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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                            ------------------------

(MARK ONE)

     [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

     [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934.

                       COMMISSION FILE NUMBER: 000-29059
                            ------------------------

                                 ELOQUENT, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                                       <C>
                        DELAWARE                                                 94-3221868
             (STATE OR OTHER JURISDICTION OF                                  (I.R.S. EMPLOYER
             INCORPORATION OR ORGANIZATION)                                  IDENTIFICATION NO.)
</TABLE>

                     2000 ALAMEDA DE LAS PULGAS, SUITE 100
                          SAN MATEO, CALIFORNIA 94403
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (650) 294-6500
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                         COMMON STOCK $0.001 PAR VALUE
                            ------------------------

     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
filing requirements for the past 90 days.  Yes [X]  No [ ]

     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  [ ].

     The aggregate market value of the Common Stock of the registrant held by
non-affiliates as of March 29, 2001 was $7,526,563.

     The number of shares of Common Stock outstanding at March 29, 2001 was
17,847,318 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Certain sections of the Registrant's definitive Proxy Statement for the
2001 Annual Meeting of Stockholders are incorporated by reference in Part III of
this Form 10-K to the extent stated herein.
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                                     PART I

ITEM 1. BUSINESS

OVERVIEW

     Eloquent provides rich media solutions for business-to-business
communications. "Rich media" is the combination of video, audio, sophisticated
graphics and text into a synchronized, interactive, navigable and searchable
format. We have developed a unique, proprietary solutions platform consisting of
software and services that we use to create and deliver rich media
presentations, or "events," on behalf of our customers. Our software solutions
platform allows enterprises to organize, manage, secure, personalize and enrich
all forms of streaming content. Additionally, it offers advanced integration,
search, navigation and analysis features and supports high-resolution video. Our
customers, which are primarily large companies, use our solutions to communicate
time-sensitive, business-critical information to target audiences, primarily
customers, employees and business partners, in an effective, consistent and
cost-efficient manner. Our rich media events can be delivered over Web-based
channels, including the World Wide Web, intranets and extranets, and CD-ROMs to
be viewed by end users on their personal computers. Since our inception in March
1995, we have produced content for more than 250 customers.

INDUSTRY BACKGROUND

     Need For More Effective Business-To-Business Communications. As companies
face increasing pressure to operate more efficiently and to better serve
customer needs, effective business-to-business communications represent a key
competitive advantage. Business-to-business communications are the production
and dissemination of corporate information to audiences both inside and outside
an organization, including employees, customers and business partners. Examples
of business-to-business communications include product launch briefings to sales
teams, strategic and corporate alignment presentations to employees, sales
pitches to potential customers, employee training seminars, business partner
education programs and complex customer support activities. These communications
are essential to a company's ability to unify its work force and strengthen its
relationships with customers and partners.

     In order to increase the effectiveness of business-to-business
communications, companies need to deliver information in a timely, economical
and attractive way -- a requirement that is even more critical given today's
increasingly dispersed work force, accelerated product cycles and complex
products and services. Companies disseminate information to their constituents
through a variety of means and using a number of different technologies that,
although useful, do not always provide the most efficient and robust means of
delivering business-to-business communications. For example:

     - In-person presentations using audio/visual equipment provide rich
       presentations, but are often inconvenient and time-consuming for both the
       presenter and the audience, and often involve costly travel expenses.

     - Teleconferencing is a relatively inexpensive and fast means of
       communication, but provides for limited use of visual aids, does not
       easily accommodate large audiences and requires everyone to participate
       at the same time.

     - Web and satellite broadcasts, although convenient and useful for large
       audiences, do not provide personalization and interactivity with
       different constituencies in the audience.

     Growth of the Web. The Web has emerged as a global communications medium,
enabling millions of people to gather information, communicate and conduct
business electronically. The broad acceptance of the Internet Protocol standard
has also led to the emergence of corporate intranets and extranets and the
development of new ways to access the Web, intranets and extranets, such as
through the television.

     Emergence of Streaming Media Technology. The Web has recently evolved from
a mass of static, text-oriented pages to a much richer environment, capable of
delivering graphical, interactive and multimedia content. Prior to the
development of streaming media technologies, accessing video and audio files
over the

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Web was impractical because users could not experience the content until the
time-consuming process of downloading the files was complete. Today, streaming
media technologies and the proliferation of multimedia-capable computers allow
almost immediate playback of continuous "streams" of video and audio content
over the Web, intranets and extranets. The emergence of streaming media
technology has enabled highly interactive, rich media applications to be
effectively delivered over the Web and Web-based channels such as corporate
intranets and extranets.

     Opportunity for Rich Media Business-to-Business Communications Solutions
Providers. Companies now have the ability to deliver business-to-business
communications over Web-based channels using streaming media technology.
However, existing streaming media technology by itself does not give companies
the ability to deliver compelling business-to-business communications that
include multiple media, such as video, audio, sophisticated graphics and text,
in a synchronized, easy-to-use format. Most streaming media applications have
been focused on the delivery of films, videos or news to consumers. They do not
provide for synchronization of multiple media or sophisticated search and
navigation capabilities required by business users. While companies can obtain
each of the component technologies required to produce and deliver their own
rich media events, they face a variety of challenges in doing so, particularly
in a timely manner. These challenges include:

     - Producing engaging rich media events is complicated and, for companies
       lacking particular expertise in producing such events, very difficult.

     - Enhancing existing streaming media technology to deliver high-quality
       rich media events is technologically complicated.

     - Producing rich media events for internal use generally cannot result in
       the economies of scale of producing dozens of rich media events per
       month, without which production is inefficient, expensive and
       time-consuming.

     - Integrating rich media products into existing enterprise applications,
       such as sales force automation systems, is expensive and difficult.

     Despite the compelling benefits of streaming media technology, we believe
these challenges have limited its adoption for business-to-business
communications. We believe most companies recognize that it is easier and more
cost-effective to outsource the production and delivery of rich media events to
a company that has specialized rich media expertise, the ability to deliver a
complete solution and the ability to achieve economies of scale in producing
rich media events.

THE ELOQUENT RICH MEDIA SOLUTIONS PLATFORM

     Elements of the Platform. We use our unique, proprietary rich media
solutions platform to create rich media events for our customers in a complete
turnkey process. Our platform includes all of the software and services our
customers need to deliver custom rich media business-to-business communications
to their target audiences.

     Production Solution. We provide all of the necessary software and services
for producing rich media events from videotapes of speakers and their slides.
Elements of our production solution include:

     - Content Production Services. We quickly produce and deliver rich media
       events in a complete turnkey process. We can produce events for delivery
       over the Web, intranets, extranets or CD-ROM, or a combination of them,
       enabling our customers to provide their business-to-business
       communications to their entire target audience.

     - Professional Media Services. Our market experience enables us to offer
       our customers advanced content development services. These services are
       used by our customers to add elements of visual interest and
       interactivity to their rich media events.

     Delivery Solution. We provide all of the necessary software and services
for delivering rich media events to end users and allowing those users to
interact with the rich media events. To enable our customers to reach

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their entire target audience, we provide multiple methods of delivery: over the
Web using the customer's own network connections, over the Web using our network
connections and by CD-ROM. The CD-ROM option gives customers the ability to
reach users who do not have ready access to the Web, such as constituents in
less-developed countries or who are traveling. Elements of our delivery solution
include:

     - Applications Server Software. Our applications server software,
       Enterprise Communications Server, enables customers to load
       Eloquent-produced events onto their own servers and deliver the events to
       their target audience over their network connections. It also supports
       other popular streaming media formats including Microsoft Windows Media,
       RealNetworks Real G2 and QuickTime. The applications server software
       allows users with Eloquent desktop player software to navigate through
       the Eloquent content and access related content in other, non-Eloquent
       formats, such as HTML documents or Macromedia Authorware pieces.

      Our server software helps users find their way through large collections
      of content by personalizing the content for each user based on a profile
      of the user's interests. It keeps track of which users watched which
      Eloquent content and can produce reports detailing the exact usage of each
      event. Our software can also record the results of users answering quizzes
      and produce "report cards." With our software, users can create polls to
      survey the viewing audience and attach Web site links to events.
      Additionally, users can initiate and participate in threaded discussions
      which can be free standing or linked to any portion of an event. The
      applications server software delivers the same content over the Web that
      the desktop player delivers to the user from CD-ROM. Eloquent content can
      be produced in Eloquent's standard Microsoft format, or reformatted into
      the RealNetworks SMIL format. We typically offer a perpetual, nonexclusive
      license to use our applications server software for the purposes
      identified above and, for an annual fee, we will provide periodic
      enhancements and other maintenance.

     - Desktop Player Software. Our user-friendly desktop player software
       enables users to view rich media events on their computers. The desktop
       player software is included with the event on the CD-ROM or stored on a
       customer's network and delivered using our applications server software.
       The player includes search and navigation capabilities that allow users
       to interact with the content at their own pace in their preferred
       sequence. Users may navigate through the content by speeding up or
       slowing down playback of the video and audio without distortion of the
       speaker's voice, scrolling through the transcript, stepping through the
       slides and searching for key words in the transcript and slides. We
       typically offer a perpetual, nonexclusive license to use our desktop
       player software for these purposes.

     - Content Hosting. Our optional content hosting service enables customers
       to deliver rich media events to their target audience over the Web on our
       servers utilizing our hosting software, which relieves our customers of
       the need to manage the servers and solve integration issues.

     - Professional Integration Services. Our professional services organization
       enables us to offer our customers custom application development and
       integration services. For example, we will integrate our customers' rich
       media sales applications with their sales force automation systems.

     Benefits of the Eloquent Solutions Platform. We believe that we have
developed the most effective, comprehensive and robust platform available for
producing and delivering rich media events for business-to-business
communications. We believe that our platform provides our customers with
business-to-business communications that are:

     - Complete Outsource Solutions. We have the capability to produce rich
       media events for our clients from start to finish in a turnkey fashion.
       For event production, the customer's input is needed only for information
       content and guidance on the general tone, look and feel of the
       presentations. In addition, by delivering rich media events through the
       Web, intranets, extranets and CD-ROM, or a combination of them, we enable
       our customers to reach their entire target audience. The CD-ROM
       alternative is particularly important to customers with traveling or
       international target audiences, such as a global sales force, who may not
       have easy access to Web-based channels. Through our translation service,
       we ensure that our rich media events can be used by a customer's
       international audience. Furthermore, companies can use our solutions to
       build a central Web site, or "portal," for employees, customers and

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       business partners around the world to obtain information on a multitude
       of topics, delivered on demand through Eloquent rich media events.

     - More Effective. Our rich media events provide users with
       business-critical information in an interactive, searchable, navigable
       format. We believe this format, combined with our delivery of multiple
       media -- video, audio, text and graphics -- makes our rich media events
       more engaging than other forms of business-to-business communication. We
       also believe that users comprehend and retain the information contained
       in a rich media event better than that contained in other methods of
       business-to-business communications. Our applications server and content
       hosting software automatically keeps track of the interactions each user
       has had with particular rich media events. Customers can view a set of
       reports that show how much of each rich media event is used, how often
       each rich media event is used and the persons using each rich media
       event. By adding optional testing capabilities, our customers can ensure
       that members of their target audience have understood the presentation.
       In addition, by delivering the same business-to-business communication to
       each member of the target audience, our customers can ensure that
       consistent information is delivered to the entire enterprise.

     - Faster. Getting critical information to employees, customers and business
       partners rapidly is a significant competitive advantage for our
       customers. We enable our customers to disseminate critical information
       contained in a rich media event rapidly due to our unique and efficient
       production process and Web and CD-ROM delivery. Using our production
       expertise, we quickly produce and deliver rich media events to our
       customers in a complete turnkey process. We can produce a typical four-
       to five-hour rich media event within nine business days after obtaining
       the raw video and audio material, compared to months for alternative
       solutions. By delivering our rich media events through the Web,
       intranets, extranets and CD-ROM, the critical information contained in
       the events can be disseminated quickly to each member of the target
       audience regardless of location. Our rapid production and delivery of
       rich media events can accelerate dissemination of information by weeks or
       even months by eliminating the need for the presenter to travel to
       multiple locations to deliver the presentation. This is particularly
       significant for customers with a geographically dispersed target
       audience, such as a worldwide employee base. In addition, users can get
       the information they need from our events quickly because they can search
       and navigate the event so that they only view exactly what they need.

     - Less Expensive. Our solutions eliminate many of the costs associated with
       traditional business presentations, including airline, hotel and other
       travel expenses for event participants, facilities costs and the
       opportunity costs associated with diverting employees from their work
       schedules. In addition, we believe our technology and expertise enable us
       to charge fees to create a rich media event that are lower than the cost
       our typical customer would incur producing the event in-house.

     We believe that these benefits can result in a number of strategic and
competitive advantages for our customers. For example:

     - Faster Time to Market. By using an Eloquent rich media event to educate
       its sales force about a new product introduction instead of having the
       product manager travel to each sales office to do so in person, our
       customers can commercially launch new products more quickly. If the event
       is deployed on our server software, the sales force is able to raise
       questions about the information presented and share information about
       competitive products, via threaded discussions.

     - Increased Employee Productivity. Using our solutions means that a key
       business presentation only needs to be made once, thereby freeing the
       presenter to focus on his or her work instead of traveling to different
       offices to make the presentation. Work interruptions can be minimized
       because employees view the presentation at a time and place convenient to
       them instead of when the presenter is available. In addition, we believe
       our interactive, searchable, navigable format and engaging multimedia
       presentation enables employees to comprehend and retain information
       better than that contained in traditional forms of business presentation.

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     - Stronger Relationships with Important Constituencies. By keeping their
       employees, customers and business partners well-informed on a timely
       basis about topics that are important to them, our customers can
       strengthen their relationships with these constituencies. For example, a
       company can bolster employee morale by having its chief executive officer
       speak to employees about recent business developments. This is often
       difficult to accomplish when the company has a large or geographically
       dispersed workforce. Our solutions enable our customers to keep their
       constituencies up-to-date by providing rapid delivery of consistent
       information to large and widely dispersed audiences. Using our example, a
       rich media event containing the chief executive officer's speech could be
       deployed on the company's Web site, allowing every employee to view the
       same speech at his or her desk on demand.

     - Enhanced Sales and Marketing Efforts. Some of our customers are using our
       solutions to make company presentations and product demonstrations on
       their Web sites. Potential consumers or business partners can visit the
       company's Web site and view a carefully produced sales pitch without
       using sales force resources. Our customers may also use this type of
       event to educate their third-party distribution channel partners and to
       provide customer support.

STRATEGY

     Our objective is to enhance our leadership position in rich media solutions
for business-to-business communications. The key elements of our strategy are:

     Further Penetrate Large Corporate Accounts. We believe that our existing
customer base of large corporations presents a significant opportunity for
revenue. We believe we have an opportunity to deepen our relationships with
existing customers by selling additional products and services and by selling to
different divisions of the same company. For example, as our customers
increasingly adopt Web-based methods of communication with their constituencies,
we believe there is a significant opportunity to sell our applications server
software and content hosting to our existing customers.

     Expand Into Additional Industries. Because the format and delivery of a
business presentation is virtually the same in every industry, our solutions do
not require modification for use by any particular industry. As a result, we
believe that there is a significant opportunity to increase revenue by
identifying and selling our solutions into many new industries. We have found
that our most effective sales and marketing efforts have been those that are
industry-specific. We have generated most of our revenue by selling into
industries that we believed would be "early adopters" of our solutions,
including telecommunications, software, high-technology manufacturing, financial
services and pharmaceuticals. New industries that we have targeted include
manufacturing, automotive, consumer products, health care and energy. We intend
to continue industry-specific sales and marketing efforts in order to maximize
our penetration of new and existing industries.

     Identify New Applications for Our Solutions. Our flexible rich media
solutions platform allows us to develop specific applications designed to
capture strategic revenue opportunities. Traditional applications of our
solutions include sales channel communications and employee communications.
Newer applications include sales and marketing presentations and customer
support. We continually seek to identify new applications, within existing
markets and within new industries that can benefit from our solutions.

     Expand and Enhance Customer Solutions. Our goal is to provide our customers
with the most comprehensive portfolio of rich media business-to-business
communications products and services. We intend to increase revenue by
continually broadening the functionality of our rich media solutions platform
and adding value-added services to our offerings, through both in-house
development efforts and strategic acquisitions. For example, through our
applications server and content hosting software, we are now assisting customers
in building Web "portals" using Eloquent rich media events. We intend to add
live broadcast capabilities, which will allow instant, simultaneous and
interactive delivery of business-to-business communications, to our platform. We
plan for these broadcasts to be viewed by users live from their computers. These
products will then be available on demand for later viewing in our synchronized,
navigable, searchable format. To accomplish this, we entered into a strategic
relationship where-by we invested approximately $1,500,000 in Rebop Media, Inc.
("Rebop"), a new live video-based Web conferencing company. Rebop's Web
conferenc-
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ing solution will be designed to integrate with our Enterprise Communications
Server product. Additionally, we hold the right, subject to our stockholders'
approval, to acquire the outstanding common stock of Rebop if Rebop successfully
installs its product in three customer Web sites. Cliff Reid, our Chief
Executive Officer, serves as President and Chief Executive Officer of Rebop. In
addition, we plan to explore business-to-customer communications applications.

     Expand Internationally. We currently sell our solutions within the United
States. Many of our customers have international operations and use our rich
media events around the world. As a result, we believe there is a significant
opportunity to increase revenue by selling our products and services
internationally. To exploit this opportunity, we intend to increase our sales
and marketing efforts abroad, beginning with Europe and Japan.

RICH MEDIA EVENT PRODUCTION AND DELIVERY

     We have developed significant expertise and proprietary technology in order
to produce rich media events for our customers in a fast, turnkey process and
enable our customers to deliver those rich media events to their constituencies
in an engaging, interactive manner.

     Production of Rich Media Content. Our customers generally use Eloquent to
produce the rich media content for use with our software. The production steps
and the technologies used in the production process are summarized below:

     - Video and Audio. We videotape live speakers, using local video crews and
       simple lighting. We convert the video into digital format and divide long
       segments into short talks and remove outtakes. We then "compress" the
       digital video and audio tracks using our proprietary compression
       technology and other compression technologies. One of the features of our
       software is the ability to play back an event at different speeds without
       a change in the speaker's pitch. To enable this, we index the audio track
       for variable speed playback using our proprietary pitch compression
       technology.

