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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K



| | x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934    
| | - | -----------------------------------------------------------------------------------------
|
| |   | For the fiscal year ended December 31, 2002                                              
|
| | 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 17, 2003,
there were 53,258,850 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 28, 2002) was
approximately $250,128,720. 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, 2002. 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 and 13) is incorporated
by reference to portions of the registrants definitive proxy statement for the
2003 Annual Meeting of Stockholders which will be filed with the Securities and
Exchange Commission within 120 days after the close of the 2002 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           
|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. CONTROLS AND PROCEDURES                                                                       
|PART IV                                          
|                                                  | ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                  
|SIGNATURES                                       
|INDEX TO EXHIBITS                                
|EX-10.26 Executive Performance-Based Compensation
|EX-23.1 Consent of KPMG LLP                      
|EX-99.1 CEO and CFO Certificate                  



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RAINDANCE COMMUNICATIONS, INC.

Form 10-K

For the Fiscal Year Ended December 31, 2002

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                                                  |  | 13  
|Item                          |  | 7  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 15  
|Item                          |  | 7A |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 38  
|Item                          |  | 8  |  | Consolidated Financial Statements and Supplementary Data                              |  | 38  
|Item                          |  | 9  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 38  
|PART III                      |  |    |  |                                                                                       |  |     
|Item                          |  | 10 |  | Directors and Executive Officers of the Registrant                                    |  | 39  
|Item                          |  | 11 |  | Executive Compensation                                                                |  | 39  
|Item                          |  | 12 |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 39  
|Item                          |  | 13 |  | Certain Relationships and Related Transactions                                        |  | 39  
|Item                          |  | 14 |  | Controls and Procedures                                                               |  | 39  
|PART IV                       |  |    |  |                                                                                       |  |     
|Item                          |  | 15 |  | Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K          |  | 40  
|SIGNATURES AND CERTIFICATIONS |  | 42

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 About Us/Investors/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
About Us/Investors/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 simple, reliable and cost-effective tools for remote meetings
and events. Our business-to-business communication services are based on
proprietary architecture that integrates traditional telephony technology with
real-time interactive web tools. From a simple audio conference call to a fully
collaborative online event, our customers can choose the best solution to meet
their communication needs. With our services, users initiate, control and
monitor live and recorded one-to-one, one-to-many and many-to-many
communication events including everyday business meetings, sales presentations,
employee training sessions and product demonstrations using only a telephone
and a standard web browser. We sell these services to large and medium-sized
corporations in diverse vertical markets as well as to resellers of
conferencing and communications services through our direct and indirect sales
forces. 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.

We were incorporated in Delaware in April 1997. We first recorded revenue
in 1998 and have incurred net losses every year since inception. In the fourth
quarter of 2002, we achieved quarterly net income for the first time. We began
offering our Web and Phone Conferencing service in April 1999 and our Web
Conferencing Pro service upon our acquisition of Contigo Software, Inc. in June
2000. Our principal executive offices are located at 1157 Century Drive,
Louisville, Colorado 80027.

Remote Meeting Solutions

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

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| |   |  | Our remote meeting services offer the following benefits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Integrated Web and Audio Functions.For everyday conference calls,
meeting moderators can use their personal conference 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 participation. We provide
customers simple and convenient remote communications solutions with
access to audio and web 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:

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 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.

Web and Phone Conferencing.Our reservationless conferencing service,
called Web and Phone 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 number 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 presentations
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.

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Operator-Assisted Conferencing.Our Operator-Assisted Conferencing service
provides a higher level of personalized operator support as well as unique
features for 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 2500 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 Web and Phone 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 is a new service that
became available in the first quarter of 2003.

Future Service Offerings

In 2003, we expect to launch our next-generation services and network.
Built on multimedia architecture that integrates audio, web and video
technologies, our next-generation service will be available in a limited
customer preview at the beginning of the second quarter of 2003, with general
availability in the second half of 2003.

In addition, we intend to continue leveraging the infrastructure,
technologies, and proprietary systems that we have developed for our existing
services to facilitate the rapid deployment of service enhancements and future
business communication services.

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, 2002, we had 2,986 revenue generating customers. In 2002,
direct customers accounted for 86% 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 distribution partners also
use our services internally. In 2002, we generated 14% of our revenue from
these relationships. For the year ended December 31, 2002, we recorded sales to
Qwest Communications International, Inc. totaling 14.3% of total revenue.

Additionally, our results typically fluctuate based on seasonal sales
patterns. Our operating results have shown decreases in our usage-based
services around 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 and Internet communication technologies; and

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| |  | 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 400 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.

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.

Research and Development

Our research and development efforts are currently focused on improving
the functionality and performance of our existing services, as well as
developing new services and enhancements to meet the changing needs of our
diverse customer base.

We devote a substantial portion of our resources to developing new
services and features, enhancing existing services, expanding and improving the
Internet and telephony technologies we use and strengthening our technological
expertise. We believe our success will depend, in part, on our ability to
develop and introduce new services and enhancements to our existing services.
We have made, and expect to continue to make, significant investments in
research and development.

We expensed approximately $8.0 million, $5.7 million and $7.6 million
related to research and development activities in the years ended December 31,
2000, 2001 and 2002, respectively. As of March 17, 2003, we had a total of 46
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 17, 2003, we had 121 full-time employees
engaged in sales and marketing. The following segments outline our direct and
indirect sales initiatives:

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| |  | Direct Sales Force. Our direct sales force targets our services
primarily to 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. A
significant percentage of our direct sales force compensation is
commission based.                                                                               
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Strategic Sales Force. Our strategic sales force focuses on primarily
large corporations, such as telecommunications carriers and large
corporations with extensive distribution channels or usage needs for
remote communication services.                                                                                                                                                                                                       
| 
| |  | Indirect Sales Force. 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. We
private label or co-brand our services for these partners depending on
their requirements.

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 17, 2003, we
employed 30 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 margins, loss of market share and reduced acceptance of our
services.



|  |  | We believe that the primary competitive factors in the web conferencing services market include:
|- |  | ------------------------------------------------------------------------------------------------
| 
| |  | ease of use of services and breadth of features;                                                
| 
| |  | quality and reliability of communication services;                                              
| 
| |  | pricing;                                                                                        
| 
| |  | quality of customer service;                                                                    
| 
| |  | brand identity;                                                                                 
| 
| |  | compatibility with new and existing communication formats;                                      

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| |  | access to and penetration of distribution channels necessary to achieve broad distribution;     
|- |  | ------------------------------------------------------------------------------------------------
| 
| |  | 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.

Although we believe our services currently compete favorably with respect
to these factors, 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 recently announced its intention to acquire Placeware, a private
company offering web conferencing services. In addition, some large software
providers, such as Oracle and IBM, have announced their intention to provide
web conferencing services in addition to their software offerings. 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 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 Conference Plus, Genesys,
Intercall and Premier Conferencing. In addition, we compete with resellers of
these services. 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.

Intellectual Property

The success of our business is substantially dependent on the proprietary
systems that we have developed. Currently, we have three issued patents. These
patents relate to the collaborative web touring feature and the record and
playback functionality of our Web Conferencing Pro service. We have two pending
patent applications covering additional aspects of our Web Conferencing Pro
service. We also have a patent application on file that relates to certain
aspects of our Web and Phone Conferencing service. In addition, we recently
filed four provisional patent applications covering aspects of our
next-generation web conferencing network infrastructure and service. Our
current and future patent applications may fail to 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.

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 and Raindance
Communications are registered trademarks owned by us, all other company and
product names herein may be trademarks of their respective owners.

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Acquisitions

In April 2002, we acquired substantially all of the assets of InterAct
Conferencing, LLC (InterAct), a nationwide reseller of audio and web
conferencing services. In addition to InterActs assets, we assumed certain
liabilities of InterAct as of April 30, 2002, consisting primarily of accounts
payable and a $125,000 line of credit. 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 who became an officer of
Raindance upon the completion of the acquisition. The aggregate consideration
was approximately $11.2 million, including $3.8 million in cash and 2,198,581
shares of our common stock. As a result of the acquisition, we expanded our
sales force, increased our revenue and reduced our net loss for the year ended
December 31, 2002. Effective May 1, 2002, the results of InterActs operations
are included in our consolidated financial statements.

Employees

As of March 17, 2003, we employed 221 full-time people. The employees
included 24 in general and administrative functions, 30 in operations, 121 in
sales and marketing and 46 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, 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 $59,205 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 $17,693 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 9,000 square feet. The lease obligation
commenced in May 2002 and has a maximum term of 5 years. 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 eight other states, two of which
the company intends to keep for existing satellite sales offices and the
remainder of which the company is currently subleasing or intends to sublease.
At December 31, 2002, the Company occupied three offices in Colorado, two in
California, one in Georgia and one in Texas. 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. Although we are not currently involved in any
material legal proceedings, we may in the future be subject to legal disputes.
Any claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources. We are not aware of any legal
proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse effect on our business.




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 2002.

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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 the common stock as of the
close of business on March 17, 2003 was $2.20 per share. As of March 17, 2003,
we had approximately 259 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
|               |  |      |      |    
|2001:          |  |      |      |     |  |   |      | 
|First Quarter  |  | $    | 2.72 |     |  | $ | 1.06 | 
|Second Quarter |  | $    | 2.00 |     |  | $ | 1.16 | 
|Third Quarter  |  | $    | 2.45 |     |  | $ | 0.79 | 
|Fourth Quarter |  | $    | 7.00 |     |  | $ | 2.02 | 
|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 to our definitive Proxy Statement to be filed in
connection with the Annual Meeting of Stockholders to be held on June 5, 2003.

Recent Sales of Unregistered Securities

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.

The effective date of our first registration statement, filed on Form S-1
under the Securities Act of 1933, as amended (No. 333-30708), relating to our
initial public offering of our Common Stock, was July 25, 2000. Aggregate
gross proceeds from the offering were $56.0 million. In connection with the
offering, we paid a total of approximately $3.9 million in underwriting
discounts and commissions and $1.8 million in other offering costs and
expenses. After deducting the underwriting discounts and commissions and the
offering costs and expenses, our net proceeds from the offering were
approximately $50.3 million. No payments constituted direct or indirect
payments to any of our directors, officers or general partners or their
associates, to persons owning 10% or more of any class of our equity securities
or to any of our affiliates.

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From the time of receipt through December 31, 2002, we have used all of
the net proceeds from the offering for research and development activities,
capital expenditures, repayment of indebtedness, working capital, merger and
acquisition expenses and other general corporate purposes. None of the net
proceeds of the initial public offering were paid directly or indirectly to any
of our directors, officers or general partners or their associates, to persons
owning 10% or more of any class of our equity securities or to any of our
affiliates.

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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, 2002, and the balance sheet
data at December 31, 2001 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, 1998 and 1999 and the balance sheet data at December 31, 1998,
1999 and 2000 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 three
years ended December 31, 2002 and the consolidated balance sheet data as of
December 31, 2001 and 2002 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 the year ended December 31,
2002 and the consolidated balance sheet data as of December 31, 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 necessarily indicative of the results to be expected in the
future.

In 2002, Statement of Financial Accounting Standards 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 $26.5 million in
2002 and $12.2 million in 2003 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,             
|                                                                            |                                                                                      |                          |        |                                      
|                                                                            |                                                                                      |                          |        | 1998                                  |        | 1999 |          | 2000  |         | 2001 |          | 2002  
|                                                                            |                                                                                      |                          |        |                                       |        |      |          |       |         |      |          |       
|                                                                            |                                                                                      |                          |        | (in thousands, except per share data)
|Statement of Operations Data:                                               |                                                                                      |                          |        |                                       |        |      |          |       |         |      |          |        |          |   |         |        |         |   |        |       
|Revenue                                                                     |                                                                                      | $                        | 675    |                                       |        | $    | 2,246    |       |         | $    | 18,022   |        |          | $ | 39,410  |        |         | $ | 60,651 |       
|Cost of revenue                                                             |                                                                                      |                          | 796    |                                       |        |      | 3,368    |       |         |      | 16,144   |        |          |   | 22,457  |        |         |   | 26,635 |       
|                                                                            |                                                                                      |                          |        |                                       |        |      |          |       |         |      |          |        |          |   |         |        |         |   |        |       
|Gross profit (loss)                                                         |                                                                                      |                          | (121   | )                                     |        |      | (1,122   | )     |         |      | 1,878    |        |          |   | 16,953  |        |         |   | 34,016 |       
|                                                                            |                                                                                      |                          |        |                                       |        |      |          |       |         |      |          |        |          |   |         |        |         |   |        |       
|Operating expenses:                                                         |                                                                                      |                          |        |                                       |        |      |          |       |         |      |          |        |          |   |         |        |         |   |        |       
|                                                                            | Sales and marketing                                                                  |                          |        | 1,804                                 |        |      |          | 7,007 |         |      |          | 53,169 |          |   |         | 20,362 |         |   |        | 18,508 |       
|                                                                            | Research and development                                                             |                          |        | 780                                   |        |      |          | 1,006 |         |      |          | 8,011  |          |   |         | 5,704  |         |   |        | 7,599  |       
|                                                                            | General and administrative                                                           |                          |        | 789                                   |        |      |          | 1,822 |         |      |          | 8,441  |          |   |         | 7,397  |         |   |        | 7,515  |       
|                                                                            | Amortization of goodwill                                                             |                          |        |                                      |        |      |          |      |         |      |          | 14,534 |          |   |         | 26,506 |         |   |        |       |       
|                                                                            | Stock-based compensation expense                                                     |                          |        |                                      |        |      |          | 2,484 |         |      |          | 8,383  |          |   |         | 2,834  |         |   |        | 3,028  |       
|                                                                            | Asset impairment charges                                                             |                          |        |                                      |        |      |          |      |         |      |          |       |          |   |         | 4,576  |         |   |        | 138    |       
|                                                                            | Restructuring charges, contract termination
expenses and litigation related expenses |                          |        |                                      |        |      |          |      |         |      |          | 11,133 |          |   |         | 1,696  |         |   |        | 584    |       
|                                                                            |                                                                                      |                          |        |                                       |        |      |          |       |         |      |          |        |          |   |         |        |         |   |        |       
|                                                                            |                                                                                      | Total operating expenses |        |                                       | 3,373  |      |          |       | 12,319  |      |          |        | 103,671  |   |         |        | 69,075  |   |        |        | 37,372 |  
|                                                                            |                                                                                      |                          |        |                                       |        |      |          |       |         |      |          |        |          |   |         |        |         |   |        |       
|                                                                            |                                                                                      | Loss from operations     |        |                                       | (3,494 | )    |          |       | (13,441 | )    |          |        | (101,793 | ) |         |        | (52,122 | ) |        |        | (3,356 | )
|Interest income, net                                                        |                                                                                      |                          | 221    |                                       |        |      | 400      |       |         |      | 3,247    |        |          |   | 887     |        |         |   | 128    |       
|Other income (expense), net                                                 |                                                                                      |                          | 1      |                                       |        |      | (6       | )     |         |      | (207     | )      |          |   | (1,488  | )      |         |   | (126   | )     
|                                                                            |                                                                                      |                          |        |                                       |        |      |          |       |         |      |          |        |          |   |         |        |         |   |        |       
|                                                                            |                                                                                      | Net loss                 |        |                                       | (3,272 | )    |          |       | (13,047 | )    |          |        | (98,753  | ) |         |        | (52,723 | ) |        |        | (3,354 | )
|Preferred stock dividends and accretion to
preferred stock
redemption value |                                                                                      |                          |       |                                       |        |      | 100,000  |       |         |      | 1,725    |        |          |   |        |        |         |   |       |       
|                                                                            |                                                                                      |                          |        |                                       |        |      |          |       |         |      |          |        |          |   |         |        |         |   |        |       
|Net loss attributable to common stockholders                                |                                                                                      | $                        | (3,272 | )                                     |        | $    | (113,047 | )     |         | $    | (100,478 | )      |          | $ | (52,723 | )      |         | $ | (3,354 | )     
|                                                                            |                                                                                      |                          |        |                                       |        |      |          |       |         |      |          |        |          |   |         |        |         |   |        |       
|Basic and diluted loss per share                                            |                                                                                      | $                        | (10.29 | )                                     |        | $    | (259.44  | )     |         | $    | (4.69    | )      |          | $ | (1.12   | )      |         | $ | (0.07  | )     
|                                                                            |                                                                                      |                          |        |                                       |        |      |          |       |         |      |          |        |          |   |         |        |         |   |        |       
|Shares
used in computing loss per sharebasic
and diluted                   |                                                                                      |                          | 318    |                                       |        |      | 436      |       |         |      | 21,443   |        |          |   | 47,280  |        |         |   | 50,502 |       

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|                                                    |  |                    |        |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|--------------------------------------------------- |  | ------------------ | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                    |  | As of December 31,
|                                                    |  |                   
|                                                    |  | 1998               |        | 1999 |  | 2000 |         | 2001 |  | 2002
|                                                    |  |                    |        |      |  |      |         |      |  |     
|                                                    |  | (in thousands)    
|Balance Sheet Data:                                 |  |                    |        |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Cash and cash equivalents                           |  | $                  | 1,222  |      |  | $    | 89,234  |      |  | $    | 43,311  |  |  | $ | 34,222  |  |  | $ | 31,699  | 
|Investments                                         |  |                    | 4,951  |      |  |      |        |      |  |      | 196     |  |  |   |        |  |  |   |        | 
|Working capital                                     |  |                    | 5,631  |      |  |      | 79,989  |      |  |      | 38,871  |  |  |   | 31,567  |  |  |   | 31,622  | 
|Total assets                                        |  |                    | 8,755  |      |  |      | 110,408 |      |  |      | 158,824 |  |  |   | 110,252 |  |  |   | 113,005 | 
|Long-term debt, less current portion                |  |                    |       |      |  |      | 2,260   |      |  |      | 810     |  |  |   | 3,064   |  |  |   | 2,026   | 
|Restructuring reserve, less current portion         |  |                    |       |      |  |      |        |      |  |      | 2,952   |  |  |   | 914     |  |  |   | 518     | 
|Redeemable convertible preferred stock and
warrants |  |                    | 11,347 |      |  |      | 111,322 |      |  |      |        |  |  |   |        |  |  |   |        | 
|Total stockholders equity (deficit)                |  |                    | (3,469 | )    |  |      | (13,932 | )    |  |      | 141,710 |  |  |   | 94,768  |  |  |   | 100,323 | 

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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
About Us/Investors/SEC Filings and Financials.

