2002 from $20.4 million for
the year ended December 31, 2001. Expenses related to advertising, promotion
and lead generation decreased $2.2 million for the year ended December 31, 2002
from the same period in 2001. In 2001 we incurred $0.7 million in expenses
related to our name change that we did not incur in 2002. Personnel and
payroll related expenses increased $1.5 million for the year ended December 31,
2002 as compared to the year ended December 31, 2001, due to increased
headcount associated with our acquisition of InterAct in April 2002. Allocated
depreciation expense increased $1.5 million for the year ended December 31,
2002 from the year ended December 31, 2001, also due to increased sales and
marketing headcount. Bad debt expense decreased $0.6 million for the year
ended December 31, 2002 as compared with the year ended December 31, 2001 due
to fewer bankruptcy filings within our customer base, as well as a general
improvement in our accounts receivable aging. Expenses related to outside
services decreased $0.8 million for the year ended December 31, 2002, from the
year ended December 31, 2001. Additionally, office rent and recruiting expense
decreased $0.4 million and $0.2 million, respectively, for the year ended
December 31, 2002 from the same period in 2001 in line with our restructuring
efforts and stable headcount, exclusive of the InterAct acquisition.

Research and Development.Research and development expense increased $1.9
million to $7.6 million for the year ended December 31, 2002 from $5.7 million
for the year ended December 31, 2001. Personnel and payroll related expenses
increased $0.8 million for the year ended December 31, 2002 over the year ended
December 31, 2001, as a result of an increase in headcount and salaries. The
remainder of the increase for the year ended December 31, 2002 over the year
ended December 31, 2001 was due to a $0.6 million increase in allocated
depreciation and a $0.5 million increase in maintenance and repairs, primarily
due to an increase in headcount coupled with a reduction in equipment
specifically allocated to cost of revenue.

General and Administrative.General and administrative expense remained
consistent for the year ended December 31, 2002 as compared to the year ended
December 31, 2001. Expenses related to outside services decreased $0.4 million
for the year ended December 31, 2002 from the year ended December 31, 2001. In
the first quarter of 2001, we incurred $0.2 million in royalty expenses
pertaining to a contract that was terminated during that quarter. Offsetting
these decreases, personnel and payroll related expenses increased $0.6 million
for the year ended December 31, 2002 over the year ended December 31, 2001.
Additionally, allocated depreciation increased $0.2 million for the year ended
December 31, 2002 over the same period in 2001, whereas legal expenses
decreased $0.1 million for the year December 31, 2002 over the same period in
2001.

Amortization of Goodwill.Amortization of goodwill was $26.5 million for
the year ended December 31, 2001, as result of our acquisition of Contigo in
June 2000.

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Stock-Based Compensation Expense.Stock-based compensation expense
increased $0.2 million to $3.0 million for the year ended December 31, 2002
from $2.8 million for the year ended December 31, 2001. Prior to our initial
public offering, options and stock purchase rights were granted at less than
the estimated initial public offering price resulting in deferred compensation
charges, which are being recognized over vesting periods, which generally are
four years. During the years ended December 31, 2002 and December 31, 2001, we
recorded $3.7 million and $1.2 million, respectively, of deferred stock-based
compensation. $3.4 million of the deferred stock-based compensation was
recorded in the second quarter of 2002 and relates to 997,599 shares of common
stock issued simultaneously with the closing of the InterAct acquisition, which
are being held in escrow and are scheduled to be released in equal one-third
increments and will be expensed over three years, beginning in May 2002.
Additionally, for the years ended December 31, 2002 and December 31, 2001, we
reversed $0.5 million and $5.1 million of deferred stock-based compensation
related to the cancellation of unvested stock options.

Asset Impairment Charges.In the second quarter of 2001, we performed a
strategic review of our fixed assets and adopted a plan to dispose of excess
equipment. This review consisted of identifying areas where we had excess
capacity and, as a result, excess equipment. This review was prompted by the
slowdown in general economic conditions. We completed a significant portion of
the sale and disposal of the assets in 2001 and completed the remainder in the
first half of 2002. In connection with the plan of disposal, we determined that
the carrying values of some of the underlying assets exceeded their fair
values, and, as a result, recorded an impairment loss of $2.7 million in the
second quarter of 2001. The asset write-offs were determined under the held for
disposal model. In addition, we wrote off approximately $0.1 million in
intangible assets primarily related to trademarks associated with our prior
name.

In the third quarter of 2001 the board of directors of Evoke
Communications Europe unanimously approved a plan of liquidation and
dissolution and, as a result, Evoke Communications Europe is being liquidated
and its operations have ceased. In the fourth quarter of 2001, we received
equipment valued at $1.8 million that was transferred to us at net book value.
We recorded an impairment charge of $1.8 million in 2001, which represented the
excess of a note receivable over the cash and equipment we expected to receive.
Throughout the course of 2002, we received cash distributions of approximately
$1.0 million. In the fourth quarter of 2002, we recorded a reversal of $48,000
based upon revised estimates of the cash to be received upon compete
dissolution and liquidation of Evoke Communications Europe.

In the fourth quarter of 2002, we identified and removed from service
equipment that was no longer required or had become obsolete. The asset
write-offs were determined under the long-lived assets to be disposed of by
sale model. For a discussion of the methodology used to determine the amount
of the impairment charge under this model, see the section entitled Critical
Accounting Policies and Estimates below and the footnotes to our consolidated
financial statements beginning on page F-8. We completed the sale and disposal
of the assets in 2003. In connection with the plan of disposal, the carrying
amount of the assets exceeded the fair value of the assets less cost to sell,
and as a result, we recorded an impairment loss of $186,000 in the fourth
quarter of 2002.

Restructuring Charge and Contract Termination Expense.Our restructuring
activities have included workforce reductions, the sale or disposition of
assets, contract cancellations and the closure of several remote sales offices.
We recorded restructuring charges of $1.7 million in 2001, which consisted of
$0.9 million in severance costs, $1.8 million in contract termination expenses
and a $1.0 million favorable restructuring reserve adjustment primarily due to
the net effect of successfully subleasing several remote offices with terms
more favorable than originally anticipated and also consummating an early
termination settlement of a software contract. The contract termination expense
relates to terminating a software license agreement. In connection with the
termination, we incurred a charge of $1.8 million, primarily related to the
unamortized cost of the software license. Additionally, as part of the
consideration to terminate the license agreement, we returned an investment in
the software companys common stock, which resulted in the recognition of an
additional realized loss of $1.2 million on the investment, which is reflected
in Other Income (Expense). In 2002, the Company recorded restructuring charges
of $0.6 million to record additional charges associated with offices that
remained vacant while we continued our attempts to sublease these facilities.

Other Income (Expense).Interest income decreased $0.9 million to $0.5
million for the year ended December 31, 2002 from $1.4 million for the year
ended December 31, 2001. The decrease was due to lower cash balances and lower
rates of return on our cash balances in 2002 compared to 2001. Interest expense
decreased $0.1 million to $0.4 million for the year ended December 31, 2002 to
$0.5 million for the year ended December 31, 2001 as we carried lower debt
balances in the current year.

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Income Taxes

We use the asset and liability method of accounting for income taxes as
prescribed by Statement of Financial Accounting Standard 109, Accounting for
Income Taxes. At December 31, 2003, we had net operating loss carryforwards
for federal income tax purposes of approximately $124.0 million, which are
available to offset future federal taxable income, if any, through 2022. We
experienced an ownership change in 1999 as defined in Section 382 of the
Internal Revenue Code that limited approximately $21.5 million of net operating
loss carryforwards to an annual usage per year of approximately $2.9 million.
The balance of the net operating loss carryforwards of approximately $102.5
million are not limited by Section 382 as of December 31, 2003. The
availability of our net operating losses will be affected should we experience
another ownership change in the future, as defined in Internal Revenue Code
Section 382. Currently, we have recorded a valuation allowance equal to our
deferred tax asset. We review our deferred tax assets on an ongoing basis for
realizability. While we have generated net income for five consecutive
quarters, we believe there currently is not enough positive evidence to support
a conclusion that it is more likely than not that we will utilize some or all
of our deferred tax assets. When we determine there is enough positive
evidence to support a conclusion that it is more likely than not that we will
realize some or all of our deferred tax assets, we will reduce the valuation
allowance on our deferred tax assets, which will increase net income in the
period in which such determination is made. Positive evidence to support a
conclusion that our deferred tax asset is realizable includes, but is not
limited to, generating net income in consecutive quarters and projections for
taxable income sufficient to utilize our deferred tax assets. Our unrecognized
deferred tax assets at December 31, 2003 were $47.0 million.

Quarterly Results of Operations

The following table sets forth our historical unaudited quarterly
information for our most recent eight quarters. This quarterly information has
been prepared on a basis consistent with our audited financial statements and,
we believe, includes all normal recurring adjustments necessary for a fair
presentation of the information shown.

|                                                     |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |        |        |       | 
|---------------------------------------------------- | --------------------- | -------------------------------- | ----------------------------- | ------ | ------------------------------------- | ----- | -------- | ------ | ------------- | ----- | ------------ | ------ | --------- | ----- | -------- | ------ | ------------- | ------ | ------------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ----- | ------ | ------ | ------ | ----- | 
|                                                     |                       |                                  |                               |        | Three Months Ended                   
|                                                     |                       |                                  |                               |        |                                      
|                                                     |                       |                                  |                               |        | March 31,                             |       | June 30, |        | September 30, |       | December 31, |        | March 31, |       | June 30, |        | September 30, |        | December 31,
|                                                     |                       |                                  |                               |        | 2003                                  |       | 2003     |        | 2003          |       | 2003         |        | 2002      |       | 2002     |        | 2002          |        | 2002        
|                                                     |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |             
|                                                     |                       |                                  |                               |        | (in thousands, except per share data)
|Revenue:                                             |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|Service                                              |                       | $                                | 15,438                        |        |                                       | $     | 16,835   |        |               | $     | 16,959       |        |           | $     | 17,377   |        |               | $      | 13,877       |        |        | $      | 15,388 |        |        | $      | 15,700 |        |        | $     | 15,686 |       
|Software                                             |                       |                                  |                              |        |                                       |       |         |        |               |       | 1,056        |        |           |       | 2,944    |        |               |        |             |        |        |        |       |        |        |        |       |        |        |       |       |       
|                                                     |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|                                                     | Total Revenue         |                                  |                               | 15,438 |                                       |       |          | 16,835 |               |       |              | 18,015 |           |       |          | 20,321 |               |        |              | 13,877 |        |        |        | 15,388 |        |        |        | 15,700 |        |       |        | 15,686 |       
|                                                     |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|Cost of Revenue:                                     |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|Service                                              |                       |                                  | 6,476                         |        |                                       |       | 6,874    |        |               |       | 7,394        |        |           |       | 7,760    |        |               |        | 6,929        |        |        |        | 7,302  |        |        |        | 6,618  |        |        |       | 5,787  |       
|Software                                             |                       |                                  |                              |        |                                       |       |         |        |               |       |             |        |           |       |         |        |               |        |             |        |        |        |       |        |        |        |       |        |        |       |       |       
|                                                     |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|                                                     | Total Cost of Revenue |                                  |                               | 6,476  |                                       |       |          | 6,874  |               |       |              | 7,394  |           |       |          | 7,760  |               |        |              | 6,929  |        |        |        | 7,302  |        |        |        | 6,618  |        |       |        | 5,787  |       
|                                                     |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|Gross profit                                         |                       |                                  | 8,962                         |        |                                       |       | 9,961    |        |               |       | 10,621       |        |           |       | 12,561   |        |               |        | 6,948        |        |        |        | 8,086  |        |        |        | 9,082  |        |        |       | 9,899  |       
|                                                     |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|Operating expenses:                                  |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|                                                     |                       | Sales and marketing              |                               |        | 4,463                                 |       |          |        | 4,842         |       |              |        | 4,644     |       |          |        | 5,738         |        |              |        | 4,201  |        |        |        | 4,808  |        |        |        | 4,774  |       |        |        | 4,724  |      
|                                                     |                       | Research and development         |                               |        | 1,697                                 |       |          |        | 2,020         |       |              |        | 2,159     |       |          |        | 2,412         |        |              |        | 1,983  |        |        |        | 2,129  |        |        |        | 1,854  |       |        |        | 1,634  |      
|                                                     |                       | General and administrative       |                               |        | 1,676                                 |       |          |        | 1,741         |       |              |        | 1,993     |       |          |        | 1,791         |        |              |        | 1,809  |        |        |        | 1,897  |        |        |        | 1,774  |       |        |        | 2,032  |      
|                                                     |                       | Stock-based compensation
expense |                               |        | 781                                   |       |          |        | 778           |       |              |        | 679       |       |          |        | 576           |        |              |        | 650    |        |        |        | 787    |        |        |        | 841    |       |        |        | 751    |      
|                                                     |                       | Severance                        |                               |        |                                      |       |          |        |              |       |              |        |          |       |          |        | 596           |        |              |        |       |        |        |        |       |        |        |        |       |       |        |        |       |      
|                                                     |                       | Asset impairment
charges         |                               |        |                                      |       |          |        |              |       |              |        |          |       |          |        |              |        |              |        |       |        |        |        |       |        |        |        |       |       |        |        | 138    |      
|                                                     |                       | Restructuring charges            |                               |        |                                      |       |          |        |              |       |              |        |          |       |          |        |              |        |              |        | 172    |        |        |        | 412    |        |        |        |       |       |        |        |       |      
|                                                     |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|                                                     |                       |                                  | Total operating expenses      |        |                                       | 8,617 |          |        |               | 9,381 |              |        |           | 9,475 |          |        |               | 11,113 |              |        |        | 8,815  |        |        |        | 10,033 |        |        |        | 9,243 |        |        |        | 9,279 | 
|                                                     |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|                                                     |                       |                                  | Income (loss) from operations |        |                                       | 345   |          |        |               | 580   |              |        |           | 1,146 |          |        |               | 1,448  |              |        |        | (1,867 | )      |        |        | (1,947 | )      |        |        | (161  | )      |        |        | 620   | 
|Other income (expense), net                          |                       |                                  | (5                            | )      |                                       |       | 33       |        |               |       | 6            |        |           |       | (5       | )      |               |        | 18           |        |        |        | 26     |        |        |        | 23     |        |        |       | (67    | )     
|                                                     |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|Net income (loss)                                    |                       | $                                | 340                           |        |                                       | $     | 613      |        |               | $     | 1,152        |        |           | $     | 1,443    |        |               | $      | (1,849       | )      |        | $      | (1,921 | )      |        | $      | (138   | )      |        | $     | 553    |       
|                                                     |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|Net income (loss) per share                          |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|                                                     |                       | Basic                            |                               | $      | 0.01                                  |       |          | $      | 0.01          |       |              | $      | 0.02      |       |          | $      | 0.03          |        |              | $      | (0.04  | )      |        | $      | (0.04  | )      |        | $      | (0.00  | )     |        | $      | 0.01   |      
|                                                     |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|                                                     |                       | Diluted                          |                               | $      | 0.01                                  |       |          | $      | 0.01          |       |              | $      | 0.02      |       |          | $      | 0.03          |        |              | $      | (0.04  | )      |        | $      | (0.04  | )      |        | $      | (0.00  | )     |        | $      | 0.01   |      
|                                                     |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|Weighted average number of common
shares outstanding |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|                                                     |                       | Basic                            |                               |        | 52,557                                |       |          |        | 53,273        |       |              |        | 53,565    |       |          |        | 53,124        |        |              |        | 48,424 |        |        |        | 50,304 |        |        |        | 51,432 |       |        |        | 51,801 |      
|                                                     |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       
|                                                     |                       | Diluted                          |                               |        | 53,930                                |       |          |        | 55,001        |       |              |        | 55,320    |       |          |        | 55,455        |        |              |        | 48,424 |        |        |        | 50,304 |        |        |        | 51,432 |       |        |        | 53,935 |      
|                                                     |                       |                                  |                               |        |                                       |       |          |        |               |       |              |        |           |       |          |        |               |        |              |        |        |        |        |        |        |        |        |        |        |       |        |       

As a result of our limited operating history and the rapidly changing
nature of the markets in which we compete, our operating results have varied
significantly from period to period in the past and are likely to continue to
vary significantly in future periods. For example, we expect our results will
fluctuate based on seasonal sales

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patterns, particularly around holidays and the spring and summer months.
We also recognized $1.1 million and $2.9 million in revenue in the third and
fourth quarters of 2003, respectively, associated with the sale of a Web
Conferencing Pro license. Opportunities to license our software have
traditionally arisen infrequently, are difficult to predict and we do not
currently have any significant software licensing revenue projected beyond
2003. Accordingly, our operating results are difficult to predict. For these
reasons, you should not rely on period-to-period comparisons of our financial
results as indications of future performance. Our prospects must be considered
in light of the risks, costs and difficulties frequently encountered by growing
companies in new and rapidly evolving markets, such as the market for web
conferencing services.

Liquidity and Capital Resources

As of December 31, 2003, cash and cash equivalents were $39.6 million, an
increase of $7.9 million compared with cash and cash equivalents of $31.7
million held as of December 31, 2002.

Net cash provided by operations was $18.2 million and $7.2 million for
each of the years ended December 31, 2003 and 2002, respectively. Net cash used
by operations was $9.7 million for the year ended December 31, 2001. Cash
provided by operations increased significantly in 2003 from 2002 as we achieved
net income of $3.5 million in the current year compared to a net loss of $3.4
million for the year ended December 31, 2002. The improvement is also due to
an increase in accounts payable, partially offset by an increase in prepaid
expenses and other current assets and a decrease in deferred revenue. In
addition, net cash provided by operations in 2003 was favorably impacted by
$4.0 million due to the Web Conferencing Pro license we sold to Voyant
Technologies, Inc. Cash provided by operations increased in 2002 from cash used
in operations in 2001 and we generated positive cash flows from operations in
the year ended December 31, 2002. The improvement is due to a significant
decrease in our operating loss and a decrease in prepaid expenses and other
assets, partially offset by an increase in accounts receivable, a decrease in
accounts payable and a decrease in deferred revenue.

Net cash used by investing activities was $10.3 million, $9.6 million and
$3.7 million for each of the years ended December 31, 2003, 2002 and 2001,
respectively. Net cash used by investing activities in 2003 primarily related
to capital expenditures for equipment purchases in anticipation of the release
of our next generation services and additional conferencing capacity. Net cash
used by investing activities in 2002 primarily related to capital expenditures
for equipment purchases, as we purchased additional equipment to increase our
capacity in conjunction with increases in revenue. Additionally, we paid, net
of cash received, $3.5 million to acquire substantially all of the assets of
InterAct on April 30, 2002. Net cash used by investing activities in 2001
primarily related to capital expenditures for equipment upgrades and
enhancements.

Net cash provided by financing activities was less than $0.1 million for
the year ended December 31, 2003. Net cash used by financing activities was
$0.1 million for the year ended December 31, 2002. Net cash provided by
financing activities was $4.4 million for the year ended December 31, 2001.
Cash provided by financing activities in 2003 was primarily related to cash
proceeds from the exercise of common stock options offset by debt payments.
Cash used by financing activities in 2002 was primarily due to debt service
payments partially offset by cash proceeds from the exercise of common stock
options. Cash provided by financing activities in 2001 was primarily from the
exercise of common stock options and proceeds from our debt financing, net of
payments made.

As of December 31, 2003, we had approximately $2.5 million in total debt
obligations outstanding, of which approximately $1.3 million was current.

Effective December 31, 2002, we amended the terms of a loan and security
agreement that we originally entered into on October 9, 2001. We renewed and
increased the revolving line of credit and refinanced the term loan. In
connection with refinancing the term loan, the current outstanding balance will
be repaid with monthly principal payments of approximately $0.1 million plus
interest at 5.25% over 36 months, with the final payment due in January 2006.
Advances under the revolving line of credit were limited to $12.5 million or
90% of eligible accounts receivable as defined and adjusted in the agreement.
The revolving line of credit was available through January 26, 2004. Advances
under the revolving line of credit may have been repaid and re-borrowed at any
time prior to the maturity date. At December 31, 2003, we did not have an
outstanding balance under the revolving line of credit and the additional
liquidity available, based on eligible accounts receivable, was $8.1 million.
We currently are in the process of renewing our revolving line of credit. The
loan and security agreement is collateralized by substantially all of our
tangible and intangible assets and is subject to compliance with covenants,
including

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minimum liquidity coverage, minimum quick ratio and maximum quarterly
operating losses adjusted for interest, taxes, depreciation, amortization and
other non-cash charges. We are also prohibited from paying any dividends
without the banks prior written consent. At December 31, 2003, the balance due
under this agreement was approximately $2.0 million, of which approximately
$1.0 million was current. In addition, in May 2003, we entered into a loan
agreement with a vendor, in the amount of $0.7 million, to finance certain
fixed assets. The loan is scheduled to be repaid with quarterly principal
payments of approximately $0.1 million plus interest at 2.5% with the final
payment due in April 2005. At December 31, 2003, the balance due under this
agreement was $0.5 million, of which $0.3 million was current.

We also receive funds from time to time from the exercise of options or
similar rights to purchase shares of our common stock. We have no other
material external sources of liquidity.

We have generated positive cash flows from operations for nine consecutive
quarters and we expect to continue to generate positive cash flows from
operations in the near term. However, such cash flows may be less than the
amounts recorded in prior quarters due to an anticipated increase in sales and
marketing expenditures in connection with the general availability release of
our next-generation service which occurred in the first quarter of 2004 and an
increase in research and development expenses. Looking ahead, we currently
expect our debt service payments to remain relatively flat in 2004 as compared
to 2003 and we expect capital expenditures to decrease in 2004 as compared to
2003. We also expect proceeds from the exercise of common stock options;
however, it is not possible to estimate what impact this will have in 2004.