     - Transcription. We transcribe the audio track to create a transcript,
       utilizing a proprietary transcription tool that automatically
       synchronizes the text to the audio track, and proofread it carefully in
       conjunction with the customer. If desired by the customer, we will have
       the transcript translated into different languages.

     - Graphics. We obtain electronic copies of the speaker's slides or we
       electronically capture the speaker's software demonstration. If the
       presentation contains slides, we transform the slides into a format
       suitable for delivery over a low-bandwidth network. If the event contains
       a software demonstration, we compress the demonstration using our
       proprietary video compression technology.

     - Assembly. We assemble the video, audio, graphics and text using our
       proprietary synchronization technology. To enable full navigation and
       search capabilities, we create a table of contents and electronic links
       and index the text and slides so that the user may search for a chosen
       portion of the event using an embedded search engine. At the request of a
       customer, we will incorporate user tests in our standard format and add
       other features.

     Content Delivery. We provide our customers with three ways to deliver an
Eloquent event:

     - Web, Intranets and Extranets -- Using Applications Server
       Software. Customers can run our desktop player using our applications
       server software on their own Microsoft Windows NT servers. Our
       professional services organization can integrate the Eloquent
       applications servers with existing enterprise applications, such as sales
       force automation systems.

     - Web -- Using Content Hosting. In addition, we allow our customers to
       store their rich media events and the Eloquent desktop player on our
       server hardware running our hosting software. Users can then download the
       Eloquent desktop player to their desktop PC and interact with the
       customer's rich media events. Our content-hosting servers are located at
       XO Communications, Inc.'s facilities in Cupertino, California.

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     - CD-ROM. We will duplicate and ship CD-ROMs containing the event to our
       customers. The CD-ROM contains the Eloquent desktop player software as
       well as the event. We have found that our customers need the CD-ROM
       alternative because many of their constituents do not have ready access
       to the Web. This is particularly true for customers with international
       target audiences or that seek to educate their traveling sales forces.
       Customers may order rich media events on CD-ROM alone or in conjunction
       with Web, intranet or extranet delivery.

CUSTOMERS

     Our customers use our solutions for a number of applications, including:

     Sales Channel Communications. Some of our customers use our solutions to
educate their sales forces and resellers about newly-launched products. We can
create rich media events out of traditional sales force presentations about new
products and deliver these events to our customers' sales forces. Through our
events, our customers are able to educate their sales forces faster and more
economically than by flying speakers around the country or world to deliver the
presentation. Our solutions also enable our customers to provide consistent,
controlled information to their sales representatives in a format that is more
appealing and interactive than a teleconference presentation or videotape.

     Employee Communications. Some of our customers use our solutions to deliver
senior management messages to a globally distributed workforce. We create a rich
media event out of, for example, a chief executive officer's presentation to
employees about the customer's strategic direction or a pending merger or
acquisition, which is then delivered to employees. By doing so, our customer is
able to economically deliver a consistent message to all of its employees,
including those who joined the company after the presentation was made.

     Sales and Marketing Presentations. Some of our customers use our solutions
on their Web sites to present company information or demonstrate their products
to potential consumers or business partners. These events provide an engaging,
low-cost mechanism for offering consistent company or product demonstrations to
a large audience of potential buyers.

     Customer Support. Some of our customers use our solutions to deliver
technical product support information to their end users. The Eloquent event
format gives end users the needed information in the "user-friendly" format of
an in-person presentation instead of through a technical manual. Eloquent's
search and navigation capabilities allow end users to quickly find the
information they need.

SALES AND MARKETING

     We sell our solutions in the United States through a direct sales force.
Our sales strategy is to pursue opportunities with large accounts and industry
leaders and to penetrate various targeted vertical market segments. To implement
this strategy, each customer has a dedicated sales representative who is
responsible for maintaining the customer relationship. We market our solutions
through an in-house marketing staff and an outside public relations firm. We
conduct a variety of marketing programs nationwide to educate our target market,
create awareness and generate leads for our solutions. To achieve these goals,
we have engaged in activities such as direct mail campaigns, seminars, print
advertising and trade shows. These programs are targeted at key executives
within identified vertical markets. In addition, we conduct comprehensive public
relations efforts that include establishing and maintaining relationships with
key trade press, business press and industry analysts as well as an active
executive speakers' bureau.

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COMPETITION

     The market for rich media business-to-business communications solutions is
new and rapidly evolving. We expect that competition will intensify. Increased
competition could lead to decreasing prices and profitability. We compete with
companies that offer components of a rich media business-to-business
communications solution, including:

     - providers of rich media software tools;

     - multimedia content production and delivery companies;

     - companies that provide content hosting services; and

     - traditional business-to-business communications and learning solution
       companies that offer live meeting and seminar services.

     We believe that our competitors include, principally, Digital Lava Inc., a
rich media production tools company that enables its customers to develop rich
media content similar to ours; Pacific Media, a media production company that
produces custom rich media content similar to ours; and DigitalThink, Inc., an
educational curriculum development company that offers custom content production
services similar to ours. In addition, our customers and potential customers
represent a source of competition, to the extent they decide to develop in-house
business-to-business communications solutions.

     We believe the principal competitive factors in the rich media
business-to-business communications solutions are:

     - quality, price and timeliness of content production services and
       associated professional services;

     - quality of the end-user experience provided by the desktop player
       software;

     - ease of use of our applications;

     - amount and quality of customer support; and

     - brand recognition.

     We believe that we compete favorably with respect to each of these factors
and that our competitors generally do not offer the broad range of software and
services for rich media production and delivery that we offer our customers.
Nevertheless, many of our current and potential competitors have longer
operating histories, significantly greater financial, technical and marketing
resources, greater name recognition and larger existing customer bases than we
do. These competitors may also be able to undertake more extensive marketing
campaigns for their brands and services, adopt more aggressive pricing policies
and make more attractive offers to potential employees and partners. We may be
unable to compete successfully against current or future competitors and
competitive pressures may cause our business to suffer.

INTELLECTUAL PROPERTY

     We regard our copyrights, service marks, trademarks, trade secrets,
proprietary technology and similar intellectual property as critical to our
success, and we rely on trademark and copyright law, trade secret protection and
confidentiality and license agreements with our employees and independent
contractors to protect our proprietary rights. We strategically pursue the
registration of trademarks and service marks in the United States and abroad.
Effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our products and services are made
available.

     Our products and internally used authoring tools incorporate technology
licensed to us as follows:

     - We have a license from Verity, Inc. that grants us the rights to use
       Verity's proprietary search software in developing our products and
       authoring tools, and also grants us the worldwide right to use,
       reproduce, market and distribute Verity's search software as an embedded
       component of our products. Verity is free to grant identical or similar
       licenses to others. Generally, we are not permitted to transfer our
       license rights to others, other than in connection with a sale of our
       products. In consideration for
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<PAGE>   10

       our license rights, we have paid Verity an initial license fee of
       $25,000, and we pay royalties to Verity equal to 2.5% of all sales of our
       products containing the licensed software and certain maintenance fees.
       The Verity license expires in May 2001, but automatically renews for
       successive one-year terms if neither party gives 30 days' notice of
       nonrenewal prior to the end of each term.

     - We have a license from Voxware, Inc. that grants us the right to use
       Voxware's proprietary compression software in developing our products and
       to incorporate Voxware's compression software into our products. Voxware
       is free to grant identical or similar licenses to others. Generally, we
       are not permitted to transfer our license rights to others, other than in
       connection with a sale of our products. In consideration for our license
       rights, we have paid Voxware an initial license fee of $20,000 and we pay
       royalties to Voxware equal to 1.5% of all sales of our products
       containing the licensed software. The license from Voxware expires in
       April 2001, but automatically renews for successive one-year terms if
       neither party gives 90 days' notice of nonrenewal prior to the end of
       each term.

     - We have a license from WebXpress, Inc., a subsidiary of BEA Systems,
       Inc., that grants us the right to integrate various versions of its
       proprietary WebXpress server software into our Enterprise Communications
       Server product. WebXpress is free to grant identical or similar licenses
       to others. Generally, we are not permitted to transfer our license rights
       to others, other than in connection with the distribution of our
       Enterprise Communications Server product. In consideration for our
       license rights, we pay license fees to WebXpress for each sale of our
       Enterprise Communications Server product containing the licensed
       software. Initially, the license fees range from $2,125 to $12,750 per
       central processing unit on which our customers use our Enterprise
       Communications Server product, depending on the version of WebXpress
       software that is integrated into the Enterprise Communications Server
       product distributed. Our fees will be lowered based on our cumulative
       license fee payments; if our cumulative fees reach certain levels, our
       license fee per unit could be reduced to approximately one-half of our
       initial fees. We also pay WebXpress certain maintenance fees and
       additional license fees when we make sales of an Enterprise
       Communications Server product that incorporates the version of WebXpress
       software that itself incorporates security functions that WebXpress has
       licensed from another party. The WebXpress license expires in August 2002
       and does not provide for any automatic renewals thereafter.

     In addition, we have developed our products to integrate well with the
Microsoft Windows NT operating system, the operating system used by most of our
customers to run our software. If the Windows NT operating system is changed by
Microsoft so that it no longer integrates well with our products, or if Windows
NT experiences technical problems, the operation of our software could be
impaired. In such event, our business, financial condition and operating results
could be harmed. Microsoft is not obligated to ensure that Windows NT integrates
well with our products.

EMPLOYEES

     As of December 31, 2000, we had a total of 174 full-time employees, all of
whom were located in North America. Of the total, 50 were in content production
services, 61 were in sales and marketing, 21 were in research and development, 7
were in professional services, 30 were in general and administrative and 5 were
in customer service and software support. In December 2000, Eloquent announced a
plan to restructure operations and gave notice of termination to over 80 of
these employees. None of our employees are represented by a labor union. We have
not experienced any work stoppages, and we consider our relations with our
employees to be good.

                                        9
<PAGE>   11

     The following table sets forth information regarding Eloquent's executive
officers as of December 31, 2000:

<TABLE>
<CAPTION>
                NAME                   AGE                           POSITION
                ----                   ---                           --------
<S>                                    <C>   <C>
Clifford A. Reid, Ph.D. .............  41    Chairman of the Board, Chief Executive Officer and
                                             Director
David Glazer.........................  39    Chief Technical Officer and Office of the President
R. John Curson.......................  57    Chief Financial Officer, Secretary, Treasurer and Office
                                             of the President
Gary Laney...........................  43    Vice President, Sales and Office of the President
Alan Atlas...........................  49    Vice President, Engineering and Office of the President
</TABLE>

     Clifford A. Reid, Ph.D. co-founded Eloquent in March 1995 and has served as
Eloquent's Chairman of the Board since inception. In July 2000, Dr. Reid
co-founded Rebop Media, Inc., where he is Chief Executive Officer and President.
Since November 2000, Dr. Reid has also served as Eloquent's Chief Executive
Officer. From March 1995 to January 1999, Dr. Reid served as Eloquent's Chief
Executive Officer and President. In April 1988, Dr. Reid co-founded Verity,
Inc., a search software products company, where he was Vice President of
Engineering from 1988 to 1992 and Executive Vice President from 1992 to 1993.
Dr. Reid holds an S.B. in physics from the Massachusetts Institute of
Technology, an M.B.A. from Harvard University and a Ph.D. in
engineering-economic systems from Stanford University.

     R. John Curson has served as Eloquent's Chief Financial Officer, Secretary
and Treasurer since June 1999 and was named to the Office of the President in
November 2000. From March 1999 to June 1999, Mr. Curson served as a consultant
to Pinnacle Systems, Inc., assisting with the integration into Pinnacle of
Truevision, Inc., formerly known as RasterOps, a digital imaging and video
products company that Pinnacle acquired in March 1999. Prior to that, Mr. Curson
served as Truevision's Chief Financial Officer from December 1993 to March 1999.
From 1992 to 1993, Mr. Curson served as Chief Financial Officer of LH Research
Inc., a power-supply developer and manufacturer. From 1989 to 1992, Mr. Curson
served as Chief Financial Officer for Martec Controls, a high-tech surveillance
and remote tracking products company. From 1987 to 1989, Mr. Curson served as
Vice President of Finance for Xidex Inc./Dysan International, a memory media
products company. From 1976 to 1987, Mr. Curson worked at Dataproducts
Corporation, a computer printer company, where he held a variety of financial
positions. Mr. Curson holds a B.S. in mechanical engineering from the University
of Leeds, an M.B.A. from the University of Leeds and an M.B.A. from the
University of California, Los Angeles.

     David Glazer co-founded Eloquent in March 1995. Mr. Glazer has served as
Eloquent's Chief Technical Officer since inception and was named to the Office
of the President in November 2000. From November 1994 to March 1995, he was an
independent Web information delivery systems consultant to clients including
Netscape Communications Corporation, Adobe Systems Incorporated and Tandem
Computers Incorporated, which is now a division of Compaq Computer Corporation.
In April 1988, Mr. Glazer co-founded Verity, Inc., a search software products
company, where he served as Senior Software Architect from June 1988 to November
1994. From 1984 to 1988, Mr. Glazer worked as an independent contractor for
Lotus Development Corporation, a software products company. Mr. Glazer holds an
S.B. in physics from the Massachusetts Institute of Technology.

     Gary Laney has served as our Vice President, Sales since October 2000 and
was named to the Office of the President in November 2000. From November 1999
until his promotion in October 2000, Mr. Laney was our Vice President of
Western/Central and Canada Regional Sales. Before joining Eloquent, Mr. Laney
worked from April 1999 to October 1999 as VP of Corporate and Publishing Sales
for Enigma, an electronic publishing software company. Before joining Enigma,
Mr. Laney worked from March 1997 until April 1999, as the Director of Western
Region Sales at Open Text, a web-based document management company. Prior to
that position, he spent from February 1993 until March 1997 as the Director of
Commercial and Online Sales at Folio Corporation, an electronic publishing and
full text retrieval company. Mr. Laney received a BS in Marketing from Brigham
Young University and an MBA from Northwestern University's Kellogg School of
Management.

                                        10
<PAGE>   12

     Alan Atlas has served as Eloquent's Vice President, Engineering since
February 1999 and was named to the Office of the President in November 2000.
From May 1996 to February 1999, Mr. Atlas was Director of Newsroom System
Engineering at Avid Technology, Inc., a digital video editing tools company.
From February 1994 to April 1996, Mr. Atlas was Vice President of Engineering at
Sarrus Software, a NextStep groupware company. Mr. Atlas holds a B.A. in
Psychology from Brown University, a B.S. in electrical engineering from the
University of Massachusetts and an M.S. in electrical engineering from Georgia
Institute of Technology. Effective March 23, 2001, Mr. Atlas resigned from
Eloquent.

ITEM 2. PROPERTIES

     As corporate headquarters, Eloquent currently occupies approximately 19,942
square feet of leased office space in San Mateo, California, which lease shall
expire on May 31, 2002. Certain of Eloquent's research and development team
occupies approximately 2,704 square feet of leased office space in Boulder
Colorado, which lease shall expire on November 30, 2003. Further, certain sales
and support employees occupy and operate out of small leased office units in
OakBrook Terrace, Illinois; Sudbury, Massachusetts; Portland, Oregon; and
Carrollton, Texas. Eloquent believes that these leased and occupied facilities
will be adequate to accommodate Eloquent's needs in the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

     Eloquent presently is not subject to any material legal proceedings.

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

     None.

                                        11
<PAGE>   13

                                    PART II

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

     Eloquent's Common Stock is traded on the Nasdaq National Market under the
symbol "ELOQ." Public trading of the Common Stock commenced on February 16,
2000. Prior to that, there was no public market for the Common Stock. The
following table sets forth, for the periods indicated, the high and low sale
price per share of the Common Stock on the Nasdaq National Market.

<TABLE>
<CAPTION>
                         2000                              HIGH        LOW
                         ----                            --------    --------
<S>                                                      <C>         <C>
First Quarter (from February 16, 2000).................  $45.0000    $16.0000
Second Quarter.........................................  $20.6250    $ 5.8750
Third Quarter..........................................  $ 9.5000    $ 2.5625
Fourth Quarter.........................................  $ 3.9375    $ 0.6563
</TABLE>

     As of March 29, 2001 there were approximately 275 holders of record of
Eloquent's Common Stock. On March 29, 2001, the last sale price reported on the
Nasdaq National Market System for Eloquent's Common Stock was $0.75 per share.

     Eloquent has never declared or paid any cash dividends on its capital
stock. Eloquent intends to retain any future earnings to support operations and
to finance the growth and development of Eloquent's business and does not
anticipate paying cash dividends for the foreseeable future.

     Between January 1, 2000 and March 31, 2000, the date of the Company's
initial public offering, employees exercised options encompassing a total of
126,386 shares of Eloquent common stock, providing total aggregate proceeds to
Eloquent of $70,714. The issuances of common stock were exempt under Rule 701 of
the Securities Act.

                                        12
<PAGE>   14

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                            --------------------------------------------------
                                              2000       1999       1998      1997      1996
                                            --------   --------   --------   -------   -------
                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                         <C>        <C>        <C>        <C>       <C>
STATEMENTS OF OPERATIONS DATA:
Total revenue.............................  $ 14,847   $ 12,492   $  7,743   $ 3,925   $   944
Gross margin*.............................  $  5,899   $  5,110   $  1,418   $   158   $   539
Loss from operations......................  $(35,500)  $(14,741)  $ (9,957)  $(6,348)  $(1,563)
Loss before extraordinary item and
  cumulative effect of accounting
  change..................................  $(36,299)  $(16,615)  $(10,008)  $(6,369)  $(1,535)
Extraordinary loss on extinguishment of
  debt....................................  $ (7,453)  $     --   $     --   $    --   $    --
Cumulative effect of accounting change-
  beneficial conversion feature...........  $ (7,500)  $     --   $     --   $    --   $    --
Net loss..................................  $(51,252)  $(16,615)  $(10,008)  $(6,369)  $(1,535)
Basic and diluted net loss per share:
  Loss before extraordinary item and
     cumulative effect of accounting
     change...............................  $  (2.36)  $  (5.47)  $  (4.74)  $ (4.59)  $ (1.97)
  Net loss................................  $  (3.33)  $  (5.47)  $  (4.74)  $ (4.59)  $ (1.97)
Weighted average shares, basic and
  diluted.................................    15,381      3,036      2,111     1,388       781
</TABLE>

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                  --------------------------------------------
                                                   2000      1999      1998     1997     1996
                                                  -------   -------   ------   ------   ------
                                                                 (IN THOUSANDS)
<S>                                               <C>       <C>       <C>      <C>      <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
  investments...................................  $40,456   $17,174   $6,661   $4,016   $2,280
Working capital.................................   34,031    12,706    4,164    2,551    2,124
Total assets....................................   49,593    25,265   11,461    8,073    3,124
Long-term obligations and subordinated notes....      230     9,254    1,254    1,271      189
Total stockholders' equity......................   39,800     7,689    5,356    3,589    2,455
</TABLE>

---------------
* Amounts reported in the years ended December 31, 1999 and 1998 have been
  reclassified to conform with the presentation of the year ended December 31,
  2000.