Overview

We provide integrated web conferencing services that offer simple,
reliable and cost-effective tools for everyday business meetings and events.
These services offer a continuum of real-time, interactive communications tools
for businesses, including automated phone conferencing, web conferencing for
web presentations with online controls and advanced collaboration tools, which
allow users, among other things, to share applications, tour the web and
whiteboard ideas online. We sell these services to large and medium-sized
businesses in various markets, as well as to resellers of conferencing and
communications services through our direct, strategic and indirect sales
channels.

Except for the quarter ended December 31, 2002, we have incurred losses
since commencing operations and, as of December 31, 2002, we had an accumulated
deficit of $171.9 million. Our net loss was $9.5 million and our net income was
$0.6 million for the quarters ended December 31, 2001 and 2002, respectively,
and our net losses were $52.7 million and $3.4 million for the years ended
December 31, 2001 and 2002, respectively. We have not achieved profitability on
an annual basis. We may incur losses at least for the next several quarters,
particularly due to significant non-cash charges for amortization of deferred
stock-based compensation and depreciation expense and an anticipated increase
in sales and marketing expenditures. Despite the progress we have made in
managing and controlling expenses, we will need to generate higher revenue to
support expected expenses and sustain profitability.

On June 16, 2000, we acquired Contigo Software, Inc. We have included the
results of operations of Contigo subsequent to June 16, 2000 in our statements
of operations. This acquisition was accounted for using the purchase method of
accounting and we recorded $80.5 million of goodwill in the quarter ended June
30, 2000, which we were amortizing over a period of three years. For the year
ended December 31, 2001, amortization expense pertaining to goodwill was $26.5
million. To the extent we did not generate sufficient cash flow to recover the
amount of the investment recorded, the investment would be considered impaired
and could be subject to earlier write-off. In July 2001, the Financial
Accounting Standards Board issued two pronouncements that affected business
combinations and amortization of goodwill and other intangible assets for
previously recorded business combinations. As a result of this new guidance,
effective January 1, 2002 we no longer record amortization on our acquired
goodwill but instead review goodwill for impairment on an annual basis. In
addition, our initial assessment of goodwill performed as of March 31, 2002
indicated that the fair value of the reporting unit exceeded the goodwill
carrying value; and therefore, at that time, goodwill was not deemed to be
impaired. For a discussion of the methodology and assumptions or estimates
used to test goodwill for impairment, see the section entitled Critical
Accounting Policies and Estimates below and the footnotes to our consolidated
financial statements beginning on page F-8.

On April 30, 2002, we acquired substantially all of the assets of InterAct
Conferencing, LLC, a nationwide reseller of audio and web conferencing
services. As a result of the acquisition, we expanded our sales force,
increased our revenue and reduced our net loss for the year ended December 31,
2002. We also assumed certain liabilities of InterAct as of April 30, 2002,
consisting primarily of accounts payable and a $125,000 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 the 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

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million, which is 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. 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. 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 identifiable assets acquired and $6.9 million was
allocated to goodwill.

Prior to our restructuring in January 2001, we derived revenue from
services other than our web conferencing services. As part of the
restructuring, we indicated our intent to primarily focus 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. We expect to
derive all of our revenue in the future from our current services and any
next-generation services that we develop. The following describes how we
recognized revenue for the services we offered in 2000, 2001 and 2002.



| |  | Web and Phone Conferencing Revenue. Revenue for our Web and Phone
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 Web and Phone 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.                                                                                                                                                                                                                                  
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | 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 monthly 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 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.
| 
| |  | Webcasting Revenue (legacy service).Prices and specific service terms
were usually negotiated in advance of service delivery. We recognized
revenue from live event streaming when the content was broadcast over
the Internet. We recognized revenue from encoding recorded content
when the content became available for viewing over the Internet. We
recognized revenue from pre-recorded content hosting ratably over the
hosting period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| 
| |  | Talking Email Revenue (legacy service).Prices and specific service
terms were negotiated in advance of service delivery. We recognized
revenue, including any setup fees, ratably over the life of the
contract.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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, has increased in absolute dollars. In the quarter
ended December 31, 2001, 14.3% of our revenue was non-usage based as compared
to 19.8% in the quarter ended December 31, 2002. For the year ended December
31, 2001, 16.4% 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 decrease
as a percentage of revenue in the near term due to a transition by Qwest
Communications of a subscription contract for Web Conferencing Pro to a
usage-based contract.

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
Web and Phone Conferencing service. A change in our mix of usage and non-usage
based revenue will affect our gross profit as our cost of revenue is typically
higher on our usage-based Web and Phone Conferencing 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 will continue to make investments in our
infrastructure; however, we do not expect a need for large-scale capital
expenditures in the first quarter of 2003. As a result, we expect expenses for
depreciation, Internet access and bandwidth expenses to slightly increase in
absolute dollars. We expect that our current capacity and infrastructure,

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coupled with the capital expenditures we have made and we expect to make,
will accommodate our revenue projections into the first half of 2003. We have
a limited number of sources for our telephony services. One of our suppliers is
WorldCom, which filed for Chapter 11 bankruptcy protection in July 2002. If
WorldCom was to terminate or interrupt its services, we may experience
difficulties in obtaining alternative sources on commercially reasonable terms,
if at all, and would likely 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, market research, sales lead generation and
telemarketing expenses and allocated overhead. In the fourth quarter of 2000
and continuing into the first quarter of 2001, we streamlined our sales force,
renegotiated certain sales and marketing commitments and consolidated certain
remote sales offices. We believe that we have experienced substantially all
the benefits of these cost savings initiatives. 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 2003.

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 $0.7 million of
internally developed software in 2002. We expect to continue to capitalize
costs associated with internally developed software in 2003, particularly as we
develop our next generation service. We also expect to continue to make
investments in research and development and anticipate that these expenditures
will increase in terms of absolute dollars in 2003, however, we expect them to
decrease as a percentage of revenue in 2003.

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 2003.

Amortization of goodwill was first recorded in 2000 in connection with our
acquisition of Contigo Software, Inc. in June 2000. Goodwill was amortized on a
straight-line basis over the estimated useful life of three years. Effective
January 1, 2002, we adopted SFAS 142 which requires that goodwill no longer be
amortized, but instead will be reviewed for impairment on an on-going basis.
Accordingly, the amortization of goodwill ceased upon our adoption of the
Statement, which was January 1, 2002.

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 year ended December 31, 2002 we
recorded $3.7 million of deferred stock-based compensation and we expensed $3.0
million related to 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 we 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. The release of the stock held in escrow is
contingent upon certain employment obligations of 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. Additionally, we reversed $0.5 million of deferred
stock-based compensation related to the cancellation of unvested stock options
for the year ended December 31, 2002. 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. We expect to incur stock-based
compensation expense of approximately $2.5 million in 2003, $1.2 million in
2004 and $0.4 million in 2005 for common stock issued or stock options awarded
to our employees or members of our board of directors through December 31,
2002, under our stock compensation plans and the common stock held in escrow as
a result of the InterAct acquisition.

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 charges (EBITDA) as adjusted. This analysis
eliminates the effects of considerable amounts of depreciation, amortization of
goodwill recognized in prior years in

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connection with our acquisition of Contigo Software, Inc., stock-based
compensation and the other charges set forth below.

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

|                                                                |  |                          |         |      |  |      |         |   |  |   |        |  
|--------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                |  | Years Ended December 31,
|                                                                |  |                         
|                                                                |  | 2000                     |         | 2001 |  | 2002
|                                                                |  |                          |         |      |  |     
|Net loss                                                        |  | $                        | (98,753 | )    |  | $    | (52,723 | ) |  | $ | (3,354 | )
|Add: Depreciation, amortization and other
income (expense), net |  |                          | 5,010   |      |  |      | 8,521   |   |  |   | 10,360 |  
|Add: Amortization of goodwill                                   |  |                          | 14,534  |      |  |      | 26,506  |   |  |   |       |  
|Add: Stock-based compensation expense                           |  |                          | 8,383   |      |  |      | 2,834   |   |  |   | 3,028  |  
|Add: Equity in loss of unconsolidated joint
venture             |  |                          | 181     |      |  |      |        |   |  |   |       |  
|Add: Loss on sale of common stock                               |  |                          |        |      |  |      | 1,195   |   |  |   |       |  
|Add: Asset impairment charges                                   |  |                          |        |      |  |      | 4,576   |   |  |   | 138    |  
|Add: Restructuring charges and contract
termination expenses    |  |                          | 11,133  |      |  |      | 1,696   |   |  |   | 584    |  
|                                                                |  |                          |         |      |  |      |         |   |  |   |        |  
|EBITDA                                                          |  | $                        | (59,512 | )    |  | $    | (7,395  | ) |  | $ | 10,756 |  
|                                                                |  |                          |         |      |  |      |         |   |  |   |        |  

Beginning January 1, 2002, we have had a significant reduction or
improvement in our net loss because of the issuance of a new accounting
standard that eliminates goodwill amortization and replaces this concept with
an annual goodwill impairment test. As indicated in the adjusted EBITDA
calculation above, we expensed $14.5 million and $26.5 million in goodwill
amortization in the years ended December 31, 2000 and 2001, respectively. As a
result of this new accounting standard, which became effective January 1, 2002,
we are no longer amortizing goodwill and, correspondingly, our net loss has
decreased relative to prior periods in which we did expense significant amounts
of goodwill amortization. Amortization expense related to goodwill would have
been $26.5 million in 2002. The trends depicted by this calculation indicate
that we have been successful in significantly reducing both our net loss as
well as improving adjusted EBITDA, primarily as a result of our efforts to
control operating costs while simultaneously increasing revenue. For the year
ended December 31, 2002, as compared with the year ended December 31, 2001, our
net loss decreased by $49.4 million. For the year ended December 31, 2002, as
compared with the year ended December 31, 2001, our adjusted EBITDA improved by
$18.2 million. Adjusted EBITDA should be considered in addition to, not as a
substitute for, net loss and other measures of financial performance reported
in accordance with generally accepted accounting principles. EBITDA is a
measure of operating performance and liquidity that is commonly reported and
widely used by analysts, investors and other interested parties because it
eliminates significant non-cash charges and other charges to earnings and also
represents a financial measure used by our bank to determine our compliance
with a financial covenant articulated in our loan and security agreement. In
addition, net income excluding such non-cash charges may permit investors to
better compare results from period to period and to more accurately assess our
prospects. 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 generally accepted
accounting principles is as follows: net cash used by operations was $67.9
million and $9.7 million for the years ended December 31, 2000 and 2001,
respectively, and net cash provided by operations was $7.2 million for the year
ended December 31, 2002; net cash used by investing activities was $33.9
million, $3.7 million and $9.6 million for the years ended December 31, 2000,
2001 and 2002, respectively; net cash provided by financing activities was
$55.9 million and $4.4 million for the years ended December 31, 2000 and 2001,
respectively, and net cash used by financing activities was $0.1 million for
the year ended December 31, 2002.

Results of Operations

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

Revenue.Total revenue increased by $21.2 million from $39.4 million for
the year ended December 31, 2001 to $60.6 million for the year ended December
31, 2002. 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
are experiencing for some of our services. Our largest customer, Qwest

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Communications, transitioned its use of our Web and Phone 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 and Bell Canada, which partially explain the increase in
non-usage based revenue in absolute dollars. Qwest represented 14.3% of revenue
in 2002, despite the transition of Web and Phone Conferencing minutes off of
our network. We expect Qwests percentage of revenue to decrease significantly
in the first quarter of 2003 due to the expiration of a subscription contract
for our Web Conferencing Pro service that has been transitioned to a
usage-based model. This transition is expected to reduce our revenue growth
over prior quarters in the near term. 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 from $22.5 million
for the year ended December 31, 2001 to $26.6 million for the year ended
December 31, 2002. Telecommunication 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
Web and Phone Conferencing service. Outside services increased $0.3 million
from $0.2 million for the year ended December 31, 2001 to $0.5 million for the
year ended December 31, 2002. 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 are 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
from $20.4 million for the year ended December 31, 2001 to $18.5 million for
the year ended December 31, 2002. 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 from the year ended December
31, 2001 as compared to the year ended December 31, 2002, due to increased
headcount associated with our acquisition of InterAct in April 2002. Allocated
depreciation expense increased $1.5 million from the year ended December 31,
2001 to the year ended December 31, 2002, 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.

Research and Development.Research and development expense increased $1.9
million from $5.7 million for the year ended December 31, 2001 to $7.6 million
for the year ended December 31, 2002. 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.

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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.

Stock-Based Compensation Expense.Stock-based compensation expense
increased $0.2 million from $2.8 million for the year ended December 31, 2001
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 vesting periods, which generally are
four years. During the years ended December 31, 2001 and December 31, 2002, we
recorded $1.2 million and $3.7 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, 2001 and December 31, 2002, we
reversed $5.1 million and $0.5 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 and anticipated receiving, prior to December
31, 2002, cash of approximately $1.0 million. The equipment 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 expect to complete the sale and
disposal of the assets in the first half of 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
remain vacant while we continue our attempts to sublease these facilities.

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

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Revenue.Total revenue increased by $21.4 million from $18.0 million for
the year ended December 31, 2000 to $39.4 million for the year ended December
31, 2001. The increase was primarily due to increased customer account
penetration and the addition of new customers. In addition, as a result of the
acquisition of Contigo Software, Inc., we first reported revenue from our Web
Conferencing Pro service beginning in June 2000. As part of the restructuring
announced in January 2001, we indicated our intent to primarily focus on our
core Web conferencing service offerings. Accordingly, the second quarter of
2001 was the final quarter in which revenue was generated from Webcasting and
Talking Email as we satisfied legacy commitments made to customers.

Cost of Revenue.Cost of revenue increased $6.4 million from $16.1 million
for the year ended December 31, 2000 to $22.5 million for the year ended
December 31, 2001. Depreciation expense decreased $1.0 million for the year
ended December 31, 2001 over the respective period in 2000 primarily due to the
write-down of particular assets to their fair value in the second quarter of
2001. We are not recording any depreciation expense on assets no longer in use
and held for disposal. Telecommunication costs and Internet access costs
increased $7.0 million in 2001 over 2000. This increase resulted from
additional phone charges consistent with increased use of our Web and Phone
Conferencing service. Salaries and payroll related expenses increased $0.2
million for the year ended December 31, 2001 over the respective period in 2000
due to an increase in salaries and payroll related expenses even though
headcount remained relatively consistent year over year. Maintenance expense
decreased $0.2 million in 2001 from 2000. The decrease was primarily due to
reduction of maintenance costs associated with the equipment we took out of
service in the second quarter of 2001.

Sales and Marketing.Sales and marketing expense decreased $32.8 million
from $53.2 million for the year ended December 31, 2000 to $20.4 million for
the year ended December 31, 2001. Expenses related to advertising and promotion
decreased $22.4 million in the year ended December 31, 2001 from the respective
period in 2000 as we reduced our advertising in anticipation of changing our
name in the second quarter of 2001. The decreased spending on advertising and
promotional campaigns continued through the fourth quarter of 2001. Salaries,
commissions and payroll related expenses decreased $7.0 million for the year
ended December 31, 2001 from the year ended December 31, 2000 primarily related
to the reduction in our sales force as a result of our corporate restructuring
which took place in January 2001. Bad debt expense increased $0.4 million for
the year ended December 31, 2001 over the respective period in 2000. This
increase is related to incremental charges to our bad debt reserve as our
accounts receivable increased. The remainder of the expenses that decreased for
the year ended December 31, 2001 from the year ended December 31, 2000 are
office rent, recruiting, telecommunications and Internet access costs, travel,
and trade show related expenditures consistent with the reduction in our
workforce and office closures that took place in January 2001 and our cost
containment initiatives that continued throughout 2001.

Research and Development.Research and development expense decreased $2.3
million from $8.0 million for the year ended December 31, 2000 to $5.7 million
for the year ended December 31, 2001. Personnel and payroll related expenses
decreased $1.6 million for the year ended December 31, 2001 as compared with
the year ended December 31, 2000 primarily as a result of a reduction in
headcount associated with our restructuring, which took place in January 2001,
and an increase in capitalized salaries related to internally developed
software. The remainder of the decrease for the year ended December 31, 2001
from the respective period in 2000 is explained by $0.2 million decrease in
each of the following expenses: outside services, office supplies, and office
rent. Additionally, there was a $0.1 million decrease in telecommunications
and Internet access costs.

General and Administrative.General and administrative expense decreased
$1.0 million from $8.4 million for the year ended December 31, 2000 to $7.4
million for the year ended December 31, 2001. Expenses for legal fees
decreased $0.8 million in the year ended December 31, 2001 as compared with the
year ended December 31, 2000, primarily due to our litigation settlement which
took place in the first quarter of 2001, thereby reducing our legal fees in
2001. Royalty expense decreased $0.2 million for the year ended December 31,
2001 as compared with the year ended December 31, 2000 as our royalty
commitment ceased in the first quarter of 2001.

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Amortization of Goodwill.Amortization of goodwill was $14.5 million and
$26.5 million for the years ended December 31, 2000 and 2001, respectively, as
result of our acquisition of Contigo in June 2000.

Stock-Based Compensation Expense.Stock-based compensation expense
decreased $5.6 million from $8.4 million for the year ended December 31, 2000
to $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 are generally
four years. During the years ended December 31, 2000 and 2001, we recorded
$10.7 and $1.2 million, respectively, of deferred stock-based compensation.
Additionally, for the year ended December 31, 2001 and as a result of
reductions and changes in our workforce, we reversed $5.1 million of deferred
stock-based compensation related to the cancellation of unvested stock options.

Asset Impairment Charges.We have previously recorded losses that have
reduced our investment in Evoke Communications Europe to zero. We have no
obligations to fund future operating losses of Evoke Communications Europe. 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 will be liquidated and its operations will
cease. In the fourth quarter of 2001, we received equipment valued at $1.8
million and we anticipated receiving, prior to December 31, 2002, cash of
approximately $1.0 million. We recorded an impairment charge of $1.8 million
in 2001, which represented the excess of the note receivable from Evoke
Communications Europe over the cash and equipment we expected to receive.

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 that continued through the second quarter of 2001. We completed a
significant portion of the sale and disposal of the assets in 2001 and expected
to complete the remainder in 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, we recorded an impairment loss of $2.7
million in the second quarter of 2001. We determined the asset write-offs 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 previous name.