We obtain a significant portion of our liquidity from operating cash
flows. Our customer base consists of a large number of geographically dispersed
customers diversified across several industries. While the purchase of a
license to our software by Voyant Technologies, Inc. accounted for 14.5% of our
fourth quarter 2003 revenue, no single customer accounted for greater than 10%
of our total 2003 revenue. At December 31, 2003, no single customer represented
greater than 10% of our total accounts receivable balance. Our five largest
customers represented $17.7 million or 25.2% of our total 2003 revenue and also
represented $1.7 million or 18.7% of our total December 31, 2003 accounts
receivable balance. A significant change in the liquidity or financial position
of one of our larger customers could have a material adverse impact on our
operating cash flows. In addition, a decrease in their use of our services may
adversely impact our future operating results. For example, Oracle Corporation,
whose purchases accounted for 7.2% of our revenue in 2003, has indicated its
intent to discontinue using our services in the near term.

As of December 31, 2003, our purchase commitments for bandwidth usage and
telephony services and equipment were approximately $26.3 million and will be
expended over the next three years. Some of these agreements may be amended to
either increase or decrease the minimum commitments during the lives of the
respective contracts. $10.3 million of our purchase commitments for equipment
are pursuant to a single agreement with our primary hardware vendor, and are
expected to be expended through December 2005. We entered into this hardware
agreement contemporaneously with an agreement to license certain software to
the hardware vendor for an aggregate of $4.0 million, which revenue was
recognized in the third and fourth quarters of 2003. At December 31, 2003, our
purchase commitment for equipment was approximately $6.4 million.

We lease office facilities under various operating leases that expire
through 2009. Total future minimum lease payments, under all operating leases,
as of December 31, 2003, are approximately $7.8 million. We have subleased six
of these facilities and future minimum sublease receivables for all subleased
facilities, as of December 31, 2003, approximate $1.8 million that we expect to
receive through September 2005.

Our contractual obligations and commitments to make future payments as of
December 31, 2003 are as follows (in thousands):

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|                                                             |  |                        |        |                  |  |          |        |           |  |              |        |  |  |   |       |  |  |   |     | 
|------------------------------------------------------------ |  | ---------------------- | ------ | ---------------- |  | -------- | ------ | --------- |  | ------------ | ------ |  |  | - | ----- |  |  | - | --- | 
|                                                             |  | Payments Due by Period
|                                                             |  |                       
|                                                             |  | Total                  |        | Less than 1 year |  | 2-3years |        | 4-5 years |  | Over 5 years
|                                                             |  |                        |        |                  |  |          |        |           |  |             
|Long-term debt                                               |  | $                      | 2,541  |                  |  | $        | 1,314  |           |  | $            | 1,227  |  |  | $ |      |  |  | $ |    | 
|Facility operating leases, exclusive of sublease
receivables |  |                        | 7,832  |                  |  |          | 2,438  |           |  |              | 3,066  |  |  |   | 1,699 |  |  |   | 629 | 
|Purchase obligations                                         |  |                        | 32,666 |                  |  |          | 17,838 |           |  |              | 14,828 |  |  |   |      |  |  |   |    | 
|                                                             |  |                        |        |                  |  |          |        |           |  |              |        |  |  |   |       |  |  |   |     | 
|Total contractual obligations and commitments                |  | $                      | 43,039 |                  |  | $        | 21,590 |           |  | $            | 19,121 |  |  | $ | 1,699 |  |  | $ | 629 | 
|                                                             |  |                        |        |                  |  |          |        |           |  |              |        |  |  |   |       |  |  |   |     | 

Not included in the contractual commitments schedule above are employment
commitments we have made to certain current and former officers of the Company.
See note 10(c) to the financial statements. Typically, the amount that may be
paid and the timing of such a payment are not known with certainty. At December
31, 2003 our total employment-related commitments were approximately $4.3
million.

We expect that existing cash resources and our new credit facility, which
we expect to have in place in the first quarter of 2004, will be sufficient to
fund our anticipated working capital and capital expenditure needs for at least
the next twenty-four months. We base our expenses and expenditures in part on
our expectations of future revenue levels. If our revenue for a particular
period is lower than expected, we may take steps to reduce our operating
expenses accordingly. If cash generated from operations is insufficient to
satisfy our liquidity requirements, we may seek to sell additional public or
private equity securities or obtain additional debt financing. Additional
financing may not be available at all or, if available, may not be obtainable
on terms favorable to us. If we are unable to obtain additional financing, we
may be required to reduce the scope of our planned technology and product
development and sales and marketing efforts, which could harm our business,
financial condition and operating results. Additional financing may also be
dilutive to our existing stockholders.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America. As
such, we are required to make certain estimates, judgments and assumptions that
we believe are reasonable based upon the information available. These estimates
and assumptions affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the periods presented. Actual results could differ from those
estimates. Our significant accounting policies are described in note 1 to the
consolidated financial statements. Not all of these significant accounting
policies require us to make difficult subjective or complex judgments or
estimates. An accounting estimate is considered to be critical if it meets both
of the following criteria; the estimate requires assumptions about matters that
are highly uncertain at the time the accounting estimate is made, and different
estimates reasonably could have been used or changes in the estimate that are
reasonably likely to occur from period to period may have a material impact on
our financial condition and results of operations. Our critical accounting
estimates include the accounts receivable allowance for doubtful accounts,
useful lives of depreciable and intangible assets and their recoverability, the
assessment of goodwill and its recoverability, the valuation allowance for
deferred tax assets and restructuring charges and reserves.

The significant accounting policies which we believe are the most critical
to aid in fully understanding and evaluating our reported financial results
include the following:

Revenue Recognition

Revenue for our Reservationless Conferencing service is generally based
upon the actual time that each participant is on the phone or logged onto the
web. For example, a customer is charged a per-minute, per-user fee for each
participant listening and viewing a live or recorded simulcast. In addition, we
charge customers a one-time fee to upload visuals for a phone conference or a
recorded simulcast. We recognize usage revenue from our Reservationless
Conferencing services as soon as a call or simulcast of a call is completed. We
recognize revenue associated with any initial set-up fees ratably over the term
of the contract.

Revenue for our Web Conferencing Pro service is derived from a concurrent
user and usage fee in addition to event fees or, in more limited cases, a
software license fee. Revenue from concurrent user fees is recognized monthly
regardless of usage, while usage fees are based upon either monthly connections
or minutes used. Event fees are

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generally hourly charges that are recognized as the events take place. We
recognize revenue associated with any initial set-up fees ratably over the term
of the contract. Revenue from software license agreements is either recognized
upon shipment of the software when all the following criteria have been met:
persuasive evidence of an arrangement exists; delivery has occurred; the fee is
fixed or determinable; collectibility is probable; and vendor specific
objective evidence is available for the fair value of all undelivered elements
or recognized ratably over the software support period if we do not have
vendor-specific objective evidence for an undelivered element. In 2003 we
recognized $4.0 million in revenue associated with the sale of a Web
Conferencing Pro license. This license was entered into contemporaneously with
our agreement to purchase $10.3 million in hardware from the licensee, who is
also our primary hardware vendor, through December 2005. Opportunities to
license our software have traditionally arisen infrequently, are difficult to
predict and we do not currently have any software licensing revenue projected
beyond 2003.

Revenue for our Operator Assisted Conferencing service is generally based
upon the actual time that each participant is on the phone. In addition, we
charge our customers fees for additional services such as call taping, digital
replay, participant lists and transcription services. We recognize usage
revenue and related fees from our Operator Assisted Conferencing service in the
period the call is completed.

Revenue from Unlimited Conferencing is derived from a flat, fixed charge
per month depending on the conference size limit selected by the customer. The
fixed monthly charge is recognized as revenue in full each month. This service
provides small and medium-sized businesses with a convenient way to conduct
audio and web conferences with a predictable price. Conference moderators and
participants dial into the conference using their dedicated local exchange toll
call number as opposed to a toll-free number ordinarily used with our
Reservationless Conferencing service.

Accounts Receivable

We perform periodic credit evaluations and continuously monitor
collections and payments from our customers. We maintain an allowance for
doubtful accounts based upon our historical experience and any specific
customer collection issues that we have identified. While our doubtful accounts
have historically been within our expectations and the provisions established,
we cannot guarantee that we will continue to experience doubtful accounts at
the same rate as we have in the past. Our accounts receivable is currently
diverse and is comprised of numerous customers geographically dispersed and
dispersed across many different industries. However, our five largest customers
representing $17.7 million or 25.2% of total 2003 revenue also represented $1.7
million or 18.7% of our total December 31, 2003 accounts receivable balance. A
significant change in the liquidity or financial position of one of our larger
customers could have a material adverse impact on the collectability of our
accounts receivables, the adequacy of our allowance for doubtful accounts and
our future operating results. We cannot predict with certainty future changes
in the financial stability of our customers and as such actual future losses
from uncollectible accounts may differ from our estimates. In the event we
determine that a smaller or larger allowance for doubtful accounts is
appropriate, we will record a credit or charge to sales and marketing expense
in the period in which such determination is made.

Long-Lived Assets and Their Recoverability

Effective January 1, 2002, we adopted SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.Under SFAS 144, long-lived
assets, other than goodwill, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets might
not be recoverable. Conditions that would necessitate an impairment assessment
include a significant decline in the observable market value of an asset, a
significant change in the extent or manner in which an asset is used, or a
significant adverse change that would indicate that the carrying amount of an
asset or group of assets is not recoverable. For long-lived assets to be held
and used, we recognize an impairment loss only if its carrying amount is not
recoverable through its undiscounted cash flows and we measure the impairment
loss based on the difference between the carrying amount and fair value.
Long-lived assets held for sale are reported at the lower of their carrying
value or fair value less costs to sell. In 2002, we identified and removed
from service equipment that was no longer required or had become obsolete. The
asset write-offs were determined under the long-lived assets to be disposed of
by sale model described above. We completed the sale and disposal of the
assets in 2003. In connection with the plan of disposal, the carrying amount
of the assets exceeded the fair value of the assets less costs to sell, and as
a result, we recorded an impairment loss of $186,000 in the fourth quarter of
2002. We did not record any asset impairment losses in 2003.

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Goodwill

Effective January 1, 2002, we adopted the provisions of SFAS 142 which
requires that purchased goodwill and certain indefinite-lived intangibles no
longer be amortized, but instead be tested for impairment at least annually.
SFAS 142 requires a two-phase approach for impairment testing of goodwill. The
first phase screens for impairment, while the second phase (if necessary)
measures the impairment. In both 2003 and 2002, we completed our first phase
impairment analysis and did not find indication of impairment of our recorded
goodwill; accordingly, the second testing phase was not necessary in each year.
In assessing the recoverability of goodwill, we must make assumptions
regarding estimated future cash flows and profitability to determine fair
value. The valuation techniques that we consider include a weighted average
multiple of revenue, a weighted average multiple of cash flow, our stock market
capitalization and the book value of our assets. Our stock has been and
continues to be volatile. We do not believe market capitalization alone,
particularly given the volatility in our stock price, is a good indicator of
impairment. As such, we will continue to monitor the volatility in our stock
price and the resulting market capitalization, as well as all of our other
impairment indicators, and will continue to assess their collective impact on
our recorded goodwill. If our estimates or their related assumptions change in
the future, we may be required to record charges for impairment of goodwill in
the future and there can be no assurances that our goodwill will not be
impaired in the future.

In 2002, we recorded $6.9 million in goodwill as a result of our
acquisition of InterAct Conferencing. At December 31, 2003, we had
approximately $45.6 million in goodwill subject to the impairment testing
provisions of SFAS 142.

Software Development Costs

Costs incurred in the engineering and development of our services is
expensed as incurred, except certain software development costs. Costs
associated with the development of software to be marketed externally are
expensed prior to the establishment of technological feasibility as defined in
SFAS 86, Accounting for the Cost of Computer Software to Be Sold, Leased,or
Otherwise Marketed, and capitalized thereafter. To date, our software
development has been completed concurrent with attaining technological
feasibility and, accordingly, all software development costs incurred to which
SFAS 86 is applicable have been charged to operations as incurred. We
capitalize certain qualifying computer software costs incurred during the
application development stage in accordance with Statement of Position 98-1
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use (SOP 98-1) issued by the American Institute of Certified Public
Accountants. These costs are amortized on a straight-line basis over the
softwares estimated useful life. Based on plans developed in the third quarter
of 2003 regarding the external distribution of software, we changed the
accounting treatment for costs associated with the development of our
next-generation service from SOP 98-1 to SFAS 86. Accordingly, all software
development costs associated with the development of our next-generation
service are currently being expensed pursuant to SFAS 86. Since the second
quarter of 2001 and through August 2003, the period in which capitalization
ceased, we had capitalized, pursuant to SOP 98-1, $2.8 million in costs
associated with our next-generation service, $1.3 million of which was related
to internal development and $1.5 million of which was related to contract
development. We expect to begin amortizing these costs when the service is
released for general availability in the first quarter of 2004.

Income Tax Valuation Allowances

Currently, we have recorded a valuation allowance equal to our deferred
tax asset. We review our deferred tax assets on an ongoing basis for
realizability. While we have generated net income for five consecutive
quarters, we believe there currently is not enough positive evidence to support
a conclusion that it is more likely than not that we will utilize some or all
of our deferred tax assets. When we determine there is enough positive
evidence to support a conclusion that it is more likely than not that we will
realize some or all of our deferred tax assets, we will reduce the valuation
allowance on our deferred tax assets, which will increase net income in the
period in which such determination is made. Positive evidence to support a
conclusion that our deferred tax assets are realizable includes, but is not
limited to, generating net income in consecutive quarters and projections for
taxable income sufficient to utilize our deferred tax assets. Our unrecognized
deferred tax assets at December 31, 2003 were $47.0 million.

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Restructuring Reserves

At December 31, 2003, our restructuring reserves totaled $0.5 million, of
which $0.3 million is current and solely relates to lease costs, which will be
relieved by payments we make, net of our subtenants rent payments to us. At
December 31, 2003 all closed facilities included in the restructuring reserve
have been subleased. We have adjusted our restructuring reserve in the past
based on what we believed to be the most probable outcome. Future minimum
sublease receivables for all subleased facilities, as of December 31, 2003,
approximate $1.8 million that are scheduled to be received through September
2005. The actual cost savings we anticipated as a result of this restructuring
effort have been realized, with the exception of the restructuring costs
associated with the closure of remote sales facilities. Due to the real estate
market that existed, it took us longer than expected to sublease or otherwise
terminate our lease obligations in certain cities. We will continue to monitor
and adjust, as warranted, our restructuring reserve associated with remote
sales facilities based on current facts and circumstances. We may be required
to record additional restructuring charges on certain subleased offices if our
subtenants default on their commitments to us.

Stock-based compensation

Our stock compensation expense is comprised of the following: (a) the
amortization of deferred compensation resulting from the grant of stock options
or shares of restricted stock to employees and board members at exercise or
sale prices deemed to be less than fair value of the common stock at grant
date, net of forfeitures related to such employees who terminated service while
possessing unvested stock options, as these terminated employees have no
further service obligations; (b) the intrinsic value of modified stock options
or restricted stock awards, measured at the modification date, for the number
of awards that, absent the modification, would have expired unexercisable; (c)
the intrinsic value of restricted stock awards to employees and directors, and
(d) deferred stock-based compensation associated with the acquisition of
InterAct Conferencing, LLC.

We account for our stock option plans in accordance with the provisions of
Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation expense is
recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price, the intrinsic value method. Under
SFAS 123, Accounting for Stock-Based Compensation, entities are permitted to
recognize as expense, over the vesting period, the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS 123 also allows
entities to continue to apply the provisions of APB Opinion 25 and provide pro
forma net income (loss) disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS 123 had been applied. We have elected
to continue to apply the provisions of APB Opinion 25 and provide the pro forma
disclosures required by SFAS 123. All stock-based awards to non-employees are
accounted for at their fair value in accordance with SFAS 123 and related
interpretations.

The Financial Accounting Standards Board (FASB) is scheduled to issue an
exposure draft on accounting for equity-based compensation in the first quarter
of 2004 and a final statement is expected later in 2004. We anticipate the
effective date for such a pronouncement will be January 1, 2005. As currently
proposed, it would appear that the fair value accounting articulated in SFAS
123 will carry forward into the new equity based compensation pronouncement.
There are some practical issues that remain to be addressed such as an
appropriate valuation method and the application of multiple assumptions based
on an options exercise price but if these issues are resolved and the
statement becomes effective, we can expect to record additional stock-based
compensation charges in 2005 (see note l(l) to the financial statement for the
calculation using Black-Scholes).

Recent Accounting Pronouncements

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
requires that certain financial instruments, which under previous guidance were
accounted for as equity, must now be accounted for as liabilities. The
financial instruments affected include mandatory redeemable stock, certain
financial instruments that require or may require the issuer to buy back some
of its shares in exchange for cash or other assets and certain obligations that
can be settled with shares of stock. SFAS 150 is effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. Accordingly, we adopted SFAS 150 on July 1, 2003 and the adoption of this
statement did not have any impact on our financial position, results of
operations or cash flows.

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Additional Risk Factors That May Affect Our Operating Results and The Market
Price Of Our Common Stock

You should carefully consider the risks described below. The risks and
uncertainties described below are not the only ones we face. If any of the
following risks actually occur, our business, financial condition or results of
operations could be materially and adversely affected. In that case, the
trading price of our common stock could decline, and you may lose all or part
of your investment.

You should not rely on forward-looking statements because they are inherently
uncertain.

This document contains certain forward-looking statements that involve
risks and uncertainties. We use words such as anticipate, believe,
expect, future, intend, plan and similar expressions to identify
forward-looking statements. These statements are only predictions. Although we
believe that the expectations reflected in these forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this document. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by us and described on
the following pages and elsewhere in this document. We assume no obligation to
update the forward-looking statements included in this document.

We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. The risk factors listed
below, as well as any cautionary language in this document, provide examples of
risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of the events described in these risk factors and elsewhere in this document
could have a material adverse effect on our business, operating results,
financial condition and stock price.

We have a history of losses and we expect to continue to incur net losses.

Our operating costs have exceeded our revenue in each year since our
inception in April 1997, except for the fiscal year 2003. We have incurred
cumulative net losses of approximately $168.4 million from our inception
through December 31, 2003 and we expect to have additional net losses in the
future. We expect to incur net losses in the near term as we expand our sales
force, increase marketing expenditures and continue to invest in research and
development efforts in connection with the launch of our next-generation
service. In addition, our anticipated net losses may increase in the future if
existing or future competitors decrease our market share, if price pressure
increases significantly, if our next-generation services do not achieve
widespread market acceptance or if such services reduce our revenue from our
existing services and our revenue from web-related services does not
substantially increase, or if the web conferencing market does not rapidly
grow. If our net losses in the future increase more than we anticipate, we may
not be able to maintain or increase our sales and marketing, research and
development, or other operating expenses, and as a result, we may be unable to
continue our operations as currently planned. Accordingly, we must
significantly increase our revenue, which may be difficult for us to do.

We have a limited operating history, which makes it difficult to evaluate our
business.

We have a limited operating history and you should not rely on our recent
results as an indication of our future performance. We were incorporated in
April 1997 and first recorded revenue in January 1998. We began commercially
offering our Reservationless Conferencing service in April 1999, our Web
Conferencing Pro service in June 2000 and our Operator Assisted Conferencing
service in the first quarter of 2003. In January 2001, we restructured our
company to focus solely on our web conferencing services. In connection with
this restructuring, we made significant changes to our services and growth
strategies, our sales and marketing plans, and other operational matters,
including a significant reduction in our employee base. As a result, we have a
limited relevant operating history and it may be difficult to evaluate an
investment in our company, and we cannot be certain that our business model and
future operating performance will yield the results that we intend. In
addition, the rapidly changing nature of the web conferencing market makes it
difficult or impossible for us to predict future results, and you should not
expect our future revenue growth to equal or exceed our recent growth rates.
There are a number of factors described in this section that could cause
fluctuations in our operating results in any particular period. If any of these
risks are not within our control or we are otherwise unable to address these
risks in a cost-effective manner or at all, our operating results will be
harmed.

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We may fail to meet market expectations because of fluctuations in our
quarterly operating results, which would cause our stock price to decline.

As a result of our limited operating history, increased competition, the
rapidly changing market for our services, price pressure and the other risks
described in this section, our quarterly operating results have varied
significantly from period to period in the past and are likely to continue to
vary significantly in future periods. For example, our quarterly net income
ranged between $0.3 million and $1.4 million in the four quarters ended
December 31, 2003. Our quarterly revenue ranged between $15.4 million and $20.3
million in the four quarters ended December 31, 2003. Many of the factors that
may cause fluctuations in our quarterly operating results are beyond our
control, such as increased competition, pricing pressure and market demand for
our services. Our ability to license software may also contribute to such
fluctuations, as licensing opportunities have traditionally arisen
infrequently, are difficult to predict, and currently, we do not have any
software licensing revenue projected beyond 2003. Additionally, we expect our
results will fluctuate based on seasonal sales patterns. Our operating results
have shown decreases in our usage-based services around the holidays, such as
spring, summer, Thanksgiving, December and New Year holidays. We expect that
our revenue during these seasons will not grow at the same rates as compared to
other periods of the year because of decreased use of our services by business
customers. As a result of these factors and other risks described in this
section, our quarterly operating results are difficult to predict and may not
meet the expectations of securities analysts or investors. If this occurs, the
price of our common stock would decline.

A high percentage of our revenue is attributable to repeat customers, none of
whom are obligated to continue to use our services. The failure of continued
use of our services by existing customers could harm our operating results and
cause our stock price to decline.

A high percentage of our revenue is attributable to repeat customer usage
of our services. Our customers are not obligated to continue to use our
services as we provide our services largely on a usage-based pricing model. For
example, in the quarter ended December 31, 2003, 77.7% of our revenue was
usage-based. In addition, customers have no obligation to renew subscription
contracts with us. As a result, our inability to retain existing customers and
sustain or increase their usage of our services could result in lower than
expected revenue, and therefore, harm our ability to sustain profitability on a
consistent basis or at all, and cause our stock price to decline. In addition,
because many of our customers have no continuing obligations with us, we may
face increased downward pricing pressure that could cause a decrease in our
gross margins. Our customers depend on the reliability of our services and we
may lose a customer if we fail to provide reliable services for even a single
communication event.

A significant portion of our revenue is attributable to large customers that
have no obligation to continue to use our services.