                                        13
<PAGE>   15

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

     The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and Eloquent's Financial Statements and Notes thereto
included elsewhere in this report. Except for the historical information
contained herein, the discussion in this report contains certain forward-looking
statements that involve risks and uncertainties, such as statements of
Eloquent's plans, objectives, expectations and intentions. These forward-looking
statements are based on the current expectations of Eloquent, and Eloquent
assumes no obligation to update this information. The cautionary statements made
in this report should be read as being applicable to all related forward-looking
statements wherever they appear in this Form 10-K. Eloquent's actual results
could differ materially from those discussed here.

OVERVIEW

     We incorporated in Delaware in March 1995. In February 1996, we launched
Version 1.0 of our solutions platform, which included the essential elements of
content production and navigation, including synchronized video, audio, graphics
and text as well as searchable transcripts, for delivery on CD-ROM only. In July
1996, we launched Version 2.0, which expanded delivery from CD-ROM to intranets,
included searchable slides and added variable speed playback. In November 1997
we launched Version 3.0. It further expanded delivery options to include
Web-based transmissions at 28.8 Kbps and added tracking and reporting and
software demonstrations. In April 1998, we introduced our content hosting
service and software. In January 1999, we launched our professional services
organization to provide integration services and professional media development
services. In April 1999, we launched Version 4.0 of our solutions platform,
which added support for high-resolution video and the ability for application
developers to customize certain aspects of our software. In December 1999, we
launched Version 5.0, which offers advanced integration, search, navigation and
analysis features. In August 2000, we launched Version 6.0, which allows
enterprises to organize, manage, secure, personalize and enrich all forms of
streaming content.

     We generate revenue through content production services, software licenses
and maintenance and professional services. For each content production
transaction, we charge our customers a fixed fee for each hour of finished
content. Our software license revenue consists of one-time fees charged for the
use of our desktop player and applications server software and monthly fees for
content hosting. Our maintenance revenue consists of prepaid contracts related
to software, which are recognized over the contract term, usually one year. Our
professional services revenue is from contracted services to customize the
content and software for our customers. Most of our revenue to date has been
from our content production services. We expect content production services to
produce the largest portion of our revenue for the foreseeable future, but we
intend to increase sales of our applications server software and content hosting
so that software license revenue constitutes an increasing percentage of our
revenue. The gross margin attributable to software license revenue is
significantly higher than that of our content production services. We cannot
assure you that we will be able to increase the proportion of software license
revenue and, therefore, we cannot assure you that we will be able to
proportionally improve our gross margin.

     We generally recognize content production services revenue upon shipment of
the rich media event to the customer and software license revenue upon delivery
of software to the customer. Content production services revenue includes
revenue for CD-ROM duplication. We recognize this revenue upon shipment of the
duplicated CD-ROMs. The revenue for software licenses is recognized upon
shipment, or upon notification by the customer, dependent on the delivery
medium. We recognize revenue for maintenance and content hosting ratably over
the period of the maintenance or content hosting contract. We recognize
professional services revenue on a percentage of completion basis as services
are performed.

     A limited number of large customers have accounted for a majority of our
revenue, and will continue to do so for the foreseeable future. No customer
accounted for more than 10% of our total revenue in the year ended December 31,
2000. To date, most of our customers have been in the telecommunications,
software, high-technology manufacturing, financial services and pharmaceuticals
industries.

     We have not achieved profitability on a quarterly or annual basis to date
and we may continue to incur net losses for the foreseeable future. As of
December 31, 2000, we had an accumulated deficit of $86.1 million. In
                                        14
<PAGE>   16

December 2000, we announced a plan to restructure operations and gave notice of
termination to 80 employees and consultants. The restructuring is intended to
better align Eloquent with future market opportunities brought about by its new
product introductions and to reduce cash expenditures prior to revenue growth.
We expect to increase our operating expenses commensurate with increases in
revenue. If we are not able to increase revenue, our business, financial
condition and operating results would suffer.

     We have experienced and expect to continue to experience seasonality in our
business. Due to the marketing cycles of our customers, sales of our content
production services generally tend to be lower in the fourth calendar quarter of
each year. Because the market for rich media business-to-business communications
using the Web is still new, additional seasonal and other patterns in the usage
of our products and services may emerge as the market matures.

RESULTS OF OPERATIONS

     The following table sets forth certain items from Eloquent's statements of
operations as a percentage of total revenue for the years indicated.

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                              2000      1999      1998
                                                              ----      ----      ----
<S>                                                           <C>       <C>       <C>
Revenue:
  Software licenses and maintenance.........................    35%       24%       13%
  Content production services...............................    54        67        87
  Professional services.....................................    11         9        --
                                                              ----      ----      ----
         Total revenue......................................   100       100       100
Cost of revenue:
  Software licenses and maintenance.........................    10         5         6
  Content production services...............................    38        40        74
  Professional services.....................................    14        12        --
  Stock-based compensation..................................    (1)        2         2
                                                              ----      ----      ----
         Total cost of revenue..............................    61        59        82
                                                              ----      ----      ----
  Gross margin..............................................    39        41        18
                                                              ----      ----      ----
Operating expenses:
  Research and development:
  Other research and development............................    36        16        20
  Stock-based compensation..................................     4         1         3
                                                              ----      ----      ----
                                                                40        17        23
                                                              ----      ----      ----
  Sales and marketing:
    Other sales and marketing...............................   140        71        88
    Stock-based compensation................................     3        10         3
                                                              ----      ----      ----
                                                               143        81        91
                                                              ----      ----      ----
  General and administrative:
    Other general and administrative........................    33        28        29
    Stock-based compensation................................    18        33         5
                                                              ----      ----      ----
                                                                51        61        34
                                                              ----      ----      ----
  Restructuring expense:
    Other restructuring expense.............................    24        --        --
    Stock-based compensation................................     3        --        --
                                                              ----      ----      ----
                                                                27        --        --
                                                              ----      ----      ----
  Impairment of property and equipment......................    17        --        --
                                                              ----      ----      ----
         Total operating expenses...........................   278       159       148
                                                              ----      ----      ----
Loss from operations........................................  (239)     (118)     (130)
Interest expense and other charges..........................   (10)      (17)       (3)
Impairment of investment....................................   (15)       --        --
Interest and other income...................................    20         2         3
                                                              ----      ----      ----
Loss before extraordinary item and cumulative effect of
  accounting change.........................................  (244)     (133)     (130)
Extraordinary loss on extinguishment of debt................   (50)       --        --
                                                              ----      ----      ----
Loss before cumulative effect of accounting change..........  (294)     (133)     (130)
Cumulative effect of accounting change -- beneficial
  conversion feature........................................   (51)       --        --
                                                              ----      ----      ----
Net loss....................................................  (345)%    (133)%    (130)%
                                                              ====      ====      ====
</TABLE>

                                        15
<PAGE>   17

YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

     Revenue. Revenue was $14.8 million, $12.5 million and $7.7 million in 2000,
1999 and 1998, respectively. The increase in revenue from 1999 to 2000 was
primarily due to higher quantity sales of our server product. The increase in
revenue from 1998 to 1999 is attributable to an increase in the number and
average size of sales of our products and services generated by a larger sales
force in 1999 and, to a lesser extent, higher prices in 1999. The primary reason
for the increase in number of sales was a growing sales force and increased
market acceptance of our solutions.

          Software licenses and maintenance. Revenue from software licenses and
     maintenance were $5.3 million, $3.0 million and $993,000 in 2000, 1999 and
     1998, respectively. The increase from 1999 to 2000 was primarily due to
     higher quantity sales of our server product, Enterprise Communications
     Server (ECS). The increase from 1998 to 1999 was due primarily to the
     introduction of the ECS, which was offered at a substantially higher price
     than our previously available server products.

          Content production services. Content production services revenue was
     $8.1 million, $8.4 million and $6.8 million in 2000, 1999 and 1998,
     respectively. Although we produced approximately 510 rich media events in
     2000, a 66% increase over 1999, lower pricing contributed to the 4%
     decrease in revenue from 1999 to 2000. Over 80% of the increase from 1998
     to 1999 was attributable to an increase in the number of rich media events
     we produced, from 255 events in 1998 to 308 events in 1999. The remainder
     was primarily attributable to increased prices in 1999.

          Professional services. We launched our professional services
     organization in the first quarter of 1999. Professional services revenue
     was $1.5 million and $1.1 million in 2000 and 1999, respectively. This
     represents a growth-rate of 36% and reflects a greater number of
     professional services engagements during 2000.

     Cost of revenue. Cost of revenue consists primarily of content production
costs, software licenses and maintenance costs, and professional services costs.
Cost of content production consists of event production costs and direct
personnel expenses associated with event production, with some fixed overhead
components for facilities and infrastructure support charges. Direct labor costs
associated with content production are deferred until revenue is recognized, at
which time they are expensed as cost of revenue. Cost of software licenses and
maintenance consists of customer support and content hosting personnel and
royalty payments due to the owners of licensed third-party software. Cost of
professional services consists of direct labor costs associated with providing
professional services, which are deferred until revenue is recognized, at which
time they are expensed as cost of revenue.

          Software licenses and maintenance. Cost of software licenses and
     maintenance was $1.4 million, $646,000 and $445,000 in 2000, 1999 and 1998,
     respectively. Over 45% of the increase in expense from 1999 to 2000
     reflects costs associated with customer service personnel and content
     hosting activities and related facilities costs. Approximately 36% of the
     increase reflects higher software royalty payments associated with
     increased software license revenue. Approximately 57% of the increase from
     1998 to 1999 reflects increases in customer service personnel and content
     hosting activities to support software licenses and maintenance, and the
     remainder reflects higher royalty payments associated with increased
     software revenue.

          Content production services. Cost of content production was $5.7
     million, $5.0 million and $5.7 million in 2000, 1999 and 1998,
     respectively. The increase in expense from 1999 to 2000 both in dollars and
     as a percentage of content production revenue, primarily reflects increased
     costs associated with additional production personnel and related
     facilities and infrastructure costs. The decrease from 1998 to 1999 was
     primarily due to a reduced fixed and variable cost structure in 1999, which
     we achieved in early 1999 through a restructuring of our production
     facility and processes. The restructuring included the termination of eight
     full-time content production employees, six of whom previously had been
     classified as production overhead. We also undertook to more closely manage
     the correlation of our direct labor force with content production volume,
     resulting in reduced utilization of approximately 36 temporary direct labor
     employees. Several efficiency measures were also introduced, including
     initiating content

                                        16
<PAGE>   18

     production on an event-only basis only after all customer materials are
     received, parallel processing paths for certain production activities,
     electronic exchange with customers for revisions of certain event elements,
     greater workflow and document integration with our automated event
     management system to minimize paper documents, and earlier production
     involvement in the post-sales process to clearly delineate customer
     requirements. These restructuring initiatives yielded higher production
     efficiency, including faster content production times and higher production
     capacity. Although we continued our efforts in 2000 to manage the
     correlation of our direct labor force with content production volume,
     expense levels for personnel and infrastructure are committed in advance of
     customer orders. The decrease in content production revenue to $8.0 million
     in 2000 from $8.4 million in 1999 resulted in excess committed production
     costs that could not be immediately eliminated.

          Professional services. The professional services department was
     established in mid-February 1999. Cost of professional services was $2.0
     million in 2000 compared to $1.5 million in 1999. The increase in expenses
     is due to higher personnel and recruiting costs associated with the growth
     of our professional services offerings.

     Operating expenses. Operating expenses were $41.4 million, $19.9 million
and $11.4 million in 2000, 1999 and 1998, respectively. Without the effect of
stock-based compensation expense, restructuring expense and impairment charges,
operating expenses for 2000, 1999 and 1998 would have been $31.1 million, $14.3
million and $10.5 million, respectively.

          Other research and development. Other research and development
     expenses consist primarily of personnel expenses associated with software
     development. Other research and development expenses were $5.3 million,
     $2.0 million and $1.5 million in 2000, 1999 and 1998, respectively. The
     increases were due primarily to higher personnel expenses associated with
     growth in our engineering staff. Additionally, approximately 17% of the
     increase in expense from 1999 to 2000 reflects expenses of $560,000
     incurred by Rebop, which due to certain accounting requirements is required
     to be included in our operating results. We expect other research and
     development expenses to increase in absolute dollars as we seek to increase
     the functionality of our solutions platform.

          Other sales and marketing. Other sales and marketing expenses consist
     primarily of personnel expenses associated with the sale of our products
     and services and personnel and marketing materials and expenses associated
     with the marketing of our products and services. Other sales and marketing
     expenses were $20.8 million, $8.9 million and $6.8 million in 2000, 1999
     and 1998, respectively. The increases were due primarily to higher
     personnel expenses and recruiting costs associated with growth in our sales
     force and marketing staff. Additionally, approximately 13% of the increase
     in expense from 1999 to 2000 reflects additional marketing and promotional
     activities. We expect other sales and marketing expenses to decrease in
     absolute dollars in the near future as we seek to increase the efficiency
     of our sales organization.

          Other general and administrative. Other general and administrative
     expenses consist primarily of administrative personnel expenses,
     professional fees and facilities costs. Other general and administrative
     expenses were $4.9 million, $3.5 million and $2.2 million in 2000, 1999 and
     1998, respectively. Approximately 25% of the increase in expense from 1999
     to 2000 reflects higher personnel expenses. Approximately 13% of the
     increase relates to our allowance for identified doubtful accounts, and 40%
     of the increase reflects additional professional fees necessary to support
     our growth. Approximately 60% of the increase in general and administrative
     expenses from 1998 to 1999 reflects higher personnel expenses.
     Approximately 10% of the increase relates to our allowance for identified
     doubtful accounts, and 10% of the increase reflects additional professional
     fees necessary to support our growth. We expect general and administrative
     expenses to be the same or decrease in the near future.

          Stock-based compensation. Stock-based compensation expense consist
     primarily of charges related to the difference between employee option
     exercise prices and deemed fair market values on the date of grant
     amortized over the vesting period of the options. Stock-based compensation
     expense was $4.1 million, $5.8 million and $992,000 in 2000, 1999 and 1998,
     respectively. The decrease in expense from 1999 to 2000 was due to the
     reversal of amortized stock-based compensation expense related to
                                        17
<PAGE>   19

     cancellations, due to employee terminations during 2000, of unvested stock
     options previously granted. The increase in expense from 1998 to 1999 was
     due to increased grants of stock options and increases in the deemed fair
     market value of the underlying stock. Stock-based compensation charges are
     presented within the relevant functional expenses and are being amortized
     using an accelerated method of amortization as described in Financial
     Accounting Standards Board Interpretation No. 28, over the vesting periods
     of the options, generally four to five years.

          Restructuring expense and impairment of property and equipment. In
     December 2000, Eloquent announced a plan to restructure operations that
     resulted in a one-time charge totaling $3.5 million. The restructuring is
     intended to better align Eloquent with future market opportunities brought
     about by its new product introductions and to reduce cash expenditures
     prior to revenue growth. Under the plan, Eloquent gave notice of
     termination in December 2000 to 80 employees and consultants and recorded
     approximately $1.3 million related to salary and termination benefits.
     Eloquent plans to reduce expenditures for office space and is actively
     negotiating lease terminations, where feasible, and pursuing sub-leases
     where lease termination is not feasible for identified properties. The
     restructuring charge includes $1.8 million for lease expense. This charge
     reflects payments required during lease termination notice periods,
     estimates of lease payments prior to sub-letting space and estimates of any
     rent differential between the contractual liability of Eloquent and current
     market rates. The restructuring charge includes $356,000 for the buy-out of
     capital leases related to impaired equipment and elimination of maintenance
     contracts for impaired software. In addition, Eloquent recorded a $2.5
     million non-cash impairment charge to write-off the carrying value of
     excess equipment and furniture, abandoned leasehold improvements and
     certain software and technology assets. The excess equipment and furniture
     and abandoned leasehold improvements are a result of the termination of 80
     employees and consolidation of the remaining employees in fewer leased
     facilities. At December 31, 2000 Eloquent had made payments of $143,000
     related to salary and termination benefits, $147,000 related to lease
     arrangements and had a remaining accrual balance of $3.2 million. Operating
     expenses and cost of revenue, excluding stock-based compensation expense,
     restructuring expense and impairment charges in the first quarter of 2001
     are expected to decrease from those incurred in the last quarter of 2000 by
     approximately 40%, corresponding to the restructuring. Increases to
     expenses are expected to occur commensurate with revenue growth.

     Interest expense and other charges. In 2000 and 1999, interest expense and
other charges consisted primarily of interest charges on equipment leases, the
subordinated notes and bank lines of credit and amortization of the debt
issuance costs and the discount related to the $20.0 million subordinated notes
and warrants. In 1998, interest expense and other charges consisted primarily of
interest charges on equipment leases and bank lines of credit. Interest expense
and other charges were $1.5 million, $2.2 million and $259,000 in 2000, 1999 and
1998, respectively. The decrease in expense from 1999 to 2000 primarily reflects
repayment of the subordinated notes and the bank line of credit in February 2000
upon the consummation of our initial public offering. Approximately 80% of the
increase in expense from 1998 to 1999 reflects interest costs associated with
the $20.0 million subordinated notes. The remaining increase reflects higher
average borrowing balances.

     Impairment on investment. In March 2000, Eloquent and eSpoc Inc. ("eSpoc"),
a provider of an electronic marketplace for the purchase and liquidation of
medical equipment and supplies, entered into a strategic relationship. As part
of this relationship, Eloquent purchased 461,538 shares of eSpoc Preferred Stock
for $3.0 million. This investment is being accounted for using the cost method.
During the fourth quarter of 2000, Eloquent performed an evaluation of the
carrying value of this investment. Eloquent considered current financial market
conditions for raising capital and reviewed the cash flows and operating results
of the entity. Eloquent concluded that the unfavorable financial market
conditions as they relate to entities engaged in electronic commerce are not
temporary. Accordingly, the carrying value of the equity investment in eSpoc
Inc. was determined to be impaired. A loss of $2.3 million was recognized based
on the amount by which the carrying value exceeded the fair value of Eloquent's
proportionate share of the net assets of eSpoc.

