**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-K**

 

| **(Mark One)**                                                                                                                                                                                                                                                                                                                       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                                                                                                           |
| **ý**                                                                                                                                                                                                                                                                                                                           | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                                                                                                                           | ** ** | ** ** |
| **For the fiscal year ended December 31, 2004**                                                                                                                                                                                                                                                                                 |
| ** **                                                                                                                                                                                                                                                                                                                           |
| **OR**                                                                                                                                                                                                                                                                                                                               |
| ** **                                                                                                                                                                                                                                                                                                                           |
| **o**                                                                                                                                                                                                                                                                                                                                | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                                                                                                                           |
| **For the transition period from                        to                        ** |

 

**COMMISSIONFILE NUMBER: 000-29678**

 

----

 

**INTRADOINC.**

(Exact name of registrant as specified in itscharter)

 
| **Delaware**                                                    | ** ** | **84-0796285**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |       | (I.R.S. Employer  Identification No.) |
| ** **                                                      | ** ** | ** **                            |
| **1601 Dry Creek Drive, Longmont, Colorado**                    | ** ** | **80503**                             |
| (Address of principal  executive offices)                       |       | (Zip Code)                            |

 

Registrant’s telephone number, including area code:  **720-494-5800**

 

Securities registered pursuant to Section 12(b) of the Act: **None.**

 

Securities registered pursuant to section 12(g) of the Act:

**Common Stock, par value $.001 per share**

(Titleof Class)

 

----

 

Indicate by check mark whether the Registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the Registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days. Yes  ý    No  o

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, andwill not be contained, to the best of Registrant’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III ofthis Form 10-K or any amendment to this Form 10-K.   o

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Act). Yes  ý    No  o

 

The aggregate market value of voting common stockheld by non-affiliates of the Registrant was approximately $266,096,000 as ofthe end of the Registrant’s second fiscal quarter, based upon the closing saleprice of the common stock as reported on the NASDAQ National Market on June 30,2004.

 

As of March 1, 2005, the Registrant had17,554,591 shares of common stock outstanding.

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

Portions of the Registrant’s definitive proxy statement,which will be issued to stockholders in conjunction with the 2005 AnnualMeeting of Stockholders, are incorporated by reference in Part III of thisAnnual Report on Form 10-K.

 

 

----

 

**CAUTIONARY NOTE ABOUT FORWARD-LOOKINGSTATEMENTS**

 

This Annual Report on Form 10-Kand the information incorporated by reference contains “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of1933 and Section 21E of the Securities Exchange Act of 1934. Inparticular, we direct your attention to Item 1. Business,Item 3. Legal Proceedings, Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations, Item7A. Quantitative and Qualitative Disclosures AboutMarket Risk and Item 9A. Controls and Procedures. We intendthe forward-looking statements throughout this Annual Report on Form 10-Kand the information incorporated by reference to be covered by the safe harborprovisions for forward-looking statements. All projections and statementsregarding our expected financial position and operating results, our businessstrategy, our financing plans and the outcome of any contingencies are forward-lookingstatements. These statements can sometimes be identified by our use of forward-lookingwords such as “may,” “believe,” “plan,” “will,” “anticipate,”“estimate,” “expect,” “intend” and other words and phrases of similar meaning.Known and unknown risks, uncertainties and other factors could cause the actualresults to differ materially from those contemplated by the statements. Theforward-looking information is based on information available as of the date ofthis Annual Report on Form 10-K and on numerous assumptions anddevelopments that are not within our control. Although we believe these forward-lookingstatements are reasonable, we cannot assure you they will turn out to becorrect. Actual results could be materially different from our expectations dueto a variety of factors, including the following:

 

•      Our reliance onlarge contracts from a limited and potentially decreasing number of significanttelecommunications customers and their ability to pay for our services,especially in light of recent competitive pressures in the telecommunicationsindustry;

 

•      Whetheracquisitions, consolidations, bankruptcies and reorganizations among ourtelecommunications customers will result in volume pricing discounts orotherwise have a material adverse effect on our market share, revenue andliquidity;

 

•      Competition inservice, price and technological innovation from entities with substantiallygreater resources, especially in light of the fact that the increased use ofVoice over Internet Protocol (VoIP) technology may open our traditional 9-1-1data management services business to new competition;