We target our services to large companies and as a result, we may
experience an increase in customer concentration. For example, our top five
customers accounted for 32.4% and 25.2% of our revenue in the quarter ended and
year ended December 31, 2003, respectively. These large customers have no
obligation to continue to use our services. For example, Oracle Corporation is
a large customer of ours, representing 7.2% of our revenue in 2003, and has
indicated its intent to discontinue using our services in the near term. In
addition, Voyant Technologies, Inc. accounted for 14.5% of our 2003 fourth
quarter revenue as a result of purchasing a software license from us, which
will not recur. If any of these large customers stop using our services or are
unable to pay their debts as they become due, our operating results will be
harmed, our revenue will be negatively impacted, and our anticipated net losses
would increase. We have a receivable due from Qwest Communications
International, Inc. at December 31, 2003, which was approximately $0.9 million
or 9.6% of the Companys total accounts receivable balance.

In the third and fourth quarters of 2003, we recognized a significant portion
of our revenue from a non-recurring software license.

We recognized $1.1 million and $2.9 million in revenue in the third and
fourth quarters of 2003, respectively, associated with the sale of a Web
Conferencing Pro license. The software license fees associated with this
license will not recur. As a result, our inability to continue to sell software
licenses will result in lower than expected revenue, and therefore harm our
ability to sustain profitability, and may cause our stock price to decline. In
addition, virtually no corresponding cost of revenue expense is attributable to
such licenses, which has the effect of significantly improving our overall
gross margins, and if we are unable to continue to sell such licenses, our
overall gross margins will decline. Licensing opportunities have traditionally
arisen infrequently, are difficult to predict and currently we do not have any
significant software licensing revenue projected beyond 2003. As a result, our

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quarterly operating results are difficult to predict. In addition, by
licensing software we have created an opportunity for the licensee to compete
against us, which may reduce our market share, harm our competitive position,
and create further price pressure. As a result, our operating and financial
performance may be harmed.

We anticipate that our operating expenses will increase, and if our revenue
does not increase, our operating results will be negatively impacted.

We anticipate incurring significant sales and marketing, research and
development and other operating expenses, particularly as we continue
developing our next-generation service and architecture and introduce this new
service into the marketplace. We project expenses in part on our estimates of
future revenue. If our revenue for a particular period is lower than we
expect, we may be unable to reduce our operating expenses for that period or at
all, in which case our operating results would be negatively impacted, and our
anticipated net losses may increase.

If we fail to offer competitive pricing, we may not be able to attract and
retain customers.

The prices for our services are subject to rapid and frequent changes. For
example, in the year ended 2003 the average price per minute for our
Reservationless Conferencing service decreased by 8.5%. In many cases,
competitors provide their services at significantly reduced rates, for free or
on a trial basis in order to win customers. In addition, telecommunications
providers enjoy lower telephony costs as a result of their ownership of the
underlying telecommunications network. As a result, these carriers can offer
services similar to ours at substantially reduced prices. Due to competitive
factors and the rapidly changing marketplace, we have reduced our pricing in
many circumstances and may be required to further reduce our pricing structure
in the future, which would negatively affect our revenue, margins and increase
our anticipated net losses.

The growth of our business substantially depends on our ability to successfully
develop and introduce new services and features in a timely manner.

Our growth depends on our ability to develop leading-edge web conferencing
services and features. For example, we recently released our next-generation
web conferencing service and technology in March 2004. We may not successfully
identify, develop and market this next-generation service and features in a
timely and cost-effective manner. For example, many companies, including some
of our competitors are utilizing less costly resources in China and India to
develop their products and services. As a result, our competitors may be able
to develop superior products, services and features more quickly and more
cost-effectively than we can. If the services and features we develop fail to
achieve widespread market acceptance or fail to generate significant revenue to
offset development costs, our anticipated net losses may increase.

In addition, our ability to introduce new services and features may depend
on us acquiring technologies or forming relationships with third parties and we
may be unable to identify suitable candidates or come to terms acceptable to us
for any such acquisition or relationship. We also may not be able to
successfully alter the design of our systems to quickly integrate new
technologies. In addition, we have experienced development delays and cost
overruns in our development efforts in the past and we may encounter these
problems in the future. Delays and cost overruns could affect our ability to
respond to technological changes, evolving industry standards, competitive
developments or customer requirements.

Our next-generation services may impact the revenue we receive from existing
services.

Our next-generation services may negatively impact the revenue we receive
for our existing services, particularly our Web Conferencing Pro services.
While we intend to continue to sell our Web Conferencing Pro services in 2004,
they are losing market share due to the decline in their quality as a result of
the vast majority of our resources being expended on our next-generation
services. In the event that we are unable to develop our next-generation
services in a timely manner, and if such next-generation services do not
generate significant revenue to offset declining revenue from Web Conferencing
Pro services, our financial performance will be affected, particularly revenue
and gross margins will decrease and our anticipated net losses will increase.

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Competition in the web conferencing services market is intense and we may be
unable to compete successfully, particularly as a result of recent
announcements from large software companies.

The market for web conferencing services is relatively new, rapidly
evolving and intensely competitive. Competition in our market will continue to
intensify and may force us to further reduce our prices, or cause us to
experience reduced sales and margins, loss of market share and reduced
acceptance of our services. Recently, Microsoft acquired Placeware, a
competitor of ours, and Cisco Systems acquired Latitude Communications, a
competitor of ours. As a result of these acquisitions, Microsoft and Cisco may
expend significantly greater resources developing and enhancing conferencing
services and/or software that directly competes with our offerings, and because
these companies can leverage widespread use of their product and services by
customers to capture market share in the conferencing market, our market share
may significantly decline. In addition, some large software companies, such as
Oracle and Macromedia, are also providing web conferencing products in addition
to their software offerings. These companies may expend significantly greater
resources developing, enhancing and marketing their web conferencing products,
and as a result, our market share may significantly decline. In addition,
Oracle is a large customer of ours and has indicated its intent to discontinue
using our services in the near term.

Many of our current and potential competitors have larger and more
established customer bases, longer operating histories, greater name
recognition, broader service offerings, more employees and significantly
greater financial, technical, marketing, public relations and distribution
resources than we do. As a result, these competitors may be able to spread
costs across diversified lines of business, and therefore, adopt aggressive
strategies, such as reduced pricing structures and large-scale marketing
campaigns, that reduce our ability to compete effectively. Telecommunication
providers, for example, enjoy lower telephony costs as a result of their
ownership of the underlying telecommunication network. We expect that many more
companies will enter this market and invest significant resources to develop
web conferencing services. These current and future competitors may also offer
or develop products or services that perform better than ours.

In addition, acquisitions or strategic partnerships involving our current
and potential competitors could harm us in a number of ways. For example:



| |  |  | competitors could acquire or partner with companies with which we have
distribution relationships and discontinue our partnership, resulting
in the loss of distribution opportunities for our services;                                                                                      
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a competitor could be acquired by or enter into a strategic
relationship with a party that has greater resources and experience
than we do, such as the Microsoft/Placeware and Cisco/Latitude
acquisitions, thereby increasing the ability of the competitor to
compete with our services; or
|
| |  |  | a competitor could acquire or partner with one of our key suppliers.                                                                                                                                                                                                                          

Our sales cycle makes it difficult to predict our quarterly operating results.

Our sales cycle varies from several weeks to several months depending on
the type and size of customer approached. Oftentimes, potential customers
require approvals from multiple decision makers within their organizations. In
addition, since most of our services are provided on a usage-based pricing
model, it generally takes several weeks or months before our services are
ramped for use within an organization. These variables make it difficult for
us to predict if and when our services will be adopted and used by our
customers. As a result, our quarterly operating results are difficult to
predict.

Our business and operating results may suffer if we fail to establish
distribution relationships or if our distribution partners do not successfully
market and sell our services.

For the quarter ended December 31, 2003, 15% of our revenue was
attributable to our indirect service customers. These customers may not be
obligated to distribute our services through their sales channels. In
addition, these customers may not be obligated to continue to use our services
or renew any subscription agreements with us. As a result, we cannot
anticipate the amount of revenue we will derive from these relationships in the
future. Our inability to retain these customers and sustain or increase their
distribution of our services could result in significant reductions in our
revenue or we may be required to reduce the price they pay for our services,
and therefore, increase our anticipated net losses.

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If we fail to establish new distribution relationships in a timely manner
or if our distribution partners do not successfully distribute our services,
our ability to achieve widespread adoption for our services will suffer and our
business and operating results will be harmed. Establishing these distribution
relationships can take several months or more. Additionally, it typically
takes several months or longer before our distribution arrangements generate
revenue. Our distribution partners are not prohibited from offering and
reselling the products and services of our competitors and may choose to devote
greater resources to marketing and supporting the products and services of our
competitors.

We depend on single source suppliers for key components of our infrastructure
and a limited number of sources for telephony services, the loss of which could
cause significant delays and increased costs in providing services to our
existing and prospective customers.

We purchase substantially all of our key components of our telephony
hardware infrastructure from a single supplier. Any extended reduction,
interruption or discontinuation in the supply of these components would cause
significant delays and increased costs in providing services to our existing
and prospective customers. These components form the basis of our audio
conferencing infrastructure, upon which the majority of our services rely. In
order to continue to expand our infrastructure capacity, we must purchase
additional components from this supplier. In September 2003, we made a
commitment to purchase $10.3 million in hardware from this supplier and
accordingly, expect our reliance upon this vendor to continue into the future.
If we were required to find alternative sources for these components, we may
experience difficulty in integrating them into our infrastructure and we could
be required to expend significant money and resources, which may harm our
operating results. We also have a limited number of sources for our telephony
services, which constitute the transport for our audio conferencing
infrastructure, upon which the majority of our services rely. One of these
suppliers on which we are substantially dependent for telephony services is
WorldCom, which currently conducts business under the MCI brand name and which
filed for Chapter 11 bankruptcy protection in July 2002. If this supplier were
to terminate or interrupt its services, we may experience difficulties in
obtaining alternative sources on commercially reasonable terms or in
integrating alternative sources into our technology platform. In addition, if
we were required to obtain these services from alternative sources, our cost of
sales may substantially increase.

If any of the third party services that we use become unavailable to us, our
services would be subject to significant delays and increased costs.

We rely on third party services, such as Internet access, transport and
long distance providers. These companies may not continue to provide services
to us without disruptions, at the current cost, or at all. The costs associated
with a transition to a new service provider would be substantial. We may be
required to reengineer our systems and infrastructure to accommodate a new
service provider, which would be both expensive and time-consuming. In
addition, we have experienced disruptions and delays in our services in the
past due to service disruptions from these providers. Any interruption in the
delivery of our services would likely cause a loss of revenue and a loss of
customers.

Our transition to VoIP technology is subject to significant risks, delays and
costs.

We recently announced that we will be transitioning some of our long
distance telephony traffic onto a VoIP platform. As a result of this change,
we become subject to significant risks, delays and costs. The costs associated
with a transition to a new service provider are substantial. For example, we
have reengineered our systems and infrastructure to accommodate our new service
provider, and expect to continue to do so, which is both expensive and
time-consuming. In addition, we have experienced disruptions and delays in our
services in the past due to the transition to a new service provider. There
also may be unforeseen circumstances as a result of this transition that may
cause delays in transitioning our long distance telephony traffic. As a result
of these delays our anticipated net losses may increase. Any interruption in
the delivery of our services may cause a loss of revenue and a loss of
customers.

Our business will suffer if our systems fail or become unavailable.

A reduction in the performance, reliability or availability of our systems
will harm our ability to provide our services to our users, as well as harm our
reputation. Some of our customers have experienced interruptions in our
services in the past due to service or network outages, periodic system
upgrades and internal system failures. Similar interruptions may occur from
time to time in the future. Because our revenue depends largely on the number
of users

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and the amount of minutes consumed by users, our business will suffer if
we experience frequent or extended system interruptions.

We maintain our primary data facility and hosting servers at our
headquarters in Louisville, Colorado, and a secondary data facility in Denver,
Colorado. Our operations depend on our ability to protect these facilities and
our systems against damage or interruption from fire, power loss, water,
telecommunications failure, vandalism, sabotage and similar unexpected events.
In addition, a sudden and significant increase in traffic on our systems or
infrastructure could strain the capacity of the software, hardware and systems
that we use. This could lead to slower response times or system failures. The
occurrence of any of the foregoing risks could cause service interruptions and,
as a result, materially harm our reputation, negatively affect our revenue, and
increase our anticipated net losses.

Our services are often used to share confidential and sensitive information
and, as a result, if our security system is breached, our business and
reputation could suffer.

We must securely receive and transmit confidential information for our
customers over public networks and maintain that information on internal
systems. Our failure to prevent security breaches could damage our reputation,
and expose us to risk of loss or liability. If we fail to provide adequate
security measures to protect the confidential information of our customers, our
customers may refrain from using our services or potential customers may not
choose to use our services, and as a result, our operating results would be
harmed. Our servers are vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions, which could lead to interruptions, delays or
loss of data. We may be required to expend significant capital and other
resources to protect against security breaches or to alleviate problems caused
by any breach. In addition, our internal systems are accessible to a number of
our employees. Although each of these employees is subject to a confidentiality
agreement, we may be unable to prevent the misappropriation of this
information.

If we do not increase the capacity of our infrastructure in excess of customer
demand, customers may experience service problems and choose not to use our
services.

The amount of conferencing events we host has increased significantly. We
must continually increase our capacity consistent with our growth in usage. We
generally maintain between 50% and 60% capacity based on average usage. To
accommodate increased customer usage and rapidly expand our operations requires
a significant increase in the capacity of our infrastructure. To increase
capacity, we may need to order equipment with substantial development and
manufacturing lead times, which can sometimes be several months or longer. If
we fail to increase our capacity in a timely and efficient manner, customers
may experience service problems, such as busy signals, improperly routed
conferences, and interruptions in service. Service problems such as these would
harm our reputation, cause us to lose customers and decrease our revenue, and
therefore our ability to sustain profitability on a consistent basis or at all.
Conversely, if we overestimate our capacity needs, we will pay for more
capacity than we actually use, resulting in increased costs without a
corresponding increase in revenue, which would harm our operating results.

Our failure to manage growth could cause substantial increases in our operating
costs and harm our ability to sustain profitability on a consistent basis or at
all and, therefore, decrease the value of our stock.

Despite our restructuring in January 2001, which resulted in, among other
things, a significant reduction in the size of our workforce, we have rapidly
expanded since inception, and will continue to expand our operations and
infrastructure. This expansion has placed, and will continue to place, a
significant strain on our managerial, operational and financial resources and
we may not effectively manage this growth. Rapidly expanding our business would
require us to invest significant amounts of capital in our operations and
resources, which would substantially increase our operating costs. As a result,
our failure to manage our growth effectively could cause substantial increases
in our operating costs without corresponding increases in our revenue, thereby
increasing our anticipated net losses. Also, our management may have to divert
a disproportionate amount of its attention away from our day-to-day activities
and devote a substantial amount of time to managing growth. In order to rapidly
expand our business we may need to raise additional funds. Any future financing
we require may not be available on a timely basis, in sufficient amounts or on
terms acceptable to us. If we cannot obtain adequate funds, we may not be able
to compete effectively.

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Our joint venture with @viso Limited was not successful and any future plans
for international expansion may not be successful, which could harm our ability
to attract multi-national customers and adversely affect our operating results.

We have attempted to expand into international markets and spent
significant financial and managerial resources to do so. In particular, we
formed a joint venture with @viso Limited, a European-based venture capital
firm, to expand our operations to continental Europe and the United Kingdom.
Currently, this joint venture is in the process of being liquidated and will be
dissolved. This decision may harm our strategy to expand internationally and
attract multi-national customers. Further, we will not realize the value from
the costs associated with starting up this venture.

If we expand internationally, either alone or with a partner, we would be
required to spend additional financial and managerial resources that may be
significant. We have limited experience in international operations and may not
be able to compete effectively in international markets. We face certain risks
inherent in conducting business internationally, such as:



| |  |  | difficulties in establishing and maintaining distribution channels and partners for our services;
| | - |  | -------------------------------------------------------------------------------------------------
|
| |  |  | varying technology standards from country to country;                                            
|
| |  |  | uncertain protection of intellectual property rights;                                            
|
| |  |  | inconsistent regulations and unexpected changes in regulatory requirements;                      
|
| |  |  | difficulties and costs of staffing and managing international operations;                        
|
| |  |  | linguistic and cultural differences;                                                             
|
| |  |  | fluctuations in currency exchange rates;                                                         
|
| |  |  | difficulties in collecting accounts receivable and longer collection periods;                    
|
| |  |  | imposition of currency exchange controls; and                                                    
|
| |  |  | potentially adverse tax consequences.                                                            

In addition, our expansion into international markets may require us to
develop specific technology that will allow our current systems to work with
international telephony systems. We may not develop this technology in a timely
manner, in a way to prevent service disruptions or at all.

We are not experienced in managing facilities, people and operations in
geographically diverse areas, which we now are required to do as a result of
the acquisition of InterAct Conferencing, LLC.

As a result of our acquisition of substantially all of the assets of
InterAct, we have operations in multiple facilities in geographically diverse
areas. In particular, we have transitioned the management of the sales force
to the former chief executive officer of InterAct, located in our Georgia
facility. We are not experienced in managing facilities, people and operations
in geographically diverse areas, and as a result, this dispersion may
negatively impact our operating results.

We may acquire other businesses, form joint ventures and make investments in
other companies that could negatively affect our operations and financial
results and dilute existing stockholders.

We may pursue additional business relationships through acquisitions,
joint ventures, or other investment prospects, which may not be successful, and
we may not realize the benefits of any acquisition, joint venture, or other
investment.

We have limited experience in acquisition activities and may have to
devote substantial time and resources in order to complete acquisitions. There
may also be risks of entering markets in which we have no or limited prior
experience. Further, these potential acquisitions, joint ventures and
investments entail risks, uncertainties and potential disruptions to our
business. For example, we may not be able to successfully integrate a companys
operations,

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technologies, products and services, information systems and personnel
into our business. An acquisition may further strain our existing financial and
managerial controls, and divert managements attention away from our other
business concerns. There may also be unanticipated costs associated with an
acquisition that may harm our operating results and key personnel may decide
not to work for us. These risks could harm our operating results and cause our
stock price to decline.

In addition, if we were to make any acquisitions, we could, for example:



| |  |  | issue equity securities that would dilute our stockholders;
| | - |  | -----------------------------------------------------------
|
| |  |  | expend cash;                                               
|
| |  |  | incur debt;                                                
|
| |  |  | assume unknown or contingent liabilities; and              
|
| |  |  | experience negative effects on our results of operations.  

Our Reservationless Conferencing service may become subject to traditional
telecommunications carrier regulation by federal and state authorities, which
would increase the cost of providing our services and may subject us to
penalties.

We believe our Reservationless Conferencing service is not subject to
regulation by the Federal Communications Commission (FCC) or any state public
service commission because the services integrate traditional voice
teleconferencing and added value Internet services. The FCC and state public
service commissions, however, may require us to submit to traditional
telecommunications carrier regulations for our Reservationless Conferencing
service under the Communications Act of 1934, as amended, and various state
laws or regulations as a provider of telecommunications services. If the FCC or
any state public service commission seeks to enforce any of these laws or
regulations against us, we could be prohibited from providing the voice aspect
of our Reservationless Conferencing service until we have obtained various
federal and state licenses and filed tariffs. We believe we would be able to
obtain those licenses, although in some states, doing so could significantly
delay our ability to provide services. We also would be required to comply with
other aspects of federal and state laws and regulations. Subjecting our
Reservationless Conferencing service to these laws and regulations would
increase our operating costs, could require restructuring of those services to
charge separately for the voice and Internet components, and would involve
on-going reporting and other compliance obligations. We also might be subject
to fines or forfeitures and civil or criminal penalties for non-compliance.

Our competitors may be able to create systems with similar functionality to
ours and third-parties may obtain unauthorized use of our intellectual
property.

The success of our business is substantially dependent on the proprietary
systems that we have developed. To protect our intellectual property rights, we
currently rely on a combination of trademarks, service marks, trade secrets,
copyrights, and confidentiality agreements with our employees and third
parties, and protective contractual provisions. We also own five patents
relating to features of our Web Conferencing Pro service. These measures may
not be adequate to safeguard the technology underlying our web conferencing
services and other intellectual property. Unauthorized third parties may copy
or infringe upon aspects of our technology, services or other intellectual
property. Other than the patents that we own, our proprietary systems are not
currently protected by any patents and we may not be successful in our efforts
to secure patents for our proprietary systems. Regardless of our efforts to
protect our intellectual property, our competitors and others may be able to
develop similar systems and services without infringing on any of our
intellectual property rights. In addition, employees, consultants and others
who participate in the development of our proprietary systems and services may
breach their agreements with us regarding our intellectual property and we may
not have any adequate remedies. Furthermore, the validity, enforceability and
scope of protection for intellectual property such as ours in Internet-related
industries are uncertain and still evolving. We also may not be able to
effectively protect our intellectual property rights in certain countries. In
addition, our trade secrets may become known through other means not currently
foreseen by us. If we resort to legal proceedings to enforce our intellectual
property rights, the proceedings could be burdensome and expensive, and as a
result, harm our ability to sustain profitability on a consistent basis or at
all. Additionally, in any litigation the outcome is uncertain.

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We have been sued for patent infringement and may be subject to additional
claims alleging intellectual property infringement.

In August 2003, a lawsuit was filed by Edisync Systems, LLC against us and
some of our competitors alleging patent infringement. In December 2003, we
entered into a definitive settlement agreement with the plaintiff, for which we
previously had accrued $0.3 million in the third quarter of 2003. In addition,
we may be subject to other claims alleging intellectual property infringement.
Claims of this nature could require us to spend significant amounts of time and
money to defend ourselves, regardless of their merit. If any of these claims
were to prevail, we could be forced to pay damages, comply with injunctions,
divert management attention and resources, or halt or delay distribution of our
services while we reengineer them or seek licenses to necessary intellectual
property, which might not be available on commercially reasonable terms or at
all. As the number of competitors in our market grows, there is an increased
risk that the proprietary systems and software upon which our services rely may
be increasingly subject to third-party infringement claims.

Our business may be harmed if our services do not work with the various
hardware and software systems, including corporate security measures, used by
our customers.