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
actions taken to streamline operations, we recorded restructuring charges in
the first quarter of 2001 of $0.8 million. In the second quarter of 2001, we
incurred severance charges of $0.1 million and incurred a favorable
restructuring reserve adjustment of $1.4 million primarily due to successfully
leasing several remote offices with terms more favorable than originally
anticipated, and also consummated an early termination settlement of a software
contract. In the third quarter of 2001, we recorded a net restructuring charge
of $0.3 million consisting of a $0.5 million charge to close two additional
remote sales offices and additional charges associated with offices that
remained vacant while we continued our attempts to sublease these facilities,
and a $0.2 million favorable restructuring adjustment as a result of
successfully terminating two facility lease commitments with terms more
favorable than originally anticipated. In the fourth quarter of 2001, we
recorded a restructuring charge of $0.1 million to record additional charges
associated with offices that remained vacant while we continued our attempts to
sublease these facilities. At December 31, 2001, our restructuring reserves
totaled $1.6 million, of which $0.7 million was current and $0.9 million was
long-term and solely related to lease cancellation costs, which will be
relieved as payments are made. Through December 31, 2001, we had been
successful in sub-leasing four facilities and terminating facility lease
commitments on four facilities. As of December 31, 2001, the restructuring
reserve for facilities was comprised of seven offices. The remaining balances
will be adjusted as we continue in our efforts to sublease or otherwise
minimize our commitments on our remaining remote sales offices.

Contract Termination Expense.In March 2001, we agreed to terminate a
software license agreement. In connection with the termination, we incurred a
charge of approximately $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).

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Other Income (Expense).Interest income decreased $2.3 million from $3.7
million for the year ended December 31, 2000 to $1.4 million for the year ended
December 31, 2001. The decrease was related to higher average cash balances in
2000 compared to 2001 due to the private equity financing we completed in the
fourth quarter of 1999 and first quarter of 2000 that was utilized in
operations over the course of 2000 and into 2001. The decrease was also due to
lower rates of return on our cash balances in 2001 as compared to 2000.
Interest expense remained flat at $0.5 million for the years ended December 31,
2000 and 2001. Loss on the sale of fixed assets was $0.3 million for the year
ended December 31, 2001.

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, 2002, we had net operating loss carryforwards
for federal income tax purposes of approximately $124.6 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 $103.1
million are not limited by Section 382 as of December 31, 2002. The
availability of our net operating losses will be effected should we experience
another ownership change in the future, as defined in Internal Revenue Code
Section 382. We have not recorded a deferred tax benefit for the net operating
loss carry-forwards. We make periodic reviews of the realizability of our
deferred tax assets and will make adjustments to the valuation allowance when
it is more likely than not that the deferred tax assets will be realized.

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,
|                                                           |                                                                             |                               |         | 2001                                  |         | 2001     |         | 2001          |         | 2001         |         | 2002      |         | 2002     |        | 2002          |        | 2002        
|                                                           |                                                                             |                               |         |                                       |         |          |         |               |         |              |         |           |         |          |        |               |        |             
|                                                           |                                                                             |                               |         | (in thousands, except per share data)
|Revenue                                                    |                                                                             | $                             | 9,017   |                                       |         | $        | 9,110   |               |         | $            | 10,050  |           |         | $        | 11,233 |               |        | $            | 13,877 |        |        | $ | 15,388 |        |        | $ | 15,700 |        |       | $ | 15,686 |       
|Cost of revenue                                            |                                                                             |                               | 6,128   |                                       |         |          | 5,642   |               |         |              | 5,089   |           |         |          | 5,598  |               |        |              | 6,929  |        |        |   | 7,302  |        |        |   | 6,618  |        |       |   | 5,787  |       
|                                                           |                                                                             |                               |         |                                       |         |          |         |               |         |              |         |           |         |          |        |               |        |              |        |        |        |   |        |        |        |   |        |        |       |   |        |       
|Gross profit                                               |                                                                             |                               | 2,889   |                                       |         |          | 3,468   |               |         |              | 4,961   |           |         |          | 5,635  |               |        |              | 6,948  |        |        |   | 8,086  |        |        |   | 9,082  |        |       |   | 9,899  |       
|                                                           |                                                                             |                               |         |                                       |         |          |         |               |         |              |         |           |         |          |        |               |        |              |        |        |        |   |        |        |        |   |        |        |       |   |        |       
|Operating expenses:                                        |                                                                             |                               |         |                                       |         |          |         |               |         |              |         |           |         |          |        |               |        |              |        |        |        |   |        |        |        |   |        |        |       |   |        |       
|                                                           | Sales and marketing                                                         |                               |         | 6,689                                 |         |          |         | 4,487         |         |              |         | 4,799     |         |          |        | 4,389         |        |              |        | 4,201  |        |   |        | 4,808  |        |   |        | 4,774  |       |   |        | 4,724  |      
|                                                           | Research and development                                                    |                               |         | 1,509                                 |         |          |         | 1,211         |         |              |         | 1,433     |         |          |        | 1,551         |        |              |        | 1,983  |        |   |        | 2,129  |        |   |        | 1,854  |       |   |        | 1,634  |      
|                                                           | General and administrative                                                  |                               |         | 2,278                                 |         |          |         | 1,771         |         |              |         | 1,769     |         |          |        | 1,578         |        |              |        | 1,809  |        |   |        | 1,897  |        |   |        | 1,774  |       |   |        | 2,032  |      
|                                                           | Amortization of goodwill                                                    |                               |         | 6,626                                 |         |          |         | 6,626         |         |              |         | 6,626     |         |          |        | 6,628         |        |              |        |       |        |   |        |       |        |   |        |       |       |   |        |       |      
|                                                           | Stock-based compensation
expense                                            |                               |         | 396                                   |         |          |         | 1,037         |         |              |         | 633       |         |          |        | 768           |        |              |        | 650    |        |   |        | 787    |        |   |        | 841    |       |   |        | 751    |      
|                                                           | Asset impairment
charges                                                    |                               |         |                                      |         |          |         | 2,794         |         |              |         | 1,736     |         |          |        | 46            |        |              |        |       |        |   |        |       |        |   |        |       |       |   |        | 138    |      
|                                                           | Restructuring charges, contract
termination and litigation
related expenses |                               |         | 2,581                                 |         |          |         | (1,326        | )       |              |         | 316       |         |          |        | 126           |        |              |        | 172    |        |   |        | 412    |        |   |        |        |       |   |        |        |      
|                                                           |                                                                             |                               |         |                                       |         |          |         |               |         |              |         |           |         |          |        |               |        |              |        |        |        |   |        |        |        |   |        |        |       |   |        |       
|                                                           |                                                                             | Total operating expenses      |         |                                       | 20,079  |          |         |               | 16,600  |              |         |           | 17,312  |          |        |               | 15,086 |              |        |        | 8,815  |   |        |        | 10,033 |   |        |        | 9,243 |   |        |        | 9,279 | 
|                                                           |                                                                             |                               |         |                                       |         |          |         |               |         |              |         |           |         |          |        |               |        |              |        |        |        |   |        |        |        |   |        |        |       |   |        |       
|                                                           |                                                                             | Income (loss) from operations |         |                                       | (17,190 | )        |         |               | (13,132 | )            |         |           | (12,351 | )        |        |               | (9,451 | )            |        |        | (1,867 | ) |        |        | (1,947 | ) |        |        | (161  | ) |        |        | 620   | 
|Other income (expense), net                                |                                                                             |                               | (791    | )                                     |         |          | 200     |               |         |              | 82      |           |         |          | (92    | )             |        |              | 18     |        |        |   | 26     |        |        |   | 23     |        |       |   | (67    | )     
|                                                           |                                                                             |                               |         |                                       |         |          |         |               |         |              |         |           |         |          |        |               |        |              |        |        |        |   |        |        |        |   |        |        |       |   |        |       
|Net income (loss)                                          |                                                                             | $                             | (17,981 | )                                     |         | $        | (12,932 | )             |         | $            | (12,269 | )         |         | $        | (9,543 | )             |        | $            | (1,849 | )      |        | $ | (1,921 | )      |        | $ | (138   | )      |       | $ | 553    |       
|                                                           |                                                                             |                               |         |                                       |         |          |         |               |         |              |         |           |         |          |        |               |        |              |        |        |        |   |        |        |        |   |        |        |       |   |        |       
|Net income (loss) per share                                |                                                                             |                               |         |                                       |         |          |         |               |         |              |         |           |         |          |        |               |        |             
|                                                           | basic                                                                       |                               | $       | (0.38                                 | )       |          | $       | (0.27         | )       |              | $       | (0.26     | )       |          | $      | (0.20         | )      |              | $      | (0.04  | )      |   | $      | (0.04  | )      |   | $      | (0.00  | )     |   | $      | 0.01   |      
|                                                           |                                                                             |                               |         |                                       |         |          |         |               |         |              |         |           |         |          |        |               |        |              |        |        |        |   |        |        |        |   |        |        |       |   |        |       
|                                                           | diluted                                                                     |                               | $       | (0.38                                 | )       |          | $       | (0.27         | )       |              | $       | (0.26     | )       |          | $      | (0.20         | )      |              | $      | (0.04  | )      |   | $      | (0.04  | )      |   | $      | (0.00  | )     |   | $      | 0.01   |      
|                                                           |                                                                             |                               |         |                                       |         |          |         |               |         |              |         |           |         |          |        |               |        |              |        |        |        |   |        |        |        |   |        |        |       |   |        |       
|Weighted average number of common
shares outstanding
basic |                                                                             |                               | 46,962  |                                       |         |          | 47,087  |               |         |              | 47,201  |           |         |          | 47,858 |               |        |              | 48,424 |        |        |   | 50,304 |        |        |   | 51,432 |        |       |   | 51,801 |       
|                                                           |                                                                             |                               |         |                                       |         |          |         |               |         |              |         |           |         |          |        |               |        |              |        |        |        |   |        |        |        |   |        |        |       |   |        |       
|                                                           | diluted                                                                     |                               |         | 46,962                                |         |          |         | 47,087        |         |              |         | 47,201    |         |          |        | 47,858        |        |              |        | 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 patterns, particularly around holidays and
the spring and summer months. 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

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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, 2002, cash and cash equivalents were $31.7 million, a
decrease of $2.5 million compared with cash and cash equivalents of $34.2
million held as of December 31, 2001.

Net cash used by operations was $67.9 and $9.7 million for each of the two
years ended December 31, 2000 and 2001, respectively. Net cash provided by
operations was $7.2 million for the year ended December 31, 2002. Cash used in
operations decreased significantly from 2000 to 2001 due to a decrease in our
operating loss and an increase in non-cash expenditures. The significant
decrease in our operating loss was primarily due to our restructuring effort,
which began late in the fourth quarter of 2000 and was announced in January
2001. Our cost containment initiatives have continued throughout 2001 and 2002
during which time we have been able to increase revenue and related cash
collections. Cash used in operations decreased from 2001 to 2002 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, 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 $33.9, $3.7 and $9.6 million for
each of the years ended December 31, 2000, 2001 and 2002, respectively. Net
cash used in investing activities in 2000 primarily related to capital
expenditures for equipment and software used in our data operations centers,
the purchase of stock in a company from which we formerly licensed software and
a payment associated with a business acquisition, net of cash acquired. We
moved into our corporate headquarters in Louisville, CO in late 1999 and the
majority of the expenditures in 2000 were attributable to the build out of our
data operations center. Net cash used by investing activities in 2001 primarily
related to capital expenditures for equipment upgrades and enhancements and
decreased significantly over 2000 as the majority of funds required to build
out our infrastructure were expended in 2000. 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 provided by financing activities was $55.9 and $4.4 million for
each of the years ended December 31, 2000 and 2001, respectively. Net cash used
by financing activities was $0.1 million for the year ended December 31, 2002.
Cash provided by financing activities in 2000 was primarily from the sale of
our Series E preferred stock and the sale of common stock in our initial public
offering, net of payments made under our debt financing arrangements. 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. Cash used by financing activities in 2002 was primarily due to debt
service payments offset by cash proceeds from the exercise of common stock
options.

As of December 31, 2002, we had approximately $3.1 million in total debt
obligations outstanding, of which approximately $1.0 million was current.

On October 9, 2001, we entered into a loan and security agreement with a
bank that consisted of a $7.25 million revolving line of credit and a $5.0
million term loan. Advances under the revolving line of credit bore interest
at the banks prime rate and were limited to $7.25 million or 80% of eligible
accounts receivable as defined in the agreement. We incurred commitment fees
of $35,000, which were being amortized over the term of the agreement. The
revolving line of credit was available through February 28, 2003. Advances
under the revolving line of credit could be repaid and re-borrowed at any time
prior to the maturity date. On October 12, 2001 we received $5.0 million
pursuant to the term loan referenced above. The term loan was to be repaid with
monthly principal payments of $139,000 plus interest at 8% over 36 months.
Effective December 31, 2002, the terms of the loan and security agreement were
amended to renew and increase the revolving line of credit and refinance the
term loan. In connection with refinancing the term loan, the current
outstanding balance will be repaid with monthly principal payments of $81,000
plus interest at 5.25% over 36 months. Advances under the revolving line of
credit are limited to $12.5 million or 90% of eligible accounts receivable as
defined in the agreement. The revolving line of credit is available through
January 26, 2004. Advances under the revolving line of credit may be repaid and
re-borrowed at any time prior to the maturity date. At December 31, 2002, we
did not have an outstanding balance

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under the revolving line of credit and the additional liquidity available,
based on eligible accounts receivable, was $8.4 million. The loan and security
agreement is collateralized by substantially all of our tangible and intangible
assets 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. We
are also prohibited from paying any dividends without the banks prior written
consent. At December 31, 2002, the balance due under this agreement is
approximately $3.1 million, of which approximately $1.0 million is 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.

In the first quarter of 2002 our cash and cash equivalents decreased $1.8
million, in the second quarter of 2002 our cash and cash equivalents decreased
$4.4 million, in the third quarter of 2002 our cash and cash equivalents
increased $2.7 million and in the fourth quarter of 2002 our cash and cash
equivalents increased $1.0 million. While overall our cash balance decreased
$2.5 million in 2002, we generated positive cash flows from operations for the
fifth consecutive quarter. Additionally, we paid, net of cash received, $3.5
million to acquire InterAct. Looking ahead we expect our debt service payments
to decrease in 2003 over 2002 and we expect our cash basis capital expenditures
to remain relatively flat. We also expect proceeds from the exercise of common
stock options; however, it is not possible to estimate what impact this will
have on 2003.

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 and none of our customers
constituted greater than 10% of our revenue in 2000 and 2001. In 2002, we
recorded sales to Qwest Communications International, Inc., which represented
14.3% of total revenue. The receivable due from Qwest at December 31, 2002, all
of which was current, was $2.5 million or 25.2% of our total accounts
receivable balance. Our operating cash flows could be adversely affected in
the event Qwest experiences financial difficulties that affect its ability to
pay us in a timely fashion. We expect Qwests revenue contribution to decrease
below 10% of our total revenue in the first quarter of 2003, primarily as a
result of a transition by Qwest from a subscription contract for our Web
Conferencing Pro service to a usage-based contract.

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 connection with the liquidation and
dissolution, we received cash of approximately $1.0 million in 2002. At
December 31, 2002, the liquidation and dissolution was substantially complete
and, as a result, we expect significantly less cash distributions in 2003.

As of December 31, 2002, our purchase commitments for bandwidth usage and
telephony services were approximately $28.3 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 contract.

We lease office facilities under various operating leases that expire
through 2009. A large number of these facilities are satellite sales offices
that typically average 3,000 square feet. Total future minimum lease payments,
under all operating leases, as of December 31, 2002 are approximately $10.8
million. We are in the process of attempting to sublease or otherwise minimize
our lease commitments with respect to three offices, and to the extent we are
successful in subleasing or otherwise relieving ourselves of the lease
obligations, these facility lease commitments, net of any subleases, will
decrease. Through December 31, 2002, we have been successful in terminating
four facility leases, thereby relieving ourselves of any future obligation, and
we have been successful in subleasing seven facilities. Future minimum sublease
receivables for the seven subleased facilities, as of December 31, 2002,
approximate $1.8 million that we expect to receive through August 2005.

Our contractual obligations and commitments to make future payments as of
December 31, 2002 are as follows (in thousands):

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|                                              |  |                        |        |                  |  |           |        |           |  |              |        |  |  |   |       |  |  |   |       | 
|--------------------------------------------- |  | ---------------------- | ------ | ---------------- |  | --------- | ------ | --------- |  | ------------ | ------ |  |  | - | ----- |  |  | - | ----- | 
|                                              |  | Payments Due by Period
|                                              |  |                       
|                                              |  | Total                  |        | Less than 1 year |  | 2-3 years |        | 4-5 years |  | Over 5 years
|                                              |  |                        |        |                  |  |           |        |           |  |             
|Long-term debt                                |  | $                      | 3,056  |                  |  | $         | 1,030  |           |  | $            | 1,945  |  |  | $ | 81    |  |  | $ |      | 
|Operating leases                              |  |                        | 10,792 |                  |  |           | 2,704  |           |  |              | 4,626  |  |  |   | 2,030 |  |  |   | 1,432 | 
|Purchase obligations                          |  |                        | 28,303 |                  |  |           | 15,601 |           |  |              | 12,702 |  |  |   |      |  |  |   |      | 
|                                              |  |                        |        |                  |  |           |        |           |  |              |        |  |  |   |       |  |  |   |       | 
|Total contractual obligations and commitments |  | $                      | 42,151 |                  |  | $         | 19,335 |           |  | $            | 19,273 |  |  | $ | 2,111 |  |  | $ | 1,432 | 
|                                              |  |                        |        |                  |  |           |        |           |  |              |        |  |  |   |       |  |  |   |       | 

We expect that existing cash resources and our credit facility will be
sufficient to fund our anticipated working capital and capital expenditure
needs for at least the next twelve months. We expect our cash flows will
continue to improve and will eventually enable us to consistently maintain
positive cash flows from operations, and that existing cash reserves will
therefore be sufficient to meet our capital requirements during this period. 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. 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.

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 Web and Phone 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 Web and Phone
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 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 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.

Accounts Receivable

We perform ongoing 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

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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 across many different industries.
In 2002, we recorded sales to Qwest Communications International, Inc., which
represented 14.3% of total revenue. The receivable due from Qwest at December
31, 2002, all of which was current, was $2.5 million or 25.2% of our total
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 and future operating results.

Long-Lived Assets and Their Impairment

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 cost 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 expect to complete the sale and disposal of the assets in
the first half of 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.

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. 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 2002. 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 and
subsequent to December 31, 2002, our market capitalization has decreased
significantly. 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, 2002, we had
approximately $45.6 million in goodwill subject to the impairment testing
provisions of SFAS 142.