     Interest income and other income. Interest income and other income consists
primarily of interest earnings on our cash equivalents and short-term
investments. Interest income and other income was
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<PAGE>   20

$3.0 million, $301,000 and $208,000 in 2000, 1999 and 1998, respectively. The
increases were due to increasing average cash balances.

     Extraordinary loss on early extinguishment of debt and cumulative effect of
accounting change. In October 1999, Eloquent sold convertible subordinated notes
and detachable warrants to purchase 1,500,000 shares of common stock for
aggregate gross consideration of $20.0 million. In conjunction with the sale of
the notes Eloquent incurred $1.5 million in debt issue costs. The gross
consideration received from the notes was allocated between the notes and the
warrants in accordance with Accounting Principles Board Opinion No. 14,
Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants as
follows: long-term notes payable of $12.5 million and warrants of $7.5 million.
The notes contained a beneficial conversion feature of $5.0 million which was
recorded as a further discount on the sale of the notes.

     The debt issuance costs and the discount resulting from the issuance of the
warrants and the original beneficial conversion feature were being amortized to
interest expense. In accordance with the terms of the notes, all amounts
outstanding under the notes were repaid upon consummation of Eloquent's initial
public offering on February 23, 2000. Upon repayment of the notes, the
unamortized portion of the debt issuance costs and the discount were recorded as
an extraordinary loss on the extinguishment of debt.

     During the fourth quarter of 2000 we also recorded an additional charge of
$7.5 million relating to a convertible debt instrument as a cumulative effect
adjustment to account for a change in accounting guidance. See Note 7 of "Notes
to Financial Statements."

LIQUIDITY AND CAPITAL RESOURCES

     Since our inception, we have financed our operations through private sales
of preferred stock, our initial public offering of common stock and, to a lesser
extent, borrowings under lines of credit. Net proceeds from our initial public
offering of common stock were approximately $75.4 million. At December 31, 2000,
we had approximately $40.5 million of cash equivalents and short-term
investments.

     Net cash used in operating activities was $20.1 million, $8.2 million and
$8.8 million in 2000, 1999 and 1998, respectively. In 2000, net cash used in
operating activities was primarily attributable to a net loss which was
partially off-set by non-cash charges related to the loss on early
extinguishment of debt, the cumulative effect of an accounting change related to
the beneficial conversion feature of the subordinated notes, impairment of
investment, depreciation and amortization of tangible assets and stock-based
compensation expense. Net cash used in operating activities in 1999 and 1998 was
primarily attributable to net losses.

     Net cash used in investing activities was $45.6 million $976,000 and
$146,000 in 2000, 1999 and 1998, respectively. Net cash used in investing
activities in 2000 was related primarily to investments in short-term marketable
securities. Net cash used in investing activities in 1999 and 1998 was primarily
related to purchases of property and equipment.

     Net cash provided by financing activities was $53.0 million, $19.7 million
and $11.6 million in 2000, 1999 and 1998, respectively. Net cash provided by
financing activities in 2000 resulted primarily from the sale of common stock in
our initial public offering, partially offset by repayment of borrowings. Net
cash provided by financing activities in 1999 resulted primarily from the sale
of preferred stock and subordinated notes and warrants. Net cash provided by
financing activities in 1998 resulted primarily from borrowings under our lines
of credit.

     We believe that our current cash and cash equivalents will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
at least the next 12 months. We may need to raise additional funds thereafter
through public or private financings, or other arrangements. There can be no
assurance that such additional financings, if needed, will be available on terms
attractive to us, if at all. Our failure to raise capital when needed could have
a material adverse effect on our business, financial condition and operating
results. If additional funds are raised through the issuance of equity
securities, the percentage ownership of our then-current, stockholders would be
reduced. Furthermore, such equity securities may have rights, preferences or
privileges senior to those of common stock.

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<PAGE>   21

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the FASB Issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities, and is effective for
fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS
No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133 an
amendment of FASB Statement No. 133. SFAS No. 137 defers the application of SFAS
No. 133 to be effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000; however, early application is encouraged. Eloquent will
adopt SFAS No. 133 for the 2001 fiscal year. The adoption has not had a material
affect on the financial statement presentation.

RISKS AND UNCERTAINTIES

     In addition to the other information provided in this Form 10-K, the
following risk factors should be considered carefully in evaluating Eloquent and
our business.

                         RISKS RELATED TO OUR BUSINESS

BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT MAY BE DIFFICULT FOR YOU TO
EVALUATE OUR BUSINESS AND PROSPECTS.

     Eloquent was formed in March 1995. Thus, we have a limited operating
history, which may make it difficult for you to evaluate our business. In part
because we are subject to the risks, expenses and uncertainties frequently
encountered by companies in new and rapidly evolving technology and Web-related
markets, we cannot be sure that our business model and future operating
performance will yield the results that we seek. Moreover, because these markets
are constantly changing, we may need to change our business model to adapt. We
have not yet proven our ability, on a sustained basis, to achieve the following:

     - maintain and expand our customer base;

     - identify new applications for our existing products;

     - expand and enhance our customer solutions;

     - maintain market prices for our solutions despite competition;

     - effectively integrate any acquired businesses or technologies with our
       operations;

     - prevent technologies we use in our operations from failing or operating
       poorly, and

     - identify, attract, retain and motivate qualified personnel.

     We may not be successful in achieving these objectives on a long-term
basis. If we are unable to do so, our business, financial condition and
operating results would suffer.

WE EXPECT TO CONTINUE TO INCUR LOSSES, AND AS A RESULT WE MAY NOT ACHIEVE
PROFITABILITY.

     We have not achieved profitability on a quarterly or annual basis to date
and we anticipate that we will continue to incur net losses for the foreseeable
future. Our failure to achieve profitability could deplete our current capital
resources and reduce our ability to raise additional capital. We incurred net
losses of approximately $51.3 million in 2000 compared to $16.6 million in 1999.
As of December 31, 2000, we had an accumulated deficit of approximately $86.1
million. In December 2000, Eloquent announced a plan to restructure operations.
The plan is intended to better align Eloquent with future market opportunities
brought about by its new product introductions and to reduce cash expenditures
prior to revenue growth. Under the plan, Eloquent gave notice of termination in
December 2000 to over 80 employees and consultants. This resulted in excess
equipment and furniture and unused leased facilities. Accordingly, Eloquent
plans to reduce expenditures for office space and has written-off the carrying
value of excess equipment and furniture, abandoned leasehold improvements and
certain software and technology assets. Although we have initiated

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<PAGE>   22

actions to reduce cash expenditures and expenses, there can be no assurance that
we will be successful in generating additional revenue or achieving
profitability.

OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, AND AN
UNANTICIPATED DECLINE IN REVENUE MAY CAUSE OUR STOCK PRICE TO FALL.

     In some future quarter, our operating results may be below the expectations
of public market analysts and investors, which would cause the price of our
common stock to fall. The factors that may cause our quarterly operating results
to fall short of expectations include:

     - delays of large customer orders, which could prevent us from recognizing
       revenue until later quarters;

     - seasonal trends in sales of our solutions, which could result in lower
       quarterly revenue particularly in the fourth quarter;

     - downward pressure on prices paid by our customers, as a result of
       competition or other factors, which could reduce our quarterly revenue
       even if we maintain or increase the number of sales;

     - new product and service introductions by our competitors, which could
       cause our competitors to capture revenue that we otherwise could have
       received;

     - increased costs incurred as we expand operations, increase our marketing
       efforts or undertake other initiatives, which could reduce our profit
       margin if not matched by a corresponding growth in revenue; and

     - technical difficulties or system downtime affecting the Web generally or
       the operation of our network or servers, which could cause customer
       dissatisfaction and reduce our revenue.

     We have experienced and expect to continue to experience seasonality in our
business. Due to the marketing cycles of our customers, sales of our content
production services generally tend to be lower in the fourth calendar quarter of
each year. Because the market for rich media business-to-business communications
using the Web is still new, additional seasonal and other patterns in the usage
of our products and services may emerge as the market matures.

     Our quarterly operating results may fluctuate significantly in the future
because of a variety of factors, many of which are outside our control. As a
result, operating results for any particular quarter may not be indicative of
future operating results.

WE DEPEND ON A LIMITED NUMBER OF LARGE CUSTOMERS FOR A MAJORITY OF OUR REVENUE,
SO THE LOSS OF OR DELAY IN PAYMENT FROM ONE OR A SMALL NUMBER OF CUSTOMERS COULD
HAVE A LARGE IMPACT ON OUR REVENUE AND OPERATING RESULTS.

     If we were to lose a key customer, our business, financial condition and
operating results would suffer. In addition, if a key customer fails to pay
amounts it owes us, or does not pay those amounts on time, our revenue and
operating results would suffer. A limited number of large customers have
accounted for a majority of our revenue and will continue to do so for the
foreseeable future. For example, our top 15 customers during 2000 accounted for
over 50% of our revenue during that period. Due to our limited number of large
customers, the cancellation or delay of a customer order during a given quarter
is likely to significantly reduce revenue for the quarter.

THE LENGTH OF OUR SALES CYCLE IS UNCERTAIN AND THEREFORE COULD CAUSE SIGNIFICANT
VARIATIONS IN OUR OPERATING RESULT.

     Because our customers are typically large corporations, the length of our
sales cycle -- the time between an initial customer contact and completing a
sale -- can be unpredictable. The time between the date of our initial contact
with a potential new customer and the execution of a sales contract with that
customer ranges from less than two weeks to more than three months, depending on
the size of the customer, the application of our solution and other factors. Our
sales cycle is also subject to delays as a result of customer-specific factors

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<PAGE>   23

over which we have little or no control, including budgetary constraints and
internal acceptance procedures. During the sales cycle, we may expend
substantial sales and management resources without generating corresponding
revenue. Our expense levels are relatively fixed in the short term and are based
in part on our expectations of our future revenue. As a result, any delay in our
sales cycle could cause significant variations in our operating results,
particularly because a relatively small number of customer orders represents a
large portion of our revenue.

     WE MAY NOT BE ABLE TO BUILD AN EFFECTIVE SALES ORGANIZATION, WHICH WOULD
PREVENT US FROM ACHIEVING THE INCREASED SALES VOLUME NECESSARY FOR US TO ACHIEVE
PROFITABILITY.

     In order to increase our revenue, we must build an effective sales
organization. If we do not do so, we will not be able to increase our sales
sufficiently to achieve profitability. In connection with our recent
restructuring, we reduced the size of our sales organization. Our future success
will depend in part on our ability to recruit and retain additional, qualified
sales personnel and to train and motivate such personnel. In the past, we have
had difficulty recruiting, retaining and managing qualified sales personnel. We
cannot guarantee that we will not encounter similar difficulties in the future.
Competition for personnel, particularly in the San Francisco Bay Area, where we
are located, is intense. Many of the companies that will be competing with us
for qualified sales personnel are larger and more established than we are and
have greater financial resources than we do. This may make it even more
difficult for us to recruit and retain such personnel. Our operational history
suggests that the level of sales we achieve is generally determined by the
number of qualified sales personnel we employ. In 1998 and early 1999, we
suffered a significant decline in sales to customers in the western United
States primarily due to attrition in our experienced West Coast sales force. If
we experience turnover in our sales force in the future, our business, financial
condition and operating results will suffer. Newly hired sales personnel
generally do not become fully productive until they have worked for at least two
quarters. Because of the time required to recruit new sales personnel and for
them to become fully productive, an unanticipated loss of sales personnel could
result in an under productive sales organization and reduced sales for a
significant period of time.

WE FACE INTENSE COMPETITION FOR PERSONNEL, WHICH COULD IMPAIR OUR ABILITY TO
RECRUIT AND RETAIN KEY PERSONNEL.

     Our ability to develop, market and sell our solutions and to maintain our
competitive position depends on our ability to attract, retain and motivate
highly skilled technical, sales and marketing and other personnel. There is a
limited number of people with the necessary technical skills and understanding,
and competition for their services, particularly in the San Francisco Bay Area,
is intense. If we fail to recruit or retain these personnel, our ability to
develop, market and sell our solutions will suffer.

WE DEPEND ON TECHNOLOGY LICENSED FROM OTHER COMPANIES. WE MAY NOT BE ABLE TO
RENEW THESE LICENSES AS THEY EXPIRE FROM TIME TO TIME, AND WE MAY NOT BE ABLE TO
REPLACE THE LICENSED TECHNOLOGY WITHOUT SIGNIFICANT EXPENSE OR ENGINEERING
EFFORTS, IF AT ALL.

     Our desktop player software, which runs on an end user's personal computer
to allow the user to view an event, and our Enterprise Communications Server
product, which enables customers to deliver events to their target audiences
through Web-based channels, include technologies that other companies have
licensed to us. If we are unable to maintain or renew these licenses when they
expire, we would be forced to remove these technologies from our products and
develop or license comparable technologies. This could require additional
license fees or extensive engineering efforts, or significantly decrease our
products' functionality, either of which could harm our business, financial
condition and operating results.

     In addition, we have developed our products to integrate well with the
Microsoft Windows NT operating system, the operating system used by most of our
customers to run our software. If the Windows NT operating system is changed by
Microsoft so that it no longer integrates well with our products, or if Windows
NT experiences technical problems, the operation of our software could be
impaired. In that event, our business, financial condition and operating results
could be harmed. Microsoft is not obligated to ensure that Windows NT integrates
well with our products.

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<PAGE>   24

     We may be required to obtain licenses from third parties to refine,
develop, market and deliver new products. We may be unable to obtain any needed
license on commercially reasonable terms or at all and rights granted under any
licenses may not be valid and enforceable.

WE OPERATE IN MARKETS THAT WILL BECOME INCREASINGLY COMPETITIVE, WHICH COULD
LEAD TO DECREASING PRICES AND REDUCED PROFITABILITY.

     The market for rich media business-to-business communications solutions is
new and rapidly evolving. We expect that competition will intensify. Increased
competition could lead to decreasing prices and profitability. We compete with
companies that offer components of a rich media business-to-business
communications solution, including:

     - providers of rich media software tools;

     - multimedia content production and delivery companies;

     - companies that provide content hosting services, which include storing,
       delivering and tracking the distribution of content; and

     - traditional business-to-business communications and learning solution
       companies that offer live meeting and seminar services.

     In addition, our customers and potential customers represent a source of
competition to the extent they decide to develop in-house business-to-business
communications solutions.

     Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical and marketing resources,
greater name recognition and larger existing customer bases than we do. These
competitors may also be able to undertake more extensive marketing campaigns for
their brands and services, adopt more aggressive pricing policies and make more
attractive offers to potential employees and partners. We may be unable to
compete successfully against current or future competitors, and competitive
pressures may cause our business to suffer.

OUR MANAGEMENT TEAM HAS LITTLE EXPERIENCE WORKING TOGETHER IN THEIR CURRENT
POSITIONS, WHICH COULD LIMIT THE TEAM'S EFFECTIVENESS IN OPERATING OUR BUSINESS.

     Our management team does not have significant experience working together
at Eloquent in their current positions. This could prevent or limit our
management team's ability to work together effectively. The failure of our
management team to work together effectively could delay efficient
decision-making and execution of business objectives, which would negatively
impact our business, financial condition and operating results.

WE MAY NOT BE ABLE TO ADEQUATELY MANAGE OUR ANTICIPATED GROWTH, WHICH COULD
IMPAIR OUR EFFICIENCY AND NEGATIVELY IMPACT OUR OPERATIONS.

     We may not be able to manage our growth effectively, which could impair our
efficiency, reduce the quality of our solutions, impair further growth and harm
our business, financial condition and operating results. If we do not
effectively manage this growth, we will not be able to operate efficiently or
maintain the quality of our products. Either outcome would harm our operating
results. In the past, we have experienced rapid growth, and we plan to continue
to expand our operations. This expansion is expensive and places a significant
strain on our personnel and other resources. To manage our expanded operations
effectively, we will need to further improve our operational, financial and
management systems and successfully hire, train, motivate and manage our
employees.

WE PLAN TO EXPAND OUR BUSINESS INTO INTERNATIONAL MARKETS, IN WHICH WE HAVE NO
PRIOR EXPERIENCE. INTERNATIONAL EXPANSION WILL REQUIRE SIGNIFICANT RESOURCES AND
WILL SUBJECT US TO NEW RISKS THAT MAY LIMIT OUR RETURN FROM OUR INTERNATIONAL
SALES EFFORTS.

     One of our strategies to increase our sales sufficiently to achieve
profitability is to add an international sales force and operations. This
expansion will involve a significant use of management and financial resources,
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<PAGE>   25

particularly because we have no previous experience with international
operations. We may not be successful in creating international operations or
sales. In addition, international business activities are subject to a variety
of risks, including the adoption of laws, currency fluctuations, actions by
third parties and political and economic conditions, any of which could restrict
or eliminate our ability to do business in foreign jurisdictions.

WE WILL DEPEND ON REVENUE FROM OUR CONTENT HOSTING BUSINESS, WHICH WILL SUFFER
IF OUR HOSTING EQUIPMENT AND SOFTWARE EXPERIENCE SYSTEM FAILURES.

     Our future success depends in part on our ability to successfully host our
customers' content on our servers. Our ability to host content will depend on
the efficient and uninterrupted operation of our computer and communications
hardware and software systems. We do not have fully redundant content hosting
systems, a formal disaster recovery plan or alternative providers of hosting
services. We also may not have business interruption insurance sufficient to
compensate us for losses that may occur. All of our content hosting servers are
located at XO Communications, Inc.'s ("XO") facilities in Cupertino, California.
These systems and operations are vulnerable to damage or interruption from
earthquakes, floods, fires, power loss, telecommunication failures or similar
events. They are also subject to computer viruses, break-ins, sabotage,
intentional acts of vandalism and similar misconduct. Despite any precautions we
may take, the occurrence of a natural disaster or other unanticipated problems
at the XO's facility could result in interruptions in our content hosting
service. In addition, the failure by XO to provide the data communications
capacity that we require could result in interruptions in our content hosting
service. Any damage to or failure of our content hosting systems could result in
interruptions in our content hosting service. System interruptions will reduce
our revenue and profits, and our future revenue and profits will be harmed if
our customers believe that our content hosting system is unreliable.

POTENTIAL ERRORS IN OUR SOFTWARE COULD HARM OUR REPUTATION AND REDUCE OUR SALES
AND PROFITABILITY.