We currently provide services to customers with various hardware and
software systems, ranging from legacy to next-generation applications and
networking equipment. If our services are unable to support these diverse
platforms, and if we fail to modify our services to support new versions of
these applications and equipment, our services may fail to gain broad market
acceptance, which would cause our operating results to suffer. Furthermore,
because of bandwidth constraints on corporate intranets and concerns about
security, our customers and potential customers may block reception of web
services like ours within their corporate environments. In order for customers
to use our services, customers and users may need to reconfigure their
corporate intranets, security measures and firewalls. Widespread adoption of
our technology and services depends on overcoming these obstacles.

Our current stock compensation expense negatively impacts our earnings, and if
we are required to report the fair value of employee stock options as an
expense in conjunction with new accounting standards, our earnings will be
adversely affected, which may cause our stock price to decline.

Under our current accounting practice, stock compensation expense is
recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price. As of December 31, 2003 we had
approximately $2.2 million in deferred equity-based compensation expense. We
expect this expense to be amortized over six years and to negatively impact our
earnings during that time. In addition, we recorded approximately $0.9 million
of deferred stock-based compensation in January 2004 associated with the
issuance of 275,000 shares of restricted stock to our new President and Chief
Executive Officer. $1.8 million of this deferred equity-based compensation
will be recognized as an expense over the next year as options granted prior to
our initial public offering and certain restricted stock grants vest. Options
granted to consultants will fluctuate with our stock price, and as a result,
the amount of future stock compensation expense related to any unvested portion
of such options is difficult to predict. Regulatory authorities are currently
reviewing various proposals that would change the way stock options are
reported. If we are required to report all employee stock options as an
expense based on a change in accounting standards, our earnings will be
negatively impacted, which may cause our stock price to decline and our ability
to sustain profitability on a consistent basis or at all could be harmed.

We disclose non-GAAP financial information.

We prepare and release quarterly unaudited and annual audited financial
statements prepared in accordance with Generally Accepted Accounting Principles
(GAAP). We also disclose and discuss certain non-GAAP financial information
in the related earnings release and investor conference call. This non-GAAP
financial information excludes certain non-cash expenses, consisting primarily
of depreciation, the amortization of intangible assets and stock-based
compensation. We believe the disclosure of non-GAAP financial information helps
investors more meaningfully evaluate the results of our operations. However,
we urge investors to carefully review the GAAP financial information included
as part of our Quarterly Reports on Form 10-Q, our Annual Reports on Form 10-K,
and our quarterly earnings releases and compare the GAAP financial information
with the non-GAAP financial results disclosed in our quarterly earnings
releases and investor calls.

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We are subject to risks associated with governmental regulation and legal
uncertainties.

It is likely that a number of laws and regulations may be adopted in the
United States and other countries with respect to the Internet that might
affect us. These laws may relate to areas such as:



| |  |  | changes in telecommunications regulations;                                                
| | - |  | ------------------------------------------------------------------------------------------
|
| |  |  | copyright and other intellectual property rights;                                         
|
| |  |  | encryption;                                                                               
|
| |  |  | personal privacy concerns, including the use of cookies and individual user information;
|
| |  |  | e-commerce liability; and                                                                 
|
| |  |  | email, network and information security.                                                  

Changes in telecommunications regulations could substantially increase the
costs of communicating on the Internet. This, in turn, could slow the growth in
Internet use and thereby decrease the demand for our services. Several
telecommunications carriers are advocating that the Federal Communications
Commission regulate the Internet in the same manner as other telecommunications
services by imposing access fees on Internet service providers. Recent events
suggest that the FCC may begin regulating the Internet in such a way. In
addition, we operate our services throughout the United States and state
regulatory authorities may seek to regulate aspects of our services as
telecommunication activities.

Other countries and political organizations are likely to impose or favor
more and different regulations than those that have been proposed in the United
States, thus furthering the complexity of regulation. The adoption of such laws
or regulations, and uncertainties associated with their validity and
enforcement, may affect the available distribution channels for and costs
associated with our services, and may affect the growth of the Internet. Such
laws or regulations may therefore harm our business.

We may be subject to assessment of sales and other taxes for the sale of our
services, license of technology or provision of services, for which we have not
accounted.

We may have to pay past sales or other taxes that we have not collected
from our customers. We do not currently collect sales or other taxes on the
sale of our services. Our business would be harmed if one or more states or any
foreign country were to require us to collect sales or other taxes from current
or past sales of services, particularly because we would be unable to go back
to customers to collect sales taxes for past sales and may have to pay such
taxes out of our own funds.

Our stock price is volatile and this volatility may depress our stock price,
result in litigation or indicate that our goodwill is impaired, resulting in
further declines to our stock price.

The stock market in general, and the stock price of our company in
particular, have experienced extreme price and volume fluctuations. For
example, between January 1, 2002 and December 31, 2003 our stock has traded as
high as $6.30 and as low as $1.20 on the Nasdaq National Market. The volatility
of our stock price can be due to factors such as, fluctuating operating
results, significant purchases and sales of our stock, announcements by us or
our competitors, changes in security analysts estimates of our performance, or
our failure to meet analysts expectations. Many of these factors are beyond
our control. In addition, broad market and industry factors may negatively
impact our stock price, regardless of our operating performance. Many
companies that have experienced volatility in their stock prices have been
targets for securities class action litigation. If we were subject to any such
litigation, we could be required to expend substantial costs and resources,
which could harm our business. Additionally, one of the factors that we
consider in determining a potential impairment of our goodwill is our stock
market capitalization. If our stock price declines and remains depressed for an
extended period of time, our reported goodwill could be materially adversely
impaired which would require us to write down our goodwill, and this charge may
cause our stock price to decline further.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At December 31, 2003, we had long-term debt, including current portion, in
the aggregate amount of $2.5 million. The balance due of approximately $2.0
million as of December 31, 2003 under our loan and security agreement is being
repaid at a fixed interest rate of 5.25% with monthly payments due through
January 2006. The balance due of approximately $0.5 million as of December 31,
2003 under our loan agreement with a vendor will be repaid at a fixed interest
rate of 2.5% with quarterly payments due through April 2005. A change in
interest rates would not affect our obligations related to long-term debt
existing as of December 31, 2003, as the interest rates related to such debt
are fixed over the terms. At December 31, 2003, we had a $12.5 million
revolving line of credit with a loan value of $8.1 million. Advances under the
revolving line of credit would have reflected interest at the banks prime rate
and therefore any advances under this revolving line of credit would have
subjected us to interest rate fluctuations. Increases in interest rates could,
however, increase the interest expense associated with future borrowings,
including any advances on our revolving line of credit. At December 31, 2003,
we did not have an outstanding balance under the revolving line of credit. On
January 26, 2004 our revolving line of credit matured and we are currently in
the process of renewing this credit facility. We are exposed to foreign
currency risks through a receivable from our European joint venture which is
payable in Euros. We do not employ any risk mitigation techniques with respect
to this advance. Our European joint venture is in the process of dissolution
and liquidation and our foreign currency risk with respect to the loan will be
eliminated when these processes are completed, which we expect to occur in the
second quarter of 2004. We may also decide to make future investments that
will subject us to market risk.




ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and related notes thereto required by this item
are listed and set forth herein beginning on page F-1.




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.




ITEM 9A. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the reports that we file under the
Securities Exchange Act of 1934, as amended (Exchange Act), is recorded,
processed, summarized and reported within the time periods specified in the
SECs rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure about our disclosure controls and procedures, as defined in Rule
13a-15(e) and 15d-15(e) under the Exchange Act.

Donald F. Detampel, Jr., our Chief Executive Officer and Nicholas J.
Cuccaro, our Chief Financial Officer, evaluated the effectiveness of the design
and operation of our disclosure controls and procedures as of the end of the
period covered by this Form 10-K. Based on that evaluation, they have concluded
that our disclosure controls and procedures are effective as of the end of such
period.

Furthermore, there have been no changes in our internal controls over
financial reporting during the fiscal quarter ended December 31, 2003 that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

40



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PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated by reference to the section of the Companys 2004 Definitive
Proxy Statement to be filed with the Securities and Exchange Commission within
120 days of December 31, 2003 entitled Proposal 1Election of Directors and
the section entitled Management.

We have adopted the Raindance Code of Business Conduct and Ethics and the
Audit Committees Whistleblower Policy, each of which applies to all of our
employees and directors. The code of business conduct and ethics and
whistleblower policy are available on our website at www.raindance.com. If we
make any substantive amendments to the code of business conduct and ethics or
grant any waiver, including any implicit waiver, from a provision of our code
of business conduct and ethics to our Chief Executive Officer, Chief Financial
Officer, Principal Accounting Officer or a Director, we will disclose the
nature of such amendment or waiver on that website or in a report on Form 8-K.




ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference to the section of the Companys 2004 Definitive
Proxy Statement to be filed with the Securities and Exchange Commission within
120 days of December 31, 2003 entitled Executive Compensation.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Incorporated by reference to the section of the Companys 2004 Definitive
Proxy Statement to be filed with the Securities and Exchange Commission within
120 days of December 31, 2003 entitled Security Ownership of Certain
Beneficial Owners and Management and Stock Option Grants and Exercises.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference to the section of the Companys 2004 Definitive
Proxy Statement to be filed with the Securities and Exchange Commission within
120 days of December 31, 2003 entitled Certain Transactions.




ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Incorporated by reference to the section of the Companys 2004 Definitive
Proxy Statement to be filed with the Securities and Exchange Commission within
120 days of December 31, 2003 entitled Auditors Fees.

41



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PART IV




ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



| |  |  | (a) The following documents are filed as part of this Annual Report on
Form 10-K.                                                                                                                                                                    
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 1. Consolidated Financial Statements: The consolidated financial
statements of Raindance Communications, Inc. are included as Appendix F
of this report. See Index to Consolidated Financial Statements on page
F-1.                                 
|
| |  |  | 2. Financial Statement Schedules: All financial statement schedules have
been omitted because they are not applicable or not required or because
the information is included elsewhere in the Consolidated Financial
Statements or the notes thereto.
|
| |  |  | 3. Exhibits.                                                                                                                                                                                                                                         

|            |  |                                                                                                                                                                                                                                                                                                           
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                           
|2.1(1)      |  | Agreement and Plan of Reorganization by and among Registrant, Contigo Software, Inc. and CSI
Acquisition Corporation dated as of March 24, 2000.                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                           
|2.2(1)      |  | Amendment to Agreement and Plan of Reorganization by and among Registrant, Contigo Software, Inc.
and CSI Acquisition Corporation dated as of April 7, 2000.                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                           
|2.3(4)      |  | Asset Purchase Agreement by and among Registrant, InterAct Conferencing, LLC and Carolyn
Bradfield dated as of April 17, 2002.                                                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                           
|3.1(1)      |  | Restated Certificate of Incorporation.                                                                                                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                           
|3.2(1)      |  | Amended and Restated Bylaws.                                                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                           
|3.3(3)      |  | Certificate of Ownership, as filed May 15, 2001, merging EC Merger, Inc. into Evoke
Communications, Inc. under the name Raindance Communications, Inc.                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                           
|4.1         |  | Reference is made to Exhibits 3.1 and 3.2.                                                                                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                                           
|4.2(3)      |  | Raindance Communications, Inc. specimen stock certificate representing shares of common stock.                                                                                                                                                                                                            
|           
|10.1(1)     |  | 2000 Equity Incentive Plan.                                                                                                                                                                                                                                                                               
|           
|            |  |                                                                                                                                                                                                                                                                                                           
|10.2(1)     |  | 2000 Employee Stock Purchase Plan.                                                                                                                                                                                                                                                                        
|           
|10.3(1)     |  | Amended and Restated Stockholders Agreement, among the Registrant, certain of its stockholders
and certain of its management, dated March 29, 2000.                                                                                                                                                      
|            |  |                                                                                                                                                                                                                                                                                                           
|10.6(1)     |  | Form of Indemnity Agreement entered into between Registrant and each of its directors and
executive officers.                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                           
|10.12(1)    |  | Lease, dated March 3, 1997, between BMC Properties, LLC and Registrant.                                                                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                                                                                                                           
|10.13(1)    |  | Lease, dated June 6, 1999, between BLC Properties, LLC and Registrant.                                                                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                           
|10.14(1)+   |  | Source Code and Object Code License Agreement, dated December 29, 1999, between Registrant and
AudioTalk Networks, Inc.                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                                                                                                                           
|10.16(1)    |  | Personal Services Agreement, dated November 17, 1999, between Registrant and Paul Berberian.                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                           
|10.16.1(5)  |  | Amendment to Personal Services Agreement, dated June 26, 2002, between the Company and Paul
Berberian.                                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                           
|10.17(6)    |  | Separation and Release Agreement, dated October 14, 2003, between Registrant and Paul Berberian.                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                           
|10.18       |  | Offer Letter, dated January 27, 2004, between Registrant and Donald F. Detampel, Jr.                                                                                                                                                                                                                      
|            |  |                                                                                                                                                                                                                                                                                                           
|10.20(1)+   |  | Shareholders Agreement, dated June 9, 2000, between the Registrant and Evoke Communications B.V.                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                           
|10.21(1)+   |  | License and Services Agreement, dated June 21, 2000, between the Registrant and Evoke
Communications B.V.                                                                                                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                           
|10.24(2)    |  | Amendment to Evoke Communications, B.V. Shareholders Agreement, dated October 1, 2000, between
Registrant and @viso Limited.                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                           
|10.26(7)    |  | Executive Performance-Based Compensation Arrangement                                                                                                                                                                                                                                                      
|            |  |                                                                                                                                                                                                                                                                                                           
|21.1(1)     |  | Subsidiaries of Registrant.                                                                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                           
|23.1        |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                      
|            |  |                                                                                                                                                                                                                                                                                                           
|24.1        |  | Powers of attorney (included on signature page).                                                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                           
|31.1        |  | Certification pursuant to 18 U.S.C. Section 1350 by the Chief Executive Officer, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed with the Securities and Exchange
Commission as Exhibit 31.1 to the companys Annual Report on Form 10-K for the year ended
December 31, 2003.

42



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|            |  |                                                                                                                                                                                                                                                                                                                                        
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                                                        
|31.2        |  | Certification pursuant to 18 U.S.C. Section 1350 by the Chief Financial Officer, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed with the Securities and Exchange
Commission as Exhibit 31.2 to the companys Annual Report on Form 10-K for the year ended
December 31, 2003.                             
|            |  |                                                                                                                                                                                                                                                                                                                                        
|32.1        |  | Certifications pursuant to 18 U.S.C. Section 1350 by the Chief Executive Officer and Chief
Financial Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
with the Securities and Exchange Commission as Exhibit 32.1 to the companys Annual Report on
Form 10-K for the year ended December 31, 2003.



|+   |     | Confidential treatment granted with respect to portions of these exhibits.                                                     
|--- | --- | -------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |     | Incorporated by reference to the Registrants Registration Statement on
Form S-1 No. 333-30708.                                
|   
|(2) |     | Incorporated by reference to the Registrants Annual Report on Form 10-K
(File No. 000-31045) as filed on March 29, 2001.      
|   
|(3) |     | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q (File No. 000-31045) as filed on August 14, 2001.  
|   
|(4) |     | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q (File No. 000-31045) as filed on May 15, 2002.     
|   
|(5) |     | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q (File No. 000-31045) as filed on August 14, 2002.  
|   
|(6) |     | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q (File No. 000-31045) as filed on November 14, 2003.
|   
|(7) |     | Incorporated by reference to the Registrants Annual Report on Form 10-K
(File No. 000-31045) as filed on March 26, 2003.      
|   
|    | (b) | Reports on Form 8-K.                                                                                                           



| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | On October 22, 2003, we filed a Form 8-K furnishing under Item 12
our press release announcing our earnings for the quarter ended September
30, 2003.



| |                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On January 29, 2004, we filed a Form 8-K furnishing under Item 5
announcing the appointment of Donald F. Detampel, Jr. as our President
and Chief Executive Officer.



| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On February 18, 2004, we filed a Form 8-K furnishing under Item 12
our press release announcing our earnings for the quarter and year ended
December 31, 2003.

43



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 12th day of
March, 2004.

| |  |                                |  |                        
| |  | ------------------------------ |  | -----------------------
| |  | Raindance Communications, Inc.
| |  |                                |  |                        
| |  | By:                            |  | /s/ Nicholas J. Cuccaro
| |  |                                |  |                        
| |  |                                |  | Nicholas J. Cuccaro    
| |  |                                |  | Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Donald F. Detampel, Jr. and Nicholas J. Cuccaro,
his attorney-in-fact, with the power of substitution, for him in any and all
capacities, to sign this Report, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that the said attorney-in-fact,
or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

|                                                |  |                                                                      |  |               
|----------------------------------------------- |  | -------------------------------------------------------------------- |  | --------------
|Signature                                       |  | Title                                                                |  | Date          
|                                                |  |                                                                      |  |               
|/s/ Donald F. Detampel, Jr.                     |  | Chief Executive Officer and                                          |  |               
|                                                |  | President (Principal Executive                                       |  | March 12, 2004
|Donald F. Detampel, Jr.                         |  | Officer) and Director                                                |  |               
|                                                |  |                                                                      |  |               
|/s/ Nicholas J. Cuccaro

   Nicholas J. Cuccaro |  | Chief Financial Officer (Principal
Financial and Accounting
Officer) |  | March 12, 2004
|                                                |  |                                                                      |  |               
|/s/ Paul A. Berberian

Paul A. Berberian        |  | Chairman of the Board of Directors                                   |  | March 12, 2004
|                                                |  |                                                                      |  |               
|/s/ Patrick J. Lombardi

   Patrick J. Lombardi |  | Director                                                             |  | March 12, 2004
|                                                |  |                                                                      |  |               
|/s/ Cary L. deacon

   Cary L. Deacon           |  | Director                                                             |  | March 12, 2004
|                                                |  |                                                                      |  |               
|/s/ Steven C. Halstedt

   Steven C. Halstedt   |  | Director                                                             |  | March 12, 2004

44



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INDEX TO FINANCIAL STATEMENTS

Raindance Communications, Inc.

|                                                                                                                                           |  |      |     | 
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|                                                                                                                                           |  | Page
|                                                                                                                                           |  |     
|Independent Auditors Report                                                                                                               |  |      | F-2 | 
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                                                               |  |      | F-3 | 
|Consolidated Statements of Operations for the three years ended December 31, 2003, 2002
and 2001                                           |  |      | F-4 | 
|Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss) for
the three years ended December 31, 2003, 2002 and 2001 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the three years ended December 31, 2003, 2002
and 2001                                           |  |      | F-7 | 
|Notes to Consolidated Financial Statements                                                                                                 |  |      | F-8 | 

F-1



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INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders
Raindance Communications, Inc.:

We have audited the accompanying consolidated balance sheets of Raindance
Communications, Inc. and subsidiary as of December 31, 2003 and 2002, and the
related consolidated statements of operations, stockholders equity and
comprehensive income (loss) and cash flows for each of the years in the
three-year period ended December 31, 2003. These consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Raindance
Communications, Inc. and subsidiary as of December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.

As described in note 1(e), these financial statements have been revised to
include the transitional disclosures required by Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets, which
were adopted by the Company on January 1, 2002.



| | KPMG LLP
| | --------

Boulder, Colorado
February 11, 2004

F-2



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RAINDANCE COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

|                                            |                                                                                                                                                       |   |              |          |      |   |         |          |  
|------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | -------- | ---- | - | ------- | -------- | -
|                                            |                                                                                                                                                       |   | December 31,
|                                            |                                                                                                                                                       |   |             
|                                            |                                                                                                                                                       |   | 2003         |          | 2002
|                                            |                                                                                                                                                       |   |              |          |     
|Assets                                      |                                                                                                                                                       |   |              |          |      |   |         |         
|Current assets:                             |                                                                                                                                                       |   |              |          |      |   |         |         
|                                            | Cash and cash equivalents                                                                                                                             |   | $            | 39,607   |      |   | $       | 31,699   |  
|                                            | Accounts receivable, net of allowance for doubtful accounts of $300 and $850 in 2003 and 2002,
respectively                                           |   |              | 8,958    |      |   |         | 8,982    |  
|                                            | Due from affiliate                                                                                                                                    |   |              | 86       |      |   |         | 50       |  
|                                            | Prepaid expenses and other current assets                                                                                                             |   |              | 1,679    |      |   |         | 983      |  
|                                            | Due from employees                                                                                                                                    |   |              | 14       |      |   |         | 12       |  
|                                            |                                                                                                                                                       |   |              |          |      |   |         |         
|                                            | Total current assets                                                                                                                                  |   |              | 50,344   |      |   |         | 41,726   |  
|Property and equipment, net                 |                                                                                                                                                       |   | 25,752       |          |      |   | 24,493  |         
|Goodwill                                    |                                                                                                                                                       |   | 45,587       |          |      |   | 45,587  |         
|Due from employees                          |                                                                                                                                                       |   | 2            |          |      |   | 2       |         
|Other assets                                |                                                                                                                                                       |   | 872          |          |      |   | 1,197   |         
|                                            |                                                                                                                                                       |   |              |          |      |   |         |         
|Total Assets                                |                                                                                                                                                       | $ | 122,557      |          |      | $ | 113,005 |         
|                                            |                                                                                                                                                       |   |              |          |      |   |         |         
|Liabilities and Stockholders Equity        |                                                                                                                                                       |   |              |          |      |   |         |         
|Current liabilities:                        |                                                                                                                                                       |   |              |          |      |   |         |         
|                                            | Accounts payable                                                                                                                                      |   | $            | 7,598    |      |   | $       | 5,193    |  
|                                            | Current portion of long-term debt                                                                                                                     |   |              | 1,314    |      |   |         | 1,030    |  
|                                            | Accrued expenses                                                                                                                                      |   |              | 573      |      |   |         | 629      |  
|                                            | Accrued compensation                                                                                                                                  |   |              | 2,694    |      |   |         | 2,322    |  
|                                            | Accrued severance obligation                                                                                                                          |   |              | 596      |      |   |         |         |  
|                                            | Current portion of restructuring reserve                                                                                                              |   |              | 278      |      |   |         | 507      |  
|                                            | Deferred revenue                                                                                                                                      |   |              | 112      |      |   |         | 423      |  
|                                            |                                                                                                                                                       |   |              |          |      |   |         |         
|                                            | Total current liabilities                                                                                                                             |   |              | 13,165   |      |   |         | 10,104   |  
|Long-term debt, less current portion        |                                                                                                                                                       |   | 1,227        |          |      |   | 2,026   |         
|Restructuring reserve, less current portion |                                                                                                                                                       |   | 187          |          |      |   | 518     |         
|Other                                       |                                                                                                                                                       |   | 56           |          |      |   | 34      |         
|                                            |                                                                                                                                                       |   |              |          |      |   |         |         
|Total Liabilities                           |                                                                                                                                                       |   | 14,635       |          |      |   | 12,682  |         
|                                            |                                                                                                                                                       |   |              |          |      |   |         |         
|Stockholders Equity:                       |                                                                                                                                                       |   |              |          |      |   |         |         
|                                            | Common stock, par value $.0015, 130,000,000 shares authorized; issued and
outstanding 53,784,427 and 51,895,813 shares in 2003 and 2002, respectively |   |              | 81       |      |   |         | 78       |  
|                                            | Additional paid-in capital                                                                                                                            |   |              | 278,440  |      |   |         | 276,211  |  
|                                            | Deferred stock-based compensation                                                                                                                     |   |              | (2,247   | )    |   |         | (4,067   | )
|                                            | Accumulated deficit                                                                                                                                   |   |              | (168,352 | )    |   |         | (171,899 | )
|                                            |                                                                                                                                                       |   |              |          |      |   |         |         
|                                            | Total Stockholders Equity                                                                                                                            |   |              | 107,922  |      |   |         | 100,323  |  
|                                            |                                                                                                                                                       |   |              |          |      |   |         |         
|Commitments and contingencies               |                                                                                                                                                       |   |              |          |      |   |         |         
|Total Liabilities and Stockholders Equity  |                                                                                                                                                       | $ | 122,557      |          |      | $ | 113,005 |         
|                                            |                                                                                                                                                       |   |              |          |      |   |         |         

See accompanying notes to consolidated financial statements.