Income Tax Valuation Allowances

We have recorded a valuation allowance equal to our deferred tax asset. We
have not generated taxable income and until we do so for a reasonable period of
time we expect to continue to provide a valuation allowance for 100% of our
deferred tax assets. When we determine that we will be able to utilize some or
all of our deferred tax benefits, we will record an asset that will increase
net income in the period in which such determination is made. Our deferred tax
asset at December 31, 2002 is approximately $48.2 million. At December 31,
2002, we had a net operating loss carry-forward of approximately $124.6
million, which is available to offset future taxable income through 2022.

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Restructuring Reserves

At December 31, 2002, our restructuring reserves totaled $1.0 million and
solely relate to facility costs. The restructuring reserve will be relieved by
payments we make, net of our sub-tenants rent payments to us for all
sub-leased offices. The facility reserve will increase or decrease based on our
ability to sublease vacant spaces, which are under non-cancelable operating
leases expiring at various dates through 2005. As of December 31, 2002, the
facility reserve was comprised of three offices. Currently, the minimum lease
payments for the three offices total approximately $61,000 per month. We have
fully reserved two of the remaining offices because the offices are anticipated
to remain vacant and the leases expire in the first half of 2003. As a result,
barring a default by a subtenant on an existing sublease only one office can
subject us to future restructuring charges. Due to the current real estate
market, it has taken us longer than expected to sub-lease or otherwise
terminate our lease obligations in certain cities. However, we continually
monitor and adjust, as warranted, our restructuring reserve associated with
remote sales facilities based on current facts and circumstances. If we are
able to sublease or otherwise terminate a lease obligation on terms more
favorable than we currently have projected, we will adjust the reserve
accordingly and increase income in the quarter the adjustment is made. If we
are unable to reduce or eliminate our commitment on the one remaining office
that is not fully reserved in a timely fashion, we will make unfavorable
adjustments to the restructuring reserve and record expense in the quarter the
adjustments are made.

Recent Accounting Pronouncements

In June 2002, the FASB issued SFAS 146, Accounting for Exit or Disposal
Activities. SFAS 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies EITF Issue 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred
instead of the date of an entitys commitment to an exit plan. This Statement
also establishes that fair value is the objective for initial measurement of
the liability. Severance pay under Statement 146, in many cases, would be
recognized over time rather than upfront for employees who render future
services beyond a minimum retention period. The minimum retention period would
be based on the legal notification period, or if there is no such requirement,
60 days. The provisions of SFAS 146 are effective for the Company for disposal
activities initiated after December 31, 2002. Management does not believe
adoption of this statement will have a material impact on the Companys
financial position, results of operations or cash flows.

In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of FASB Statement 123.
SFAS 148 amends FASB 123, Accounting for Stock-Based Compensation to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In addition,
SFAS 148 amends the disclosure requirements of Statement 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of
the method used on reported results. The provisions of SFAS 148 are effective
for the Company in fiscal 2003 and in fiscal 2002 for certain disclosures.
Management does not believe the adoption of this statement will have a material
impact on the Companys financial position, results of operations or cash flows
as the Company does not plan to change to the fair value based method of
accounting for stock-based employee compensation.

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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 may not sustain profitability.

Our operating costs have exceeded our revenue in each quarter since our
inception in April 1997, except for the quarter ended December 31, 2002. If we
do not sustain profitability in the future, we may be unable to continue our
operations. We have incurred cumulative net losses of approximately $171.9
million from our inception through December 31, 2002 and we may have additional
net losses in 2003. Our revenue may not continue to grow and, as a result, we
may not achieve or maintain profitability in the future. In addition, we expect
to incur significant sales and marketing, research and development, and general
and administrative expenses in the future. Accordingly, we must significantly
increase our revenue to maintain profitability and to continue our operations.

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 only began
commercially offering our Web and Phone Conferencing service in April 1999 and
our Web Conferencing Pro service in June 2000. In January 2001, we restructured
our company to focus solely on these 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.
Our business strategy may be unsuccessful and we may be unable to address the
risks we face in a cost-effective manner, if at all.

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 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 (loss) ranged between
$1.2 million net loss and $0.6 million net income in the four quarters ended
December 31, 2002. Our quarterly revenue ranged between $13.9 million and $15.7
million in the four quarters ended

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December 31, 2002. Many of the factors that may cause fluctuations in our
quarterly operating results are beyond our control, such as increased
competition and market demand for our services. 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.

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 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.

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 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. Because we do not have any guaranteed supply arrangements with this
supplier, it may unilaterally increase its prices for these components, and as
a result, we could face higher than expected operating costs and impaired
operating results. In addition, this supplier could cease supplying us with
these components. 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 filed for Chapter 11 bankruptcy protection in July 2002. If
this supplier was to terminate or interrupt its services, we would experience
difficulties in obtaining alternative sources on commercially reasonable terms,
if at all, or in integrating alternative sources into our technology platform.
In addition, if we were required to obtain these services from alternative
sources, we expect that our cost of sales would substantially increase. We also
rely on a single supplier for the majority of our storage hardware, which store
critical operations data and maintain the reliability of our services. If we
are required to find alternative sources for such equipment, we may experience
difficulty in integrating them into our infrastructure and we could be required
to expend significant money and resources.

A high percentage of our revenue is attributable to repeat customers, including
Qwest Communications International, Inc., 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 model. 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 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.

Additionally, we target our services to large companies, including large
telecommunications companies, and as a result, we may experience an increase in
customer concentration. In particular, during the year ended December 31, 2002,
we recorded sales to Qwest Communications International, Inc., which
represented 14.3% of total revenue, which subjects us to a number of risks,
including a credit risk that we may not be paid a material portion of
outstanding current or future accounts receivables from this customer. 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 addition, our top five customers accounted for 31.4% of our revenue
in 2002. 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 ability to
sustain profitability on a consistent basis could be harmed.

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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 year ended December 31, 2002, 14% of our revenue was attributable
to our indirect 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, and therefore, harm our
ability to sustain profitability on a consistent basis.

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.

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, in 2003, we intend to commercially release
our next generation web conferencing service and technology. We may not
successfully identify, develop and market this next-generation service and
features in a timely and cost-effective manner. If the services and features we
develop fail to achieve widespread market acceptance or fail to generate
significant revenue to offset development costs, our net losses will increase
and we may not be able to sustain profitability on a consistent basis. 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.

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 reduce our prices, or cause us to experience
reduced sales and margins, loss of market share and reduced acceptance of our
services. Recently, Microsoft announced its intention to acquire Placeware, a
private company offering web conferencing services. In addition, some large
software providers, such as Oracle and IBM, have announced their intention to
provide web conferencing services in addition to their software offerings.

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 per-minute long distance 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:
31Table of Contents



| |  |  | 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 acquisition, 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.                                                                                                                                                                                                      

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

Because the web conferencing market is relatively new and still evolving,
the prices for these services are subject to rapid and frequent changes. In
many cases, businesses provide their services at significantly reduced rates,
for free or on a trial basis in order to win customers. Due to competitive
factors and the rapidly changing marketplace, we may be required to
significantly reduce our pricing structure, which would negatively affect our
revenue, margins and our ability to sustain profitability on a consistent
basis.

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 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 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
our ability to sustain profitability on a consistent basis.

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.

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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 50% 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.
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 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
harming our ability to sustain profitability on a consistent basis. 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.

Our joint venture with @viso Limited was not successful and any additional
international expansion may not be successful, which could harm our ability to
attract multi-national customers and cause our operating losses to increase.

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. In addition, we have, and
may continue to, expend significant costs, resources and time to execute this
dissolution and liquidation. As a result, our operating results may be harmed
and we may not sustain profitability on a consistent basis, thereby causing our
stock price to decline.

If we continue to 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;                        

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| |  |  | 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 Conferencing, we have operations in multiple facilities in
geographically diverse areas. In particular, we have expanded our sales force
in connection with the acquisition and 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. We may not sustain the financial
results that InterAct has achieved in the past because of integration problems,
changes that we have made to InterActs operations and the potential loss of
customers who may decide not to continue their relationship with us.

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.

The pursuit of additional business relationships through acquisitions,
joint ventures, or other investment prospects 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, 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:



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

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Our Web and Phone 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 Web and Phone 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 Web and Phone 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 Web and Phone 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 Web and
Phone 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 three 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 the
outcome could be uncertain.

We may be subject to claims alleging intellectual property infringement.

We may be subject to claims alleging that we have infringed upon third
party intellectual property rights. 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.

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, in the past, we have experienced disruptions and delays in our
services 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.

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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 web conferencing services will not generate significant revenue if
businesses do not switch from traditional teleconferencing and communication
services to web conferencing.

If businesses do not switch from traditional teleconferencing and
communication services, our services will not generate significant revenue.
Businesses that have already invested substantial resources in traditional or
other methods of communication may be reluctant to adopt new web conferencing
services. If sufficient demand for our services does not develop, we will have
difficulty selling our services and generating significant increases in
revenue. As a result, we would not sustain profitability on a consistent basis
and the price of our common stock would decline. Growth in revenue from our
services will depend in part on an increase in the number of customers using
the web-based features in addition to our traditional conferencing features.

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 and other charges,
consisting primarily of depreciation, the amortization of intangible assets,
stock-based compensation and restructuring costs. 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 that GAAP financial information with the non-GAAP financial results
disclosed in our quarterly earnings releases and investor calls.

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

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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.

The stock market in general, and the stock price of our company in
particular, has experienced extreme price and volume fluctuations. This
volatility is often unrelated or disproportionate to operating performance.
These broad market and industry factors may reduce our stock price, regardless
of our operating performance.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At December 31, 2002, we had long-term debt, including current portion, in
the aggregate amount of $3.1 million with an interest rate of 5.25% with
payments due through January 2006. A change in interest rates would not affect
our obligations related to long-term debt existing as of December 31, 2002, as
the interest payments related to that debt are fixed over the term of the debt.
At December 31, 2002, we had a $12.5 million revolving line of credit with a
loan value of $8.4 million based on 90% of the underlying eligible accounts
receivable at year-end. Advances under the revolving line of credit will
reflect interest at the banks prime rate and therefore any advances under this
revolving line of credit would subject 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. 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.
Although we do not have any investments at December 31, 2002, we may purchase
investments that may decline in value as a result of changes in equity markets
and interest rates.




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.

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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 2003 Definitive
Proxy Statement anticipated to be filed with the Securities and Exchange
Commission within 120 days of December 31, 2002 entitled Proposal 1-Election
of Directors and the section entitled Management.




ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference to the section of the Companys 2003 Definitive
Proxy Statement anticipated to be filed with the Securities and Exchange
Commission within 120 days of December 31, 2002 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 2003 Definitive
Proxy Statement anticipated to be filed with the Securities and Exchange
Commission within 120 days of December 31, 2002 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 2003 Definitive
Proxy Statement anticipated to be filed with the Securities and Exchange
Commission within 120 days of December 31, 2002 entitled Certain
Transactions.




ITEM 14. 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-14(c) under the Exchange Act. In designing and evaluating our disclosure
controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and therefore
management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible disclosure controls and procedures.

Within 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective.

There have been no significant changes in our internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date we completed our evaluation.

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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.                                                                                      
|10.16(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.                                                      
|10.20(1)+   |  | Shareholders Agreement, dated June 9, 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       |  | 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).                                                                                                            
|99.1        |  | Chief Executive Officer and Chief Financial Officer Certificate.                                                                                            



|+   |  | 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. 00031045) as filed on August 14, 2001.

40



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|(4) |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q (File No. 00031045) as filed on May 15, 2002.   
|--- |  | ----------------------------------------------------------------------------------------------------------------------------
|   
|(5) |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q (File No. 00031045) as filed on August 14, 2002.
|   
|    |  | (b) Reports on Form 8-K.                                                                                                    

No reports on Form 8-K were filed by us during the last quarter of 2002.

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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
26th day of March, 2003.

| |  |                                |  |                        
| |  | ------------------------------ |  | -----------------------
| |  | 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 Paul A. Berberian and Nicholas J. Cuccaro, or
any of them, his attorney-in-fact, each 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
each of said attorneys-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/ Paul A. BerberianPaul A. Berberian             |  | Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer) |  | March 26, 2003
|                                                  
|                                                   |  |                                                                                            |  |               
|                                                  
|/s/ Nicholas J. CuccaroNicholas J. Cuccaro         |  | Chief Financial Officer (Principal
Financial and Accounting
Officer)                       |  | March 26, 2003
|                                                  
|                                                   |  |                                                                                            |  |               
|                                                  
|/s/ Patrick J. LombardiPatrick J. Lombardi         |  | Director                                                                                   |  | March 26, 2003
|                                                  
|                                                   |  |                                                                                            |  |               
|                                                  
|/s/ Daniel E. SomersDaniel E. Somers               |  | Director                                                                                   |  | March 26, 2003
|                                                  
|                                                   |  |                                                                                            |  |               
|                                                  
|/s/ Donald F. Detampel, Jr.Donald F. Detampel, Jr. |  | Director                                                                                   |  | March 26, 2003
|                                                  
|                                                   |  |                                                                                            |  |               
|                                                  
|/s/ Steven C. HalstedtSteven C. Halstedt           |  | Director                                                                                   |  | March 26, 2003

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Form 10-K Certification

I, Paul A. Berberian, certify that:

1.     I have reviewed this annual report on Form 10-K of Raindance Communications,
Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 26, 2003

/s/ Paul A. Berberian
Paul A. Berberian
Chief Executive Officer and President

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Form 10-K Certification

I, Nicholas J. Cucarro, certify that:

1.     I have reviewed this annual report on Form 10-K of Raindance Communications,
Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 26, 2003

/s/ Nicholas J. Cuccaro
Nicholas J. Cuccaro
Chief Financial Officer

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, 2001 and 2002                                                                                |  |      | F-3 | 
|Consolidated Statements of Operations for the three years ended December 31, 2000, 2001
and 2002                                            |  |      | F-4 | 
|Consolidated Statements of Stockholders Equity (Deficit) and Comprehensive Loss for the three
years ended December 31, 2000, 2001 and 2002 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the three years ended December 31, 2000, 2001
and 2002                                            |  |      | 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, 2001 and 2002, and the
related consolidated statements of operations, stockholders equity (deficit)
and comprehensive loss and cash flows for each of the years in the three-year
period ended December 31, 2002. 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, 2001 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, 2002, 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 142, Goodwill and Other Intangible Assets, which were
adopted by the Company on January 1, 2002.

KPMG LLP

Boulder, Colorado
February 7, 2003

F-2



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##### Table of Contents



RAINDANCE COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

|                                           |                                                                                                                                                       |                               |         |              |         |      |         |          |         | 
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ------- | ------------ | ------- | ---- | ------- | -------- | ------- | 
|                                           |                                                                                                                                                       |                               |         | December 31,
|                                           |                                                                                                                                                       |                               |         |             
|                                           |                                                                                                                                                       |                               |         | 2001         |         | 2002
|                                           |                                                                                                                                                       |                               |         |              |         |     
|ASSETS                                     |                                                                                                                                                       |                               |         |              |         |      |         |         
|CURRENT ASSETS:                            |                                                                                                                                                       |                               |         |              |         |      |         |         
|                                           | Cash and cash equivalents                                                                                                                             |                               | $       | 34,222       |         |      | $       | 31,699   |        
|                                           | Accounts receivable, net of allowance for doubtful accounts of $775 and $850 in 2001 and 2002,
respectively                                           |                               |         | 5,517        |         |      |         | 8,982    |        
|                                           | Due from affiliate                                                                                                                                    |                               |         | 993          |         |      |         | 50       |        
|                                           | Prepaid expenses and other current assets                                                                                                             |                               |         | 1,708        |         |      |         | 983      |        
|                                           | Due from employees                                                                                                                                    |                               |         | 78           |         |      |         | 12       |        
|                                           |                                                                                                                                                       |                               |         |              |         |      |         |         
|                                           |                                                                                                                                                       | Total current assets          |         |              | 42,518  |      |         |          | 41,726  | 
|                                           | Property and equipment, net                                                                                                                           |                               |         | 27,959       |         |      |         | 24,493   |        
|                                           | Goodwill, net                                                                                                                                         |                               |         | 38,652       |         |      |         | 45,587   |        
|                                           | Due from employees                                                                                                                                    |                               |         | 163          |         |      |         | 2        |        
|                                           | Other assets                                                                                                                                          |                               |         | 960          |         |      |         | 1,197    |        
|                                           |                                                                                                                                                       |                               |         |              |         |      |         |         
|                                           |                                                                                                                                                       | TOTAL ASSETS                  |         | $            | 110,252 |      |         | $        | 113,005 | 
|                                           |                                                                                                                                                       |                               |         |              |         |      |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                                                                       |                               |         |              |         |      |         |         
|CURRENT LIABILITIES:                       |                                                                                                                                                       |                               |         |              |         |      |         |         
|                                           | Accounts payable                                                                                                                                      |                               | $       | 5,428        |         |      | $       | 5,193    |        
|                                           | Current portion of long term debt                                                                                                                     |                               |         | 1,893        |         |      |         | 1,030    |        
|                                           | Accrued expenses                                                                                                                                      |                               |         | 908          |         |      |         | 629      |        
|                                           | Accrued compensation                                                                                                                                  |                               |         | 1,025        |         |      |         | 2,322    |        
|                                           | Restructuring reserve                                                                                                                                 |                               |         | 662          |         |      |         | 507      |        
|                                           | Deferred revenue                                                                                                                                      |                               |         | 1,035        |         |      |         | 423      |        
|                                           |                                                                                                                                                       |                               |         |              |         |      |         |         
|                                           |                                                                                                                                                       | Total current liabilities     |         |              | 10,951  |      |         |          | 10,104  | 
|                                           | Long term debt, less current portion                                                                                                                  |                               |         | 3,064        |         |      |         | 2,026    |        
|                                           | Restructuring reserve, less current portion                                                                                                           |                               |         | 914          |         |      |         | 518      |        
|                                           | Deferred revenue, less current
portion                                                                                                                |                               |         | 516          |         |      |         |         |        
|                                           | Other                                                                                                                                                 |                               |         | 39           |         |      |         | 34       |        
|                                           |                                                                                                                                                       |                               |         |              |         |      |         |         
|                                           |                                                                                                                                                       | TOTAL LIABILITIES             |         |              | 15,484  |      |         |          | 12,682  | 
|                                           |                                                                                                                                                       |                               |         |              |         |      |         |         
|STOCKHOLDERS EQUITY:                      |                                                                                                                                                       |                               |         |              |         |      |         |         
|                                           | Common stock, par value $.0015, 130,000,000 shares authorized; issued and
outstanding 48,130,324 and 51,895,813 shares in 2001 and 2002, respectively |                               |         | 72           |         |      |         | 78       |        
|                                           | Additional paid-in capital                                                                                                                            |                               |         | 267,064      |         |      |         | 276,211  |        
|                                           | Deferred stock-based compensation                                                                                                                     |                               |         | (3,823       | )       |      |         | (4,067   | )      
|                                           | Accumulated deficit                                                                                                                                   |                               |         | (168,545     | )       |      |         | (171,899 | )      
|                                           |                                                                                                                                                       |                               |         |              |         |      |         |         
|                                           |                                                                                                                                                       | Total stockholders equity    |         |              | 94,768  |      |         |          | 100,323 | 
|                                           |                                                                                                                                                       |                               |         |              |         |      |         |         
|                                           |                                                                                                                                                       | Commitments and contingencies |         |              |         |      |         |          |         | 
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                                                       | $                             | 110,252 |              |         | $    | 113,005 |         
|                                           |                                                                                                                                                       |                               |         |              |         |      |         |         

See accompanying notes to consolidated financial statements.