     Software defects discovered after we release our software could result in
the loss of revenue, delays in market acceptance and harm to our reputation. Any
product liability claim against us, if successful and of sufficient magnitude,
could harm our profitability and future sales. Our software has in the past
contained, and may in the future contain, "bugs" or errors. Although we
typically design our customer license agreements to contain provisions that
limit our exposure to potential product liability claims, we cannot guarantee
that contractual limitations of liability would be enforceable or would
otherwise protect us from liability for damages to a customer resulting from a
defect in our software. Even though we maintain insurance that covers damages
arising from the implementation and use of our software, we cannot assure you
that our insurance would cover or be sufficient to cover any product liability
claims against us.

WE HAVE IN THE PAST EXPERIENCED RETURNS OF OUR PRODUCTS, AND AS OUR BUSINESS
GROWS WE MAY EXPERIENCE INCREASED RETURNS, WHICH COULD HARM OUR REPUTATION AND
NEGATIVELY IMPACT OUR OPERATING RESULTS.

     In the past, some of our customers have returned our rich media events to
us because they felt that modifications were required for the product to meet
project specifications and the customer's requirements. It is likely that we
will experience some level of returns in the future and, as our business grows,
the amount of returns may increase despite our efforts to minimize returns.
Also, returns may adversely affect our relationship with affected customers and
may harm our reputation. This could cause us to lose potential customers and
business in the future.

POWER OUTAGES IN CALIFORNIA MAY ADVERSELY AFFECT US.

     We conduct most of our operations in the state of California and rely on a
continuous power supply to conduct operations. California's current energy
crisis could substantially disrupt our operations and increase our expenses.
California has recently implemented, and may in the future continue to
implement, rolling blackouts throughout the state. Although state lawmakers are
working to minimize the impact, if blackouts interrupt our power supply, we may
be temporarily unable to continue operations at our facilities. Any such
interruption in our ability to continue operations at our facilities could delay
the development and production of our products and disrupt communications with
our customers or suppliers. Future interruptions could
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<PAGE>   26

damage our reputation and could result in lost revenue, either of which could
substantially harm our business and results of operations. Furthermore,
shortages in wholesale electricity supplies have caused power prices to
increase. If wholesale prices continue to increase, our operating expenses will
likely increase which will have a negative effect on our operating results.

THE FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY MAY IMPAIR OUR COMPETITIVE
POSITION.

     Our copyrights, service marks, trademarks, trade secrets, proprietary
technology and similar intellectual property are critical to our success. If we
are unable to adequately protect our rights from infringement by competitors or
others, or from misuse by our licensees, the competitive advantage that our
rights provide will be weakened.

     We rely on trademark and copyright law, trade secret protection and
confidentiality and license agreements with our employees and independent
contractors to protect our proprietary rights. We strategically pursue the
registration of trademarks and service marks in the United States and abroad.
Effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our products and services are made
available.

     We have licensed in the past, and expect to license in the future, certain
of our proprietary rights to third parties. The steps taken by us to protect our
proprietary rights may not be adequate. Although we attempt to ensure that the
quality of our brand is maintained by these licensees, licensees may take
actions that may harm the value of our proprietary rights or reputation.

WE MAY BECOME SUBJECT TO INTELLECTUAL PROPERTY LITIGATION IN THE FUTURE THAT
COULD CAUSE US TO INCUR SIGNIFICANT EXPENSE AND COULD REQUIRE US TO ALTER OUR
PRODUCTS.

     We may be subject to legal proceedings and claims associated with our
intellectual property from time to time in the future. These claims, even if
without merit, could cause us to expend significant financial and managerial
resources. Further, if these claims are successful, we may be required to change
our trademarks, alter our copyrighted material or pay financial damages, any of
which could harm our business. Third parties may infringe or misappropriate our
copyrights, trademarks or similar proprietary rights in the future. In such
event, we may be forced to pursue infringement claims against such third
parties. These claims also could cause us to expend significant financial and
managerial resources.

                         RISKS RELATED TO THE INTERNET

OUR FUTURE SUCCESS DEPENDS ON CONTINUED GROWTH IN USE OF THE WORLD WIDE WEB FOR
BUSINESS-TO-BUSINESS COMMUNICATIONS.

     Our business could suffer if Web usage does not continue to grow. Web usage
may be inhibited for a number of reasons, including:

     - inadequate network infrastructure;

     - security concerns;

     - inconsistent quality of service;

     - lack of availability of cost-effective and high-speed service; and

     - changes in government regulation of the Web.

     If Web usage grows, the Web infrastructure may not be able to support the
demands placed on it by this growth, or its performance and reliability may
decline. In addition, future outages and other interruptions occurring
throughout the Web could lead to decreased use of our products and would
therefore harm our business.

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<PAGE>   27

IF WE ARE UNABLE TO KEEP UP WITH THE RAPID TECHNOLOGICAL CHANGES THAT
CHARACTERIZE THE WEB, OUR BUSINESS WOULD SUFFER.

     Our future success will depend on our ability to continually improve our
solutions. To do so, we will need to continually enhance our solutions in
response to the rapid technological developments, evolving industry standards
and user demands, and frequent new product introductions and enhancements that
characterize the market for Web products and services. In the event new
multimedia enabling technologies are developed and widely adopted, we may be
required to make fundamental and costly changes in our technology. We may not be
able to make these enhancements or changes in a cost-effective manner fast
enough to keep up with our competitors or at all. In this event, our business
would suffer.

                       RISKS RELATED TO OUR COMMON STOCK

OUR STOCK PRICE HAS BEEN EXTREMELY VOLATILE IN THE PAST AND IS LIKELY TO BE
EXTREMELY VOLATILE IN THE FUTURE, WHICH COULD CAUSE YOU TO LOSE ALL OR A PART OF
YOUR INVESTMENT AND MAY RESULT IN COSTLY AND DISTRACTING SECURITIES LITIGATION.

     The market price of our common stock has been volatile in the past and is
likely to be extremely volatile in the future. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. Securities
litigation could result in substantial costs and a diversion of our management's
attention and resources. The stocks of Web-related and technology companies like
ours have experienced extreme price and volume fluctuations in recent months,
many of which appear unrelated to the companies' business, financial condition
or operating results. Although the market price of our stock will in part be
based on our business, financial condition and operating results, we expect that
it will also be affected to a significant degree by these market-wide and
industry-wide price and volume fluctuations.

OUR DIRECTORS AND EXECUTIVE OFFICERS OWN A SIGNIFICANT PORTION OF OUR COMMON
STOCK, WHICH ENABLES THEM TO CONTROL MATTERS DECIDED BY STOCKHOLDERS.

     Our directors and executive officers and their affiliates beneficially own
a significant portion of our common stock. As a result of their beneficial
ownership, our directors and executive officers, acting alone or with others,
are able to control most matters requiring stockholder approval, including the
election of directors and approval of significant transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of Eloquent. This could prevent our stockholders from
realizing a premium over the market price for their shares or from bringing
about a change in management.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

     Our exposure to market risk is limited to interest income sensitivity,
which is affected by changes in the general level of U.S. interest rates,
particularly because the majority of our investments are in short-term debt
securities issued by corporations. We place our investments with high-quality
issuers and limit the amount of credit exposure to any one issuer. Our
investments are subject to interest rate risk, which will decline in value if
interest rates increase. Due to the nature of our investments an immediate 10%
increase in interest rates would not have a material effect on our financial
condition or results of operations. We do not have any foreign currency or other
derivative financial instruments.

                                        26
<PAGE>   28

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Eloquent's Financial Statements and Notes thereto are set forth on the
pages indicated at Item 14(a).

     The following table sets forth selected unaudited quarterly information for
Eloquent's last eight fiscal quarters. Eloquent believes that all necessary
adjustments (which consisted only of normal recurring adjustments) have been
included in the amounts stated below to present fairly the results of such
periods when read in conjunction with the financial statements and related notes
included elsewhere herein.

<TABLE>
<CAPTION>
                                                     FIRST      SECOND      THIRD      FOURTH
                                                    QUARTER     QUARTER    QUARTER    QUARTER*
                                                    --------    -------    -------    --------
                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                 <C>         <C>        <C>        <C>
YEAR ENDED DECEMBER 31, 2000
Total revenue.....................................  $  4,626    $ 5,207    $ 3,154    $  1,860
Gross margin......................................  $  2,317    $ 2,684    $   993    $    (95)
Loss from operations..............................  $ (5,931)   $(7,263)   $(9,305)   $(13,001)
Loss before extraordinary item and cumulative
  effect of accounting change.....................  $ (6,504)   $(6,505)   $(8,602)   $(14,688)
Extraordinary loss on extinguishment of debt......  $ (7,453)   $    --    $    --    $     --
Cumulative effect of accounting
  change -- beneficial conversion feature.........  $     --    $    --    $    --    $ (7,500)
Net loss..........................................  $(13,957)   $(6,505)   $(8,602)   $(22,188)
Basic and diluted net loss per share:
  Net loss before extraordinary item and
     cumulative effect of accounting change.......  $  (0.67)   $ (0.39)   $ (0.50)   $  (0.84)
  Net loss........................................  $  (1.44)   $ (0.39)   $ (0.50)   $  (1.27)
Weighted average shares, basic and diluted........     9,698     16,831     17,185      17,531

YEAR ENDED DECEMBER 31, 1999
Total revenue.....................................  $  1,947    $ 2,800    $ 3,628    $  4,117
Gross margin......................................  $    546    $ 1,012    $ 1,564    $  1,988
Loss from operations..............................  $ (3,668)   $(3,010)   $(3,074)   $ (4,989)
Net loss..........................................  $ (3,712)   $(3,075)   $(3,260)   $ (6,568)
Basic and diluted net loss per share..............  $  (1.20)   $ (0.95)   $ (0.91)   $  (2.41)
Weighted average shares, basic and diluted........     3,083      3,222      3,563       2,725
</TABLE>

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

* Fourth quarter 2000 loss from operations includes restructuring expense of
  $4.0 million and impairment of property and equipment charges of $2.5 million.

                                        27
<PAGE>   29

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

     None.

                                    PART III

     Certain information required in Part III of this Report is incorporated by
reference to the Company's Proxy Statement in connection with the Company's 2001
Annual Meeting to be filed in accordance with Regulation 14A under the
Securities Exchange Act of 1934, as amended.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     (a) Identification of Directors:

     The information concerning the Company's directors and nominees is
incorporated by reference to the Company's Proxy Statement in connection with
the Company's 2001 Annual Meeting to be in accordance with Regulation 14A under
the Securities Exchange Act of 1934, as amended.

     (b) Identification of Executive Officers:

     Please refer to the section entitled "Executive Officers" in Part I, Item 1
hereof.

     (c) Compliance with Section 16(a) of the Exchange Act:

     To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 2000, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with. In November 2000,
the Company established an interim Office of the President, currently occupied
by three executive officers, R. John Curson, Gary Laney and David Glazer, and by
Alan Atlas. Mr. Atlas filed his original Form 3 on March 10, 2001.

ITEM 11. EXECUTIVE COMPENSATION

     The information required in Item 11 of Part III of this report is
incorporated by reference to the Company's Proxy Statement in connection with
the Registrant's 2001 Annual Meeting to be filed in accordance with Regulation
14A under the Securities Exchange Act of 1934, as amended.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required in Item 12 of Part III of this report is
incorporated by reference to the Company's Proxy Statement in connection with
the Registrant's 2001 Annual Meeting to be filed in accordance with Regulation
14A under the Securities Exchange Act of 1934, as amended.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required in Item 13 of Part III of this Report is
incorporated by reference to the Company's Proxy Statement in connection with
the Registrant's 2001 Annual Meeting to be filed in accordance with Regulation
14A under the Securities Exchange Act of 1934, as amended.

                                        28
<PAGE>   30

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) The following documents are filed as part of this report:

          1. Financial Statements as of December 31, 2000 and 1999, and for the
     three years ended December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Balance Sheets..............................................   30
Statements of Operations....................................   31
Statements of Stockholders' Equity..........................   32
Statements of Cash Flows....................................   33
Notes to Financial Statements...............................   34
Report of Independent Accountants...........................   48
</TABLE>

          2. Financial Statement Schedules.

          Schedules not listed below have been omitted because the information
     required to be set forth therein is not applicable or is included in the
     financial statements or notes thereto.

          Schedule II -- Valuation and Qualifying Accounts for the three years
     ended December 31, 2000.

          3. Exhibits

          The exhibits listed in the accompanying index to exhibits are filed or
     incorporated by reference as part of this Annual Report on Form 10-K.

     (b) On October 26, 2000, Eloquent filed a Report on Form 8-K dated October
18, 2000 announcing Eloquent's adoption of a Stockholders Rights Plan.

     (c) See Exhibits listed in the accompanying index to exhibits.

     (d) The financial statement schedules required by this Item are listed
under 14(a)(2).

                                        29
<PAGE>   31

                                 ELOQUENT, INC.

                                 BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Current assets:
  Cash and cash equivalents.................................  $  4,519    $ 17,174
  Short-term investments....................................    35,937          --
  Accounts receivable, net of allowances for doubtful
    accounts of $599 and $334, respectively.................     2,768       3,439
  Deferred production costs.................................       147          37
  Prepaid expenses..........................................       223         377
                                                              --------    --------
         Total current assets...............................    43,594      21,027
Property and equipment, net.................................     3,348       1,915
Other assets................................................     2,651       2,323
                                                              --------    --------
         Total assets.......................................  $ 49,593    $ 25,265
                                                              ========    ========

                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Bank line of credit.......................................  $     --    $  3,000
  Accounts payable and other liabilities....................     7,726       3,917
  Capital lease obligation -- current portion...............       709         618
  Deferred revenue..........................................     1,128         787
                                                              --------    --------
         Total current liabilities..........................     9,563       8,322
Capital lease obligation, net of current portion............       230         777
Long-term notes payable.....................................        --       8,477
Commitments and contingencies (Note 9)
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 9,938,844
  shares authorized and 7,159,009 shares outstanding in
  1999......................................................        --           7
Preferred stock, $0.001 par value; 10,000,000 shares
  authorized and no shares outstanding......................        --          --
Common stock, $0.001 par value; 40,000,000 and 30,000,000
  shares authorized; 17,836,514 and 3,572,871 shares
  outstanding in 2000 and 1999, respectively................        18           4
Additional paid-in capital..................................   128,150      52,089
Unearned stock-based compensation...........................    (2,462)     (9,564)
Other comprehensive income: unrealized gain on
  investments...............................................       193          --
Accumulated deficit.........................................   (86,099)    (34,847)
                                                              --------    --------
         Total stockholders' equity.........................    39,800       7,689
                                                              --------    --------
         Total liabilities and stockholders' equity.........  $ 49,593    $ 25,265
                                                              ========    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        30
<PAGE>   32

                                 ELOQUENT, INC.

                            STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              --------------------------------
                                                                2000        1999        1998
                                                              --------    --------    --------
<S>                                                           <C>         <C>         <C>
Revenue:
  Software licenses and maintenance.........................  $  5,261    $  2,958    $    993
  Content production services...............................     8,066       8,413       6,750
  Professional services.....................................     1,520       1,121          --
                                                              --------    --------    --------
        Total revenue.......................................    14,847      12,492       7,743
                                                              --------    --------    --------
Cost of revenue:
  Software licenses and maintenance.........................     1,425         646         445
  Content production services...............................     5,673       5,021       5,730
  Professional services.....................................     2,041       1,496          --
  Stock-based compensation..................................      (191)        219         150
                                                              --------    --------    --------
        Total cost of revenue...............................     8,948       7,382       6,325
                                                              --------    --------    --------
  Gross margin..............................................     5,899       5,110       1,418
                                                              --------    --------    --------
Operating expenses:
  Research and development:
    Other research and development..........................     5,300       1,959       1,510
    Stock-based compensation................................       665         142         239
                                                              --------    --------    --------
                                                                 5,965       2,101       1,749
                                                              --------    --------    --------
  Sales and marketing:
    Other sales and marketing...............................    20,841       8,856       6,812
    Stock-based compensation................................       502       1,227         242
                                                              --------    --------    --------
                                                                21,343      10,083       7,054
                                                              --------    --------    --------
  General and administrative:
    Other general and administrative........................     4,927       3,499       2,211
    Stock-based compensation................................     2,691       4,168         361
                                                              --------    --------    --------
                                                                 7,618       7,667       2,572
                                                              --------    --------    --------
  Restructuring expense:
    Other restructuring expense.............................     3,542          --          --
    Stock-based compensation................................       473          --          --
                                                              --------    --------    --------
                                                                 4,015          --          --
                                                              --------    --------    --------
  Impairment of property and equipment......................     2,458          --          --
                                                              --------    --------    --------

        Total operating expenses............................    41,399      19,851      11,375
                                                              --------    --------    --------
Loss from operations........................................   (35,500)    (14,741)     (9,957)
Interest expense and other charges..........................    (1,500)     (2,175)       (259)
Impairment of investment....................................    (2,250)         --          --
Interest and other income...................................     2,951         301         208
                                                              --------    --------    --------
Loss before extraordinary item and cumulative effect of
  accounting charge.........................................   (36,299)    (16,615)    (10,008)
Extraordinary loss on extinguishment of debt................    (7,453)         --          --
                                                              --------    --------    --------
Loss before cumulative effect of accounting change..........   (43,752)    (16,615)    (10,008)
Cumulative effect of accounting change-beneficial conversion
  feature...................................................    (7,500)         --          --
                                                              --------    --------    --------
Net loss....................................................  $(51,252)   $(16,615)   $(10,008)
                                                              ========    ========    ========
Basic and diluted net loss per share:
    Loss before extraordinary item and cumulative effect of
     accounting change......................................  $  (2.36)   $  (5.47)   $  (4.74)
    Extraordinary loss on extinguishment of debt............     (0.48)         --          --
    Cumulative effect of accounting change-beneficial
     conversion feature.....................................     (0.49)         --          --
                                                              --------    --------    --------
    Net loss................................................  $  (3.33)   $  (5.47)   $  (4.74)
                                                              ========    ========    ========
Shares used in computing basic and diluted net loss per
  share.....................................................    15,381       3,036       2,111
                                                              ========    ========    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        31
<PAGE>   33

                                 ELOQUENT, INC.