 

•      Our ability toenter or renew wireline, VoIP and wireless contracts at prices that will allowus to maintain current profit margins;

 

•      Our ability tointegrate businesses and assets that we have acquired or may acquire;

 

•      Whether ourefforts to expand into European and other international markets will prove tobe economically viable and whether we will be able to generate revenuesufficient to recover our investment in bmd wireless AG;

 

•      Adverse trendsin the telecommunications industry in general, including bankruptcy filings byour customers and other factors that are beyond our control;

 

•      Whether ourinvestments in research and development and capitalized software will expandour service offerings and prove to be economically viable;

 

•      Constraints onour sales and marketing channels because many of our customers compete witheach other;

 

•      Our ability toaccurately predict, control and recoup the large amount of up-frontexpenditures necessary to serve new customers and possible delays in salescycles;

 

ii

----

 

•      Our ability toexpand beyond our traditional business and into highly competitive notificationand data management sectors, including, but not limited to, our efforts toemploy IntelliCast®TargetNotification and CDB services;

 

•      Theunpredictable rate of adoption of wireless 9-1-1 services,including further delays in the Federal Communications Commission’s mandateddeployment of Phase I and Phase II wireless location services;

 

•      The potentialfor liability claims, including product liability claims relating to oursoftware and services;

 

•      Technicaldifficulties and network downtime, including those caused by sabotage orunauthorized access to our systems;

 

•      Changes ininterest rates, including the LIBOR and prime rate and their potentiallyadverse effect on our results of operations and cash flows;

 

•      The possibilitythat we will not generate taxable income in an amount sufficient to allow us toutilize previously generated net operating loss carryforwards or research anddevelopment tax credits;

 

•      Our ability toeconomically attract, motivate and retain high-quality employees with skillsthat match our business needs;

 

•      Developments intelecommunications regulation and the unpredictable manner in which existing ornew legislation and regulation may be applied to our business;

 

•      The potential impacts on our prospective and historicalfinancial statements resulting from recent accounting pronouncements related toshare based payments and our implementation strategy and effective date; and

 

•      Developments ingovernance, accounting and financial regulations, including Section 404 ofthe Sarbanes-Oxley Act of 2002 and their impact on general and administrativeexpenses.

 

This list is intended to identify some of the principal factors thatcould cause actual results to differ materially from those described in theforward-looking statements included elsewhere in this report. These factors arenot intended to represent a complete list of all risks and uncertaintiesinherent in our business and should be read in conjunction with the moredetailed cautionary statements included in this Annual Report on Form 10-Kunder the caption Item 1. Business—Risk Factors, our otherSecurities and Exchange Commission filings and our press releases.

 

iii

----

 

**INTRADO INC.**

 

**2004ANNUAL REPORT ON FORM 10-K**

 

**TABLEOF CONTENTS**

 
| **PART I**   |
|-------------------|
|              |   |   |
| Item 1.           | Business |   |
| Item 2.           | Properties |   |
| Item 3.           | Legal Proceedings |   |
| Item  4.          | Submission  of Matters to a Vote of Security Holders |   |
| Item  5.          | Market  for the Registrant’s Common Equity, Related Stockholder Matters and Issuer  Purchases of Equity Securities |   |
|              |   |   |
| **PART II**  |
|              |   |   |
| Item 6.           | Selected Financial Data |   |
| Item 7.           | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |   |
| Item 7A.          | Quantitative and Qualitative Disclosures  About Market Risk |   |
| Item 8.           | Financial Statements and Supplementary Data |   |
| Item 9.           | Changes in and Disagreements with  Accountants on Accounting and Financial Disclosure |   |
| Item 9A.          | Controls and Procedures |   |
| Item 9B.          | Other Information |   |
|              |   |   |
| **PART III** |
|              |   |   |
| Item 10.          | Directors and Executive Officers of the  Registrant |   |
| Item 11.          | Executive Compensation |   |
| Item 12.          | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters |   |
| Item 13.          | Certain Relationships and Related  Transactions |   |
| Item 14.          | Principal Accountant Fees and Services |   |
|              |   |   |
| **PART IV**  |
|              |   |   |
| Item 15.          | Exhibits and Financial Statement Schedules |   |
|              |   |   |
| Signatures        |   |   |