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##### Table of Contents



RAINDANCE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

|                                                                                                                                                                       |                                                                                                                                                                                         |                                              |        |                          |          |      |        |        |         |   |        |        |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------ | ------------------------ | -------- | ---- | ------ | ------ | ------- | - | ------ | ------ | ------ | -
|                                                                                                                                                                       |                                                                                                                                                                                         |                                              |        | Years ended December 31,
|                                                                                                                                                                       |                                                                                                                                                                                         |                                              |        |                         
|                                                                                                                                                                       |                                                                                                                                                                                         |                                              |        | 2000                     |          | 2001 |        | 2002  
|                                                                                                                                                                       |                                                                                                                                                                                         |                                              |        |                          |          |      |        |       
|Revenue                                                                                                                                                                |                                                                                                                                                                                         | $                                            | 18,022 |                          |          | $    | 39,410 |        |         | $ | 60,651 |       
|Cost of revenue (exclusive of stock-based compensation expense of $299,
$228 and $197 for the years ended December 31, 2000, 2001 and
2002,
respectively, shown below) |                                                                                                                                                                                         |                                              | 16,144 |                          |          |      | 22,457 |        |         |   | 26,635 |       
|                                                                                                                                                                       |                                                                                                                                                                                         |                                              |        |                          |          |      |        |        |         |   |        |       
|                                                                                                                                                                       |                                                                                                                                                                                         | Gross profit                                 |        |                          | 1,878    |      |        |        | 16,953  |   |        |        | 34,016 |  
|                                                                                                                                                                       |                                                                                                                                                                                         |                                              |        |                          |          |      |        |        |         |   |        |       
|Operating expenses:                                                                                                                                                    |                                                                                                                                                                                         |                                              |        |                          |          |      |        |        |         |   |        |       
|                                                                                                                                                                       | Sales and marketing (exclusive of stock-based compensation expense of
$992, $471 and $289 for the years ended December 31, 2000, 2001
and
2002, respectively, shown below)              |                                              |        | 53,169                   |          |      |        | 20,362 |         |   |        | 18,508 |       
|                                                                                                                                                                       | Research and development (exclusive of stock-based compensation
expense of $792, $631 and $620 for the years ended December 31,
2000, 2001 and 2002, respectively, shown below)         |                                              |        | 8,011                    |          |      |        | 5,704  |         |   |        | 7,599  |       
|                                                                                                                                                                       | General and administrative (exclusive of stock-based compensation
expense of $6,300, $1,504 and $1,922 for the years ended
December 31,
2000, 2001 and 2002, respectively, shown below) |                                              |        | 8,441                    |          |      |        | 7,397  |         |   |        | 7,515  |       
|                                                                                                                                                                       | Amortization of goodwill                                                                                                                                                                |                                              |        | 14,534                   |          |      |        | 26,506 |         |   |        |       |       
|                                                                                                                                                                       | Stock-based compensation expense                                                                                                                                                        |                                              |        | 8,383                    |          |      |        | 2,834  |         |   |        | 3,028  |       
|                                                                                                                                                                       | Asset impairment charges                                                                                                                                                                |                                              |        |                         |          |      |        | 4,576  |         |   |        | 138    |       
|                                                                                                                                                                       | Restructuring charges, contract termination and litigation related
expenses                                                                                                             |                                              |        | 11,133                   |          |      |        | 1,696  |         |   |        | 584    |       
|                                                                                                                                                                       |                                                                                                                                                                                         |                                              |        |                          |          |      |        |        |         |   |        |       
|                                                                                                                                                                       |                                                                                                                                                                                         | Total operating expenses                     |        |                          | 103,671  |      |        |        | 69,075  |   |        |        | 37,372 |  
|                                                                                                                                                                       |                                                                                                                                                                                         |                                              |        |                          |          |      |        |        |         |   |        |       
|                                                                                                                                                                       |                                                                                                                                                                                         | Loss from operations                         |        |                          | (101,793 | )    |        |        | (52,122 | ) |        |        | (3,356 | )
|                                                                                                                                                                       |                                                                                                                                                                                         |                                              |        |                          |          |      |        |        |         |   |        |       
|Other income (expense):                                                                                                                                                |                                                                                                                                                                                         |                                              |        |                          |          |      |        |        |         |   |        |       
|                                                                                                                                                                       | Interest income                                                                                                                                                                         |                                              |        | 3,692                    |          |      |        | 1,351  |         |   |        | 474    |       
|                                                                                                                                                                       | Interest expense                                                                                                                                                                        |                                              |        | (445                     | )        |      |        | (464   | )       |   |        | (346   | )     
|                                                                                                                                                                       | Equity in loss of unconsolidated joint venture                                                                                                                                          |                                              |        | (181                     | )        |      |        |       |         |   |        |       |       
|                                                                                                                                                                       | Other, net                                                                                                                                                                              |                                              |        | (26                      | )        |      |        | (1,488 | )       |   |        | (126   | )     
|                                                                                                                                                                       |                                                                                                                                                                                         |                                              |        |                          |          |      |        |        |         |   |        |       
|                                                                                                                                                                       |                                                                                                                                                                                         | Total other income (expense)                 |        |                          | 3,040    |      |        |        | (601    | ) |        |        | 2      |  
|                                                                                                                                                                       |                                                                                                                                                                                         |                                              |        |                          |          |      |        |        |         |   |        |       
|                                                                                                                                                                       |                                                                                                                                                                                         | Net loss                                     |        |                          | (98,753  | )    |        |        | (52,723 | ) |        |        | (3,354 | )
|Preferred stock dividends and accretion to preferred stock redemption
value                                                                                            |                                                                                                                                                                                         |                                              | 1,725  |                          |          |      |       |        |         |   |       |       
|                                                                                                                                                                       |                                                                                                                                                                                         |                                              |        |                          |          |      |        |        |         |   |        |       
|                                                                                                                                                                       |                                                                                                                                                                                         | Net loss attributable to common stockholders |        | $                        | (100,478 | )    |        | $      | (52,723 | ) |        | $      | (3,354 | )
|                                                                                                                                                                       |                                                                                                                                                                                         |                                              |        |                          |          |      |        |        |         |   |        |       
|                                                                                                                                                                       | Loss per share-basic and diluted                                                                                                                                                        |                                              | $      | (4.69                    | )        |      | $      | (1.12  | )       |   | $      | (0.07  | )     
|                                                                                                                                                                       |                                                                                                                                                                                         |                                              |        |                          |          |      |        |        |         |   |        |       
|Weighted average number of common
shares outstanding-basic and diluted                                                                                                 |                                                                                                                                                                                         |                                              | 21,443 |                          |          |      | 47,280 |        |         |   | 50,502 |       
|                                                                                                                                                                       |                                                                                                                                                                                         |                                              |        |                          |          |      |        |        |         |   |        |       

See accompanying notes to consolidated financial statements.

F-4



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##### Table of Contents



RAINDANCE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) AND COMPREHENSIVE LOSS
(In thousands, except share data)

|                              |                                                                                            |  |                 |            |              |   |            |      |             |  |            |            |               |   |             |    |      |   |         |         |               |   |             |        |   |   |      |        |   |   |      |        |   |   |          |         |   |   |         |         |   |  |   |         |  
|----------------------------- | ------------------------------------------------------------------------------------------ |  | --------------- | ---------- | ------------ | - | ---------- | ---- | ----------- |  | ---------- | ---------- | ------------- | - | ----------- | -- | ---- | - | ------- | ------- | ------------- | - | ----------- | ------ | - | - | ---- | ------ | - | - | ---- | ------ | - | - | -------- | ------- | - | - | ------- | ------- | - |  | - | ------- | -
|                              |                                                                                            |  | Preferred Stock |            |              |   |            |      |             |  |            |            |               |   |             |    |      |   |         |         | Note          |   | Accumulated |        |   |   |      |        |   |   |      |        |   |   |         
|                              |                                                                                            |  | Series A        |            | Common Stock |   | Additional |      | Deferred    |  | receivable |            | other         |   |             |    |      |   |         |         |               |   |             |        |  
|                              |                                                                                            |  |                 |            |              |   | paid-in    |      | stock-based |  | from       |            | comprehensive |   | Accumulated |    |      |   |         |         | Comprehensive
|                              |                                                                                            |  | Shares          |            | Amount       |   | Shares     |      | Amount      |  | Capital    |            | compensation  |   | officer     |    | loss |   | Deficit |         | Total         |   | loss       
|                              |                                                                                            |  |                 |            |              |   |            |      |             |  |            |            |               |   |             |    |      |   |         |         |               |   |            
|Balances at January 1, 2000   |                                                                                            |  | 5,025,000       |            |              | $ | 503        |      |             |  | 575,806    |            |               | $ | 1           |    |      | $ | 11,939  |         |               | $ | (9,306      | )      |   | $ |     |        |   | $ |     |        |   | $ | (17,069  | )       |   | $ | (13,932 | )       |   |  |   |        
|                              | Exercise of common stock options                                                           |  |                 |           |              |   |            |     |             |  |            | 401,253    |               |   |             | 1  |      |   |         | 488     |               |   |             |       |   |   |      |       |   |   |      |       |   |   |          |        |   |   |         | 489     |   |  |   |         |  
|                              | Issuance of common stock warrants                                                          |  |                 |           |              |   |            |     |             |  |            |           |               |   |             |   |      |   |         | 110     |               |   |             |       |   |   |      |       |   |   |      |       |   |   |          |        |   |   |         | 110     |   |  |   |         |  
|                              | Issuance of common stock options at less
than fair value, net of forfeitures               |  |                 |           |              |   |            |     |             |  |            |           |               |   |             |   |      |   |         | 5,862   |               |   |             | (5,862 | ) |   |      |       |   |   |      |       |   |   |          |        |   |   |         |        |   |  |   |         |  
|                              | Issuance of common stock to officers and
directors at less than fair value                 |  |                 |           |              |   |            |     |             |  |            | 395,168    |               |   |             |   |      |   |         | 5,338   |               |   |             | (3,213 | ) |   |      | (1,125 | ) |   |      |       |   |   |          |        |   |   |         | 1,000   |   |  |   |         |  
|                              | Amortization of deferred stock-based
compensation                                          |  |                 |           |              |   |            |     |             |  |            |           |               |   |             |   |      |   |         |        |               |   |             | 8,290  |   |   |      |       |   |   |      |       |   |   |          |        |   |   |         | 8,290   |   |  |   |         |  
|                              | Adjustment of note receivable to fair
value                                                |  |                 |           |              |   |            |     |             |  |            |           |               |   |             |   |      |   |         |        |               |   |             |       |   |   |      | 687    |   |   |      |       |   |   |          |        |   |   |         | 687     |   |  |   |         |  
|                              | Interest on note receivable                                                                |  |                 |           |              |   |            |     |             |  |            |           |               |   |             |   |      |   |         |        |               |   |             |       |   |   |      | (45    | ) |   |      |       |   |   |          |        |   |   |         | (45     | ) |  |   |         |  
|                              | Issuance of common stock and common
stock options for the acquisition of
business          |  |                 |           |              |   |            |     |             |  |            | 4,425,176  |               |   |             | 7  |      |   |         | 78,317  |               |   |             | (568   | ) |   |      |       |   |   |      |       |   |   |          |        |   |   |         | 77,756  |   |  |   |         |  
|                              | Conversion of convertible preferred stock
and mandatorily redeemable preferred
stock value |  |                 | (5,025,000 | )            |   |            | (503 | )           |  |            | 34,037,522 |               |   |             | 51 |      |   |         | 117,136 |               |   |             |       |   |   |      |       |   |   |      |       |   |   |          |        |   |   |         | 116,684 |   |  |   |         |  
|                              | Issuance of common stock upon the
companys initial public offering, net of
offering costs |  |                 |           |              |   |            |     |             |  |            | 7,000,000  |               |   |             | 10 |      |   |         | 50,276  |               |   |             |       |   |   |      |       |   |   |      |       |   |   |          |        |   |   |         | 50,286  |   |  |   |         |  
|                              | Comprehensive loss:                                                                        |  |                 |            |              |   |            |      |             |  |            |            |               |   |             |    |      |   |         |         |               |   |             |        |   |   |      |        |   |   |      |        |   |   |          |         |   |   |         |         |   |  |   |         |  
|                              | Foreign currency translation adjustment                                                    |  |                 |           |              |   |            |     |             |  |            |           |               |   |             |   |      |   |         |        |               |   |             |       |   |   |      |       |   |   |      | 294    |   |   |          |        |   |   |         | 294     |   |  | $ | 294     |  
|                              | Unrealized loss on investment                                                              |  |                 |           |              |   |            |     |             |  |            |           |               |   |             |   |      |   |         |        |               |   |             |       |   |   |      |       |   |   |      | (1,156 | ) |   |          |        |   |   |         | (1,156  | ) |  |   | (1,156  | )
|                              | Net loss                                                                                   |  |                 |           |              |   |            |     |             |  |            |           |               |   |             |   |      |   |         |        |               |   |             |       |   |   |      |       |   |   |      |       |   |   |          | (98,753 | ) |   |         | (98,753 | ) |  |   | (98,753 | )
|                              |                                                                                            |  |                 |            |              |   |            |      |             |  |            |            |               |   |             |    |      |   |         |         |               |   |             |        |   |   |      |        |   |   |      |        |   |   |          |         |   |   |         |         |   |  |   |        
|                              | Comprehensive loss                                                                         |  |                 |           |              |   |            |     |             |  |            |           |               |   |             |   |      |   |         |        |               |   |             |       |   |   |      |       |   |   |      |       |   |   |          |        |   |   |         |        |   |  | $ | (99,615 | )
|                              |                                                                                            |  |                 |            |              |   |            |      |             |  |            |            |               |   |             |    |      |   |         |         |               |   |             |        |   |   |      |        |   |   |      |        |   |   |          |         |   |   |         |         |   |  |   |        
|Balances at December 31, 2000 |                                                                                            |  |                |            |              |   |           |      |             |  | 46,834,925 |            |               |   | 70          |    |      |   | 269,466 |         |               |   | (10,659     | )      |   |   | (483 | )      |   |   | (862 | )      |   |   | (115,822 | )       |   |   | 141,710 |         |   |  |   |        
|                              |                                                                                            |  |                 |            |              |   |            |      |             |  |            |            |               |   |             |    |      |   |         |         |               |   |             |        |   |   |      |        |   |   |      |        |   |   |          |         |   |   |         |         |   |  |   |        
|                              | Issuance of common stock under
compensation arrangements                                   |  |                 |           |              |   |            |     |             |  |            | 1,174,395  |               |   |             | 2  |      |   |         | 1,964   |               |   |             |       |   |   |      |       |   |   |      |       |   |   |          |        |   |   |         | 1,966   |   |  |   |         |  
|                              | Common stock issued for cash                                                               |  |                 |           |              |   |            |     |             |  |            | 21,004     |               |   |             |   |      |   |         | 128     |               |   |             |       |   |   |      |       |   |   |      |       |   |   |          |        |   |   |         | 128     |   |  |   |         |  
|                              | Common stock options issued for services                                                   |  |                 |           |              |   |            |     |             |  |            |           |               |   |             |   |      |   |         | 654     |               |   |             |       |   |   |      |       |   |   |      |       |   |   |          |        |   |   |         | 654     |   |  |   |         |  
|                              | Cancellation of common stock options                                                       |  |                 |           |              |   |            |     |             |  |            |           |               |   |             |   |      |   |         | (5,107  | )             |   |             | 5,107  |   |   |      |       |   |   |      |       |   |   |          |        |   |   |         |        |   |  |   |         |  
|                              | Issuance of common stock options to
officers at less than fair value                       |  |                 |           |              |   |            |     |             |  |            | 100,000    |               |   |             |   |      |   |         | 155     |               |   |             |       |   |   |      |       |   |   |      |       |   |   |          |        |   |   |         | 155     |   |  |   |         |  
|                              | Issuance of common stock grants
to officers at less than fair value                        |  |                 |           |              |   |            |     |             |  |            | 250,000    |               |   |             |   |      |   |         | 382     |               |   |             |       |   |   |      |       |   |   |      |       |   |   |          |        |   |   |         | 382     |   |  |   |         |  
|                              | Amortization of deferred stock-based
compensation                                          |  |                 |           |              |   |            |     |             |  |            |           |               |   |             |   |      |   |         |        |               |   |             | 1,729  |   |   |      |       |   |   |      |       |   |   |          |        |   |   |         | 1,729   |   |  |   |         |  
|                              | Adjustment of note receivable to fair
value                                                |  |                 |           |              |   |            |     |             |  |            |           |               |   |             |   |      |   |         |        |               |   |             |       |   |   |      | (141   | ) |   |      |       |   |   |          |        |   |   |         | (141    | ) |  |   |         |  
|                              | Interest on note receivable                                                                |  |                 |           |              |   |            |     |             |  |            |           |               |   |             |   |      |   |         |        |               |   |             |       |   |   |      | (12    | ) |   |      |       |   |   |          |        |   |   |         | (12     | ) |  |   |         |  