                       STATEMENT OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                      CONVERTIBLE
                                    PREFERRED STOCK    COMMON STOCK     ADDITIONAL     UNEARNED                       OTHER
                                    ---------------   ---------------    PAID-IN     STOCK-BASED    ACCUMULATED   COMPREHENSIVE
                                    SHARES   AMOUNT   SHARES   AMOUNT    CAPITAL     COMPENSATION     DEFICIT        INCOME
                                    ------   ------   ------   ------   ----------   ------------   -----------   -------------
<S>                                 <C>      <C>      <C>      <C>      <C>          <C>            <C>           <C>
BALANCES, DECEMBER 31, 1997.......   5,070    $  5     3,188    $ 3      $ 11,805      $     --      $ (8,224)        $ --
 Net loss.........................      --      --        --     --            --            --       (10,008)          --
 Issuance of Series D convertible
   preferred stock................   2,089       2        --     --        10,653            --            --           --
 Exercise of stock options........      --      --       484     --           101            --            --           --
 Repurchase of unvested common
   stock..........................                      (200)    --           (13)           --            --           --
 Unearned stock-based
   compensation...................      --      --        --     --         3,336        (3,336)           --           --
 Amortization of stock-based
   compensation...................      --      --        --     --            --           992            --           --
 Issuance of common stock warrants
   in exchange for services.......      --      --        --     --            40            --            --           --
                                    ------    ----    ------    ---      --------      --------      --------         ----
BALANCES, DECEMBER 31, 1998.......   7,159    $  7     3,472    $ 3      $ 25,922        (2,344)     $(18,232)        $ --
 Net loss.........................                                                                    (16,615)          --
 Exercise of stock options........      --      --       423      1           260            --            --           --
 Exercise of common stock
   warrants.......................      --      --        23     --            --            --            --           --
 Repurchase of unvested common
   stock..........................      --      --      (359)    --          (122)           --            --           --
 Unearned stock-based
   compensation...................      --      --        --     --        12,976       (12,976)           --           --
 Amortization of unearned stock-
   based compensation.............      --      --        --     --            --         5,756            --           --
 Issuance of common stock in
   exchange for services..........      --      --        15     --           150            --            --           --
 Issuance of common stock warrants
   in exchange for services.......      --      --        --     --           403            --            --           --
 Issuance of common stock warrants
   in connection with long-term
   notes payable..................      --      --        --     --         7,500            --            --           --
 Beneficial conversion charge
   related to long-term notes
   payable........................      --      --        --     --         5,000            --            --           --
                                    ------    ----    ------    ---      --------      --------      --------         ----
BALANCES, DECEMBER 31, 1999.......   7,159    $  7     3,574    $ 4      $ 52,089        (9,564)     $(34,847)        $ --
 Net loss.........................                                                                    (51,252)
 Net unrealized gain on
   investments....................                                                                                     193
 Comprehensive loss...............
 Initial public offering, net of
   issuance costs of $7,064.......      --      --     5,175      5        75,436            --            --           --
 Exercise of stock options........      --      --       491     --           404            --            --           --
 Exercise of common stock
   warrants.......................                     1,335      2             3            --            --           --
 Repurchase of unvested
   common stock...................      --      --       (75)    --           (56)           --            --           --
 Unearned stock-based
   compensation, net of
   cancellations..................      --      --        --     --        (2,962)        2,962            --           --
 Amortization of unearned stock-
   compensation, net..............      --      --        --     --            --         4,140            --           --
 Stock issued under employee stock
   purchase plan..................      --      --       176     --           708            --            --           --
 Issuance of common stock.........      --      --        --
   In exchange for services.......      --      --         2     --            28            --            --           --
 Conversion of preferred stock to
   common stock...................  (7,159)     (7)    7,159      7            --            --            --           --
 Release of beneficial conversion
   feature on extinguishment of
   debt...........................      --      --        --               (5,000)           --            --           --
 Cumulative effect of accounting
   change -- beneficial conversion
   feature........................      --      --        --     --         7,500            --            --           --
                                    ------    ----    ------    ---      --------      --------      --------         ----
BALANCES, DECEMBER 31, 2000.......      --    $ --    17,837    $18      $128,150      $ (2,462)     $(86,099)        $193
                                    ======    ====    ======    ===      ========      ========      ========         ====

<CAPTION>

                                        TOTAL
                                    STOCKHOLDERS'
                                       EQUITY
                                    -------------
<S>                                 <C>
BALANCES, DECEMBER 31, 1997.......    $  3,589
 Net loss.........................     (10,008)
 Issuance of Series D convertible
   preferred stock................      10,655
 Exercise of stock options........         101
 Repurchase of unvested common
   stock..........................         (13)
 Unearned stock-based
   compensation...................          --
 Amortization of stock-based
   compensation...................         992
 Issuance of common stock warrants
   in exchange for services.......          40
                                      --------
BALANCES, DECEMBER 31, 1998.......    $  5,356
 Net loss.........................     (16,615)
 Exercise of stock options........         261
 Exercise of common stock
   warrants.......................          --
 Repurchase of unvested common
   stock..........................        (122)
 Unearned stock-based
   compensation...................          --
 Amortization of unearned stock-
   based compensation.............       5,756
 Issuance of common stock in
   exchange for services..........         150
 Issuance of common stock warrants
   in exchange for services.......         403
 Issuance of common stock warrants
   in connection with long-term
   notes payable..................       7,500
 Beneficial conversion charge
   related to long-term notes
   payable........................       5,000
                                      --------
BALANCES, DECEMBER 31, 1999.......    $  7,689
 Net loss.........................     (51,252)
 Net unrealized gain on
   investments....................         193
                                      --------
 Comprehensive loss...............     (51,059)
                                      --------
 Initial public offering, net of
   issuance costs of $7,064.......      75,441
 Exercise of stock options........         404
 Exercise of common stock
   warrants.......................           5
 Repurchase of unvested
   common stock...................         (56)
 Unearned stock-based
   compensation, net of
   cancellations..................          --
 Amortization of unearned stock-
   compensation, net..............       4,140
 Stock issued under employee stock
   purchase plan..................         708
 Issuance of common stock.........          --
   In exchange for services.......          28
 Conversion of preferred stock to
   common stock...................          --
 Release of beneficial conversion
   feature on extinguishment of
   debt...........................      (5,000)
 Cumulative effect of accounting
   change -- beneficial conversion
   feature........................       7,500
                                      --------
BALANCES, DECEMBER 31, 2000.......    $ 39,800
                                      ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        32
<PAGE>   34

                                 ELOQUENT, INC.

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              --------------------------------
                                                                2000        1999        1998
                                                              --------    --------    --------
<S>                                                           <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss..................................................  $(51,252)   $(16,615)   $(10,008)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Depreciation and amortization...........................     1,461       1,249         707
    Impairment of property and equipment....................     2,458          --          --
    Impairment of equity investment -- eSpoc Inc............     2,250          --          --
    Extraordinary loss on extinguishment of debt............     7,453          --          --
    Cumulative effect of accounting change-beneficial
     conversion feature.....................................     7,500          --          --
    Loss on equity method investment -- Rebop Media, Inc....       560          --          --
    Amortization of discount on long-term notes payable.....       478         975          --
    Issuance of common stock in exchange for services.......        28          --          --
    Issuance of warrants in exchange for services...........        --          --          40
    Amortization of deferred charges........................       361         195          --
    Amortization of stock-based compensation................     4,139       5,756         992
    Changes in operating assets and liabilities
      Accounts receivable...................................       671      (1,457)       (527)
      Deferred production cost..............................      (110)        226         (64)
      Prepaid expenses......................................       108        (268)        (15)
      Other assets..........................................      (362)       (282)        (20)
      Accounts payable and other liabilities................     3,809       1,962        (156)
      Deferred revenue......................................       341          81         291
                                                              --------    --------    --------
        Net cash used in operating activities...............   (20,107)     (8,178)     (8,760)
                                                              --------    --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Net purchases of short-term investment....................   (35,744)         --          --
  Purchase of long-term investment..........................    (4,500)         --          --
  Acquisition of property and equipment.....................    (5,352)       (976)       (146)
                                                              --------    --------    --------
        Net cash used in investment activities..............   (45,596)       (976)       (146)
                                                              --------    --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from borrowings under bank line of credit........        --       4,000       3,300
  Repayment of borrowings under bank line of credit.........    (3,000)     (2,500)     (2,000)
  Fees incurred in connection with bank line of credit......        --         (75)         --
  Repayment of subordinated notes...........................   (20,000)         --          --
  Proceeds from issuance of convertible preferred stock.....        --          --      10,655
  Proceeds from issuance of long-term notes payable, net of
    issuance costs..........................................        --      18,652          --
  Proceeds from issuance of common stock, net of repurchases
    and offering costs......................................    76,504         139          87
  Proceeds from capital lease financing.....................       277         158          --
  Payment of principal on capital lease financing...........      (733)       (707)       (491)
                                                              --------    --------    --------
        Net cash provided by financing activities...........    53,048      19,667      11,551
                                                              ========    ========    ========
Net increase (decrease) in cash and cash equivalents........   (12,655)     10,513       2,645
Cash and cash equivalents, beginning of year................    17,174       6,661       4,016
                                                              --------    --------    --------
Cash and cash equivalents, end of year......................  $  4,519    $ 17,174    $  6,661
                                                              ========    ========    ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the year for:
    Interest................................................  $    574    $  1,004    $    260
  Non-cash transactions:
    Stock-based compensation, net of cancellations..........  $ (2,962)   $ 12,977    $  3,336
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        33
<PAGE>   35

                                 ELOQUENT, INC.

                         NOTES TO FINANCIAL STATEMENTS

 1. FORMATION AND BUSINESS

     Eloquent, Inc. ("Eloquent" or the "Company") was incorporated in Delaware
in March 1995. Eloquent produces rich media solutions for business
communications. These rich media solutions are used to communicate to target
audiences through the combination of video, audio, graphics and text in a
synchronized, searchable and navigable format. These rich media presentations
can be delivered via the Web, intranets, extranets and CD-ROMs.

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. A change in the facts and circumstances surrounding these estimates
could result in a change to the estimates and impact future operating results.

  Financial Instruments, Risks and Concentrations

     Financial instruments which potentially subject Eloquent to concentrations
of credit risk consist principally of cash and cash equivalents, short-term
investments, and trade accounts receivable.

     Eloquent considers all highly liquid investments, purchased with an
original or remaining maturity of three months or less, as of the date of
purchase, to be cash equivalents and those with an original or remaining
maturity, as of the date of purchase, of greater than three months to be
short-term investments. At December 31, 2000 and 1999, substantially all of
Eloquent's cash and cash equivalents were maintained by one major U.S. financial
institution. These deposits may exceed the federally insured limits.

     Eloquent enters into certain equity investments for the promotion of
business and strategic objectives. These non-marketable securities are accounted
for using either the cost method or the equity method and are included in other
assets. Eloquent periodically evaluates the carrying value of these investments
when events and circumstances warrant such a review. When the carrying value of
an investment is considered impaired, a loss is recognized based on the amount
by which the carrying value exceeds the fair value of the asset.

     The carrying amounts of Eloquent's financial instruments, including cash
equivalents, accounts receivable, accounts payable and other liabilities
approximate fair value due to their short maturities. Based on borrowing rates
currently available to Eloquent for loans with similar terms, the carrying value
of the bank line of credit approximates fair value.

     Eloquent supplies a variety of customers and generally does not require
collateral against orders. Although Eloquent maintains an allowance for
potential credit losses it believes to be adequate, a payment default on a
significant sale could materially and adversely affect its operating results and
financial condition. At December 31, 2000 and 1999, no customer accounted for
greater than 10% of accounts receivable. For fiscal years 2000 and 1999, no
customer accounted for greater than 10% of revenue. For fiscal year 1998, one
customer accounted for approximately 13% of revenue.

     Eloquent operates in a single business segment that is characterized by
rapid technological advances, changes in customer requirements and evolving
industry standards. Any failure by Eloquent to anticipate or respond to changes
in demand could have a material adverse effect on its business and operating
results.

     Eloquent relies on a number of third-party suppliers for various services.
While management believes Eloquent could obtain these services from other
qualified suppliers on similar terms and conditions, a

                                        34
<PAGE>   36
                                 ELOQUENT, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

disruption in the supply of these services by the current suppliers could have
an adverse impact on the business and operating results.

  Deferred Production Costs

     Costs that relate to uncompleted event production are included in the
financial statements as deferred production costs. The deferred production costs
at December 31, 2000 are expected to be entirely billed and collected in 2001.

  Property and Equipment

     Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets.

<TABLE>
<S>                                                           <C>
Furniture and equipment.....................................  5 years
Computers and software......................................  3 years
</TABLE>

     Leasehold improvements are amortized on a straight-line basis over their
estimated useful life or their lease term, whichever is less. Assets acquired
under capital lease are amortized over the shorter of the estimated useful
economic life or the length of the lease. Repairs and maintenance costs are
expensed as incurred.

     Eloquent evaluates the carrying value of equipment and leasehold
improvements when events and circumstances warrant such a review. When the
carrying value of equipment and leasehold improvements is considered impaired, a
loss is recognized based on the amount by which the carrying value exceeds the
fair value of the asset.

  Revenue Recognition

     Eloquent adopted the provisions of Statement of Position 97-2, or SOP 97-2,
Software Revenue Recognition, as amended by Statement of Position 98-4, Deferral
of Effective Date of Certain Provisions of SOP 97-2, effective January 1, 1998.
SOP 97-2 supersedes Statement of Position 91-1, Software Revenue Recognition,
and delineates the accounting for software products, products including software
that is not incidental to the product and maintenance revenue. Under SOP 97-2,
Eloquent recognizes content production revenue upon shipment of the master copy
if evidence of an arrangement exists, the fee is fixed and determinable and
collection of the resulting receivable is probable.

     For contracts with multiple obligations, (e.g., undelivered content
production events, compact disc duplication, maintenance, desktop player and
applications server software licenses, content hosting and other services)
revenue from content production events are recognized when delivery has
occurred, collection of the receivable is probable, the fee is fixed or
determinable and vendor-specific objective evidence exists to allocate the total
fee to all delivered and undelivered elements of the arrangement. Eloquent
recognizes revenue allocated to undelivered content production events when the
criteria for content production revenue set forth above are met. Eloquent
recognizes revenue for compact disc duplication upon shipment of the duplicated
compact discs.

     Software licenses and maintenance revenue includes desktop player and
applications server software licenses, software maintenance and content hosting
fees. The revenue for desktop player and applications server software licenses
is recognized upon shipment, or notification of shipment to the customer,
dependent on the delivery medium. Eloquent recognizes revenue for maintenance
and content hosting ratably over the period of the maintenance or content
hosting contract.

                                        35
<PAGE>   37
                                 ELOQUENT, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     Eloquent recognizes revenue for professional services, for which
alterations to the features and functionality of the software are made, in
accordance with Statement of Position 81-1, Contract Accounting. Professional
services revenue is recognized as the services are performed when collectibility
is probable.

     Amounts collected prior to satisfying the above revenue recognition
criteria are classified as deferred revenue.

     In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 or SAB 101, Revenue Recognition in Financial
Statements, which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the Commission. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. On March 24,
2000 and June 26, 2000, the SEC issued Staff Accounting Bulletin No. 101A and
No. 101B, respectively, which extended the transition provisions of SAB 101
until no later than the fourth quarter of fiscal years beginning after December
15, 1999. Eloquent has reviewed its revenue recognition policies and determined
that it is in compliance with SAB 101.

  Advertising Expense

     Eloquent expenses advertising costs as they are incurred. Advertising
expenses for fiscal years 2000, 1999 and 1998 were not significant.

  Research and Development Costs

     Research and development costs are expensed as incurred. To date, products
have generally reached technological feasibility and have been released for sale
at substantially the same time. Accordingly, no software development costs have
been capitalized as of December 31, 2000.

  Stock-Based Compensation

     Eloquent accounts for stock-based compensation issued to employees in
accordance with the provisions of Accounting Principles Board Opinion (APB) No.
25, Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation. Under APB No. 25, expense is based on
the difference, if any, on the date of grant, between the fair value of common
stock and the exercise price. Stock issued to non-employees has been accounted
for in accordance with SFAS No. 123 and valued using the Black-Scholes option
pricing model.

  Income Taxes

     Eloquent accounts for income taxes using the liability method under which,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.

  Net Loss Per Share

     Eloquent computes net loss per share in accordance with SFAS No. 128,
Earnings Per Share. Under the provisions of SFAS No. 128 basic net loss per
share is computed by dividing the net loss for the period by the weighted
average number of vested common shares outstanding during the period. Diluted
net loss per share is computed by dividing the net loss for the period by the
weighted average number of common and common stock equivalent shares outstanding
during the period. Potential dilutive common shares are composed of common
shares issuable upon conversion of convertible preferred stock (using the
if-converted method) and
                                        36
<PAGE>   38
                                 ELOQUENT, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

shares issuable upon the exercise of stock options and warrants and are included
in the diluted net loss per share to the extent that they are dilutive.

  Comprehensive Loss

     Effective January 1, 1998 Eloquent adopted the provisions of SFAS No. 130,
Reporting of Comprehensive Income. This statement requires companies to classify
items of other comprehensive income by their components in the financial
statements and display the accumulated balance of other comprehensive income
separately in the equity section of a statement of financial position.

  Recent Accounting Pronouncements

     In June 1998, the FASB Issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities, and is effective for
fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS
No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133 an
amendment of FASB Statement No. 133. SFAS No. 137 defers the application of SFAS
No. 133 to be effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000; however, early application is encouraged. Eloquent has
adopted SFAS No. 133 for the 2001 fiscal year which has not had a material
affect on the financial statement presentation.

 3. RESTRUCTURING EXPENSE AND IMPAIRMENT OF PROPERTY AND EQUIPMENT

     In December 2000, Eloquent announced a plan to restructure operations that
resulted in a one-time charge totaling $4,014,000. The restructuring is intended
to better align Eloquent with future market opportunities brought about by its
new product introductions and to reduce cash expenditures prior to revenue
growth.

     Under the plan, Eloquent gave notice of termination in December 2000 to 80
employees and recorded approximately $1,425,000 related to salary and
termination benefits and approximately $473,000 of stock-based compensation
expense for the amortization of the stock-based compensation charge over the
termination notice period related to stock options granted prior to Eloquent's
initial public offering.

     Eloquent plans to reduce expenditures for office space and is actively
negotiating lease terminations, where feasible, and pursuing sub-leases where
lease termination is not feasible, for identified properties. The restructuring
charge includes $1,761,000 for lease expense. This charge reflects payments
required during lease termination notice periods, estimates of lease payments
prior to sub-letting space and estimates of any rent differential between the
contractual liability of Eloquent and current market rates. The restructuring
charge includes $356,000 for the buy-out of capital leases related to impaired
equipment and elimination of maintenance contracts for impaired software.