F-3



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RAINDANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |        |        |         |        | 
|----------------------------------------------------- | -------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | ------------------------ | ------ | ------ | ------ | ------ | ------- | ------ | ------ | ------- | ------ | 
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        | Years ended December 31,
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                         
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        | 2003                     |        | 2002   |        | 2001  
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |       
|Revenue:                                              |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|                                                      | Service  |                                                                                                                                                                                         | $                                 | 66,611                                                                                                                                                                       |        |                          | $      | 60,651 |        |        | $       | 39,410 |       
|                                                      | Software |                                                                                                                                                                                         |                                   | 4,000                                                                                                                                                                        |        |                          |        |       |        |        |         |       |       
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|                                                      |          |                                                                                                                                                                                         | Total revenue                     |                                                                                                                                                                              |        | 70,611                   |        |        |        | 60,651 |         |        |        | 39,410  |       
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|Cost of revenue:                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|                                                      | Service  |                                                                                                                                                                                         |                                   | 28,506                                                                                                                                                                       |        |                          |        | 26,635 |        |        |         | 22,457 |       
|                                                      | Software |                                                                                                                                                                                         |                                   |                                                                                                                                                                             |        |                          |        |       |        |        |         |       |       
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|                                                      |          |                                                                                                                                                                                         |                                   | Total cost of revenue (exclusive of stock-based compensation
expense of $102,
$197 and $228 for the years ended December 31, 2003, 2002 and 2001,
respectively, shown below) |        |                          | 28,506 |        |        |        | 26,635  |        |        |         | 22,457 | 
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|Gross profit                                          |          |                                                                                                                                                                                         | 42,105                            |                                                                                                                                                                              |        |                          | 34,016 |        |        |        | 16,953  |       
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|Operating expenses:                                   |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|                                                      |          | Sales and marketing (exclusive of stock-based compensation expense of
$182, $289 and $471 for the years ended December 31, 2003, 2002 and
2001, respectively, shown below)              |                                   |                                                                                                                                                                              | 19,687 |                          |        |        | 18,508 |        |         |        | 20,362 |        
|                                                      |          | Research and development (exclusive of stock-based compensation
expense of $643, $620 and $631 for the years ended December 31,
2003, 2002 and 2001, respectively, shown below)         |                                   |                                                                                                                                                                              | 8,289  |                          |        |        | 7,599  |        |         |        | 5,704  |        
|                                                      |          | General and administrative (exclusive of stock-based compensation
expense of $1,887, $1,922 and $1,504 for the years ended December 31,
2003, 2002 and 2001, respectively, shown below) |                                   |                                                                                                                                                                              | 7,202  |                          |        |        | 7,515  |        |         |        | 7,397  |        
|                                                      |          | Amortization of goodwill                                                                                                                                                                |                                   |                                                                                                                                                                              |       |                          |        |        |       |        |         |        | 26,506 |        
|                                                      |          | Stock-based compensation expense                                                                                                                                                        |                                   |                                                                                                                                                                              | 2,814  |                          |        |        | 3,028  |        |         |        | 2,834  |        
|                                                      |          | Asset impairment charges                                                                                                                                                                |                                   |                                                                                                                                                                              |       |                          |        |        | 138    |        |         |        | 4,576  |        
|                                                      |          | Restructuring charges, severance and litigation related expenses                                                                                                                        |                                   |                                                                                                                                                                              | 596    |                          |        |        | 584    |        |         |        | 1,696  |        
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|                                                      |          |                                                                                                                                                                                         | Total operating expenses          |                                                                                                                                                                              |        | 38,588                   |        |        |        | 37,372 |         |        |        | 69,075  |       
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|                                                      |          |                                                                                                                                                                                         | Income (loss) from operations     |                                                                                                                                                                              |        | 3,517                    |        |        |        | (3,356 | )       |        |        | (52,122 | )     
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|Other income (expense):                               |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|                                                      |          | Interest income                                                                                                                                                                         |                                   |                                                                                                                                                                              | 250    |                          |        |        | 474    |        |         |        | 1,351  |        
|                                                      |          | Interest expense                                                                                                                                                                        |                                   |                                                                                                                                                                              | (149   | )                        |        |        | (346   | )      |         |        | (464   | )      
|                                                      |          | Other, net                                                                                                                                                                              |                                   |                                                                                                                                                                              | (71    | )                        |        |        | (126   | )      |         |        | (1,488 | )      
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|                                                      |          |                                                                                                                                                                                         | Total other income (expense), net |                                                                                                                                                                              |        | 30                       |        |        |        | 2      |         |        |        | (601    | )     
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|Net income (loss)                                     |          | $                                                                                                                                                                                       | 3,547                             |                                                                                                                                                                              |        | $                        | (3,354 | )      |        | $      | (52,723 | )     
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|Net income (loss) per share:                          |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|Basic                                                 |          | $                                                                                                                                                                                       | 0.07                              |                                                                                                                                                                              |        | $                        | (0.07  | )      |        | $      | (1.12   | )     
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|Diluted                                               |          | $                                                                                                                                                                                       | 0.06                              |                                                                                                                                                                              |        | $                        | (0.07  | )      |        | $      | (1.12   | )     
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|Weighted average number of common shares outstanding: |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|Basic                                                 |          |                                                                                                                                                                                         | 52,672                            |                                                                                                                                                                              |        |                          | 50,502 |        |        |        | 47,280  |       
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       
|Diluted                                               |          |                                                                                                                                                                                         | 54,774                            |                                                                                                                                                                              |        |                          | 50,502 |        |        |        | 47,280  |       
|                                                      |          |                                                                                                                                                                                         |                                   |                                                                                                                                                                              |        |                          |        |        |        |        |         |       

See accompanying notes to consolidated financial statements.

F-4



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##### Table of Contents






RAINDANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share data) Note
    
    AccumulatedCommon Stock
    
    Additional
    
    Deferred
    
    receivable
    
    otherpaid-in
    
    stock-based
    
    from
    
    comprehensive
    
    Accumulated
    
    
    
    
    
    ComprehensiveShares
    
    Amount
    
    Capital
    
    compensation
    
    officer
    
    Income (loss)
    
    Deficit
    
    Total
    
    Income (loss)Balances at January 1, 2001
    
    
    46,834,925
    
    
    $
    70
    
    
    $
    269,466
    
    
    $
    (10,659
    )
    
    $
    (483
    )
    
    $
    (862
    )
    
    $
    (115,822
    )
    
    $
    141,710Issuance of common stock under
compensation arrangements
    
    
    1,174,395
    
    
    
    2
    
    
    
    1,964
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,966Common stock issued for cash
    
    
    21,004
    
    
    
    
    
    
    
    128
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128Common stock options issued for services
    
    
    
    
    
    
    
    
    
    
    654
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    654Cancellation of common stock options
    
    
    
    
    
    
    
    
    
    
    (5,107
    )
    
    
    5,107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock options to
officers at less than fair value
    
    
    100,000
    
    
    
    
    
    
    
    155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155Issuance of common stock grants
to officers at less than fair value
    
    
    250,000
    
    
    
    
    
    
    
    382
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    382Amortization of deferred stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,729
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,729Adjustment of note receivable to fair
value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (141
    )
    
    
    
    
    
    
    
    
    
    
    (141
    )Interest on note receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    (12
    )Cancellation of note
receivable
    
    
    (250,000
    )
    
    
    
    
    
    
    (578
    )
    
    
    
    
    
    
    636
    
    
    
    
    
    
    
    
    
    
    
    58Comprehensive loss:Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (294
    )
    
    
    
    
    
    
    (294
    )
    
    $
    (294
    )Realized loss on investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,156
    
    
    
    
    
    
    
    1,156
    
    
    
    1,156Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52,723
    )
    
    
    (52,723
    )
    
    
    (52,723
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (51,861
    )Balances at December 31, 2001
    
    
    48,130,324
    
    
    
    72
    
    
    
    267,064
    
    
    
    (3,823
    )
    
    
    
    
    
    
    
    
    
    
    (168,545
    )
    
    
    94,768Issuance of common stock under
compensation arrangements
    
    
    1,556,458
    
    
    
    2
    
    
    
    1,843
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,845Common stock options issued for services
    
    
    
    
    
    
    
    
    
    
    306
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    306Cancellation of common stock options
    
    
    
    
    
    
    
    
    
    
    (463
    )
    
    
    463
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock issued at less than fair
value to
directors for services rendered
    
    
    10,450
    
    
    
    1
    
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78Issuance of common stock for the
acquisition of business
    
    
    2,198,581
    
    
    
    3
    
    
    
    7,384
    
    
    
    (3,352
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,035Amortization of deferred stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,645
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,645Net loss and comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,354
    )
    
    
    (3,354
    )
    
    $
    (3,354
    )Balances at December 31, 2002
    
    
    51,895,813
    
    
    
    78
    
    
    
    276,211
    
    
    
    (4,067
    )
    
    
    
    
    
    
    
    
    
    
    (171,899
    )
    
    $
    100,323Issuance of common stock under
compensation arrangements
    
    
    1,262,788
    
    
    
    2
    
    
    
    1,236
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,238Common stock options issued for services
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30Cancellation of common stock options
    
    
    
    
    
    
    
    
    
    
    (83
    )
    
    
    83
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of common stock warrant
    
    
    28,176
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock issued at less than fair
value to
officers, net of forfeiture
    
    
    550,000
    
    
    
    1
    
    
    
    896
    
    
    
    (897
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 F-5




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##### Table of Contents



Note
    
    AccumulatedCommon Stock
    
    Additional
    
    Deferred
    
    receivable
    
    otherpaid-in
    
    stock-based
    
    from
    
    comprehensive
    
    Accumulated
    
    
    
    
    
    ComprehensiveShares
    
    Amount
    
    Capital
    
    compensation
    
    officer
    
    Income (loss)
    
    Deficit
    
    Total
    
    Income (loss)Common stock issued at less than fair
value to
directors for services rendered
    
    
    47,650
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150Amortization of deferred stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,634
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,634Net income and comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,547
    
    
    
    3,547
    
    
    $
    3,547Balances at December 31, 2003
    
    
    53,784,427
    
    
    $
    81
    
    
    $
    278,440
    
    
    $
    (2,247
    )
    
    $
    
    
    
    $
    
    
    
    $
    (168,352
    )
    
    $
    107,922
 See accompanying notes to consolidated financial statements. F-6




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##### Table of Contents






RAINDANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) Years Ended December 31,2003
    
    2002
    
    2001Cash flows from operating activities:Net income (loss)
    
    $
    3,547
    
    
    $
    (3,354
    )
    
    $
    (52,723
    )Adjustments to reconcile net income (loss) to net cash provided (used) by operating
activities:Depreciation and amortization
    
    
    10,330
    
    
    
    10,362
    
    
    
    35,615Write down of note receivable from affiliate to net realizable value
    
    
    
    
    
    
    
    
    
    
    1,782Loss on disposition of stock
    
    
    
    
    
    
    
    
    
    
    1,195Asset impairment charges and restructuring charges
    
    
    
    
    
    
    722
    
    
    
    4,582Stock-based compensation
    
    
    2,814
    
    
    
    3,028
    
    
    
    2,834Other
    
    
    74
    
    
    
    150
    
    
    
    364Changes in operating assets and liabilities, excluding effects of business acquisition:Accounts receivable
    
    
    24
    
    
    
    (2,811
    )
    
    
    (627
    )Prepaid expenses and other current assets
    
    
    (1,025
    )
    
    
    523
    
    
    
    1,163Other assets
    
    
    (94
    )
    
    
    732
    
    
    
    139Accounts payable and accrued expenses
    
    
    2,791
    
    
    
    (1,121
    )
    
    
    (4,733
    )Deferred revenue
    
    
    (311
    )
    
    
    (1,055
    )
    
    
    672Net cash provided (used) by operating activities
    
    
    18,150
    
    
    
    7,176
    
    
    
    (9,737
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (10,514
    )
    
    
    (6,131
    )
    
    
    (3,944
    )Proceeds from disposition of equipment
    
    
    41
    
    
    
    11
    
    
    
    204Cash paid for acquisition of InterAct Conferencing, LLC, net of cash acquired
    
    
    
    
    
    
    (3,522
    )
    
    
    Change in restricted cash
    
    
    194
    
    
    
    
    
    
    
    Net cash used by investing activities
    
    
    (10,279
    )
    
    
    (9,642
    )
    
    
    (3,740
    )Cash flows from financing activities:Net proceeds from issuance of common stock
    
    
    1,237
    
    
    
    1,845
    
    
    
    1,745Proceeds from debt
    
    
    
    
    
    
    
    
    
    
    5,000Payments on debt
    
    
    (1,200
    )
    
    
    (1,902
    )
    
    
    (2,357
    )Net cash provided (used) by financing activities
    
    
    37
    
    
    
    (57
    )
    
    
    4,388Increase (decrease) in cash and cash equivalents
    
    
    7,908
    
    
    
    (2,523
    )
    
    
    (9,089
    )Cash and cash equivalents at beginning of year
    
    
    31,699
    
    
    
    34,222
    
    
    
    43,311Cash and cash equivalents at end of year
    
    $
    39,607
    
    
    $
    31,699
    
    
    $
    34,222Supplemental cash flow information -Interest paid in cash
    
    $
    158
    
    
    $
    609
    
    
    $
    263Supplemental non-cash investing and financing activities:Accounts payable incurred for purchases of property and equipment
    
    $
    323
    
    
    $
    548
    
    
    $
    120Debt incurred for purchases of property and equipment
    
    $
    686
    
    
    $
    
    
    
    $
    Exchange of investment for forgiveness of debt
    
    $
    
    
    
    $
    
    
    
    $
    157Common stock issued for acquisition of InterAct Conferencing, LLC
    
    $
    
    
    
    $
    4,035
    
    
    $
    
 See accompanying notes to
consolidated financial statements. F-7




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##### Table of Contents






RAINDANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Business and Basis of Financial Statement Presentation Raindance Communications, Inc., (the Company), was incorporated under
the laws of the State of Delaware on April 17, 1997. The Company provides
business communication services for everyday business meetings and events. The
Companys continuum of interactive services includes Reservationless
Conferencing for reservationless automated audio conferencing with simple web
controls and presentation tools, Web Conferencing Pro, which allows users to
integrate reservationless automated audio conferencing with advanced web
interactive tools such as application sharing, web touring and online
whiteboarding, Operator Assisted Conferencing, and Unlimited Conferencing. The
Company operates in a single segment. The accompanying consolidated financial statements include the accounts of
Raindance Communications and its wholly-owned subsidiary. All significant
intercompany transactions and balances have been eliminated in consolidation. The preparation of the 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 financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates are used in these financial statements to determine the allowance for
doubtful accounts, useful lives of depreciable and intangible assets, the
valuation allowance for deferred tax assets and restructuring charges and
reserves. Certain prior year amounts have been reclassified to conform to the
current year presentation. (b) Cash and Cash Equivalents Cash and cash equivalents consist of cash held in bank deposit accounts
and short-term, highly liquid investments purchased with maturities of three
months or less at the date of purchase. Cash equivalents at December 31, 2003
consist of money market accounts at four financial institutions. (c) Restricted Cash Included in other assets at December 31, 2003 and 2002 is $0.3 and $0.6
million, respectively, in restricted cash. Restricted cash consists of amounts
supporting irrevocable letters of credit issued by the Companys bank and is
primarily used for security deposits associated with some of the Companys long
term operating leases. Funds are held in certificates of deposit at the
Companys bank, and have been established in favor of a third party
beneficiary. The funds would be released to the beneficiary in the event that
the Company fails to comply with certain specified contractual obligations.
Provided the Company meets these contractual obligations, the letter of credit
will be discharged and the Company would no longer be restricted from the use
of the cash. (d) Property and Equipment Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation of equipment is computed using the straight-line
method over the estimated useful lives of the assets, which range from three to
seven years. Leasehold improvements are amortized over the shorter of related
lease terms or their estimated useful lives. Upon retirement or sale, the cost
of the assets disposed and the related accumulated depreciation is removed from
the accounts and any resulting gain or loss is included in operations in the
period realized. F-8




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##### Table of Contents



(e) Goodwill The Company first recorded goodwill and goodwill amortization in 2000 in
connection with its acquisition of Contigo Software, Inc. in June 2000.
Goodwill was amortized on a straight-line basis over the estimated useful life
of three years. In July 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards 142 (SFAS 142), Goodwill
and Other Intangible Assets. SFAS 142 requires that goodwill no longer be
amortized, but instead is reviewed for impairment on an on-going basis.
Accordingly, the amortization of goodwill ceased upon adoption of the
Statement, which was January 1, 2002. In addition, the Company recorded $6.9
million in goodwill in April 2002 when it acquired InterAct Conferencing LLC.
The Company consists of one reporting unit. The Companys initial assessment of
goodwill performed as of March 31, 2002 and the annual reassessment preformed
at March 31, 2003, have indicated that the fair value of the reporting unit
exceeded the goodwill carrying value, and therefore, goodwill was not deemed to
be impaired. The Company has not noted subsequent indicators of impairment,
however, there can be no assurances that the Companys goodwill will not be
impaired in the future. The reconciliation of reported net income (loss) and
reported income (loss) per share and adjusted net income (loss) and adjusted
income (loss) per share, which represents the effect of adopting SFAS 142, is
as follows (in thousands, except per share amounts): Years ended December 31,2003
    
    2002
    
    2001Net income (loss)
    
    $
    3,547
    
    
    $
    (3,354
    )
    
    $
    (52,723
    )Add back: goodwill amortization
    
    
    
    
    
    
    
    
    
    
    26,506Adjusted net income (loss)
    
    $
    3,547
    
    
    $
    (3,354
    )
    
    $
    (26,217
    )Income (loss) per share  basic
    
    $
    0.07
    
    
    $
    (0.07
    )
    
    $
    (1.12
    )Add back: goodwill amortization
    
    
    
    
    
    
    
    
    
    
    0.56Adjusted income (loss) per share  basic
    
    $
    0.07
    
    
    $
    (0.07
    )
    
    $
    (0.56
    )Income (loss) per share  diluted
    
    $
    0.06
    
    
    $
    (0.07
    )
    
    $
    (1.12
    )Add back: goodwill amortization
    
    
    
    
    
    
    
    
    
    
    0.56Adjusted income (loss) per share  diluted
    
    $
    0.06
    
    
    $
    (0.07
    )
    
    $
    (0.56
    )
 Goodwill as of December 31, 2003, 2002 and 2001 was $45.6, $45.6 and $38.7
million, respectively. (f) Income Taxes The Company uses the asset and liability method of accounting for income
taxes as prescribed by SFAS 109, Accounting for Income
Taxes. Under the asset
and liability method, deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The resulting deferred tax
assets and liabilities are adjusted to reflect changes in tax laws or rates in
the period of enactment. (g) Fair Value of Financial Instruments and Concentrations of Credit Risk The carrying amounts of certain of the Companys financial instruments,
including cash and cash equivalents, accounts receivable and accounts payable,
approximate fair value because of the short-term nature of these instruments.
Because the interest rates on the Companys note payable obligations reflect
market rates and terms, the fair values of these instruments approximate
carrying amounts. Financial instruments that potentially subject the Company to
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. The Companys cash and cash equivalents are held with financial
institutions that the Company believes to be of high credit standing. The
Companys customer base consists of a large number of geographically dispersed
customers diversified across several industries. No single customer accounted
for greater than 10% of total 2003 F-9