F-5



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##### Table of Contents



|                              |                                                                                |  |                 |   |              |   |            |   |             |  |            |           |               |   |             |   |      |   |         |       |               |   |             |        |   |   |   |     |  |   |   |       |   |   |          |         |   |   |         |         |   |  |   |         |  
|----------------------------- | ------------------------------------------------------------------------------ |  | --------------- | - | ------------ | - | ---------- | - | ----------- |  | ---------- | --------- | ------------- | - | ----------- | - | ---- | - | ------- | ----- | ------------- | - | ----------- | ------ | - | - | - | --- |  | - | - | ----- | - | - | -------- | ------- | - | - | ------- | ------- | - |  | - | ------- | -
|                              |                                                                                |  | Preferred Stock |   |              |   |            |   |             |  |            |           |               |   |             |   |      |   |         |       | Note          |   | Accumulated |        |   |   |   |     |  |   |   |       |   |   |         
|                              |                                                                                |  | Series A        |   | Common Stock |   | Additional |   | Deferred    |  | receivable |           | other         |   |             |   |      |   |         |       |               |   |             |        |  
|                              |                                                                                |  |                 |   |              |   | paid-in    |   | stock-based |  | from       |           | comprehensive |   | Accumulated |   |      |   |         |       | Comprehensive
|                              |                                                                                |  | Shares          |   | Amount       |   | Shares     |   | Amount      |  | Capital    |           | compensation  |   | officer     |   | loss |   | Deficit |       | Total         |   | loss       
|                              |                                                                                |  |                 |   |              |   |            |   |             |  |            |           |               |   |             |   |      |   |         |       |               |   |            
|                              | Cancellation of note
receivable                                                |  |                 |   |              |   |            |   |             |  |            | (250,000  | )             |   |             |  |      |   |         | (578  | )             |   |             |       |   |   |   | 636 |  |   |   |      |   |   |          |        |   |   |         | 58      |   |  |   |         |  
|                              | Comprehensive loss:                                                            |  |                 |   |              |   |            |   |             |  |            |           |               |   |             |   |      |   |         |       |               |   |             |        |   |   |   |     |  |   |   |       |   |   |          |         |   |   |         |         |   |  |   |         |  
|                              | Foreign currency translation adjustment                                        |  |                 |  |              |   |            |  |             |  |            |          |               |   |             |  |      |   |         |      |               |   |             |       |   |   |   |    |  |   |   | (294  | ) |   |          |        |   |   |         | (294    | ) |  | $ | (294    | )
|                              | Realized loss on investment                                                    |  |                 |  |              |   |            |  |             |  |            |          |               |   |             |  |      |   |         |      |               |   |             |       |   |   |   |    |  |   |   | 1,156 |   |   |          |        |   |   |         | 1,156   |   |  |   | 1,156   |  
|                              | Net 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 | )       |   |   | 94,768  |         |   |  |   |        
|                              | Issuance of common stock under
compensation arrangements                       |  |                 |  |              |   |            |  |             |  |            | 1,556,458 |               |   |             | 2 |      |   |         | 1,843 |               |   |             |       |   |   |   |    |  |   |   |      |   |   |          |        |   |   |         | 1,845   |   |  |   |         |  
|                              | Common stock options issued for services                                       |  |                 |  |              |   |            |  |             |  |            |          |               |   |             |  |      |   |         | 306   |               |   |             |       |   |   |   |    |  |   |   |      |   |   |          |        |   |   |         | 306     |   |  |   |         |  
|                              | Cancellation of common stock options                                           |  |                 |  |              |   |            |  |             |  |            |          |               |   |             |  |      |   |         | (463  | )             |   |             | 463    |   |   |   |    |  |   |   |      |   |   |          |        |   |   |         |        |   |  |   |         |  
|                              | Common stock issued at less than fair value
to
directors for services rendered |  |                 |  |              |   |            |  |             |  |            | 10,450    |               |   |             | 1 |      |   |         | 77    |               |   |             |       |   |   |   |    |  |   |   |      |   |   |          |        |   |   |         | 78      |   |  |   |         |  
|                              | Issuance of common stock for the
acquisition of business                       |  |                 |  |              |   |            |  |             |  |            | 2,198,581 |               |   |             | 3 |      |   |         | 7,384 |               |   |             | (3,352 | ) |   |   |    |  |   |   |      |   |   |          |        |   |   |         | 4,035   |   |  |   |         |  
|                              | Amortization of deferred stock-based
compensation                              |  |                 |  |              |   |            |  |             |  |            |          |               |   |             |  |      |   |         |      |               |   |             | 2,645  |   |   |   |    |  |   |   |      |   |   |          |        |   |   |         | 2,645   |   |  |   |         |  
|                              | Net 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 | )       |   | $ | 100,323 |         |   |  |   |        
|                              |                                                                                |  |                 |   |              |   |            |   |             |  |            |           |               |   |             |   |      |   |         |       |               |   |             |        |   |   |   |     |  |   |   |       |   |   |          |         |   |   |         |         |   |  |   |        

See accompanying notes to consolidated financial statements.

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RAINDANCE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

|                                                                                         |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |        |        |  
|---------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ------- | ----------------------- | ------- | ---- | ------- | ------ | ------ | - | ------ | ------ | ------ | -
|                                                                                         |                                                                      |                                                                               |         | Years Ended December 31
|                                                                                         |                                                                      |                                                                               |         |                        
|                                                                                         |                                                                      |                                                                               |         | 2000                    |         | 2001 |         | 2002  
|                                                                                         |                                                                      |                                                                               |         |                         |         |      |         |       
|Cash flows from operating activities:                                                    |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|Net loss                                                                                 |                                                                      | $                                                                             | (98,753 | )                       |         | $    | (52,723 | )      |        | $ | (3,354 | )     
|Adjustments to reconcile net loss to net cash provided (used) by operating activities:   |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|                                                                                         | Depreciation and amortization                                        |                                                                               |         | 22,589                  |         |      |         | 35,615 |        |   |        | 10,362 |       
|                                                                                         | Loss of unconsolidated joint venture                                 |                                                                               |         | 181                     |         |      |         |       |        |   |        |       |       
|                                                                                         | Write down of note receivable from officer to net realizable value   |                                                                               |         | 593                     |         |      |         |       |        |   |        |       |       
|                                                                                         | Write down of note receivable from affiliate to net realizable value |                                                                               |         |                        |         |      |         | 1,782  |        |   |        |       |       
|                                                                                         | Loss on disposition of stock                                         |                                                                               |         |                        |         |      |         | 1,195  |        |   |        |       |       
|                                                                                         | Asset impairment charges and restructuring charges                   |                                                                               |         |                        |         |      |         | 4,582  |        |   |        | 722    |       
|                                                                                         | Stock-based compensation                                             |                                                                               |         | 8,383                   |         |      |         | 2,834  |        |   |        | 3,028  |       
|                                                                                         | Other                                                                |                                                                               |         | 114                     |         |      |         | 364    |        |   |        | 150    |       
|Changes in operating assets and liabilities, excluding effects of business acquisitions: |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|                                                                                         |                                                                      | Accounts receivable                                                           |         |                         | (3,751  | )    |         |        | (627   | ) |        |        | (2,811 | )
|                                                                                         |                                                                      | Prepaid expenses and other current assets                                     |         |                         | (2,546  | )    |         |        | 1,163  |   |        |        | 523    |  
|                                                                                         |                                                                      | Other assets                                                                  |         |                         | (6,156  | )    |         |        | 139    |   |        |        | 732    |  
|                                                                                         |                                                                      | Accounts payable and accrued expenses                                         |         |                         | 11,154  |      |         |        | (4,733 | ) |        |        | (1,121 | )
|                                                                                         |                                                                      | Deferred revenue                                                              |         |                         | 243     |      |         |        | 672    |   |        |        | (1,055 | )
|                                                                                         |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|Net cash provided (used) by operating activities                                         |                                                                      |                                                                               | (67,949 | )                       |         |      | (9,737  | )      |        |   | 7,176  |       
|                                                                                         |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|Cash flows from investing activities:                                                    |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|                                                                                         |                                                                      | Purchase of property and equipment                                            |         |                         | (29,596 | )    |         |        | (3,944 | ) |        |        | (6,131 | )
|                                                                                         |                                                                      | Proceeds from disposition of equipment                                        |         |                         | 77      |      |         |        | 204    |   |        |        | 11     |  
|                                                                                         |                                                                      | Proceeds from sales and maturities of investment securities                   |         |                         | 648     |      |         |        |       |   |        |        |       |  
|                                                                                         |                                                                      | Purchase of investment securities                                             |         |                         | (2,000  | )    |         |        |       |   |        |        |       |  
|                                                                                         |                                                                      | Loan to Contigo Software, Inc.                                                |         |                         | (300    | )    |         |        |       |   |        |        |       |  
|                                                                                         |                                                                      | Cash paid for acquisition of Contigo Software, Inc., net of cash acquired     |         |                         | (2,622  | )    |         |        |       |   |        |        |       |  
|                                                                                         |                                                                      | Cash paid for acquisition of InterAct Conferencing, LLC, net of cash acquired |         |                         |        |      |         |        |       |   |        |        | (3,522 | )
|                                                                                         |                                                                      | Other                                                                         |         |                         | (95     | )    |         |        |       |   |        |        |       |  
|                                                                                         |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|Net cash used by investing activities                                                    |                                                                      |                                                                               | (33,888 | )                       |         |      | (3,740  | )      |        |   | (9,642 | )     
|                                                                                         |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|Cash flows from financing activities:                                                    |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|                                                                                         |                                                                      | Net proceeds from issuance of preferred stock                                 |         |                         | 5,013   |      |         |        |       |   |        |        |       |  
|                                                                                         |                                                                      | Net proceeds from issuance of common stock                                    |         |                         | 52,399  |      |         |        | 1,745  |   |        |        | 1,845  |  
|                                                                                         |                                                                      | Preferred stock dividend                                                      |         |                         | (150    | )    |         |        |       |   |        |        |       |  
|                                                                                         |                                                                      | Proceeds from debt                                                            |         |                         |        |      |         |        | 5,000  |   |        |        |       |  
|                                                                                         |                                                                      | Payments on debt                                                              |         |                         | (1,348  | )    |         |        | (2,357 | ) |        |        | (1,902 | )
|                                                                                         |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|Net cash provided (used) by financing activities                                         |                                                                      |                                                                               | 55,914  |                         |         |      | 4,388   |        |        |   | (57    | )     
|                                                                                         |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|Decrease in cash and cash equivalents                                                    |                                                                      |                                                                               | (45,923 | )                       |         |      | (9,089  | )      |        |   | (2,523 | )     
|Cash and cash equivalents at beginning of year                                           |                                                                      |                                                                               | 89,234  |                         |         |      | 43,311  |        |        |   | 34,222 |       
|                                                                                         |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|Cash and cash equivalents at end of year                                                 |                                                                      | $                                                                             | 43,311  |                         |         | $    | 34,222  |        |        | $ | 31,699 |       
|                                                                                         |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|Supplemental cash flow information -
Interest paid in cash                               |                                                                      | $                                                                             | 307     |                         |         | $    | 263     |        |        | $ | 609    |       
|                                                                                         |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|Supplemental noncash investing and financing activities:                                 |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|Loan to officer for purchase of common stock                                             |                                                                      | $                                                                             | 1,125   |                         |         | $    |        |        |        | $ |       |       
|                                                                                         |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|Accounts payable incurred for purchases of fixed assets                                  |                                                                      | $                                                                             | 42      |                         |         | $    | 120     |        |        | $ | 548    |       
|                                                                                         |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|Exchange of investment for forgiveness of debt                                           |                                                                      | $                                                                             |        |                         |         | $    | 157     |        |        | $ |       |       
|                                                                                         |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|Common stock and stock options issued for acquisition of Contigo Software, Inc.          |                                                                      | $                                                                             | 77,756  |                         |         | $    |        |        |        | $ |       |       
|                                                                                         |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       
|Common stock issued for acquisition of InterAct Conferencing, LLC                        |                                                                      | $                                                                             |        |                         |         | $    |        |        |        | $ | 4,035  |       
|                                                                                         |                                                                      |                                                                               |         |                         |         |      |         |        |        |   |        |       

See accompanying notes to consolidated financial statements.

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RAINDANCE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

(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
integrated web conferencing services for everyday business meetings and events.
The Companys business-to-business communication services are based on
proprietary architecture that integrates traditional telephony technology with
real-time interactive web tools. The Companys continuum of interactive
services includes Web and Phone Conferencing for reservationless automated
audio conferencing with simple web controls and presentation tools, and 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. 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, Cash Equivalents and Investments

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, 2002
consist of money market accounts at four financial institutions.

(c)  Restricted Cash

Included in other assets at December 31, 2002 is $0.6 million 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

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depreciation is removed from the accounts and any resulting gain or loss
is included in operations in the period realized.

(e)  Goodwill

The Company first recorded 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 will be 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 indicated that the fair value of the reporting unit exceeded
the goodwill carrying value, and therefore, at that time, 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 loss
attributable to common stockholders and reported loss per share and adjusted
net loss attributable to common stockholders and adjusted loss per share, which
represents the effect of adopting SFAS 142, is as follows (in thousands, except
per share amounts):

|                                                      |  |                          |          |      |  |      |         |   |  |   |        |  
|----------------------------------------------------- |  | ------------------------ | -------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                      |  | Years ended December 31,
|                                                      |  |                         
|                                                      |  | 2000                     |          | 2001 |  | 2002
|                                                      |  |                          |          |      |  |     
|Net loss attributable to common stockholders          |  | $                        | (100,478 | )    |  | $    | (52,723 | ) |  | $ | (3,354 | )
|Add back: goodwill amortization                       |  |                          | 14,534   |      |  |      | 26,506  |   |  |   |       |  
|                                                      |  |                          |          |      |  |      |         |   |  |   |        |  
|Adjusted net loss attributable to common stockholders |  | $                        | (85,944  | )    |  | $    | (26,217 | ) |  | $ | (3,354 | )
|                                                      |  |                          |          |      |  |      |         |   |  |   |        |  
|Loss per share  basic and diluted                    |  | $                        | (4.69    | )    |  | $    | (1.12   | ) |  | $ | (0.07  | )
|Add back: goodwill amortization                       |  |                          | 0.68     |      |  |      | 0.56    |   |  |   |       |  
|                                                      |  |                          |          |      |  |      |         |   |  |   |        |  
|Adjusted loss per share  basic and diluted           |  | $                        | (4.01    | )    |  | $    | (0.56   | ) |  | $ | (0.07  | )
|                                                      |  |                          |          |      |  |      |         |   |  |   |        |  

Goodwill, net of accumulated amortization, as of December 31, 2001 and
2002 was $38.7 and $45.6 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
and accrued expenses, 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 consists 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. In 2000 and 2001, none of the Companys customers represented more
than 10% of the Companys revenue or accounts receivable. In 2002, The Company
recorded sales to Qwest Communications International, Inc. that represented
14.3% of total revenue. The receivable due from

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Qwest at December 31, 2002, all of which was current, was $2.5 million or
25.2% of the Companys total accounts receivable balance. The Companys
operating cash flows could be adversely affected in the event Qwest experiences
financial difficulties that affect its ability to pay us in a timely fashion.

(h)  Revenue Recognition

Revenue for the Companys Web and Phone Conferencing service is 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
its Web and Phone Conferencing service as soon as a call or simulcast of a 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 monthly 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 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.

Prices and specific service terms for Webcasting (legacy service) were
usually negotiated in advance of service delivery. The Company recognized
revenue from live event streaming when the content was broadcast over the
Internet. The Company recognized revenue from encoding recorded content when
the content became available for viewing over the Internet. The Company
recognized revenue from pre-recorded content hosting ratably over the hosting
period.

Prices and specific service terms for Talking Email (legacy service) were
negotiated in advance of service delivery. The Company recognized revenue,
including any setup fees, ratably over the life of the contract.

(i)  Advertising Costs

The Company expenses advertising costs as they are incurred. Advertising
expense was $16.1, $1.2 and $0.1 million for each of the years ended December
31, 2000, 2001 and 2002, respectively.

(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 2000, the Company recorded an asset impairment charge of $0.6
million primarily associated with the closure of remote sales offices. 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

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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 cost or fair value less costs to
sell. In 2002, the Company recorded an asset impairment charge of $0.2 million
(see note 14).

(k)  Stock-Based Compensation

The Company accounts for its stock option plan 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 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, and (c) deferred stock-based
compensation associated with the acquisition of InterAct Conferencing, LLC.

The following table summarizes relevant 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, Accounting for Stock Based Compensationhad been applied for the three
years ended December 31, 2002 (in thousands, except per share amounts):

|                                                                                                                |  |                          |          |      |  |      |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                                |  | Years ended December 31,
|                                                                                                                |  |                         
|                                                                                                                |  | 2000                     |          | 2001 |  | 2002
|                                                                                                                |  |                          |          |      |  |     
|Net loss attributable to common stockholders, as reported                                                       |  | $                        | (100,478 | )    |  | $    | (52,723 | ) |  | $ | (3,354  | )
|Add: Stock-based employee compensation expense                                                                  |  |                          | 8,149    |      |  |      | 2,579   |   |  |   | 2,207   |  
|Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards |  | $                        | (23,739  | )    |  | $    | (23,973 | ) |  | $ | (12,971 | )
|                                                                                                                |  |                          |          |      |  |      |         |   |  |   |         |  
|Net loss attributable to common stockholders, as adjusted                                                       |  | $                        | (116,068 | )    |  | $    | (74,117 | ) |  | $ | (14,118 | )
|                                                                                                                |  |                          |          |      |  |      |         |   |  |   |         |  
|Loss per share  basic and diluted, as reported                                                                 |  | $                        | (4.69    | )    |  | $    | (1.12   | ) |  | $ | (0.07   | )
|                                                                                                                |  |                          |          |      |  |      |         |   |  |   |         |  
|Loss per share  basic and diluted, as adjusted                                                                 |  | $                        | (5.41    | )    |  | $    | (1.57   | ) |  | $ | (0.28   | )
|                                                                                                                |  |                          |          |      |  |      |         |   |  |   |         |  

(l)  Software Development Costs and Research and Development

Costs incurred in the engineering and development of the Companys
services are 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 the
straight-line basis over the softwares estimated useful life.

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Research and development costs are expensed as incurred.

(m)  Foreign Currency Translation

For the Companys foreign subsidiary where the functional currency is
something other than the United States dollar, the Company translates assets
and liabilities at the exchange rate as of the balance sheet date. The Company
translates income statement accounts at average rates for the periods.
Translation adjustments are recorded in comprehensive income (loss). The
Company had minimal foreign currency translation gains and losses in 2000 and
2001 and did not have any foreign currency transaction gains and losses in
2002. Gains and losses on intercompany transactions including amounts due from
affiliates where settlement is not anticipated in the foreseeable future are
recorded in other comprehensive income (loss).