 

iv

----

 

**ITEM 1.****  BUSINESS**

 

**Overview**

 

We are North America’s leading provider of 9-1-1infrastructure systems and services, as well as innovative solutions fortelecommunications providers and public safety organizations. Our core businessis the support of the nation’s 9-1-1 emergency responseinfrastructure for wireline, wireless and Voice over Internet Protocol, orVoIP, networks. The data we manage enables a 9-1-1 call to berouted to the appropriate public safety answering point, or PSAP. We alsoprovide the PSAP with callback data and the caller’s location. This criticalinformation enables public safety organizations to respond to calls quickly andefficiently. In addition, our infrastructure enables telecommunicationscarriers to meet state and federal regulatory mandates. Since we launched our 9-1-1data management services in 1994, our 9-1-1 data integrityinfrastructure has provided virtually uninterrupted service to ourtelecommunications and public safety customers.

 

Our customers include all of the major incumbent local exchangecarriers, or ILECs, 36 competitive local exchange carriers, or CLECs, VoIPproviders, 55 wireless service providers, and a variety of state, local andfederal government agencies. We directly manage more than 104 millionwireline subscriber data records and support another 130 million wirelinerecords under customer management with Intrado-provided licensed software. Inwireless, we provide 9-1-1 infrastructure and deploymentservices that support nearly 98 million subscribers in the United States.

 

During 2004 we continued to strengthen andexpand our 9-1-1 leadership position in our two primary businessunits: Wireline and Wireless. In our wireline business, we renewed or extendedcertain long-term contracts with major ILECs and acquired new CLEC and VoIPcustomers. We continued to expand our wireless business as we added newcustomers and continued service deployments that enable wireless carriers tocomply with Federal Communications Commission, or FCC, Phase I and Phase IImandates.

 

We provide a location-positioning platform tosupport both Phase I and Phase II deployments. Our internally-developedtechnology includes a Mobile Positioning Center, or MPC, and a Gateway MobileLocation Center, or GMLC. The MPC and GMLC are essential components for theproper routing and processing of wireless emergency calls. The platform is alsoused for our VoIP solutions and IntelliVector® Enhanced EmergencyServices.

 

We also operate IntelliCast®Target Notification which enables city, state or federal governments togeographically target and notify individuals of emergencies.

 

In 2004, we continued to invest in theIntelligent Emergency NetworkTM, or IEN, which willenable the next generation of emergency communications services. IEN is a keyelement of our strategy to expand our existing 9-1-1 servicesbusiness. In 2004, we also commenced global expansion plans with theacquisition of bmd wireless AG in Switzerland. bmdprovides Intrado with a suite of commercial services and access to importantcarrier relationships in Europe.

 

We continue to maintain ISO 9001certification, which we first achieved in December 2001 and is an integralpart of our corporate compliance program. This certification demonstrates ourstrong commitment to the quality and continuous improvement of our products,services and internal processes in both domestic and international markets.

 

We maintain a website with the address *www.intrado.com*. We are not including theinformation contained on our website as part of, or incorporating it byreference into, this report. Through our website, we make available all of ourfilings with the Securities and Exchange Commission.

 

We were founded and incorporated in July 1979in Colorado under the name Systems Concepts of Colorado, Inc. andreincorporated in September 1993 in Delaware under the name SCCCommunications Corp. We completed our initial public offering in June 1998.We acquired Lucent Public Safety Systems, or LPSS, in May 2001, afterwhich we changed our name to Intrado Inc. Our corporate offices arelocated at 1601 Dry Creek Drive, Longmont, Colorado and our telephone number is(720) 494-5800.

 

1

----

 

**Industry Background**

 

***Wireline***

 

Most jurisdictions in the United Statesprovide wireline Enhanced 9-1-1, or E9-1-1, whichautomatically allows the PSAP to receive the caller’s street address andcallback telephone number when a 9-1-1 call is made. When a callerdials 9-1-1, the call is routed through the network and the 9-1-1data server is queried. This data server associates the caller’s telephonenumber with the caller’s location and identifies the appropriate primary andsecondary PSAP. The data in the 9-1-1 database must be constantlyupdated to reflect both changes to telephone service and PSAP boundaries, suchas the addition of a street, the building of a new fire or police station, orcity annexations of new territory. Delivery of 9-1-1 servicerequires coordination of data from multiple sources, review and processing ofthe data, resolution of data errors and delivery of data into mission-criticaldata servers. All local exchange carriers currently are required to providewireline 9-1-1 service.