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revenue. At December 31, 2003, no single customer represented greater than
10% of the Companys accounts receivable. (h) Revenue Recognition Revenue for the Companys Reservationless Conferencing service is
generally based upon the actual time that each participant is on the phone or
logged onto the web. For example, a customer is charged a per-minute, per-user
fee for each participant listening and viewing a live or recorded simulcast. In
addition, the Company charges customers a one-time fee to upload visuals for a
phone conference or a recorded simulcast. The Company recognizes usage revenue
from Reservationless Conferencing service in the period the call or simulcast
of the call is completed. The Company recognizes revenue associated with any
initial set-up fees ratably over the term of the contract. Revenue for the Companys Web Conferencing Pro service is derived from
subscription and usage fees in addition to event fees or, in more limited
cases, a software license fee. Revenue from subscriptions is recognized monthly
regardless of usage, while usage fees are based upon either connections or
minutes used. Event fees are generally hourly charges that are recognized as
the events take place. The Company recognizes revenue associated with any
initial set-up fees ratably over the term of the contract. Revenue from
software license agreements is either recognized upon shipment of the software
when all the following criteria have been met: persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable,
collectibility is probable, and vendor specific objective evidence is available
for the fair value of all undelivered elements, or recognized ratably over the
software support period if the Company does not have vendor specific objective
evidence for an undelivered element. Revenue for the Companys Operator Assisted Conferencing service is
generally based upon the actual time that each participant is on the phone. In
addition, the Company charges customers a fee for additional services such as
call taping, digital replay, participant lists and transcription services. The
Company recognizes usage revenue and related fees from our Operator Assisted
Conferencing service in the period the call is completed. Revenue from the Companys Unlimited Conferencing service is derived from
a flat, fixed charge per month depending on the conference size limit selected
by the customer. The fixed monthly charge is recognized as revenue in full each
month. This service provides small and medium-sized businesses with a
convenient way to conduct audio and web conferences with a predictable price.
Conference moderators and participants dial into the conference using their
dedicated local exchange toll call number as opposed to a toll-free number
ordinarily used with the Reservationless Conferencing service. (i) Software Development Costs and Research and Development Costs incurred in the engineering and development of the Companys
services is expensed as incurred, except certain software development costs.
Costs associated with the development of software to be marketed externally are
expensed prior to the establishment of technological feasibility as defined in
SFAS 86, Accounting for the Cost of Computer Software to Be Sold, Leased, or
Otherwise Marketed, and capitalized thereafter. To date, the Companys
software development has been completed concurrent with attaining technological
feasibility and, accordingly, all software development costs incurred to which
SFAS 86 is applicable have been charged to operations as incurred in the
accompanying financial statements. The Company capitalizes certain qualifying
computer software costs incurred during the application development stage in
accordance with Statement of Position 98-1 Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use (SOP 98-1) issued by
the American Institute of Certified Public Accountants, which was adopted by
the Company as of January 1, 1999. These costs are amortized on a straight-line
basis over the softwares estimated useful life. Based on plans regarding the
external distribution of software developed in the third quarter of 2003, the
Company changed its accounting treatment of costs associated with the
development of its next-generation service from SOP 98-1 to SFAS 86. Since the
second quarter of 2001, the Company had capitalized $2.8 million in costs
associated with its next-generation service, $1.3 million of which was related
to internal development and $1.5 million of which was related to contract
development. The Company will begin amortization of the capitalized costs of
its next-generation service in March 2004. Research and development costs are expensed as incurred. F-10




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(j) Long-Lived Assets Prior to January 1, 2002 the Company utilized SFAS 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, to evaluate the carrying value of long-term assets when events and
circumstances warranted such a review. The carrying value of a long-lived asset
was considered impaired when the anticipated undiscounted cash flows from such
asset was separately identifiable and was less than the carrying value. In that
event a loss was recognized based on the amount by which the carrying value
exceeded the fair market value of the long-lived asset. Fair market value was
determined by reference to quoted market prices, if available, or the
utilization of certain valuation techniques such as anticipated cash flows
discounted at a rate commensurate with the risk involved. Assets to be disposed
of were reported at the lower of the carrying amount or fair value, less costs
to sell. In 2001, the Company recorded an asset impairment charge of $4.6
million (see note 14). Effective January 1, 2002, the Company adopted SFAS 144, Accounting for
the Impairment or Disposal of Long-Lived Assets.Under SFAS 144, long-lived
assets, other than goodwill, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets might
not be recoverable. Conditions that would necessitate an impairment assessment
include a significant decline in the observable market value of an asset, a
significant change in the extent or manner in which an asset is used, or a
significant adverse change that would indicate that the carrying amount of an
asset or group of assets is not recoverable. For long-lived assets to be held
and used, the Company recognizes an impairment loss only if its carrying amount
is not recoverable through its undiscounted cash flows and measures the
impairment loss based on the difference between the carrying amount and fair
value. Long-lived assets held for sale are reported at the lower of their
carrying value or fair value less costs to sell. In 2002, the Company recorded
an asset impairment charge of $0.2 million (see note 14). (k) Advertising Costs The Company expenses advertising costs as they are incurred. Advertising
expense was less than $0.1 million for the year ended December 31, 2003 and
$0.1 and $1.2 million for the years ended December 31, 2002 and 2001,
respectively. (l) Stock-Based Compensation The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board (APB) Opinion 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price of
the underlying stock exceeds the exercise price, the intrinsic value method.
Under SFAS 123, Accounting for Stock-Based Compensation, entities are
permitted to recognize as expense, over the vesting period, the fair value of
all stock-based awards on the date of grant. Alternatively, SFAS 123 also
allows entities to continue to apply the provisions of APB Opinion 25 and
provide pro forma net income (loss) disclosures for employee stock option
grants as if the fair-value-based method defined in SFAS 123 had been applied.
The Company has elected to continue to apply the provisions of APB Opinion 25
and provide the pro forma disclosures required by SFAS 123. All stock-based
awards to non-employees are accounted for at their fair value in accordance
with SFAS 123 and related interpretations. Stock compensation expense is comprised of the following: (a) the
amortization of deferred compensation resulting from the grant of stock options
or shares of restricted stock to employees at exercise or sale prices deemed to
be less than fair value of the common stock at grant date, net of forfeitures
related to such employees who terminated service while possessing unvested
stock options, as these terminated employees have no further service
obligations; (b) the intrinsic value of modified stock options or restricted
stock awards, measured at the modification date, for the number of awards that,
absent the modification, would have expired unexercisable; (c) the intrinsic
value of restricted stock awards to employees and directors, and (d) deferred
stock-based compensation associated with the acquisition of InterAct
Conferencing, LLC. The following table summarizes information as to reported results under
the Companys intrinsic value method of accounting for stock awards, with
supplemental information as if the fair value recognition provisions of SFAS
123 had been applied for the three years ended December 31, 2003, 2002 and
2001, respectively (in thousands, except per share amounts): F-11




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##### Table of Contents



Years ended December 31,2003
    
    2002
    
    2001Net income (loss), as reported
    
    $
    3,547
    
    
    $
    (3,354
    )
    
    $
    (52,723
    )Add: Stock-based employee compensation expense
attributable to common stock options included in net income (loss)
    
    
    1,304
    
    
    
    2,207
    
    
    
    2,579Deduct: Stock-based employee compensation
expense attributable to common stock options
determined under fair value based method
    
    
    (7,388
    )
    
    
    (12,971
    )
    
    
    (23,973
    )Net income (loss), as adjusted
    
    $
    (2,537
    )
    
    $
    (14,118
    )
    
    $
    (74,117
    )Income (loss) per share  basic, as reported
    
    $
    0.07
    
    
    $
    (0.07
    )
    
    $
    (1.12
    )Income (loss) per share  diluted, as reported
    
    $
    0.06
    
    
    $
    (0.07
    )
    
    $
    (1.12
    )Income (loss) per share  basic, as adjusted
    
    $
    (0.05
    )
    
    $
    (0.28
    )
    
    $
    (1.57
    )Income (loss) per share  diluted, as adjusted
    
    $
    (0.05
    )
    
    $
    (0.28
    )
    
    $
    (1.57
    )
 The per share weighted-average fair value of stock options granted during
the years ended December 31, 2003, 2002 and 2001 was $1.96, $2.94 and $1.55,
respectively, using the Black-Scholes option pricing model. The Company used
the following weighted average assumptions in determining the fair value of
options granted during the years ended December 31, 2003, 2002 and 2001: Years ended December 31,2003
    
    2002
    
    2001Expected life (years)
    
    
    5
    
    
    
    6
    
    
    
    6Risk-free interest rate
    
    
    3.25
    %
    
    
    5
    %
    
    
    5
    %Expected volatility
    
    
    123
    %
    
    
    106
    %
    
    
    136
    %Expected dividend yield
    
    None
    
    None
    
    None
 (m) Comprehensive Income (Loss) The Company has adopted SFAS 130 Reporting Comprehensive Income, which
established standards for reporting and displaying comprehensive income.
Comprehensive income equals net income for the year ended December 31, 2003.
Comprehensive loss equals net loss for the year ended December 31, 2002.
Comprehensive loss is equal to net loss plus the reversal of a previously
unrealized loss on investment (see note 3), and foreign currency translation
adjustments for the year ended December 31, 2001. (n) Net Income (Loss) Per Share Net income (loss) per share is presented in accordance with Statement of
Financial Accounting Standards No. 128, Earnings Per Share(SFAS 128). Under
SFAS 128, basic earnings (loss) per share (EPS) excludes dilution for potential
common stock and is computed by dividing net income or loss by the weighted
average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Potential common shares are comprised of shares of common stock issuable upon
the exercise of stock options and warrants and restricted stock subject to
vesting restrictions and are computed using the treasury stock method. The following table sets forth the calculation of net income (loss) per
share for the three years ended December 31, 2003, 2002 and 2001 (in thousands,
except per share amounts): F-12




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##### Table of Contents



Years ended December 31,2003
    
    2002
    
    2001Net income (loss)
    
    $
    3,547
    
    
    $
    (3,354
    )
    
    $
    (52,723
    )Common shares outstanding:Historical common shares outstanding at beginning of year
    
    
    51,896
    
    
    
    48,130
    
    
    
    46,835Weighted average common shares issued during year
    
    
    776
    
    
    
    2,372
    
    
    
    445Weighted
average common shares at end of year - basic
    
    
    52,672
    
    
    
    50,502
    
    
    
    47,280Effect of potential common shares
    
    
    2,102
    
    
    
    
    
    
    
    Weighted
average common shares at end of year - diluted
    
    
    54,774
    
    
    
    50,502
    
    
    
    47,280Net income (loss) per share  basic
    
    $
    0.07
    
    
    $
    (0.07
    )
    
    $
    (1.12
    )Net income (loss) per share  diluted
    
    $
    0.06
    
    
    $
    (0.07
    )
    
    $
    (1.12
    )
 For the year ended December 31, 2003, 550,000 shares of issued and
outstanding restricted stock have been excluded from the calculation of basic
earnings per share due to vesting restrictions and have been included in
diluted earnings per share. The following common stock options and warrants have been excluded from
the computation of diluted net income (loss) per share for the years ended
December 31, 2003, 2002 and 2001 because their effect would have been
antidilutive: As of December 31,2003
    
    2002
    
    2001Shares issuable under stock options
    
    
    5,328,351
    
    
    
    8,409,064
    
    
    
    8,171,913Shares issuable pursuant to warrants
    
    
    20,017
    
    
    
    652,790
    
    
    
    652,790
 (2) JOINT VENTURES AND ACQUISITIONS In June 2000, the Company entered into an agreement with @viso Limited, a
European-based venture capital firm, to form Evoke Communications, B.V., a
Netherlands corporation (Evoke Communications Europe). Pursuant to this
agreement, the Company loaned Evoke Communications Europe approximately $4.6
million that was to be repaid under the terms of a promissory note. In the
third quarter of 2001 the board of directors of Evoke Communications Europe
unanimously approved a plan of liquidation and dissolution and, as a result,
Evoke Communications Europe is being liquidated and its operations have ceased.
The Company recorded an impairment charge of $1.8 million in 2001, which
represented the excess of the note receivable over the cash and equipment the
Company expected to receive from the liquidation. In the fourth quarter of
2001, the Company received equipment valued at $1.8 million and anticipated
receiving, prior to December 31, 2002, cash of approximately $1.0 million. The
equipment was transferred to the Company at net book value. The Company
received cash payments from Evoke Communications Europe of $1.0 million
throughout 2002. In the fourth quarter of 2002, the Company recorded a reversal
of $48,000 based upon revised estimates of the cash to be received upon
complete dissolution and liquidation of Evoke Communications Europe. The
receivable is reflected in the balance sheet in current assets as due from
affiliate and the Company expects to receive final payment in the second
quarter of 2004. On April 17, 2002, the Company entered into a definitive agreement to
acquire substantially all of the assets of InterAct Conferencing, LLC
(InterAct), a nationwide reseller of audio and web conferencing services. On
April 30, 2002, the Company completed the acquisition. In connection with the
acquisition, the Company also assumed certain liabilities of InterAct as of
April 30, 2002, consisting primarily of accounts payable and a $0.1 million
line of credit. The Company also assumed a facility lease obligation of
approximately $0.7 million associated with a building that is partially owned
by the former president and chief executive officer of InterAct who F-13




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##### Table of Contents



became an officer of the Company upon the completion of the acquisition.
Effective May 1, 2002, the results of InterActs operations are included in the
Companys consolidated financial statements. The aggregate purchase consideration paid to InterAct was $7.8 million,
which was comprised of $3.8 million in cash and 1,200,982 shares of the
Companys common stock valued at $4.0 million. In addition, the Company
incurred $0.1 million of acquisition related expenses. An additional 997,599
shares of the Companys common stock were issued and deemed to be compensation
for future services. Accordingly, the Company recorded $3.4 million in deferred
stock-based compensation, which is being expensed over three years, which began
in May 2002. The value of the common stock issued was determined based on the
average market price of the Companys common stock over the three-day period
before and after the terms of the acquisition were agreed upon and announced.
The acquisition has been accounted for using the purchase method. The purchase
consideration allocation is as follows: Tangible net assets
    
    $
    1.0Goodwill
    
    
    6.9Total purchase consideration allocation
    
    $
    7.9
 The summary table below, prepared on an unaudited pro forma basis, combines the
Companys consolidated results of operations with InterActs results of
operations for 2002 and 2001 as if the InterAct acquisition took place as of
the beginning of each year (in thousands, except per share data). Years ended December 31,2002
    
    2001Revenue
    
    $
    62,161
    
    
    $
    42,410Net loss
    
    
    (3,185
    )
    
    
    (51,972
    )Basic loss per share
    
    
    (0.06
    )
    
    
    (1.09
    )Diluted loss per share
    
    
    (0.06
    )
    
    
    (1.09
    )
 The pro forma results for the years ended December 31, 2002 and 2001
combine the Companys results for the years ended December 31, 2002 and 2001
with the results of InterAct for the period from January 1, 2001 through April
30, 2002. The pro forma results are not necessarily indicative of the results
of operations that would have occurred if the acquisition had been consummated
at the beginning of each of those years. In addition, they are not intended to
be a projection of future results and do not reflect any synergies that may
have been achieved from the combined operations. (3) INVESTMENT SECURITIES At December 31, 2000, investment securities consisted of an equity
investment in a public company. This investment was classified as available
for sale in accordance with SFAS 115, Accounting for Certain Investments in
Debt and Equity Securities. This investment was carried at fair market value
with any unrealized gain or loss recorded as a separate component of
stockholders equity. In March 2001, as partial consideration for terminating
a software license agreement, the Company returned its investment in the
software companys common stock, which resulted in the recognition of a
realized loss of $1.2 million in the first quarter of 2001. This loss is
reflected in the 2001 Consolidated Statement of Operations in Other income
(expense). (4) OFFICER LOANS The Company had an unsecured note receivable dated September 7, 2000 due
from its Chief Technology Officer in the face amount of $50,000. The note was
originally due September 7, 2005 and bore interest at 6.22%. This obligation,
including accrued interest, was paid in full during the fourth quarter of 2002. F-14




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The Company had an unsecured note receivable dated January 24, 2001 due
from its former President and Chief Executive Officer in the face amount of
$100,000. The note was originally due January 24, 2003 and bore interest at
8.00%. This obligation, including accrued interest, was paid in full during the
fourth quarter of 2002. (5) PROPERTY AND EQUIPMENT Property and equipment consists of the following (in thousands): December 31,2003
    
    2002Computers and office equipment
    
    $
    40,936
    
    
    $
    35,723Software purchased or developed for internal use
    
    
    13,785
    
    
    
    10,152Furniture and fixtures
    
    
    2,064
    
    
    
    2,241Leasehold improvements
    
    
    2,316
    
    
    
    2,274Assets held for sale
    
    
    
    
    
    
    7159,101
    
    
    
    50,461Less accumulated depreciation and amortization
    
    
    (33,349
    )
    
    
    (25,968
    )$
    25,752
    
    
    $
    24,493
 In the years ended December 31, 2003 and 2002, the Company capitalized
$936,000 and $749,276, respectively, of internal software application
development costs in accordance with SOP 98-1. These costs are generally
amortized over 18 months from the time the software is ready for its intended
use with the exception of the capitalized costs of our next-generation service
which will be amortized over 36 months upon its release to general
availability. Amortization expense of all costs capitalized pursuant to SOP
98-1 was $429,000, $360,000 and $584,000 for the years ended December 31, 2003,
2002 and 2001, respectively. Depreciation expense was $9.9 million, $10.0
million and $8.5 million for the years ended December 31, 2003, 2002 and 2001,
respectively. (6) DEBT On January 7, 1999, the Company entered into a loan and security agreement
with a total commitment of $3,000,000 with a bank. In connection with obtaining
this commitment, the Company issued warrants to purchase 86,538 shares of
Series C Preferred stock to the lender. The exercise price of the warrants was
$1.04 per share. Upon completion of the Companys initial public offering on
July 28, 2000, the warrants, which expire on July 24, 2005, were converted into
warrants to purchase 57,692 shares of common stock at $1.56 per share. Draws
under this agreement were to be repaid over 37 months, with interest at the 36
month Treasury note rate, plus 275 basis points. An additional payment of 9% of
the amount financed was payable at the end of the term of the loan. This
additional amount and the fair value of warrants of $75,000 were included in
interest expense over the term of the agreement. During 1999, the Company
borrowed, in four separate draws, the entire commitment of $3,000,000. The
interest rate ranged from 7.41% to 8.40%. The loan and security agreement was
secured by substantially all business assets except those that were secured by
the debt facility described below. All balances due under this loan and
security agreement were paid by December 31, 2002. On September 30, 1999, the Company entered into a promissory note and its
related master loan and security agreement dated September 10, 1999, for
$1,502,623 with a bank. In connection with obtaining this commitment, the
Company issued warrants to purchase 15,026 shares of Series D Preferred stock
to the lender. The exercise price of the warrants was $3.00 per share. Upon
completion of the Companys initial public offering on July 28, 2000, the
warrants, which expire on September 29, 2004, were converted into warrants to
purchase 10,017 shares of common stock at $4.50 per share. The draw under this
agreement was to be repaid over 42 months, with interest at 13.33%. The
promissory note was secured by the equipment that was financed. The fair value
of the warrants was $105,000 and was included in interest expense over the term
of the agreement. In November 2001, the Company made a payment of $648,590 to
retire this obligation before its scheduled maturity date of February 2003. As
a result, the remaining fair value of the warrants, which was $46,667, was
expensed in November 2001. F-15




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On October 9, 2001, the Company entered into a loan and security agreement
with a bank that was subsequently amended effective December 31, 2002. On
October 12, 2001 the Company received $5.0 million pursuant to the term loan
component of the loan and security agreement. The term loan is scheduled to be
repaid with monthly principal payments of approximately $0.1 million plus
interest at 5.25% with the final payment due in January 2006. Advances under
the revolving line of credit component of the loan and security agreement are
limited to $12.5 million or 90% of eligible accounts receivable as defined in
the agreement. The revolving line of credit was available through January 26,
2004. Advances under the revolving line of credit were to be repaid and
re-borrowed at any time prior to the maturity date. At December 31, 2003, the
Company did not have an outstanding balance under the revolving line of credit
and the borrowing available, based on eligible accounts receivable, was $8.1
million. The Company is currently in the process of renewing its revolving line
of credit. The loan and security agreement is collateralized by substantially
all tangible and intangible assets of the Company and is subject to compliance
with covenants, including minimum liquidity coverage, minimum quick ratio and
maximum quarterly operating losses adjusted for interest, taxes, depreciation,
amortization and other non-cash charges. The Company is also prohibited from
paying any dividends without the banks prior written consent. At December 31,
2003, the balance due under this agreement (exclusively related to the term
loan) is $2.0 million, of which $1.0 million is current.

On May 29, 2003, the Company entered into a loan agreement with a vendor,
in the amount of $0.7 million, to finance certain fixed assets. The loan is
scheduled to be repaid with quarterly principal payments of approximately $0.1
million plus interest at 2.5% with the final payment due in April 2005. At
December 31, 2003, the balance due under this agreement is $0.5 million, of
which $0.3 million is current.

Long-term debt consists of the following (in thousands):

|                                     |  |              |        |              |  |   |        |  
|------------------------------------ |  | ------------ | ------ | ------------ |  | - | ------ | -
|                                     |  | December 31, |        | December 31,
|                                     |  | 2003         |        | 2002        
|                                     |  |              |        |             
|Balance                              |  | $            | 2,541  |              |  | $ | 3,056  |  
|Less current portion                 |  |              | (1,314 | )            |  |   | (1,030 | )
|                                     |  |              |        |              |  |   |        |  
|Long-term debt, less current portion |  | $            | 1,227  |              |  | $ | 2,026  |  
|                                     |  |              |        |              |  |   |        |  

The aggregate maturities for long-term debt for each of the years
subsequent to December 31, 2003 are as follows (in thousands): 2004$1,314;
2005$1,146; 2006$81.