(n)  Comprehensive Loss

The Company has adopted SFAS 130 Reporting Comprehensive Income, which
established standards for reporting and displaying comprehensive income.
Comprehensive loss is equal to net loss except for unrealized loss on
investment, realized loss on investment and foreign currency translation
adjustments for the years ended December 31, 2000 and 2001. Comprehensive loss
equals net loss for the year ended December 31, 2002.

(o)  Loss Per Share

Loss per share is presented in accordance with the provisions of Statement
of Financial Accounting Standards 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 income or loss attributable to common
stockholders 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 are computed
using the treasury stock method (see note 8). Basic and diluted EPS are the
same for each of the three years ended December 31, 2002 as all potential
common stock instruments are antidilutive.

The following table sets forth the calculation of earnings per share for
each of the three years ended December 31, 2002 (in thousands, except per share
amounts):

|                                             |                                                                   |   |                          |        |      |   |         |        |  |   |        |        | 
|-------------------------------------------- | ----------------------------------------------------------------- | - | ------------------------ | ------ | ---- | - | ------- | ------ |  | - | ------ | ------ | 
|                                             |                                                                   |   | Years ended December 31,
|                                             |                                                                   |   |                         
|                                             |                                                                   |   | 2000                     |        | 2001 |   | 2002   
|                                             |                                                                   |   |                          |        |      |   |        
|Net loss attributable to common stockholders |                                                                   | $ | (100,478                 | )      |      | $ | (52,723 | )      |  | $ | (3,354 | )     
|                                             |                                                                   |   |                          |        |      |   |         |        |  |   |        |       
|Common shares outstanding:                   |                                                                   |   |                          |        |      |   |         |        |  |   |        |       
|                                             | Historical common shares outstanding at beginning of year         |   |                          | 576    |      |   |         | 46,835 |  |   |        | 48,130 | 
|                                             | Weighted average common shares issued during year                 |   |                          | 20,867 |      |   |         | 445    |  |   |        | 2,372  | 
|                                             |                                                                   |   |                          |        |      |   |         |        |  |   |        |       
|                                             | Weighted average common shares at end of year  basic and diluted |   |                          | 21,443 |      |   |         | 47,280 |  |   |        | 50,502 | 
|                                             |                                                                   |   |                          |        |      |   |         |        |  |   |        |       
|Loss per share  basic and diluted           |                                                                   | $ | (4.69                    | )      |      | $ | (1.12   | )      |  | $ | (0.07  | )     
|                                             |                                                                   |   |                          |        |      |   |         |        |  |   |        |       

The following potential common shares have been excluded from the
computation of diluted loss per share as of December 31, 2000, 2001 and 2002
because their effect would have been antidilutive:

|                                     |  |                    |           |      |  |      |           |  |  |  |           | 
|------------------------------------ |  | ------------------ | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                     |  | As of December 31,
|                                     |  |                   
|                                     |  | 2000               |           | 2001 |  | 2002
|                                     |  |                    |           |      |  |     
|Shares issuable under stock options  |  |                    | 8,161,116 |      |  |      | 8,171,913 |  |  |  | 8,409,064 | 
|                                     |  |                    |           |      |  |      |           |  |  |  |           | 
|Shares issuable pursuant to warrants |  |                    | 652,790   |      |  |      | 652,790   |  |  |  | 652,790   | 
|                                     |  |                    |           |      |  |      |           |  |  |  |           | 

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(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.

On June 16, 2000, the Company acquired Contigo Software, Inc. (Contigo)
for cash of $6.1 million and 4,425,176 shares of common stock in exchange for
all the outstanding shares of Contigo capital stock. The Company also issued
1,574,831 common stock options in exchange for outstanding Contigo stock
options. The purchase price of the acquisition was $83.9 million based on the
fair value of the consideration paid plus direct acquisition costs. The
acquisition has been accounted for using the purchase method. Accordingly, the
results of operations of Contigo subsequent to June 16, 2000 have been included
in the Companys statements of operations for the years ended December 31,
2000, 2001 and 2002. The purchase price allocation is as follows (in millions):

|                                          |  |   |      | 
|----------------------------------------- |  | - | ---- | 
|Tangible net assets                       |  | $ | 2.8  | 
|Assumed deferred stock-based compensation |  |   | 0.6  | 
|Goodwill                                  |  |   | 80.5 | 
|                                          |  |   |      | 
|Total purchase consideration allocation   |  | $ | 83.9 | 
|                                          |  |   |      | 

Goodwill was being amortized on a straight-line method over an estimated
useful life of three years. In December 2000, the Company sold Contigo UK Ltd.,
a wholly owned subsidiary of Contigo, to Evoke Communications Europe for
approximately $317,000. The sale price, plus net liabilities of approximately
$808,000, was recorded as a reduction to the previously recorded goodwill.

On April 30, 2002, the Company acquired substantially all of the assets of
InterAct Conferencing, LLC (InterAct), a nationwide reseller of audio and web
conferencing services. As a result of the acquisition, the Company expanded
its sales force. In addition, the acquisition positively impacted revenue and
reduced net loss for the year ended December 31, 2002. The Company also
assumed certain liabilities of InterAct as of April 30, 2002, consisting
primarily of accounts payable and a $125,000 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 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. The Company also incurred $0.1
million of acquisition related expenses. In addition, 997,599 shares of the
Companys common stock were deemed to be compensation for future services.
Accordingly, the Company recorded $3.4 million in deferred stock-based
compensation, which will be expensed over three years. 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 price allocation is as follows (in
millions):

|                                        |  |   |     | 
|--------------------------------------- |  | - | --- | 
|Tangible net assets                     |  | $ | 1.0 | 
|Goodwill                                |  |   | 6.9 | 
|                                        |  |   |     | 
|Total purchase consideration allocation |  | $ | 7.9 | 
|                                        |  |   |     | 

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The summary table below, prepared on an unaudited pro forma basis,
combines the Companys consolidated results of operations with Contigo and
InterActs results of operations as if the Contigo acquisition took place on
January 1, 2000 and the InterAct acquisition took place on January 1, 2001 (in
thousands, except per share data).

|                                 |  |                          |          |      |  |      |         |   |  |   |        |  
|-------------------------------- |  | ------------------------ | -------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                 |  | Years ended December 31,
|                                 |  |                         
|                                 |  | 2000                     |          | 2001 |  | 2002
|                                 |  |                          |          |      |  |     
|Revenue                          |  | $                        | 20,005   |      |  | $    | 42,410  |   |  | $ | 62,161 |  
|Net loss                         |  |                          | (104,755 | )    |  |      | (51,972 | ) |  |   | (3,185 | )
|Basic and diluted loss per share |  |                          | (4.39    | )    |  |      | (1.09   | ) |  |   | (0.06  | )

The pro forma results for the year ended December 31, 2000 combine the
Companys results for the year ended December 31, 2000 with the results of
Contigo as if the acquisition had occurred on January 1, 2000 with the
exception of a $5.0 million payment made by Contigo to one of its officers,
which is excluded from the pro forma net loss reflected above. This payment was
made by Contigo upon the acquisition and was solely related to the consummation
of the acquisition. The pro forma results for the year ended December 31, 2001
also combine the results of InterAct as if the acquisition had occurred on
January 1, 2001.

These pro forma results are not necessarily indicative of the results of
operations that would have occurred if the acquisition of Contigo had been
consummated on January 1, 2000 and the acquisition of InterActs assets had
occurred on January 1, 2001. In addition, they are not intended to be a
projection of future results and do not reflect any synergies that might be
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.

The Company had an unsecured note receivable dated January 24, 2001 due
from its 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.

Both loans, based on their contractual maturities, were classified as
long-term due from employees at December 31, 2001.

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(5)  PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

|                                                 |  |              |         |      |  |   |         |  
|------------------------------------------------ |  | ------------ | ------- | ---- |  | - | ------- | -
|                                                 |  | December 31,
|                                                 |  |             
|                                                 |  | 2001         |         | 2002
|                                                 |  |              |         |     
|Computers and office equipment                   |  | $            | 32,142  |      |  | $ | 35,723  |  
|Software purchased or developed for internal use |  |              | 6,996   |      |  |   | 10,152  |  
|Furniture and fixtures                           |  |              | 2,252   |      |  |   | 2,241   |  
|Leasehold improvements                           |  |              | 2,059   |      |  |   | 2,274   |  
|Assets held for sale                             |  |              | 876     |      |  |   | 71      |  
|                                                 |  |              |         |      |  |   |         |  
|                                                 |  |              | 44,325  |      |  |   | 50,461  |  
|Less accumulated depreciation and amortization   |  |              | (16,366 | )    |  |   | (25,968 | )
|                                                 |  |              |         |      |  |   |         |  
|                                                 |  | $            | 27,959  |      |  | $ | 24,493  |  
|                                                 |  |              |         |      |  |   |         |  

In the years ended December 31, 2001 and 2002, the Company capitalized
$1,087,055 and $749,276, respectively, of software application development
costs in accordance with SOP 98-1. These costs are being amortized over 18
months from the time the software is ready for its intended use. Amortization
expense of all costs capitalized pursuant to SOP 98-1 was $272,300, $584,000
and $360,000 for the years ended December 31, 2000, 2001 and 2002,
respectively. Depreciation expense was $8.0, $8.5 and $10.0 million for the
years ended December 31, 2000, 2001 and 2002, 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 is
$1.04 per share and the warrants expire on July 24, 2005. Upon completion of
the Companys initial public offering on July 28, 2000, the warrants 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 was 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 is $3.00 per share and the
warrants expire on September 29, 2004. Upon completion of the Companys initial
public offering on July 28, 2000, the warrants 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.

On October 9, 2001, the Company entered into a loan and security agreement
with a bank that consisted of a $7.25 million revolving line of credit and a
$5.0 million term loan. Advances under the revolving line of credit bore
interest at the banks prime rate and were limited to $7.25 million or 80% of
eligible accounts receivable as defined in the agreement. The Company incurred
commitment fees of $35,000, which were being amortized over the term of the
agreement. The revolving line of credit was available through February 28,
2003. Advances under the revolving line of credit could be repaid and
reborrowed at any time prior to the maturity date. On October 12, 2001 the
Company received $5.0 million pursuant to the term loan referenced above. The
term loan was to be repaid

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with monthly principal payments of $139,000 plus interest at 8% over 36
months. Effective December 31, 2002, the terms of the loan and security
agreement were amended to renew and increase the revolving line of credit and
refinance the term loan. In connection with refinancing the term loan, the
current outstanding balance will be repaid with monthly principal payments of
$81,000 plus interest at 5.25% over 36 months. Advances under the revolving
line of credit are limited to $12.5 million or 90% of eligible accounts
receivable as defined in the agreement. The revolving line of credit is
available through January 26, 2004. Advances under the revolving line of credit
may be repaid and re-borrowed at any time prior to the maturity date. At
December 31, 2002, the Company did not have an outstanding balance under the
revolving line of credit and the additional liquidity available, based on
eligible accounts receivable, was $8.4 million. 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, 2002, the balance due under this
agreement (exclusively related to the term loan) is $3,055,556, of which
$1,030,093 is current.

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

|                                     |  |              |        |              |  |   |        |  
|------------------------------------ |  | ------------ | ------ | ------------ |  | - | ------ | -
|                                     |  | December 31, |        | December 31,
|                                     |  |              |        |             
|                                     |  | 2001         |        | 2002        
|                                     |  |              |        |             
|Balance                              |  | $            | 4,957  |              |  | $ | 3,056  |  
|Less current portion                 |  |              | (1,893 | )            |  |   | (1,030 | )
|                                     |  |              |        |              |  |   |        |  
|Long-term debt, less current portion |  | $            | 3,064  |              |  | $ | 2,026  |  
|                                     |  |              |        |              |  |   |        |  

The aggregate maturities for long-term debt for each of the years
subsequent to December 31, 2002 are as follows (in thousands): 2003$1,030;
2004$972; 2005$972: 2006$82.

(7) INCOME TAXES

Income tax 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,
|                                                      |                    |   |                         
|                                                      |                    |   | 2000                     |   | 2001 |   | 2002   
|                                                      |                    |   |                          |   |      |   |        
|Expected tax benefit                                  |                    | $ | (33,573                  | ) |      | $ | (17,926 | ) |  | $ | (1,140 | )
|State income taxes, net of federal impact             |                    |   | (3,632                   | ) |      |   | (1,793  | ) |  |   | (118   | )
|Change in valuation allowance for deferred tax assets |                    |   | 30,159                   |   |      |   | 10,429  |   |  |   | 1,301  |  
|Stock compensation/exercise stock option benefit      |                    |   | 2,031                    |   |      |   | 981     |   |  |   | (141   | )
|Goodwill amortization                                 |                    |   | 4,942                    |   |      |   | 9,011   |   |  |   |       |  
|Other, net                                            |                    |   | 73                       |   |      |   | (702    | ) |  |   | 98     |  
|                                                      |                    |   |                          |   |      |   |         |   |  |   |        |  
|                                                      | Income tax benefit |   | $                        |  |      |   | $       |  |  |   | $      |  | 
|                                                      |                    |   |                          |   |      |   |         |   |  |   |        |  

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

|                                 |                                                  |   |              |        |      |   |         |        | 
|-------------------------------- | ------------------------------------------------ | - | ------------ | ------ | ---- | - | ------- | ------ | 
|                                 |                                                  |   | December 31,
|                                 |                                                  |   |             
|                                 |                                                  |   | 2001         |        | 2002
|                                 |                                                  |   |              |        |     
|Net operating loss carryforwards |                                                  | $ | 46,502       |        |      | $ | 46,617  |       
|Depreciation and amortization    |                                                  |   | (2,906       | )      |      |   | (1,855  | )     
|Stock-based compensation         |                                                  |   | 1,449        |        |      |   | 2,013   |       
|Accrued liabilities              |                                                  |   | 1,882        |        |      |   | 1,453   |       
|                                 |                                                  |   |              |        |      |   |         |       
|                                 | Net deferred tax asset                           |   |              | 46,927 |      |   |         | 48,228 | 
|Valuation allowance              |                                                  |   | (46,927      | )      |      |   | (48,228 | )     
|                                 |                                                  |   |              |        |      |   |         |       
|                                 | Net deferred tax asset, less valuation
allowance |   | $            |       |      |   | $       |       | 
|                                 |                                                  |   |              |        |      |   |         |       

At December 31, 2002, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $124.6 million, which are
available to offset future federal taxable income, if any, through 2022.

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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
$103.1 million are not limited by Section 382 as of December 31, 2002.

Due to the uncertainty regarding the realization of the deferred tax
assets relating to the net operating loss carryforwards and other temporary
differences, a valuation allowance has been recorded for the entire amount of
the Companys deferred tax assets as of December 31, 2001 and 2002. The
Company makes periodic reviews of the realizability of its net deferred tax
assets and will make adjustments to the valuation allowance when it is more
likely than not that the net deferred tax assets will be realized.

(8)  PREFERRED STOCK, STOCK PLANS AND WARRANTS

(a)  Mandatorily Redeemable Convertible and Convertible Preferred Stock

At December 31, 2001 and 2002, the Company did not have any preferred
stock outstanding since each share of preferred stock (Series A, Series B,
Series C, Series D and Series E) was converted to common stock on the closing
of the initial public offering in 2000. Prior to that time, the Company had the
following series of preferred stock outstanding that were convertible at any
time, at the option of the holder, into common stock as indicated below:

|         |  |             |            |            |  |        |        |  |  |  |            | 
|-------- |  | ----------- | ---------- | ---------- |  | ------ | ------ |  |  |  | ---------- | 
|         |  | Preferred   |            |            |  |        |        |  |  | 
|         |  | Shares      |            | Conversion |  | Common
|         |  | Outstanding |            | Rate       |  | Shares
|         |  |             |            |            |  |       
|Series A |  |             | 5,025,000  |            |  |        | 0.67   |  |  |  | 3,350,000  | 
|Series B |  |             | 10,635     |            |  |        | 128.21 |  |  |  | 1,363,461  | 
|Series C |  |             | 9,953,935  |            |  |        | 0.67   |  |  |  | 6,635,956  | 
|Series D |  |             | 33,333,333 |            |  |        | 0.67   |  |  |  | 22,222,222 | 
|Series E |  |             | 686,813    |            |  |        | 0.67   |  |  |  | 457,875    | 

Series B, C, D and E shares were mandatorily redeemable. All preferred
stock had voting rights on an as converted basis and liquidation preferences
equal to the stated amount of the preferred shares issued.

Series B, Series C and Series D preferred stock were issued in 1997, 1998
and 1999 for $100.00, $1.04 and $3.00 per share, respectively. All issuances
were for cash, except for 487,355 shares of Series C Preferred stock issued
upon conversion of $506,861 of convertible debt and related accrued interest.
Based on the beneficial conversion features of the Series D preferred stock,
assuming an initial public offering price of $13.50 per share, the Company
recorded a deemed dividend related to the beneficial conversion feature and
increased net loss attributable to common stockholders by approximately $100
million in 1999, in accordance with Emerging Issues Task Force Bulletin 98-5,
Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios (EITF 98-5).

On March 29, 2000, the Company issued 686,813 shares of Series E preferred
stock (457,875 post split common shares) at $7.28 per share and a warrant to
purchase 858,416 shares of Series E preferred stock for an aggregate purchase
price of $5.0 million. The warrant is exercisable upon issuance at the initial
public offering price of the Companys common stock and expires in March 2003.
Upon completion of the Companys initial public offering on July 28, 2000, the
warrants were converted into warrants to purchase 572,277 shares of common
stock at $8.00 per share. The fair value of the warrant was estimated to be
$4.1 million, 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 3 years. The fair value of the warrant was
separately recorded as warrants for the purchase of mandatorily redeemable
preferred stock and as a reduction in the Series E preferred stock. In
addition, $350,000 was recorded as prepaid advertising costs related to future
services to be provided to the Company by the preferred stockholder. The
preferred stock was accreting to its issuance price over the period from
issuance to redemption in March 2003. Based on the beneficial conversion terms
of the preferred stock, assuming an initial public offering price of $13.50 per
share, the Company recorded a deemed dividend related to the beneficial

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conversion feature and increased net loss attributable to common
stockholders for the year ended December 31, 2000 by $1,181,000 at the date of
issuance in accordance with EITF 98-5.