     Eloquent recorded a $2,458,000 impairment charge to write-off the carrying
value of excess equipment and furniture, abandoned leasehold improvements and
certain software and technology assets. The excess equipment and furniture and
abandoned leasehold improvements are a result of the termination of over 80
employees and consultants and consolidation of the remaining employees in fewer
leased facilities. Further, with its reduced employee base, Eloquent
re-evaluated its investments in various productivity and market initiatives that
relied on purchased software and technology and concluded that it could not
support these investments. Accordingly, Eloquent is abandoning these
initiatives. At December 31, 2000 Eloquent had made payments of $143,000 related
to salary and termination benefits, $147,000 related to lease arrangements and
had a remaining accrual balance of $3,173,000.

                                        37
<PAGE>   39
                                 ELOQUENT, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 4. STRATEGIC INVESTMENTS

  eSpoc Inc.

     In March 2000, Eloquent and eSpoc Inc. ("eSpoc"), a provider of an
electronic marketplace for the purchase and liquidation of medical equipment and
supplies, entered into a strategic relationship. As part of this relationship,
Eloquent purchased 461,538 shares of eSpoc Preferred Stock for $3,000,000. This
investment is being accounted for using the cost method.

     During the fourth quarter, Eloquent performed an evaluation of the carrying
value of this investment. Eloquent considered current financial market
conditions for raising capital and reviewed the cash flows and operating results
of the entity. Eloquent concluded that the unfavorable financial market
conditions as they relate to entities engaged in electronic commerce are not
temporary. Accordingly, the carrying value of the equity investment in eSpoc was
determined to be impaired. A loss of $2,250,000 was recognized based on the
amount by which the carrying value exceeded the fair value of Eloquent's
proportionate share of the net assets of eSpoc.

  Rebop Media, Inc.

     In October 2000, Eloquent and Rebop Media, Inc. ("Rebop"), a new live
video-based Web conferencing company, entered into a strategic relationship
where-by Eloquent invested approximately $1,500,000 in Rebop. The investment was
for Series A preferred stock and represented approximately 18% of Rebop's
capital stock, on an as-if converted basis. Eloquent also holds the right,
subject to Eloquent's stockholders' approval, to acquire Rebop if Rebop
successfully installs its product in three customer sites. Rebop's Web
conferencing solution will be designed to integrate with Eloquent's Enterprise
Communications Server software. Cliff Reid, Eloquent's Chief Executive Officer,
serves as President and Chief Executive Officer of Rebop. This investment is
being accounted for using the equity method. However, because Eloquent bears
substantially all of the economic risk of Rebop's operations, Eloquent has
recorded 100% of Rebop's operating loss and has included that charge in research
and development expense.

 5. SHORT-TERM INVESTMENTS

     Short-term investments are classified as available for sale and are
recorded at fair value based on quoted market prices. Unrealized gains and
losses are recorded as a component of stockholders' equity and included in other
comprehensive income. Realized gains and losses are recorded based on the
specific identification method. Eloquent's short-term investments at December
31, 2000 consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                   AMORTIZED    UNREALIZED    UNREALIZED     FAIR
                                                     COST         GAINS         LOSSES       VALUE
                                                   ---------    ----------    ----------    -------
<S>                                                <C>          <C>           <C>           <C>
Asset-backed bonds...............................   $15,075        $ 92          $--        $15,167
Certificate of deposits..........................     2,988           2           --          2,990
Commercial paper.................................     1,464          --           --          1,464
Corporate bonds..................................    16,217          99           --         16,316
                                                    -------        ----          ---        -------
Short-term investments...........................   $35,744        $193          $--        $35,937
                                                    =======        ====          ===        =======
</TABLE>

     The underlying maturities of short-term investments were: $19,767,000
within one year, $14,919,000 between one to five years and $1,250,000 million
after five years. Approximately $988,000 is restricted under a letter of credit
arrangement in satisfaction of a lease deposit.

                                        38
<PAGE>   40
                                 ELOQUENT, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 5. BALANCE SHEET DETAILS

  Property and Equipment

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            2000       1999
                                                           -------    -------
                                                             (IN THOUSANDS)
<S>                                                        <C>        <C>
Computer equipment and software..........................  $ 5,423    $   287
Furniture and fixtures...................................      765        123
Computer equipment acquired under capital lease
  obligations............................................    2,340      3,086
Leasehold improvements under capital lease obligations...      567        546
                                                           -------    -------
                                                             9,095      4,042
Less reserve for impairment..............................   (2,458)        --
Less accumulated depreciation and amortization...........   (3,289)    (2,127)
                                                           -------    -------
                                                           $ 3,348    $ 1,915
                                                           =======    =======
</TABLE>

     Accumulated amortization on equipment acquired under capital lease
obligations was $2,335,000 and $1,572,000 as of December 31, 2000 and 1999,
respectively. Eloquent acquired $678,000 of equipment under capital leases in
1998.

  Other Assets

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             ----------------
                                                              2000      1999
                                                             ------    ------
                                                              (IN THOUSANDS)
<S>                                                          <C>       <C>
Investment in eSpoc Inc....................................  $  750    $   --
Investment in Rebop Media, Inc.............................     986        --
Lease and other deposits...................................     814       245
Deferred charges -- debt issue costs.......................      14     1,783
Other assets...............................................      87       295
                                                             ------    ------
                                                             $2,651    $2,323
                                                             ======    ======
</TABLE>

  Accounts Payable and Other Liabilities

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             ----------------
                                                              2000      1999
                                                             ------    ------
                                                              (IN THOUSANDS)
<S>                                                          <C>       <C>
Accounts payable...........................................  $1,736    $1,818
Accrued compensation and related expenses..................   1,426     1,051
Accrued restructuring expenses.............................   3,173        --
Accrued consulting and professional fees...................     460       369
Accrued liabilities........................................     931       679
                                                             ------    ------
                                                             $7,726    $3,917
                                                             ======    ======
</TABLE>

 6. LINE OF CREDIT AND DEFERRED CHARGES

     In July 1999, Eloquent entered into a revolving line of credit agreement
with a financial institution. The line of credit allows for borrowings up to the
lesser of $6,000,000 or 85% of Eloquent's eligible receivables, as defined, plus
75% of the unbilled receivables, as defined, plus $3,000,000 at any time
outstanding. The interest rate is the highest prime rate, as defined, plus 2%
per annum for formula loans and 3.5% per annum for non-formula loans. The
interest rate shall not exceed 9% per annum. At December 31, 2000, no borrowings
were

                                        39
<PAGE>   41
                                 ELOQUENT, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

outstanding under the line of credit. At December 31, 1999, $3,000,000 of
borrowings were outstanding under the line of credit.

     In connection with the revolving line of credit, Eloquent issued to the
lender warrants to purchase 70,000 shares of common stock at $5.10 per share.
The warrants expire July 2006. Eloquent valued the warrants using the
Black-Scholes option pricing model at $403,000, and recorded the value of the
warrants as debt issue costs in Other assets. The debt issue costs are being
amortized over the life of the revolving credit facility of 18 months. The
assumptions used in the Black-Scholes model were: dividend yield of 0%;
volatility of 55%; risk-free interest rate of 5.94%; and the expected life of 7
years.

 7. CONVERTIBLE NOTES AND WARRANTS, DEFERRED CHARGES AND EFFECT OF ACCOUNTING
CHANGE

     In October 1999, Eloquent sold convertible notes and detachable warrants to
purchase 1,500,000 shares of common stock for aggregate gross consideration of
$20,000,000. The notes provided that they were to mature on October 20, 2004 and
bear interest at 12% per annum. The warrants have an exercise price of $0.01 per
share and expire the earlier of 5 years after the repayment of the notes or
October 20, 2006. In conjunction with the sale of the notes Eloquent incurred
$1,500,000 in debt issue costs that were included in Other assets and being
amortized over the life of the notes. In accordance with the terms of the notes,
all amounts outstanding under the notes were repaid upon consummation of
Eloquent's initial public offering on February 23, 2000.

     The gross consideration received from the notes was allocated between the
notes and the warrants in accordance with Accounting Principles Board Opinion
No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants, as follows (in thousands):

<TABLE>
<S>                                                          <C>
Long-term notes payable....................................  $12,500
Warrants...................................................    7,500
                                                             -------
Gross consideration........................................  $20,000
                                                             =======
</TABLE>

     The notes provided that after December 31, 2000, the investors, at their
option, could convert the notes to Series E preferred stock at an initial
conversion rate of $8 per share, subject to certain anti-dilutive provisions.
This gave rise to a beneficial conversion feature of $5,000,000, based on the
fair value of common stock at the date of the sale of the notes and detachable
warrants. This beneficial conversion feature was recorded as a further discount
on the sale of the notes. In November 2000, the Emerging Issues Task Force
reached a consensus regarding accounting for securities involving beneficial
conversion features. The consensus requires a cumulative adjustment for certain
securities issued after May 1999. As outlined in EITF No. 00-27, the Task Force
determined that the conversion price used to calculate the intrinsic value
should be based on the proceeds allocated to the convertible instrument. The
financial statement impact to Eloquent of this requirement is that the
additional beneficial conversion feature calculated under the new regulations of
$7,500,000 has been recorded in the fourth quarter 2000 statement of operations
as the cumulative effect of accounting change -- beneficial conversion feature.

     The debt issuance costs and the discount resulting from the issuance of the
warrants were being amortized to interest expense over the life of the notes.
The original beneficial conversion feature of $5,000,000 was being amortized
over the one-year period up to the earliest conversion date. Upon repayment of
the notes in February 2000, the unamortized portion of the discount resulting
from the issuance of the warrants and the original beneficial conversion feature
and the debt issuance costs were recorded as an extraordinary loss on the
extinguishment of debt.

                                        40
<PAGE>   42
                                 ELOQUENT, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 8. CAPITAL LEASE OBLIGATIONS

     In August 1999, Eloquent entered into a lease line of credit agreement with
a financial intermediary. The line of credit allowed for principal borrowings of
up to $1,500,000 million through July 2000. The agreement replaced Eloquent's
previous lease line of credit agreement. Leases bear interest at rates ranging
from 9.95% to 10.54%, are collateralized by the underlying equipment and are
payable over the equipment lease term.

     Future annual minimum lease payments due under the capital lease agreements
at December 31, 2000 are as follows (in thousands):

<TABLE>
<S>                                                           <C>
2001........................................................  $  761
2002........................................................     240
                                                              ------
          Total minimum lease payments......................   1,001
Less interest...............................................     (62)
                                                              ------
Principal minimum lease payments............................     939
Less current portion........................................    (709)
                                                              ------
Long-term obligations under capital leases..................  $  230
                                                              ======
</TABLE>

 9. COMMITMENTS AND CONTINGENCIES

  Operating Lease Obligations

     Eloquent leases certain office facilities under noncancelable operating
lease arrangements expiring between 2001 and 2005. As of December 31, 2000,
future minimum lease commitments under noncancelable operating leases are:
2001 -- $2,273,000; 2002 -- $1,513,000; 2003 -- $1,075,000; 2004 -- $1,111,000
and 2005 -- $582,000. Rental expense for the years ended December 31, 2000, 1999
and 1998 was $3,680,000, $1,188,000 and 1,127,000, respectively.

  Royalties

     Eloquent has entered into various technology licensing agreements that
allow it to incorporate the licensed technology into its software products.
Certain of the agreements require royalty payments ranging from 1.5% to 2.5% of
revenue generated from products incorporating the licensed technology. The
remaining agreement requires payment of fees ranging from $2,000 to $13,000,
depending on the version of the technology that is incorporated in our product,
per central processing unit.

  Litigation

     From time to time Eloquent is subject to legal proceedings and claims in
the ordinary course of business. Eloquent is not currently aware of any legal
proceedings or claims which it believes will have, individually or in the
aggregate, a material adverse effect on its financial position, cash flows or
results of operations.

10. STOCKHOLDERS' EQUITY

Initial Public Offering of Common Stock and Conversion of Preferred Stock

     In February 2000, Eloquent completed its initial public offering and issued
5,175,000 shares of its common stock at a price of $16.00 per share. Eloquent
received approximately $75,441,000 in cash, net of underwriting discounts,
commissions and other offering costs. Simultaneously with the closing of the
initial public offering, each outstanding share of convertible preferred stock
was automatically converted into one share of common stock. Accordingly,
Eloquent's Certificate of Incorporation was amended to authorize 10,000,000
shares of undesignated Preferred Stock and 40,000,000 shares of Common Stock.

                                        41
<PAGE>   43
                                 ELOQUENT, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

  Convertible Preferred Stock

     Prior to Eloquent's initial public offering in 2000, the convertible
preferred stock authorized by Eloquent's Articles of Incorporation could be
issued in one or more series. The convertible preferred stock at December 31,
1999 comprised (in thousands):

<TABLE>
<CAPTION>
                                                                NUMBER OF        COMMON
                                                 NUMBER OF       SHARES          SHARES
                                                   SHARES      ISSUED AND     RESERVED FOR    LIQUIDATION
                                                 AUTHORIZED    OUTSTANDING     CONVERSION        VALUE
                                                 ----------    -----------    ------------    -----------
<S>                                              <C>           <C>            <C>             <C>
Series A.......................................    1,250          1,250            1,250        $ 1,000
Series B.......................................    1,922          1,908            1,908          3,300
Series C.......................................    1,912          1,912            1,912          7,458
Series D.......................................    2,355          2,089            2,089         10,655
Series E.......................................    2,500             --            2,500             --
                                                   -----          -----        ---------        -------
                                                   9,939          7,159            9,659        $22,413
                                                   =====          =====        =========        =======
</TABLE>

  Convertible Preferred Stock Warrants

     In May 1997, in conjunction with a short-term financing arrangement,
Eloquent issued fully exercisable warrants to purchase 14,451 shares of Series B
convertible preferred stock at a price of $1.73 per share which expire May 12,
2002. The fair value of these warrants was estimated using the Black-Scholes
option pricing model and the following assumptions: dividend yield of 0%;
volatility of 55%, risk-free interest rate of 6.57% and a term of 5 years. The
fair value of these warrants was recorded as an expense in the year ended
December 31, 1997. These warrants were exercised in the year ended December 31,
2000.

  Common Stock Warrants

     In 1999, in conjunction with the revolving line of credit, Eloquent
provided the lender with warrants to purchase 70,000 shares of common stock at
$5.10 per share. See Note 6 for further details.

     In 1999, warrants to purchase 1,500,000 shares were issued in conjunction
with the convertible notes at an exercise price of $0.01 per share. See Note 7
for further details.

     In 1998, Eloquent issued fully exercisable warrants to purchase 22,115
shares of common stock for $3.90 per share in connection with a capital lease
arrangement. The warrants expire March 2005. The fair market value of these
warrants was estimated using the Black-Scholes option pricing model and the
following assumptions; dividend yield of 0%; volatility of 55%, risk-free
interest rate of 5.61% and a term of 7 years. The fair value was recorded as an
expense in the year ended December 31, 1998.

     In 1997, Eloquent issued fully exercisable warrants to purchase 34,683 and
15,000 shares of common stock for $1.73 and $3.60 per share, respectively, in
connection with capital lease arrangements. The warrants expire March 31, 2004.
The fair value of these warrants was estimated using the Black-Scholes option
pricing model and the following assumptions: dividend yield of 0%; volatility of
55%, risk-free interest rate of 6.66% and a term of 7 years. The fair value of
these warrants was recorded as an expense in the year ended December 31, 1997.

     In 1996, Eloquent issued fully exercisable warrants to purchase 14,450
shares of common stock for $0.173 per share in connection with working capital
obtained from a related party. In accordance with their terms, the warrants were
exercised upon consummation of Eloquent's initial public offering in February
2000. The fair value of these warrants was estimated using the Black-Scholes
option pricing model and the following assumptions: dividend yield of 0%;
volatility of 55%, risk-free interest rate of 6.18% and a term of 5 years. The
fair value of these warrants was recorded as an expense in the year ended
December 31, 1996.

                                        42
<PAGE>   44
                                 ELOQUENT, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     Common stock warrant activity is as follows:

<TABLE>
<CAPTION>
                                                      WARRANTS OUTSTANDING
                                                  -----------------------------
                                                    SHARES      PRICE PER SHARE
                                                  ----------    ---------------
<S>                                               <C>           <C>
Balance, December 31, 1997......................     101,321    $1.73  - $3.90
  Granted.......................................      22,115             $3.90
                                                  ----------
Balance, December 31, 1998......................     123,436    $0.173 - $3.90
  Granted.......................................   1,570,000    $0.01  - $5.10
  Exercised.....................................     (22,500)            $0.01
                                                  ----------
Balance, December 31, 1999......................   1,670,936    $0.01  - $5.10
  Exercised.....................................  (1,321,125)   $0.01  - $1.73
  Cancelled.....................................      (3,557)   $0.01  - $1.73
                                                  ----------
Balance, December 31, 2000......................     346,254    $0.01  - $5.10
                                                  ==========
</TABLE>

  Stockholders Rights Plan

     In October 2000, Eloquent's Board of Directors adopted a Stockholders
Rights Plan ("Rights Plan") under which all stockholders of record as of
November 8, 2000 received rights to purchase shares of a new series of preferred
stock. The adoption of the Rights Plan was intended as a means to guard against
abusive takeover tactics and was not in response to any particular proposal. The
rights trade with Eloquent's common stock, unless and until they are separated
upon the occurrence of certain future events. The rights are exercisable only if
a person or group acquires 20% or more of Eloquent's common stock or announces a
tender offer for 20% or more of the common stock. If a person acquires 20% or
more of Eloquent's common stock, all rightsholders except the buyer will be
entitled to acquire Eloquent's common stock at a discount. The rights
distribution was not taxable to the stockholders. Eloquent's Board of Directors
may terminate the Rights Plan at any time or redeem the rights prior to the time
a person acquires more than 20% of Eloquent's common stock.

  Stock-Based Compensation

     In connection with certain stock option grants, Eloquent recorded unearned
stock-based compensation totaling $13,350,000, which is being amortized
utilizing the accelerated method prescribed in Financial Accounting Standards
Board Interpretation No. 28 over the vesting periods of the related options
which is generally four to five years. If options are cancelled prior to
vesting, the stock-based compensation expense related to the unvested options
that was calculated utilizing the accelerated method is reversed and expense is
recognized on a straight-line basis. Amortization of stock-based compensation
recognized during the years ended December 31, 2000, 1999 and 1998 totaled
$4,140,000, $5,756,000 and $992,000, respectively, net of adjustments for
cancellations. The amortization expense has been allocated across the relevant
functional expense categories. Amounts reported in previous years have been
reclassified to conform with the current year presentation. The reclassification
has no impact on the previously reported net loss.