(7) INCOME TAXES

Income tax expense (benefit) relating to losses incurred differs from the
amounts that would result from applying the applicable federal statutory rate
as follows (in thousands):

|                                                      |                              |   |                          |   |      |   |        |   |  |   |         |   | 
|----------------------------------------------------- | ---------------------------- | - | ------------------------ | - | ---- | - | ------ | - |  | - | ------- | - | 
|                                                      |                              |   | Years ended December 31,
|                                                      |                              |   |                         
|                                                      |                              |   | 2003                     |   | 2002 |   | 2001  
|                                                      |                              |   |                          |   |      |   |       
|Expected tax expense (benefit)                        |                              | $ | (1,206                   | ) |      | $ | (1,140 | ) |  | $ | (17,926 | )
|State income taxes, net of federal impact             |                              |   | (112                     | ) |      |   | (118   | ) |  |   | (1,793  | )
|Change in valuation allowance for deferred tax assets |                              |   | 1,235                    |   |      |   | 1,301  |   |  |   | 10,429  |  
|Stock compensation/exercise stock option benefit      |                              |   | (199                     | ) |      |   | (141   | ) |  |   | 981     |  
|Goodwill amortization                                 |                              |   | 212                      |   |      |   |       |   |  |   | 9,011   |  
|Other, net                                            |                              |   | 70                       |   |      |   | 98     |   |  |   | (702    | )
|                                                      |                              |   |                          |   |      |   |        |   |  |   |         |  
|                                                      | Income tax expense (benefit) |   | $                        |  |      |   | $      |  |  |   | $       |  | 
|                                                      |                              |   |                          |   |      |   |        |   |  |   |         |  

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Temporary differences that give rise to the components of deferred tax
assets are as follows (in thousands):

|                                 |                                                  |   |              |        |      |   |         |        | 
|-------------------------------- | ------------------------------------------------ | - | ------------ | ------ | ---- | - | ------- | ------ | 
|                                 |                                                  |   | December 31,
|                                 |                                                  |   |             
|                                 |                                                  |   | 2003         |        | 2002
|                                 |                                                  |   |              |        |     
|Net operating loss carryforwards |                                                  | $ | 46,383       |        |      | $ | 46,617  |       
|Depreciation and amortization    |                                                  |   | (3,016       | )      |      |   | (1,855  | )     
|Stock-based compensation         |                                                  |   | 2,576        |        |      |   | 2,013   |       
|Accrued liabilities              |                                                  |   | 1,050        |        |      |   | 1,453   |       
|                                 |                                                  |   |              |        |      |   |         |       
|                                 | Net deferred tax asset                           |   |              | 46,993 |      |   |         | 48,228 | 
|Valuation allowance              |                                                  |   | (46,993      | )      |      |   | (48,228 | )     
|                                 |                                                  |   |              |        |      |   |         |       
|                                 | Net deferred tax asset, less valuation
allowance |   | $            |       |      |   | $       |       | 
|                                 |                                                  |   |              |        |      |   |         |       

At December 31, 2003, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $124.0 million, which are
available to offset future federal taxable income, if any, through 2022. The
Company experienced an ownership change in 1999 as defined in Section 382 of
the Internal Revenue Code that limited approximately $21.5 million of net
operating loss carryforwards to an annual amount of approximately $2.9 million.
The balance of the net operating loss carryforwards of approximately $102.5
million are not limited by Section 382 as of December 31, 2003.

The Company reviews its deferred tax assets on an ongoing basis for
realizability. While the Company has generated net income for five consecutive
quarters, management believes there currently is not enough positive evidence
to support a conclusion that it is more likely than not that the Company will
utilize some or all of the deferred tax assets. When management determines
there is enough positive evidence to support a conclusion that it is more
likely than not that the Company will realize some or all of the deferred tax
assets, management will reduce the valuation allowance on deferred tax assets,
which will increase net income in the period in which such determination is
made. Positive evidence to support a conclusion that the deferred tax assets
are realizable includes, but is not limited to, generating net income in
consecutive quarters and projections for taxable income sufficient to utilize
the deferred tax assets.

(8) COMMON STOCK PLANS AND WARRANTS

(a)  Stock Options

In February 2000, the Company adopted the 2000 Equity Incentive Plan that
amended and restated the 1997 stock option/stock issuance plan. Under the plan,
up to an aggregate of 15,872,777 shares are reserved for issuance, including
shares reserved pursuant to the plans evergreen provisions. At December 31,
2003, there were 4,003,837 shares available for future issuance under the plan.
Pursuant to the plan, the Companys Board of Directors may issue common stock
and grant incentive and non-statutory stock options to employees, directors and
consultants. Incentive and non-statutory stock options generally have ten-year
terms and vest over four years. Some of the Companys options entitle option
holders to exercise their options early, in which case shares issued upon
exercise are restricted and subject to repurchase at the exercise price if
those employees are terminated prior to the vesting of their shares. The
remaining options are only exercisable as the employee, director or consultant
vests in the underlying stock.

The Company utilizes APB Opinion 25 in accounting for its plans. In the
year ended December 31, 2003, a total of 47,650 shares of restricted stock were
granted at less than fair value to members of the Companys Board of Directors
as compensation for board services rendered to the Company, resulting in
aggregate compensation expense of $128,000. In February 2003, the Companys
Board of Directors approved an Executive Performance-Based Compensation
Arrangement, pursuant to which the Company granted 750,000 shares of restricted
stock to certain executives and key employees. The restricted stock grants
cliff vest in six years and include accelerated vesting if certain financial or
product-based performance milestones are achieved. The stock-based compensation
charge associated with these grants was $1.2 million and is being recorded as
an expense ratably over six years, with such charges being accelerated if it
becomes apparent that the financial or product-based performance milestones
will be achieved. In addition, pursuant to this arrangement, $4.7 million of
cash compensation was approved and will become payable upon the achievement of
such financial or product-based milestones. However, as indicated in note
10(c), the Companys former President and Chief Executive Officers employment
terminated effective

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December 31, 2003, which triggered the reversal of the deferred portion of
the Companys restricted stock grant compensation expense in the amount of $0.3
million, as well as reducing the Companys cash compensation commitment by $1.5
million.

Stock option activity in the Companys 2000 Equity Incentive Plan during
2001, 2002 and 2003 was as follows:

|                             |                                 |  |           |            |                  |   |      |      | 
|---------------------------- | ------------------------------- |  | --------- | ---------- | ---------------- | - | ---- | ---- | 
|                             |                                 |  | Number of |            | Weighted-average
|                             |                                 |  | Shares    |            | exercise price  
|                             |                                 |  |           |            |                 
|Balance at January 1, 2001   |                                 |  | 6,622,322 |            |                  | $ | 5.66 |     
|                             | Granted at less than fair value |  |           | 100,000    |                  |   |      | 0.10 | 
|                             | Granted at fair value           |  |           | 4,258,555  |                  |   |      | 1.69 | 
|                             | Exercised                       |  |           | (307,803   | )                |   |      | 0.83 | 
|                             | Cancelled                       |  |           | (3,079,496 | )                |   |      | 6.28 | 
|                             |                                 |  |           |            |                  |   |      |     
|Balance at December 31, 2001 |                                 |  | 7,593,578 |            |                  |   | 3.33 |     
|                             | Granted at fair value           |  |           | 2,359,086  |                  |   |      | 3.53 | 
|                             | Exercised                       |  |           | (482,172   | )                |   |      | 1.44 | 
|                             | Cancelled                       |  |           | (1,241,225 | )                |   |      | 4.06 | 
|                             |                                 |  |           |            |                  |   |      |     
|Balance at December 31, 2002 |                                 |  | 8,229,267 |            |                  |   | 3.39 |     
|                             | Granted at fair value           |  |           | 2,143,450  |                  |   |      | 2.33 | 
|                             | Exercised                       |  |           | (292,929   | )                |   |      | 1.47 | 
|                             | Cancelled                       |  |           | (1,013,901 | )                |   |      | 4.42 | 
|                             |                                 |  |           |            |                  |   |      |     
|Balance at December 31, 2003 |                                 |  | 9,065,887 |            |                  |   | 3.09 |     
|                             |                                 |  |           |            |                  |   |      |     

Restricted shares issued for options exercised which are subject to
repurchase totaled 152 shares at December 31, 2003.

The following table summarizes information about stock options outstanding
under the Companys 2000 Equity Incentive Plan at December 31, 2003:

|                |  |             |                     |             |                     |                |           |           |          |                |      |  |  |  |           |  |  |   |      |  | 
|--------------- |  | ----------- | ------------------- | ----------- | ------------------- | -------------- | --------- | --------- | -------- | -------------- | ---- |  |  |  | --------- |  |  | - | ---- |  | 
|                |  |             | Options outstanding |             | Options Exercisable
|                |  |             |                     |             |                    
|                |  |             |                     |             |                     |                | Weighted  |           |          |                |      |  |  |  |           |  |  |   |     
|                |  |             |                     |             |                     |                | average   |           |          |                |      |  |  |  |           |  |  |   |     
|                |  |             |                     |             |                     |                | remaining |           | Weighted |                |      |  |  |  | Weighted 
|Range of        |  | Number      |                     | contractual |                     | average        |           | Number of |          | average       
|exercise prices |  | outstanding |                     | life        |                     | exercise price |           | Options   |          | exercise price
|                |  |             |                     |             |                     |                |           |           |          |               
|$0.15
   1.29  |  |             | 1,423,881           |             |                     |                | 6.5       |           |          | $              | 0.95 |  |  |  | 1,127,453 |  |  | $ | 0.92 | 
|1.44    2.51   |  |             | 1,771,759           |             |                     |                | 8.0       |           |          |                | 1.69 |  |  |  | 920,783   |  |  |   | 1.63 | 
|2.53    2.68   |  |             | 1,958,641           |             |                     |                | 8.5       |           |          |                | 2.59 |  |  |  | 812,985   |  |  |   | 2.56 | 
|2.69    3.49   |  |             | 2,163,522           |             |                     |                | 8.2       |           |          |                | 3.22 |  |  |  | 1,156,611 |  |  |   | 3.22 | 
|3.55
 10.80    |  |             | 1,748,084           |             |                     |                | 7.0       |           |          |                | 6.65 |  |  |  | 1,362,768 |  |  |   | 6.97 | 
|                |  |             |                     |             |                     |                |           |           |          |                |      |  |  |  |           |  |  |   |      | 
|                |  |             | 9,065,887           |             |                     |                | 7.8       |           |          |                | 3.09 |  |  |  | 5,380,600 |  |  |   | 3.32 | 
|                |  |             |                     |             |                     |                |           |           |          |                |      |  |  |  |           |  |  |   |      | 

In addition, the Company has sold or granted for services rendered to
employees, directors and consultants an aggregate of 1,177,399 shares of common
stock through stock grants under the plan at prices and values ranging from
$0.15 to $10.80 per share, which amount includes the 550,000 shares granted
pursuant to the Executive Performance-Based Compensation Arrangement, net of
200,000 shares granted under the Executive Performance-Based Compensation
Arrangement that were forfeited effective December 31, 2003 in connection with
the employment termination of the Companys former President and Chief
Executive Officer.

In 2002 the Company modified stock option grants for two departing members
of its Board of Directors. The Company accelerated the vesting on 97,225
options, which had a weighted average exercise price of $3.19. The Company also
extended the time period permitted to exercise these options and certain
options that were fully vested to one year. 140,000 options were affected by
the additional time period permitted to exercise and the weighted average
exercise price of those options was $2.73. The Company recorded compensation
charges of $36,000 based on the intrinsic value of the stock option grants at
the date of modification.

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In 2003 the Company modified stock option grants for a departing member of
its Board of Directors. The Company accelerated the vesting on 42,223 options,
which had a weighted average exercise price of $3.22. The Company also extended
the time period permitted to exercise these options and certain options that
were fully vested to one year. 86,666 options were affected by the additional
time period permitted to exercise and the weighted average exercise price of
those options was $2.54. The Company recorded compensation charges of $22,600
based on the intrinsic value of the stock option grants at the date of
modification.

Pursuant to the Companys acquisition of Contigo Software, Inc. in June
2000, the Company assumed certain stock option plans and the outstanding stock
options of Contigo (assumed plans). Stock options under the assumed plans
have been converted into the Companys stock options and adjusted to reflect
the conversion ratio as specified by the applicable acquisition agreement, but
are otherwise administered in accordance with the terms of the assumed plans.
Stock options under the assumed plans generally vest over three years and
expire ten years from date of grant. No additional stock options will be
granted under the assumed plans. 9,963 shares were exercised in the assumed
plans during the year ended December 31, 2003 and 169,834 options remain
outstanding.

Stock option activity in the assumed plans during 2001, 2002 and 2003 was
as follows:

|                             |           |  |           |          |                  |   |      |      | 
|---------------------------- | --------- |  | --------- | -------- | ---------------- | - | ---- | ---- | 
|                             |           |  | Number of |          | Weighted-average
|                             |           |  | Shares    |          | exercise price  
|                             |           |  |           |          |                 
|Balance at January 1, 2001   |           |  | 1,538,794 |          |                  | $ | 2.62 |     
|                             | Exercised |  |           | (724,528 | )                |   |      | 2.06 | 
|                             | Cancelled |  |           | (235,931 | )                |   |      | 4.82 | 
|                             |           |  |           |          |                  |   |      |     
|Balance at December 31, 2001 |           |  | 578,335   |          |                  |   | 2.42 |     
|                             | Exercised |  |           | (341,221 | )                |   |      | 1.77 | 
|                             | Cancelled |  |           | (57,317  | )                |   |      | 3.79 | 
|                             |           |  |           |          |                  |   |      |     
|Balance at December 31, 2002 |           |  | 179,797   |          |                  |   | 3.21 |     
|                             | Exercised |  |           | (9,963   | )                |   |      | 0.45 | 
|                             | Cancelled |  |           |         |                  |   |      |     | 
|                             |           |  |           |          |                  |   |      |     
|Balance at December 31, 2003 |           |  | 169,834   |          |                  |   | 3.37 |     
|                             |           |  |           |          |                  |   |      |     

The following table summarizes information about stock options outstanding
under the Companys assumed plans at December 31, 2003:

|                |  |             |                     |             |                     |                |           |           |          |                |      |  |  |  |          |  |  |   |      |  | 
|--------------- |  | ----------- | ------------------- | ----------- | ------------------- | -------------- | --------- | --------- | -------- | -------------- | ---- |  |  |  | -------- |  |  | - | ---- |  | 
|                |  |             | Options outstanding |             | Options Exercisable
|                |  |             |                     |             |                    
|                |  |             |                     |             |                     |                | Weighted  |           |          |                |      |  |  |  |          |  |  |   |     
|                |  |             |                     |             |                     |                | average   |           |          |                |      |  |  |  |          |  |  |   |     
|                |  |             |                     |             |                     |                | remaining |           | Weighted |                |      |  |  |  | Weighted
|Range of        |  | Number      |                     | contractual |                     | average        |           | Number of |          | average       
|exercise prices |  | outstanding |                     | life        |                     | exercise price |           | Options   |          | exercise price
|                |  |             |                     |             |                     |                |           |           |          |               
|$ 0.45
   2.72 |  |             | 49,520              |             |                     |                | 5.1       |           |          | $              | 1.17 |  |  |  | 49,520   |  |  | $ | 1.17 | 
|3.92    3.92   |  |             | 100,563             |             |                     |                | 6.1       |           |          |                | 3.92 |  |  |  | 100,563  |  |  |   | 3.92 | 
|6.08    6.08   |  |             | 19,751              |             |                     |                | 6.2       |           |          |                | 6.08 |  |  |  | 19,751   |  |  |   | 6.08 | 
|                |  |             |                     |             |                     |                |           |           |          |                |      |  |  |  |          |  |  |   |      | 
|                |  |             | 169,834             |             |                     |                | 5.8       |           |          |                | 3.37 |  |  |  | 169,834  |  |  |   | 3.37 | 
|                |  |             |                     |             |                     |                |           |           |          |                |      |  |  |  |          |  |  |   |      | 

(b)  Employee Stock Purchase Plan

In February 2000, the Board of Directors adopted the 2000 Employee Stock
Purchase Plan (ESPP). The ESPP allows participating employees to purchase
shares of common stock at a 15% discount from the market value of the stock as
determined on specific dates at six-month intervals. The Board of Directors
reserved 400,000 shares of common stock for issuance under the 2000 ESPP.
According to the Plan, commencing in 2001 and continuing through and including
January 1, 2009, the aggregate number of shares of common stock subject to the
ESPP will be increased by 3% of the lesser of the total number of shares of
common stock outstanding on each January 1, or the total number of shares
outstanding as of the effective date of the ESPP. The Board of Directors of
the Company may designate a smaller number of shares to be added to the share
reserve. As a result, an additional 1,402,037 shares of common stock were
reserved in January 2001, January 2002 and January 2003, respectively, which
represents 3% of the total number of shares outstanding as of the effective
date of the ESPP. As a result, the total

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common shares available for issuance pursuant to the ESPP is 4,606,111.
During 2001 employees purchased 291,704 shares at an average price of $1.01 per
share. During 2002 employees purchased an aggregate of 745,140 shares at an
average price of $0.765 per share. In February and August 2003 employees
purchased an aggregate of 561,479 shares and 398,667 shares, respectively, at
an average price of $0.82 per share and $0.86 per share, respectively. At
December 31, 2003, 2,609,121 shares were reserved for future issuance. At
December 31, 2003 approximately $328,000 in payroll deductions were withheld
from employees for future purchases under the plan. On February 13, 2004
employees purchased 281,752 shares at an average price of $1.99 per share. The
ESPP is a qualified plan under the applicable section of the Internal Revenue
Code and accordingly, no compensation expense has been recognized for purchases
under the plan.

(c)  Stock Purchase Warrants

In January 1999, in connection with obtaining a $3.0 million loan, the
Company issued warrants to purchase 86,538 shares of Series C preferred stock.
The warrants were exercisable at $1.04 per share. Upon completion of the
Companys initial public offering on July 28, 2000, the warrants, which expire
on July 24, 2005, were converted into warrants to purchase 57,692 shares of
common stock at $1.56 per share. The fair value of the warrants was $75,000, as
determined using the Black-Scholes option pricing model with the following
assumptions: no expected dividends, 75% volatility, risk-free interest rate of
6% and a term of 10 years. The fair value of the warrants was included in
interest expense over the term of the agreement. In January 2003, one of the
warrant holders notified the Company of its intent to utilize the net exercise
feature of this warrant. Accordingly, the warrant holder utilized 50,769 shares
of the warrant and the Company issued 28,176 shares of common stock.

In September 1999, in connection with obtaining a $1.5 million loan, the
Company issued warrants to purchase 15,026 shares of Series D Preferred stock.
The warrants were exercisable at $3.00 per share. Upon completion of the
Companys initial public offering on July 28, 2000, the warrants, which expire
on September 29, 2004, were converted into warrants to purchase 10,017 shares
of common stock at $4.50 per share. The fair value of the warrants was
$105,000, as determined using the Black-Scholes option pricing model with the
following assumptions: no expected dividends, 75% volatility, risk-free
interest rate of 6% and a term of 5 years. The fair value of the warrants was
scheduled to be included in interest expense over the term of the agreement. As
indicated in note 6 this loan was paid in full in November 2001 and
accordingly, the remaining interest expense associated with this warrant was
recognized at that time.

In June 2000, the Company issued a warrant to purchase 10,000 shares of
common stock. The warrant is exercisable at $8.00 per share and expires on June
30, 2005. The warrant was in exchange for certain marketing costs and was
expensed as sales and marketing costs at the grant date. The warrant became
exercisable on July 24, 2000, and is not contingent on counterparty
performance. The fair value of the warrant was $89,000 as determined using the
Black-Scholes option pricing model with the following assumptions: no expected
dividends, 75% volatility, risk-free interest rate of 6.5% and a term of five
years.

At December 31, 2003, the Company had total warrants outstanding to
purchase 29,744 shares of common stock at a weighted-average exercise price of
$4.72 per share. At December 31, 2002 and 2001, the Company had total warrants
outstanding to purchase 652,790 shares of common stock at a weighted-average
exercise price of $7.35.

(9) NOTE RECEIVABLE FROM OFFICER FOR STOCK

In connection with an issuance of restricted common stock on May 16, 2000,
the Company received a full recourse note receivable from its then chief
financial officer for $1,124,625, due in full on May 15, 2006. On November 21,
2000, this note was amended from a full recourse note to a note with the
underlying shares as the sole collateral. Accordingly, at that date the Company
began adjusting the note to the fair value of the underlying collateral through
compensation charges. In the first quarter of 2001 the chief financial officer
resigned and returned the restricted stock to the Company and the note
receivable was cancelled. Additionally, in the first quarter of 2001 in
connection with the chief financial officers resignation, the Company granted
250,000 shares of common stock and a stock option grant for 100,000 shares of
common stock and recorded stock-based compensation expense associated with
these grants of $528,000.

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(10) COMMITMENTS AND CONTINGENCIES

(a)  Operating Leases

The Company leases office facilities under operating lease agreements that
expire through 2009. Two of the office facilities are leased from entities that
are controlled by executive officers or directors of the Company. Rent expense
related to related party leases was $1,053,324, $1,033,953 and $972,780 for the
years ended December 31, 2003, 2002 and 2001, respectively. Future minimum
lease payments are as follows (in thousands):

|                                    |  |       |       |         |  |              |       | 
|----------------------------------- |  | ----- | ----- | ------- |  | ------------ | ----- | 
|                                    |  |       |       |         |  | Portion     
|                                    |  |       |       |         |  | attributable
|                                    |  |       |       |         |  | to related  
|                                    |  | Total |       | parties
|                                    |  |       |       |        
|2004                                |  | $     | 2,438 |         |  | $            | 879   | 
|2005                                |  |       | 2,002 |         |  |              | 900   | 
|2006                                |  |       | 1,064 |         |  |              | 921   | 
|2007                                |  |       | 882   |         |  |              | 845   | 
|2008                                |  |       | 817   |         |  |              | 817   | 
|Thereafter                          |  |       | 629   |         |  |              | 629   | 
|                                    |  |       |       |         |  |              |       | 
|Total future minimum lease
payments |  | $     | 7,832 |         |  | $            | 4,991 | 
|                                    |  |       |       |         |  |              |       | 

Total rent expense for the years ended December 31, 2003, 2002 and 2001
was $1,439,561, $1,377,057, and $1,751,013, respectively. As part of the
restructuring described in note 12 the Company has subleased all closed
facilities, each of which have leases that expire at various dates. Future
minimum sublease receivables for the subleased facilities, as of December 31,
2003, approximate $1.8 million that will be received through September 2005.
Future minimum sublease receivables for each of the years subsequent to
December 31, 2003 are as follows (in thousands): 2004$1,091; 2005$683. The
future minimum sublease receivables have been factored into any adjustments the
Company has made to the restructuring reserve for each specific office.