The beneficial conversion feature of the preferred stock described above
was determined by calculating the difference between the effective conversion
price based on the proceeds allocated to the preferred stock and the fair value
of the underlying common stock. As the preferred stock was convertible into
common stock at any time, the beneficial conversion amount was charged to net
loss attributable to common stockholders at the date of issuance of the
preferred stock.

(b)  Stock Options

In February 2000, the Company adopted the 2000 Equity Incentive Plan that
amended and restated the 1997 stock option/stock issuance 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 up to 11,666,666 shares of authorized but unissued common stock. On
January 1, 2002 the Plans evergreen provisions increased the shares available
for issuance to 14,470,740. At December 31, 2002, there were 4,328,749
additional shares available for grant or issuance under the Plan. 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 early exercise
their options, 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 has assumed certain stock option plans and the outstanding
stock options of Contigo Software, Inc. (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. At December 31, 2002,
179,797 options were outstanding under the assumed plans with a weighted
average exercise price of $3.21 and a weighted average remaining contractual
life of 6.8 years.

The Company utilizes APB Opinion 25 in accounting for its plans. In 2000,
a total of 403,008 options and 398,296 common shares were granted with exercise
prices and purchase prices less than fair value, resulting in total
compensation of $9,075,000, net of forfeitures, to be recognized over the
vesting period. In 2001, a total of 100,000 options were granted with exercise
prices less than fair value, resulting in total compensation of $143,120, net
of forfeitures. In 2002, a total of 10,450 common shares were granted at less
than fair value, resulting in total compensation of $41,000. The per share
weighted-average fair value of stock options granted during 2000 was $6.64
using the Black-Scholes option pricing model with the following weighted
average assumptions: no expected dividends, expected volatility of 175%,
risk-free interest rate of 6.5% and an expected life of 6 years. The per share
weighted-average fair value of stock options granted during 2001 was $1.55
using the Black-Scholes option pricing model with the following weighted
average assumptions: no expected dividends, expected volatility of 136%,
risk-free interest rate of 5% and an expected life of 6 years. The per share
weighted-average fair value of stock options granted during 2002 was $2.94
using the Black-Scholes option pricing model with the following weighted
average assumptions: no expected dividends, expected volatility of 106%,
risk-free interest rate of 5% and an expected life of 6 years.

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

|                             |                                 |  |           |            |                  |   |      |      |  |  |  |  | 
|---------------------------- | ------------------------------- |  | --------- | ---------- | ---------------- | - | ---- | ---- |  |  |  |  | 
|                             |                                 |  | Number of |            | Weighted-average |   |      |      | 
|                             |                                 |  | Shares    |            | exercise price   |   |      |      | 
|                             |                                 |  |           |            |                  |   |      |      | 
|Balance at January 1, 2000   |                                 |  | 1,578,457 |            |                  | $ | 0.98 |     
|                             | Granted at less than fair value |  |           | 403,008    |                  |   |      | 4.50 | 
|                             | Granted at fair value           |  |           | 6,333,350  |                  |   |      | 6.95 | 
|                             | Exercised                       |  |           | (385,778   | )                |   |      | 1.18 | 
|                             | Cancelled                       |  |           | (1,306,715 | )                |   |      | 7.12 | 
|                             |                                 |  |           |            |                  |   |      |     
|Balance at December 31, 2000 |                                 |  | 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 |     
|                             |                                 |  |           |            |                  |   |      |     

Restricted shares issued for options exercised which are subject to
repurchase totaled 9,773 shares at December 31, 2002.

The following table summarizes information about stock options outstanding
under the Companys 2000 Equity Incentive Plan at December 31, 2002:

|                |              |             |                     |             |                     |                |           |           |          |                |      |      |  |  |           |           |  |  |      |      | 
|--------------- | ------------ | ----------- | ------------------- | ----------- | ------------------- | -------------- | --------- | --------- | -------- | -------------- | ---- | ---- |  |  | --------- | --------- |  |  | ---- | ---- | 
|                |              |             | 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
|                |              |             |                     |             |                     |                |           |           |          |               
|$               | 0.10 - 0.92  |             |                     | 326,306     |                     |                |           | 6.0       |          |                | $    | 0.37 |  |  |           | 262,799   |  |  | $    | 0.25 | 
|                | 0.93 - 1.17  |             |                     | 1,107,093   |                     |                |           | 8.0       |          |                |      | 1.06 |  |  |           | 460,432   |  |  |      | 1.06 | 
|                | 1.18 - 1.55  |             |                     | 756,658     |                     |                |           | 7.4       |          |                |      | 1.40 |  |  |           | 359,196   |  |  |      | 1.36 | 
|                | 1.56 - 2.22  |             |                     | 618,967     |                     |                |           | 6.5       |          |                |      | 1.67 |  |  |           | 530,547   |  |  |      | 1.63 | 
|                | 2.23 - 2.69  |             |                     | 1,494,370   |                     |                |           | 8.0       |          |                |      | 2.60 |  |  |           | 914,856   |  |  |      | 2.59 | 
|                | 2.70 - 3.75  |             |                     | 2,034,982   |                     |                |           | 9.1       |          |                |      | 3.42 |  |  |           | 358,115   |  |  |      | 3.45 | 
|                | 3.76 - 10.80 |             |                     | 1,890,891   |                     |                |           | 7.3       |          |                |      | 7.23 |  |  |           | 1,268,478 |  |  |      | 7.94 | 
|                |              |             |                     |             |                     |                |           |           |          |                |      |      |  |  |           |           |  |  |      |     
|                |              |             | 8,229,267           |             |                     |                | 7.9       |           |          |                | 3.39 |      |  |  | 4,154,423 |           |  |  | 3.75 |     
|                |              |             |                     |             |                     |                |           |           |          |                |      |      |  |  |           |           |  |  |      |     

In addition, the Company has sold 579,749 shares of common stock through
stock purchase rights under the Plan at prices ranging from $0.15 to $10.80 per
share.

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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Stock option activity in the assumed plans during 2000, 2001 and 2002 was
as follows:

|                             |           |  |           |          |                  |   |      |      | 
|---------------------------- | --------- |  | --------- | -------- | ---------------- | - | ---- | ---- | 
|                             |           |  | Number of |          | Weighted-average
|                             |           |  | Shares    |          | exercise price  
|                             |           |  |           |          |                 
|Options assumed in June 2000 |           |  | 1,574,831 |          |                  | $ | 2.61 |     
|                             | Exercised |  |           | (15,475  | )                |   |      | 2.18 | 
|                             | Cancelled |  |           | (20,562  | )                |   |      | 2.66 | 
|                             |           |  |           |          |                  |   |      |     
|Balance at December 31, 2000 |           |  | 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 |     
|                             |           |  |           |          |                  |   |      |     

The following table summarizes information about stock options outstanding
under the Companys assumed plans at December 31, 2002:

|                |             |             |                     |             |                     |                |           |           |          |                |  |      |      |  |          |  |  |  |         |         |  |  |      |      | 
|--------------- | ----------- | ----------- | ------------------- | ----------- | ------------------- | -------------- | --------- | --------- | -------- | -------------- |  | ---- | ---- |  | -------- |  |  |  | ------- | ------- |  |  | ---- | ---- | 
|                |             |             | 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 |             |                     | 59,483      |                     |                |           | 6.1       |          |                |  | $    | 1.05 |  |          |  |  |  |         | 59,483  |  |  | $    | 1.05 | 
|                | 2.72 - 3.92 |             |                     | 100,563     |                     |                |           | 7.1       |          |                |  |      | 3.92 |  |          |  |  |  |         | 100,563 |  |  |      | 3.92 | 
|                | 3.92 - 6.08 |             |                     | 19,751      |                     |                |           | 7.2       |          |                |  |      | 6.08 |  |          |  |  |  |         | 18,981  |  |  |      | 6.08 | 
|                |             |             |                     |             |                     |                |           |           |          |                |  |      |      |  |          |  |  |  |         |         |  |  |      |     
|                |             |             | 179,797             |             |                     |                | 6.8       |           |          |                |  | 3.21 |      |  |          |  |  |  | 179,027 |         |  |  | 3.20 |     
|                |             |             |                     |             |                     |                |           |           |          |                |  |      |      |  |          |  |  |  |         |         |  |  |      |     

(c)  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 such 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 both January 2001 and January 2002, respectively, which represents
3% of the total number of shares outstanding as of the effective date of the
ESPP. As a result, the total common shares available for issuance pursuant to
the ESPP is 3,204,074. During 2001 employees purchased 291,704 shares at an
average price of $1.01 per share. In February and August 2002 employees
purchased an aggregate of 745,140 shares at an average price of $0.765 per
share. At December 31, 2002, 2,167,230 shares were reserved for future
issuance. At December 31, 2002 approximately $317,000 in payroll deductions
have been withheld from employees for future purchases under the plan which
will be at an approximate average price of $0.765 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.

(d)  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 are exercisable at $1.04 per share and expire on July 24, 2005.
Upon completion of the Companys initial public offering on July 28, 2000, the
warrants 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:

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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 are exercisable at $3.00 per share and will expire on September
29, 2004. Upon completion of the Companys initial public offering on July 28,
2000, the warrants 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 January 2000, the Company issued a warrant to purchase 3,703 shares of
common stock. The warrant is exercisable at $4.50 per share and was scheduled
to expire January 15, 2001. The warrant is in exchange for certain marketing
costs and was expensed as sales and marketing costs at the grant date. The
warrant was exercisable at the date of grant and is not contingent on
counterparty performance. The fair value of the warrant was $21,250 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 one year. This warrant was exercised in April 2000.

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, 2000, 2001 and 2002 the Company had total warrants
outstanding to purchase 652,790 shares of common stock at a weighted-average
exercise price of $7.35 per share.

(9) STOCKHOLDERS EQUITY

(a)  Initial Public Offering

On July 28, 2000, the Company closed its initial public offering of
7,000,000 shares of common stock at $8.00 per share, for net proceeds, after
deducting underwriting commissions and expenses, of $50.3 million. At closing,
all of the Companys issued and outstanding shares of convertible preferred
stock were converted into shares of common stock.

(b)  Stock split

On July 13, 2000, the Company completed a two-for-three reverse split of
all outstanding shares of common stock. Additionally, all preferred stock was
simultaneously adjusted for the split when it was converted to shares of common
stock on July 28, 2000. All shares of common stock and per share information in
the accompanying financial statements have been adjusted to reflect the reverse
split.

(c)  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

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##### Table of Contents



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.

(10) COMMITMENTS AND CONTINGENCIES

(a)  Operating Leases

The Company leases office facilities under various 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 $893,684, $972,780
and $1,033,953 for the years ended December 31, 2000, 2001 and 2002,
respectively. Future minimum lease payments are as follows (in thousands):

|                                    |  |       |        |         |  |              |       | 
|----------------------------------- |  | ----- | ------ | ------- |  | ------------ | ----- | 
|                                    |  |       |        |         |  | Portion     
|                                    |  |       |        |         |  | attributable
|                                    |  |       |        |         |  | to related  
|                                    |  | Total |        | parties
|                                    |  |       |        |        
|2003                                |  | $     | 2,704  |         |  | $            | 957   | 
|2004                                |  |       | 2,550  |         |  |              | 964   | 
|2005                                |  |       | 2,076  |         |  |              | 970   | 
|2006                                |  |       | 1,122  |         |  |              | 977   | 
|2007                                |  |       | 908    |         |  |              | 873   | 
|Thereafter                          |  |       | 1,432  |         |  |              | 1,432 | 
|                                    |  |       |        |         |  |              |       | 
|Total future minimum lease
payments |  | $     | 10,792 |         |  | $            | 6,173 | 
|                                    |  |       |        |         |  |              |       | 

Total rent expense for the years ended December 31, 2000, 2001 and 2002
was $2,771,599, $1,751,013 and $1,377,057, respectively. As part of the
restructuring described in note 12 the Company is in the process of attempting
to sublease or otherwise minimize its net commitment with respect to three
leases, which expire at various dates. Currently, the minimum lease payments
for the three offices total approximately $61,000 per month. As of December 31,
2002 the Company has been successful in subleasing seven facilities. Future
minimum sublease receivables for the seven subleased facilities, as of December
31, 2002, approximate $1.8 million that will be received through August 2005.
Future minimum sublease receivables for each of the years subsequent to
December 31, 2002 are as follows (in thousands): 2003-$716; 2004-$657;
2005-$388. The future minimum sublease receivables have been factored into any
adjustments the Company has made to the respective restructuring reserve for
the specific office (see note 12).

(b)  Purchase Commitments

The Company has commitments for bandwidth usage and telephony services
with various service providers. For the years ended December 31, 2003, 2004,
and 2005, the minimum commitments are approximately $15.6 million, $12.6
million, and $0.1 million, respectively. Some of these agreements may be
amended to either increase or decrease the minimum commitments during the life
of the contract.

(c)  Employment Contracts

The Company has an employment agreement with one of its executive
officers. The agreement continues until terminated by the executive or the
Company, and provides for a termination payment under certain circumstances. As
of December 31, 2002, the Companys liability would be approximately $337,500
if the officer was terminated under conditions defined in the agreement.

(d)  Litigation

From time to time, the Company has been subject to litigation and claims
in the ordinary course of business. In March 2000, a claim was filed against
the Company alleging trademark and service mark infringement.

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In the first quarter of 2001, the Company reached a settlement with
respect to this litigation. As part of the settlement the Company agreed to
change its name. Expenses related to this litigation, net of insurance
reimbursement, were accrued as of December 31, 2000 and did not have a material
adverse effect on the Companys financial position, results of operations or
liquidity.

Currently, management is not aware of any legal proceedings or claims that
they believe will have, individually or in the aggregate, a material adverse
effect on the Companys financial position, results of operations or liquidity.

(11) EMPLOYEE BENEFIT PLAN

The Company adopted, effective January 1, 1998, 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 2000, 2001 or 2002.

(12) RESTRUCTURING RESERVES

The Company recorded charges totaling $9.5 million in 2000 and $0.8
million in the first quarter of 2001 for restructuring activities. The
Companys restructuring activities included workforce reductions, the sale or
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.

Restructuring reserves and activity for 2001 and 2002 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 chargers     |  |                 | 819   |             |  |               | (546   | )                 |  |                 | (273   | ) |  |   |      | 
|Closure of remote sales facilities |  |                 | 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
|                                   |  |                 |       |             |  |               |     |                  
|Closure of remote sales facilities |  | $               | 1,576 |             |  | $             | 584 |                   |  | $               | (1,135 | ) |  | $ | 1,025 | 
|                                   |  |                 |       |             |  |               |     |                   |  |                 |        |   |  |   |       | 

At December 31, 2002, the Companys restructuring reserves totaled $1.0
million, of which $0.5 is current and solely relates to lease costs, which will
be relieved as payments are made. In addition, facility reserves may increase
or decrease based on the ability to sublease vacant spaces, which are under
non-cancelable operating leases expiring at various dates through 2005. Through
December 31, 2002, the Company has been successful in sub-leasing seven
facilities and terminating four facility lease commitments. Future minimum
sublease receivables for the seven subleased facilities, as of December 31,
2002, approximate $1.8 million and will be received through August 2005. As of
December 31, 2002, the facility reserve was comprised of three offices.
Currently, the minimum

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lease payments for these three offices total approximately $61,000 per
month. The Company has fully reserved two of the remaining offices because the
offices are anticipated to remain vacant and the leases expire in the first
half of 2003. As a result, barring a default by a subtenant on an existing
sublease, only one office can subject the Company to future adjustments. The
actual cost savings 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 current real
estate market, it has taken the Company longer than expected to sublease or
otherwise terminate its lease obligations in certain cities. However, the
Company continually monitors and adjusts, as warranted, its restructuring
reserve associated with remote sales facilities based on current facts and
circumstances. A failure to reduce or eliminate the commitment on the one
remaining office that is not fully reserved in a timely fashion will cause the
Company to make unfavorable adjustments to the restructuring reserve in
subsequent periods. Additionally, the Company will continue to expend cash on
its monthly commitment on this facility, as well as the two facilities that
have been reserved in full.

(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 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.

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 expects to complete the sale and disposal of the
assets in the first half of 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.

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(15) RELATED PARTY TRANSACTIONS

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

(16) SIGNIFICANT CUSTOMERS AND SUPPLIERS

In 2000 and 2001, the Company did not have significant concentrations with
respect to sales or accounts receivable. 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.

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. The Company has no guaranteed supply arrangements nor a
supply contract with the provider of these components. In 2000, 2001 and 2002,
the Company purchased $5,400,000, $2,600,000 and $3,600,000, 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, 2002 is detailed below (in thousands):

|                              |                                          |                                        |  |              |        |            |  |      |        |  |  |  |        |            |  |  |        | 
|----------------------------- | ---------------------------------------- | -------------------------------------- |  | ------------ | ------ | ---------- |  | ---- | ------ |  |  |  | ------ | ---------- |  |  | ------ | 
|                              |                                          |                                        |  | Balance at   |        |            |  |      |        |  |  |  |        | Balance at
|                              |                                          |                                        |  | beginning of |        |            |  |      |        |  |  |  |        | end of    
|Description                   |                                          | year                                   |  | Additions    |        | Deductions |  | year
|                              |                                          |                                        |  |              |        |            |  |     
|Year ended December 31, 2000: |                                          |                                        |  |              |        |            |  |      |        |  |  |  |        |            |  | 
|                              | Allowances deducted from asset accounts: |                                        |  |              |        |            |  |      |        |  |  |  |        |            |  |  |       
|                              |                                          | Allowance for doubtful accounts        |  | $            | 35     |            |  |      | 756    |  |  |  | (26    | )          |  |  | 765    | 
|                              |                                          | Deferred tax asset valuation
allowance |  |              | 6,339  |            |  |      | 30,159 |  |  |  |       |            |  |  | 36,498 | 
|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 | 
|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 | 

(18) SUBSEQUENT EVENT

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 vest over 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 will be $1.2 million and will be recorded as an expense over six
years or upon anticipated attainment of the financial or product-based
performance milestones. 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.

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INDEX TO 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.                                                                                      
|10.16(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.                                                      
|10.20(1)+   |  | Shareholders Agreement, dated June 9, 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       |  | 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).                                                                                                            
|99.1        |  | Chief Executive Officer and Chief Financial Officer Certificate.                                                                                            



|+   |  | 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. 00031045) as filed on August 14, 2001.
|   
|(4) |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q (File No. 00031045) as filed on May 15, 2002.   
|   
|(5) |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q (File No. 00031045) as filed on August 14, 2002.