13. EMPLOYEE BENEFIT PLANS

  Common Stock Options

     In October 1999, the Board approved Eloquent's 1999 Equity Incentive Plan
(the Plan) that provides for the grant of incentive stock options, nonstatutory
stock options and other equity instruments. The Plan became effective upon
consummation of Eloquent's initial public offering and shares available under
existing incentive plans became authorized for issuance under the Plan.
6,004,500 shares of common stock have been authorized for issuance of stock
options to employees, directors, or consultants. Under the terms of the Plan and
its predecessor plans, incentive options may be granted to employees, and
nonstatutory options may be granted to

                                        43
<PAGE>   45
                                 ELOQUENT, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

employees, directors and consultants, at prices no less than 100% and 85%,
respectively, of the fair market value of Eloquent's common stock at the date of
grant. The Plan will terminate in October 2009, unless terminated earlier by the
Board of Directors.

     Options granted prior to November 1998 generally became exercisable
immediately and vest at 20% upon completion of one year from the vesting
commencement date and ratably 1/60 each month thereafter. Grants after November
1998 and prior to January 2000 generally became exercisable immediately and vest
at 25% upon completion of one year from the vesting commencement date and
ratably 1/48 each month thereafter. After January 2000 grants to new employees
vest at 25% upon completion of one year from the vesting commencement date and
ratably 1/48 each month thereafter and grants to existing employees vest ratably
over 48 months. The options expire ten years from the date of grant, and
Eloquent holds the right to repurchase unvested shares issued pursuant to their
exercise at the original exercise price.

     In July 2000, the Board adopted the 2000 Non-Qualifed Stock Plan that
provides for the grant of nonstatutory stock options and other equity
instruments. 2,000,000 shares of common stock have been authorized for issuance
of stock options to employees, directors, or consultants at prices no less than
85% of the fair market value of Eloquent's common stock at the date of grant.
Grants to existing employees generally vest ratably over 48 months and expire
ten years from the date of grant.

     Stock option activity under all option plans is summarized as follows:

<TABLE>
<CAPTION>
                                                             OPTIONS OUTSTANDING
                                              -------------------------------------------------
                                                 SHARES                            WEIGHTED
                                              AVAILABLE FOR    SHARES UNDER    AVERAGE EXERCISE
                                                  GRANT           OPTION       PRICE PER SHARE
                                              -------------    ------------    ----------------
<S>                                           <C>              <C>             <C>
Balance, December 31, 1997..................      371,539        1,010,061          $0.23
  Additional shares reserved................    1,155,000               --
  Granted...................................   (1,061,934)       1,061,934          $0.59
  Exercised.................................           --         (483,766)         $0.21
  Cancelled.................................      269,517         (269,517)         $0.23
                                               ----------       ----------
Balance, December 31, 1998..................      734,122        1,318,712          $0.49
  Additional shares reserved................    3,160,000               --
  Granted...................................   (3,082,050)       3,082,050          $1.96
  Exercised.................................           --         (422,643)         $0.61
  Cancelled.................................      650,777         (650,777)         $0.68
                                               ----------       ----------
Balance, December 31, 1999..................    1,462,849        3,327,342          $1.80
  Additional shares reserved................    2,000,000               --
  Granted...................................   (3,033,724)       3,033,724          $6.46
  Exercised.................................           --         (490,689)         $0.82
  Cancelled.................................    1,202,417       (1,202,417)         $5.62
                                               ----------       ----------
Balance, December 31, 2000..................    1,631,542        4,667,960          $3.95
                                               ==========       ==========
</TABLE>

                                        44
<PAGE>   46
                                 ELOQUENT, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     The options outstanding and currently vested by exercise price at December
31, 2000 were as follows:

<TABLE>
<CAPTION>
                     OPTIONS OUTSTANDING                               VESTED OPTIONS
-------------------------------------------------------------   ----------------------------
                                      WEIGHTED       WEIGHTED
                                      AVERAGE        AVERAGE                     WEIGHTED
RANGE OF EXERCISE     SHARES         REMAINING       EXERCISE     SHARES         AVERAGE
      PRICE         OUTSTANDING   CONTRACTUAL LIFE    PRICE     EXERCISABLE   EXERCISE PRICE
-----------------   -----------   ----------------   --------   -----------   --------------
<S>                 <C>           <C>                <C>        <C>           <C>
 $0.17 - $ 1.00..    1,577,348          8.04          $ 0.97      668,991         $ 0.96
 $2.00 - $ 5.06..    1,903,270          9.56          $ 2.75      212,318         $ 2.68
 $7.00 - $10.63..    1,019,542          9.11          $ 8.64      114,022         $ 8.30
1$4.88 - $37.63..      167,800          9.18          $17.26          699         $17.75
                     ---------                                    -------
0$.17 - $37.63...    4,667,960          8.94          $ 3.95      996,030         $ 4.36
                     =========                                    =======
</TABLE>

  Fair Value Disclosures

     Eloquent calculated the fair value of each option grant and each stock
purchase right on the date of grant or issuance using the Black-Scholes option
pricing model and the following weighted average assumptions:

<TABLE>
<CAPTION>
                                                         STOCK OPTIONS             ESPP
                                                    -----------------------    ------------
                                                    YEAR ENDED DECEMBER 31,     YEAR ENDED
                                                    -----------------------    DECEMBER 31,
                                                    2000     1999     1998         2000
                                                    -----    -----    -----    ------------
<S>                                                 <C>      <C>      <C>      <C>
Risk-free interest rate...........................  6.08%    5.68%    5.21%        6.23%
Expected life.....................................     5        5        5          0.4
Dividend yield....................................    --       --       --           --
Volatility........................................    70%       0%       0%         100%
</TABLE>

     Eloquent's pro forma information follows (in thousands, except per share
data):

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                     --------------------------------
                                                       2000        1999        1998
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Net loss...........................................  $(51,252)   $(16,615)   $(10,008)
                                                     ========    ========    ========
Net loss -- FAS 123 Adjusted.......................  $(54,836)   $(17,043)   $(10,066)
                                                     ========    ========    ========
Net loss per share as reported -- Basic and
  Diluted..........................................  $  (3.33)   $  (5.47)   $  (4.74)
                                                     ========    ========    ========
Net loss per share FAS 123 Adjusted -- Basic
  and Diluted......................................  $  (3.57)   $  (5.61)   $  (4.76)
                                                     ========    ========    ========
</TABLE>

     The effects of applying SFAS 123 in this pro forma disclosure may not be
indicative of future amounts. Additional rewards in future years are
anticipated.

  Employee Stock Purchase Plan

     In October 1999, the Board approved the Employee Stock Purchase Plan
("ESPP") and reserved 700,000 shares of common stock. Under the plan, employees
are granted the right to purchase shares of common stock at a price per share
that is 85% of the lessor of the fair market value at the beginning of the
offering period or the end of the offering period. In 2000, 176,044 shares were
issued at an average price of $4.02 per share. For pro forma purposes, had
compensation cost for the ESPP been determined based on the fair value at the
grant date consistent with the provisions of SFAS 123, Eloquent's net loss and
net loss per share for 2000 would have been $55.2 million and $3.59,
respectively.

                                        45
<PAGE>   47
                                 ELOQUENT, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

  401(k) Savings Plan

     Eloquent has a savings plan (the "Savings Plan") that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code,
under which, participating employees may defer a percentage (not to exceed 15%)
of their eligible pretax earnings up to the Internal Revenue Service's annual
contribution limit. All employees of Eloquent are eligible to participate in the
Savings Plan. Eloquent is not required to contribute to the Savings Plan and has
made no contributions since the inception of the Savings Plan.

14. INCOME TAXES

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Significant components of
deferred tax assets for federal and state income taxes are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         --------------------
                                                           2000        1999
                                                         --------    --------
<S>                                                      <C>         <C>
Restructuring expense..................................  $  1,417    $     --
Impairment charges.....................................     1,883          --
Depreciation and amortization..........................        96         (58)
Other..................................................     1,557       1,244
Research and development credits.......................       437         303
Net operating losses...................................    36,825       9,860
                                                         --------    --------
Net deferred tax asset.................................    42,215      11,349
Less valuation allowance...............................   (42,215)    (11,349)
                                                         --------    --------
                                                         $     --    $     --
                                                         ========    ========
</TABLE>

     Eloquent has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Management evaluates on an annual basis the recoverability of the deferred tax
assets and the level of the valuation allowance. At such time as it is
determined that it is more likely than not that the deferred tax assets are
realizable, the valuation allowance will be reduced.

     Eloquent's effective tax rate differs from the statutory federal income tax
rate as shown in the following schedule:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              ------------
                                                              2000    1999
                                                              ----    ----
<S>                                                           <C>     <C>
Statutory federal income tax rate...........................  (34)%   (34)%
Valuation allowance on deferred tax asset...................   34      34
                                                              ---     ---
Effective tax rate..........................................   --      --
                                                              ===     ===
</TABLE>

     At December 31, 2000, Eloquent had federal and state net operating loss
carryforwards of approximately $56,363,000 and $29,437,000, respectively, and a
total of federal and state research and development tax credit carryforwards of
$437,000. Eloquent's net operating loss carryforwards, as well as credit
carryforwards, expire between the years 2005 and 2020, if not utilized.

     The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforwards in certain situations where changes occur in the stock
ownership of a company. If Eloquent should have an ownership change, as defined,
utilization of the carryforwards would be restricted.

                                        46
<PAGE>   48
                                 ELOQUENT, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

15. NET LOSS PER SHARE

     The following table sets forth the computation of basic and diluted net
loss per share (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                         ------------------------------
                                                           2000       1999       1998
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
NUMERATORS:
Loss before extraordinary item and cumulative effect of
  accounting change....................................  $(36,299)  $(16,615)  $(10,008)
Extraordinary loss on extinguishment of debt...........    (7,453)        --         --
                                                         --------   --------   --------
Loss before cumulative effect of accounting change.....   (43,752)   (16,615)   (10,008)
Cumulative effect of accounting change -- beneficial
  conversion feature...................................    (7,500)        --         --
                                                         --------   --------   --------
  Net loss.............................................  $(51,252)  $(16,615)  $(10,008)
                                                         ========   ========   ========
DENOMINATOR:
  Weighted average common stock outstanding............    15,406      3,494      3,431
  Weighted average unvested common stock subject to
     repurchase........................................       (25)      (458)    (1,320)
                                                         --------   --------   --------
Denominator for basic and diluted calculation..........    15,381      3,036      2,111
                                                         --------   --------   --------
Basic and diluted net loss per share:
Loss before extraordinary item and cumulative effect of
  accounting change....................................  $  (2.36)  $  (5.47)  $  (4.74)
Extraordinary loss on extinguishment of debt...........     (0.48)        --         --
Cumulative effect of accounting change -- beneficial
  conversion feature...................................     (0.49)        --         --
                                                         --------   --------   --------
Net loss...............................................  $  (3.33)  $  (5.47)  $  (4.74)
                                                         ========   ========   ========
                                                         --------   --------   --------
ANTIDILUTIVE SECURITIES:
  Convertible preferred stock..........................        --      7,159      7,159
  Options to purchase common stock.....................     4,667      3,327      1,319
  Warrants.............................................       346      1,685        138
                                                         --------   --------   --------
                                                            5,013     12,171      8,616
                                                         ========   ========   ========
</TABLE>

16. RELATED PARTY TRANSACTIONS

     During 2000, Eloquent licensed its Eloquent Communications Server product
and provided related services to eSpoc. Under the terms of the arrangement,
Eloquent recognized revenue of $1,343,000. All amounts due to Eloquent under the
agreement were collected at December 31, 2000.

17. SUBSEQUENT EVENT

     On March 26, 2001, Eloquent's board of directors approved submitting the
acquisition of Rebop to a stockholder vote, pursuant to an Agreement and Plan of
Merger and Reorganization, dated October 31, 2000. The acquisition is contingent
upon Eloquent's stockholder approval which if obtained, will result in Eloquent
acquiring all of the outstanding capital stock of Rebop. Rebop shall cease to
exist as a separate entity and shall become a wholly owned subsidiary of
Eloquent.

                                        47
<PAGE>   49

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Eloquent, Inc:

     In our opinion financial statements listed in the index appearing under
Item 14(a)1 on page 29 present fairly, in all material respects, the financial
position of Eloquent, Inc. at December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under Item 14(a)2 on page 29
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     As discussed in Note 3 to the accompanying financial statements, the
Company changed its method of accounting for convertible securities with
beneficial conversion features as of October 1, 2000.

PRICEWATERHOUSECOOPERS LLP

San Jose, California
February 20, 2001 except for note 17
as to which the date is March 26, 2001

                                        48
<PAGE>   50

                                                                     SCHEDULE II

                                 ELOQUENT, INC.

                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                            BALANCE AT
                                            BEGINNING      ADDITIONS                     BALANCE AT END
                                             OF YEAR      (REDUCTIONS)    WRITE-OFFS         OF YEAR
                                            ----------    ------------    ----------    -----------------
                                                                   (IN THOUSANDS)
<S>                                         <C>           <C>             <C>           <C>
Allowance for doubtful accounts:
  Year ended December 31, 2000............       334            286           (21)               599
  Year ended December 31, 1999............       105            270           (41)               334
  Year ended December 31, 1998............   $   115        $    10          $(20)           $   105
Valuation allowance for deferred tax
  assets:
  Year ended December 31, 2000............    11,349         30,866                           42,215
  Year ended December 31, 1999............     6,782          4,567            --             11,349
  Year ended December 31, 1998............     3,065          3,717            --              6,782
</TABLE>

                                        49
<PAGE>   51

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Mateo, State of California, on the 30th day of March 2001.

                                          ELOQUENT, INC.

                                          By:     /s/ CLIFFORD A. REID
                                            ------------------------------------
                                                      Clifford A. Reid
                                            Chief Executive Officer and Director

                               POWER OF ATTORNEY

     KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Clifford A. Reid and John Curson and each
of them, jointly and severally, his attorneys-in-fact, each with full power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Form 10-K, 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 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
Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----
<S>                                                    <C>                              <C>

                /s/ CLIFFORD A. REID                    Chairman of the Board, Chief    March 30, 2001
-----------------------------------------------------  Executive Officer and Director
                  Clifford A. Reid                      (Principal Executive Officer)

                 /s/ R. JOHN CURSON                       Chief Financial Officer,      March 30, 2001
-----------------------------------------------------  Secretary, Treasurer and Office
                   R. John Curson                        of the President (Principal
                                                          Financial and Accounting
                                                                  Officer)

                                                                  Director
-----------------------------------------------------
                  Michael E. Herman

                 /s/ SARAH M. NOLAN                               Director              March 30, 2001
-----------------------------------------------------
                    Sara M. Nolan

               /s/ ANTHONY P. BRENNER                             Director              March 30, 2001
-----------------------------------------------------
                 Anthony P. Brenner

                /s/ TERRY L. OPDENDYK                             Director              March 30, 2001
-----------------------------------------------------
                  Terry L. Opdendyk
</TABLE>

                                        50
<PAGE>   52

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                     DESCRIPTION OF DOCUMENT
-------                     -----------------------
<S>       <C>
 3.03*    Amended and Restated Certificate of Incorporation, as
          currently in effect.
 3.04*    Amended and Restated Bylaws, as currently in effect.
 4.01*    Form of Specimen Stock Certificate.
 4.02*    Fourth Amended and Restated Investors' Rights Agreement,
          dated October 20, 1999, among Eloquent and certain investors
          named therein.
 4.03*    Securities Purchase Agreement, dated October 20, 1999, by
          and among Eloquent and certain investors named therein.
10.01*    Form of Indemnity Agreement entered into by Eloquent with
          each of its directors and executive officers.
10.02*    Equity Incentive Plan.
10.03*    Form of Stock Option Agreement under the Equity Incentive
          Plan.
10.04*    1997 Equity Incentive Plan.
10.05*    Form of Stock Option Agreement under the 1997 Equity
          Incentive Plan.
10.06*    1999 Equity Incentive Plan.
10.07*    Form of Stock Option Agreement under the 1999 Equity
          Incentive Plan.
10.08*    Form of Nonstatutory Stock Option Agreement for Non-Employee
          Director Grants under the 1999 Equity Incentive Plan.
10.09*    1999 Employee Stock Purchase Plan.
10.10*    Form of 1999 Employee Stock Purchase Plan Offering.
10.11*    Employment Agreement, dated December 23, 1998, between
          Eloquent and Abraham Kleinfeld.
10.12*    Office Lease, dated November 19, 1996, between Eloquent and
          California Casualty Indemnity Exchange, as amended.
10.13*    OEM Agreement, dated May 30, 1997, between Eloquent and
          Verity, Inc.
10.14*    Software License Agreement, dated June 30, 1997, between
          Eloquent and Voxware, Inc.
10.15*    Co-location Service Agreement, dated March 30, 1998, between
          Eloquent and Concentric Network Corporation.
10.16*    Sublease Agreement, dated June 1, 1999, between Eloquent and
          California Casualty Indemnity Exchange.
10.17*    ISV Software License Agreement, dated August 1, 1999,
          between Eloquent and WebXpress, Inc.
10.18*    Assignment of Sublease, dated November 24, 1999, between
          Eloquent and California Casualty.
10.19**   2000 Non-Qualified Stock Plan.
10.20***  Agreement and Plan of Merger and Reorganization, dated
          October 31, 2000 among Eloquent, Inc., Rebop Acquisition
          Corp., Rebop Media, Inc., and Certain Shareholders of Rebop
          Media, Inc.
10.21     Employment Agreement, dated as of December 1, 2000, between
          Eloquent and John Curson.
10.22     Confidential Severance Agreement, dated November 1, 2000,
          between Eloquent and Abraham Kleinfeld.
23.01     Consent of PricewaterhouseCoopers LLP.
24.01     Power of Attorney. Reference is made to the signature page.
</TABLE>

---------------
  * Incorporated by reference to the same numbered exhibit previously filed with
    the Company's Regulation Statement on Form S-1 (SEC File No. 333-89537).

 ** Incorporated by reference to exhibit 99.1 previously filed with the
    Company's Registration Statement on Form S-8 (SEC File No. 333-34182).

*** Incorporated by reference to exhibit 99.2 previously filed with the
    Company's Quarterly Report on Form 10-Q for the quarterly period ended
    September 30, 2000.

                                        51