(b)  Purchase Commitments

The Company has commitments for bandwidth usage and telephony services
with various service providers. The total commitment as of December 31, 2003
was approximately $26.3 million to be expended through 2005. Commitments for
bandwidth usage and telephony services for each of the years subsequent to
December 31, 2003 are as follows (in thousands): 2004$16,638; 2005$9,661.
Some of these agreements may be amended to either increase or decrease the
minimum commitments during the life of the contract.

The Company has made a commitment to its primary conferencing bridge
provider for the purchase of equipment. The total commitment as of December
31, 2003 was approximately $6.4 million to be expended through 2005. See note
15.

(c)  Employment Contracts

In February 2003 the Companys Board of Directors approved an Executive
Performance-Based Compensation Arrangement. Pursuant to this arrangement, at
December 31, 2003, $3.2 million of cash compensation, net of the cancellation
below, will become payable in the future upon the achievement of certain
financial or product-based milestones or, in the Boards discretion, upon a
change in control of the Company. $0.7 million relates to product-based
milestones that must be achieved before February 19, 2006. $2.5 million relates
to financial milestones that must be achieved before February 19, 2007. In
March 2004, a product-based milestone was achieved and accordingly, the Company
paid $200,000 pursuant to this commitment and accelerated the vesting on
100,000 shares of common stock.

In October 2003 the Companys President and Chief Executive Officer
entered into a separation agreement to terminate his employment as of December
31, 2003. Pursuant to the terms of the separation agreement, the Company
recognized approximately $0.6 million in the fourth quarter of 2003 related to
severance costs. In addition, 200,000 shares of common stock associated with
the Executive Performance-Based Compensation

F-21



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Arrangement were subject to forfeiture and were cancelled as of December
31, 2003, which triggered the reversal of the deferred portion of his
restricted stock grant compensation expense in the amount of $0.3 million. In
addition, the cash compensation commitment associated with the Executive
Performance-Based Compensation Arrangement was reduced by $1.5 million as of
December 31, 2003.

In January 2004, the Company entered into an employment agreement with its
new President and Chief Executive Officer. The agreement continues until
terminated by either the executive or the Company, and provides for a
termination payment under certain circumstances. The maximum amount payable
upon termination pursuant to the agreement is $290,000.

In addition, the Company has a letter agreement with two of its executive
officers, which would require the Company to pay $0.2 million if the executive
officers were terminated under certain conditions set forth in the agreement.

(d)  Litigation

From time to time, the Company has been subject to legal proceedings and
claims in the ordinary course of business. On August 19, 2003, Edisync Systems
LLC, a Colorado-based limited liability company, filed a lawsuit against the
Company and some of its competitors in the United States District Court for the
District of Colorado alleging patent infringement. In the third quarter of
2003, the Company believed that an estimated loss of $0.3 million was probable,
and accordingly accrued for such costs as of September 30, 2003. On December
18, 2003, the Company entered into a settlement agreement with the plaintiff,
which required the Company to pay $0.3 million, half of which was paid in the
fourth quarter of 2003 with the remainder paid in the first quarter of 2004.
This expense has been recorded in general and administrative expenses in the
accompanying statement of operations for 2003. The Company is currently not
party to any other material legal proceedings.

(11) EMPLOYEE BENEFIT PLAN

The Company sponsors a defined contribution 401(k) plan that allows
eligible employees to contribute up to 15% of their compensation up to the
maximum allowable amount under the Internal Revenue Code. The Company did not
make a discretionary employer matching or profit sharing contribution to the
plan in 2003, 2002 or 2001.

(12) RESTRUCTURING RESERVES

The Company recorded charges totaling $0.8 million in the first quarter of
2001 for restructuring activities. The Companys restructuring activities
included workforce reductions, the sale or other disposition of assets,
contract cancellations and the closure of several remote sales offices. In
addition, as described in note 13, the Company incurred contract termination
expenses of $1.8 million in the first quarter of 2001. In the second quarter of
2001, the Company incurred severance charges of $0.1 million and recorded a
favorable restructuring reserve adjustment of $1.4 million primarily due to
successfully subleasing several remote offices with terms more favorable than
originally anticipated and also consummating an early termination settlement of
a software contract. In the third quarter of 2001, the Company recorded a net
restructuring charge of $0.3 million which consisted of a $0.5 million charge
to close two remote sales offices, additional charges associated with offices
that remained vacant and a $0.2 million favorable restructuring adjustment as a
result of successfully terminating two facility lease commitments on terms more
favorable than expected. In the fourth quarter of 2001 and in the first and
second quarters of 2002, the Company recorded a restructuring charge of $0.1,
$0.2 and $0.4 million, respectively, to record additional charges associated
with offices that remained vacant while the Company continued its attempts to
sublease these facilities.

F-22



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##### Table of Contents



Restructuring reserves and activity for 2001, 2002 and 2003 are detailed
below (in thousands):

|                                                    |  |                 |       |             |  |               |        |                   |  |                 |        |   |  |   |       | 
|--------------------------------------------------- |  | --------------- | ----- | ----------- |  | ------------- | ------ | ----------------- |  | --------------- | ------ | - |  | - | ----- | 
|                                                    |  |                 |       |             |  | Restructuring |        |                   |  |                 |        |   |  |  
|                                                    |  | Reserve Balance |       | Reserve     |  |               |        |                   |  | Reserve Balance
|                                                    |  | January 1, 2001 |       | Adjustments |  | Payments      |        | December 31, 2001
|                                                    |  |                 |       |             |  |               |        |                  
|Consulting fees                                     |  | $               | 155   |             |  | $             |       |                   |  | $               | (155   | ) |  | $ |      | 
|Contract cancellation charges                       |  |                 | 819   |             |  |               | (546   | )                 |  |                 | (273   | ) |  |   |      | 
|Lease obligations, net of
estimated sublease income |  |                 | 3,390 |             |  |               | (579   | )                 |  |                 | (1,235 | ) |  |   | 1,576 | 
|                                                    |  |                 |       |             |  |               |        |                   |  |                 |        |   |  |   |       | 
|Totals                                              |  | $               | 4,364 |             |  | $             | (1,125 | )                 |  | $               | (1,663 | ) |  | $ | 1,576 | 
|                                                    |  |                 |       |             |  |               |        |                   |  |                 |        |   |  |   |       | 

|                                                    |  |                 |       |             |  |               |     |                   |  |                 |        |   |  |   |       | 
|--------------------------------------------------- |  | --------------- | ----- | ----------- |  | ------------- | --- | ----------------- |  | --------------- | ------ | - |  | - | ----- | 
|                                                    |  |                 |       |             |  | Restructuring |     |                   |  |                 |        |   |  |  
|                                                    |  | Reserve Balance |       | Reserve     |  |               |     |                   |  | Reserve Balance
|                                                    |  | January 1, 2002 |       | Adjustments |  | Payments      |     | December 31, 2002
|                                                    |  |                 |       |             |  |               |     |                  
|Lease obligations, net of estimated sublease
income |  | $               | 1,576 |             |  | $             | 584 |                   |  | $               | (1,135 | ) |  | $ | 1,025 | 
|                                                    |  |                 |       |             |  |               |     |                   |  |                 |        |   |  |   |       | 

|                                                    |  |                 |       |             |  |               |   |                   |  |                 |      |   |  |   |     | 
|--------------------------------------------------- |  | --------------- | ----- | ----------- |  | ------------- | - | ----------------- |  | --------------- | ---- | - |  | - | --- | 
|                                                    |  |                 |       |             |  | Restructuring |   |                   |  |                 |      |   |  |  
|                                                    |  | Reserve Balance |       | Reserve     |  |               |   |                   |  | Reserve Balance
|                                                    |  | January 1, 2003 |       | Adjustments |  | Payments      |   | December 31, 2003
|                                                    |  |                 |       |             |  |               |   |                  
|Lease obligations, net of estimated sublease
income |  | $               | 1,025 |             |  | $             |  |                   |  | $               | (560 | ) |  | $ | 465 | 
|                                                    |  |                 |       |             |  |               |   |                   |  |                 |      |   |  |   |     | 

At December 31, 2003, the Companys restructuring reserves totaled $0.5
million, of which $0.3 million is current and solely relates to lease costs,
which will be relieved as payments are made. The Company has adjusted its
restructuring reserves in the past based on what it believed would be the most
probable outcome. Future minimum sublease receivables for all subleased
facilities, as of December 31, 2003, approximate $1.8 million that are
scheduled to be received through September 2005. The actual cost savings that
the Company anticipated as a result of this restructuring effort have been
realized, with the exception of the restructuring costs associated with the
closure of remote sales facilities. Due to the real estate market that existed,
it took the Company longer than expected to sublease or otherwise terminate its
lease obligations in certain cities. The Company monitors and adjusts, as
warranted, its restructuring reserve associated with remote sales facilities
based on current facts and circumstances. At December 31, 2003 all offices
included in the restructuring reserve have been subleased and the Company may
be required to record additional restructuring charges on certain subleased
offices if subtenants default on these commitments.

(13) CONTRACT TERMINATION EXPENSES

On March 30, 2001, the Company agreed to terminate a software license
agreement. In connection with the termination, the Company incurred a charge of
approximately $1.8 million in the first quarter of 2001, primarily related to
the unamortized cost of the software license. Part of the consideration given
by the Company to terminate the license agreement was the return of an
investment in the software companys common stock, which resulted in the
recognition of an additional realized loss of $1.2 million on the investment in
March 2001. The loss on the sale of common stock is reflected in the 2001
Consolidated Statement of Operations in other income (expense).

(14) ASSET IMPAIRMENT CHARGES

In the second quarter of 2001, the Company performed a strategic review of
its fixed assets and adopted a plan to dispose of excess equipment. This review
consisted of identifying areas where there was excess capacity and, as a
result, excess equipment. This review was prompted by the slowdown in general
economic conditions that continued through the second quarter of 2001. The
Company completed a significant portion of the sale and disposal of the assets
in 2001 and completed the remainder in the first half of 2002. In connection
with the plan of disposal, the Company determined that the carrying values of
some of the underlying assets exceeded their fair values, and, as a result,
recorded an impairment loss of $2.7 million in the second quarter of 2001. The
asset write-offs were determined under the held for disposal model. In
addition, the Company wrote off approximately $0.1 million in intangible assets
primarily related to trademarks associated with its previous name.

F-23



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In the third quarter of 2001 the board of directors of Evoke
Communications Europe unanimously approved a plan of liquidation and
dissolution and, as a result, Evoke Communications Europe is being liquidated
and its operations have ceased. In the fourth quarter of 2001, the Company
received equipment valued at $1.8 million and anticipated receiving, prior to
December 31, 2002, cash of approximately $1.0 million. The equipment was
transferred to the Company at net book value. The Company recorded an
impairment charge of $1.8 million in 2001, which represented the excess of a
note receivable over the cash and equipment it expected to receive.

In the fourth quarter of 2002, the Company recorded a reversal of $48,000
based upon revised estimates of the cash to be received upon complete
dissolution and liquidation of Evoke Communications Europe.

In the fourth quarter of 2002, the Company identified, and removed from
service, equipment that was no longer required or had become obsolete. The
asset write-offs were determined under the long-lived assets to be disposed of
by sale model. The Company completed the sale and disposal of the assets in
2003. In connection with the plan of disposal, the carrying amount of the
assets exceeded the fair value of the assets less cost to sell, and as a
result, the Company recorded an impairment loss of $186,000 in the fourth
quarter of 2002.

(15) RELATED PARTY TRANSACTIONS

In the third quarter of 2003 the Company sold a software license to the
Companys primary hardware vendor (Voyant Technologies, Inc.) in the amount of
$4.0 million, $1.1 million of which was recognized as revenue in the third
quarter of 2003 and $2.9 million of which was recognized as revenue in the
fourth quarter of 2003. The Company also entered into an agreement with the
same vendor to purchase approximately $10.3 million in equipment to be expended
through December 31, 2005. At the time of the transaction the vendor was a
privately held company and shared a common board member with the Company. On
January 6, 2004, Polycom, Inc., a publicly traded company, acquired Voyant
Technologies, Inc. and the common board member relationship ceased.

For the years ended December 31, 2003, 2002 and 2001, the Company paid
consulting fees and commissions in the amount of $176,000, $60,000 and $84,000,
respectively, to 2Com Communications, LLC, an entity controlled by the
brother-in-law of the Companys current Chairman of the Board and former
president and chief executive officer.

(16) SIGNIFICANT CUSTOMERS AND SUPPLIERS

For the year ended December 31, 2003, the Company did not have significant
concentrations with respect to sales or accounts receivable. A significant
concentration is represented by sales or accounts receivable equal to or
greater than 10% or the Companys total sales or accounts receivable for the
year. In 2002, Qwest Communications International, Inc. (Qwest) accounted for
14.3% of total revenue. The receivable due from Qwest at December 31, 2002, all
of which was current, was approximately $2.5 million or 25.2% of the Companys
total accounts receivable balance. In 2001, the Company did not have
significant concentrations with respect to sales or accounts receivable.

The Company purchases key components of its telephony technology platform
from a single supplier. These components form the basis of the Companys audio
conferencing services. See note 15. In 2003, 2002 and 2001, the Company
purchased $5.7 million, $3.6 million and $2.6 million, respectively, in
equipment and services from this supplier.

(17) VALUATION AND QUALIFYING ACCOUNTS

Valuation and qualifying accounts for each of the three years ended
December 31, 2003 is detailed below (in thousands):

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|                              |                                          |                                        |  |              |        |            |  |      |        |  |  |  |        |            |  |  |        | 
|----------------------------- | ---------------------------------------- | -------------------------------------- |  | ------------ | ------ | ---------- |  | ---- | ------ |  |  |  | ------ | ---------- |  |  | ------ | 
|                              |                                          |                                        |  | Balance at   |        |            |  |      |        |  |  |  |        | Balance at
|                              |                                          |                                        |  | beginning of |        |            |  |      |        |  |  |  |        | end of    
|Description                   |                                          | year                                   |  | Additions    |        | Deductions |  | year
|                              |                                          |                                        |  |              |        |            |  |     
|Year ended December 31, 2003: |                                          |                                        |  |              |        |            |  |      |        |  |  |  |        |            |  | 
|                              | Allowances deducted from asset accounts: |                                        |  |              |        |            |  |      |        |  |  |  |        |            |  |  |       
|                              |                                          | Allowance for doubtful accounts        |  | $            | 850    |            |  |      | 371    |  |  |  | (921   | )          |  |  | 300    | 
|                              |                                          | Deferred tax asset valuation allowance |  |              | 48,228 |            |  |      |       |  |  |  | (1,235 | )          |  |  | 46,993 | 
|Year ended December 31, 2002: |                                          |                                        |  |              |        |            |  |      |        |  |  |  |        |            |  | 
|                              | Allowances deducted from asset accounts: |                                        |  |              |        |            |  |      |        |  |  |  |        |            |  |  |       
|                              |                                          | Allowance for doubtful accounts        |  |              | 775    |            |  |      | 464    |  |  |  | (389   | )          |  |  | 850    | 
|                              |                                          | Deferred tax asset valuation allowance |  |              | 46,927 |            |  |      | 1,301  |  |  |  |       |            |  |  | 48,228 | 
|Year ended December 31, 2001: |                                          |                                        |  |              |        |            |  |      |        |  |  |  |        |            |  | 
|                              | Allowances deducted from asset accounts: |                                        |  |              |        |            |  |      |        |  |  |  |        |            |  |  |       
|                              |                                          | Allowance for doubtful accounts        |  |              | 765    |            |  |      | 1,014  |  |  |  | (1,004 | )          |  |  | 775    | 
|                              |                                          | Deferred tax asset valuation allowance |  |              | 36,498 |            |  |      | 10,429 |  |  |  |       |            |  |  | 46,927 | 

(18) SUBSEQUENT EVENT

On January 28, 2004, the Company announced the hiring of Donald F.
Detampel, Jr. as President and Chief Executive Officer. Simultaneously with the
commencement of Mr. Detampels employment, the Company issued a stock option
grant for 2.0 million shares of common stock with an exercise price of $3.28
per share. The Company also issued 275,000 shares of restricted stock which
vest as follows: 50,000 shares are immediately vested; 100,000 shares vest
after the completion of 24 months of continuous service and 125,000 shares vest
after the completion of 37 months of continuous service. The value of the
restricted stock was $3.30 per share and the Company recorded $0.9 million in
deferred stock-based compensation expense in January 2004.

F-25



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##### Table of Contents






EXHIBIT INDEX

|            |  |                                                                                                                                                                                                                                                                                                           
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                           
|2.1(1)      |  | Agreement and Plan of Reorganization by and among Registrant,
Contigo Software, Inc. and CSI Acquisition Corporation dated
as of March 24, 2000.                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                           
|2.2(1)      |  | Amendment to Agreement and Plan of Reorganization by and among
Registrant, Contigo Software, Inc. and CSI Acquisition
Corporation dated as of April 7, 2000.                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                           
|2.3(4)      |  | Asset Purchase Agreement by and among Registrant, InterAct
Conferencing, LLC and Carolyn Bradfield dated as of April 17,
2002.                                                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                           
|3.1(1)      |  | Restated Certificate of Incorporation.                                                                                                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                           
|3.2(1)      |  | Amended and
Restated Bylaws.                                                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                           
|3.3(3)      |  | Certificate of Ownership, as filed May 15, 2001, merging EC
Merger, Inc. into Evoke Communications, Inc. under the name
Raindance Communications, Inc. 4.1 Reference is made to
Exhibits 3.1 and 3.2.                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                           
|4.1         |  | Reference is made to
Exhibits 3.1 and 3.2.                                                                                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                                           
|4.2(3)      |  | Raindance Communications, Inc. specimen stock certificate
representing shares of common stock.                                                                                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                           
|10.1(1)     |  | 2000 Equity Incentive Plan.                                                                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                           
|10.2(1)     |  | 2000 Employee Stock Purchase Plan.                                                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                           
|10.3(1)     |  | Amended and Restated Stockholders Agreement, among the
Registrant, certain of its stockholders and certain of its
management, dated March 29, 2000.                                                                                                                                                      
|            |  |                                                                                                                                                                                                                                                                                                           
|10.6(1)     |  | Form of Indemnity Agreement entered into between Registrant
and each of its directors and executive officers.                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                           
|10.12(1)    |  | Lease, dated March 3, 1997, between BMC Properties, LLC and
Registrant.                                                                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                                                                                                                           
|10.13(1)    |  | .. 10.13(1) Lease, dated June 6, 1999, between BLC
Properties, LLC and Registrant.                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                           
|10.14(1)+   |  | Source Code and
Object Code License Agreement, dated December 29, 1999,
between Registrant and AudioTalk Networks, Inc.                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                                                                                                                           
|10.16(1)    |  | Personal Services Agreement, dated November 17, 1999, between
Registrant and Paul Berberian. 10.16.1(5) Amendment to
Personal Services Agreement, dated June 26, 2002, between the
Company and Paul Berberian.                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                           
|10.18       |  | Offer Letter,
dated January 27, 2004, between Registrant and Donald F.
Detampel, Jr.                                                                                                                                                                                                                      
|            |  |                                                                                                                                                                                                                                                                                                           
|10.20(1)+   |  | Shareholders Agreement, dated June 9,
2000, between the Registrant and Evoke Communications B.V.                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                           
|10.21(1)+   |  | License and Services Agreement, dated June 21, 2000,
between the Registrant and Evoke Communications B.V.                                                                                                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                           
|10.24(2)    |  | Amendment to Evoke Communications, B.V. Shareholders
Agreement, dated October 1, 2000, between Registrant and @viso
Limited.                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                           
|10.26(7)    |  | Executive Performance-Based Compensation Arrangement                                                                                                                                                                                                                                                      
|            |  |                                                                                                                                                                                                                                                                                                           
|21.1(1)     |  | Subsidiaries of Registrant.                                                                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                           
|23.1        |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                      
|            |  |                                                                                                                                                                                                                                                                                                           
|24.1        |  | Powers of attorney (included on signature page).                                                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                           
|31.1        |  | Certification pursuant to 18 U.S.C. Section 1350 by the Chief
Executive Officer, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed with the Securities and
Exchange Commission as Exhibit 31.1 to the companys Annual
Report on Form 10-K for the year ended December 31, 2003.





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##### Table of Contents



|            |  |                                                                                                                                                                                                                                                                                                                                        
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                                                        
|31.2        |  | Certification pursuant to 18 U.S.C. Section 1350 by the Chief
Financial Officer, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed with the Securities and
Exchange Commission as Exhibit 31.2 to the companys Annual
Report on Form 10-K for the year ended December 31, 2003.                             
|            |  |                                                                                                                                                                                                                                                                                                                                        
|32.1        |  | Certifications pursuant to 18 U.S.C. Section 1350 by the Chief
Executive Officer and Chief Financial Officer, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
filed with the Securities and Exchange Commission as Exhibit
32.1 to the companys Annual Report on Form 10-K for the year
ended December 31, 2003.

|    |  |                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------
|+   |  | Confidential treatment granted with respect to portions of these
exhibits.                                                     
|   
|(1) |  | Incorporated by reference to the Registrants Registration Statement on
Form S-1 No. 333-30708.                                
|   
|(2) |  | Incorporated by reference to the Registrants Annual Report on Form
10-K (File No. 000-31045) as filed on March 29, 2001.      
|   
|(3) |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q (File No. 000-31045) as filed on August 14, 2001.  
|   
|(4) |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q (File No. 000-31045) as filed on May 15, 2002.     
|   
|(5) |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q (File No. 000-31045) as filed on August 14, 2002.  
|   
|(6) |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q (File No. 000-31045) as filed on November 14, 2003.
|   
|(7) |  | Incorporated by reference to the Registrants Annual Report on Form
10-K (File No. 000-31045) as filed on March 26, 2003.      
|   
|    |  | (b) Reports on Form 8-K.                                                                                                       



| |                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On October 22, 2003, we filed a Form 8-K furnishing under Item
12 our press release announcing our earnings for the quarter ended
September 30, 2003.               
|
| | On January 29, 2004, we filed a Form 8-K furnishing under Item
5 announcing the appointment of Donald F. Detampel, Jr. as our
President and Chief Executive Officer.
|
| | On February 18, 2004, we filed a Form 8-K furnishing under
Item 12 our press release announcing our earnings for the quarter and
year ended December 31, 2003.