 

During 2004, the use of VoIP, a technologythat enables voice traffic to be carried over an Internet Protocol-basednetwork, grew significantly. We expect this trend to continue. The number ofVoIP telephone numbers may eventually eclipse the amount of telephone linessupported by traditional wireline technologies. In a VoIP call, voice is brokeninto packets at the transmitting end device and then reassembled at thereceiving device. The location of the VoIP caller is not necessarily fixed, presentinga challenge related to the handling and routing of emergency calls. Regulators,industry trade groups, carriers and suppliers are working together to addressthis issue.

 

***Wireless***

 

Wireless telecommunications createdsignificant challenges for E9-1-1 service delivery because thecaller’s location is not fixed. Recognizing the public safety need for improvedwireless E9-1-1 services, the FCC issued an order in June 1996mandating implementation of wireless E9-1-1 service in two phases.Phase I requires wireless carriers to provide the PSAP with the caller’stelephone number and the location of the cell sector from which the calloriginated. Phase I also stipulates that the emergency call be routed to anassigned PSAP that is nearest to the caller. Since April 1998, wirelessservice providers have been required to comply with the Phase I mandate withinsix months of a valid PSAP request. Phase II requires carriers to locatewireless 9-1-1 callers within even more precise locationparameters, as specified by the FCC.

 

In addition to the FCC’s mandate, wirelessservice providers are motivated to implement wireless E9-1-1services because of increasing pressure from public safety agencies. Inaddition, the technology required for Phase II service can also be used bywireless carriers to provide additional location-based services to theircustomers. These services include location-based traffic reporting, emergencyroadside assistance, location-based dispatch and other services.

 

***OtherOpportunities***

 

New technologies have increased thecomplexities and opportunities related to public safety services. The expansionof the Internet and the widespread use of wireless Internet devices introducemultiple new points of connectivity and consumer interactivity with emergencyservices providers. These technologies also create the potential for enhancedpublic safety coordination and support. For example, telematics devices,automobile communication devices that are used for location-based services suchas emergency roadside assistance, are entering the market at a rapid pace.

 

The European Union’s initiative to implementenhanced emergency services through a common emergency number, 1-1-2,was launched in 2003. The EU directive to make caller location information availableto authorities became effective in July 2003. In mid-2005, the EU isscheduled to formally evaluate the overall effectiveness of 1-1-2,as well as carrier compliance with the 2003 mandates.

 

2

----

 

**Our Strategy**

 

Our objective is to expand our leadershipposition in emergency communications systems while pursuing additionalopportunities that build upon our core competencies. Key elements of ourstrategy include:

 

*Maintain and extendour leadership in the wireline 9-1-1 data management market.*In wireline, our systems manage more than 234 million subscriber datarecords. We are seeking to add new CLEC and VoIP customers, increase the numberof data records under management, expand our existing 9-1-1services and support the evolving telecommunications infrastructure. Inparticular, we intend to continue to play a lead role in the evolving VoIPmarket and plan to offer more services to these carriers as the industry betterdefines the E9-1-1 solution for Internet Telephony.

 

*Retain and grow ourexisting wireless 9-1-1-customer base.*We have contracts to provide Phase I wireless 9-1-1 services to 55wireless customers. There is a significant opportunity to increase our Phase Iwireless 9-1-1 penetration by deploying service to a larger portionof the subscribers we have under contract and signing contracts with additionalwireless service providers. We also have been deploying Phase II wirelessservices since late 2001. The significant growth in the number of wirelesstelephone users, wireless carrier consolidation and the increased demand forenhanced wireless service offerings present opportunities for growth in ourwireless 9-1-1 services.

 

*Continue developmentand roll out of IEN.* As the leader in 9-1-1infrastructure, systems and services, Intrado is well positioned to deliver thenext generation of emergency communications services. The IEN initiatives willencompass secure Internet Protocol (IP) networking and allow the industry tomove away from relying solely on outdated analog technologies. We are designingand building the next generation of 9-1-1 network infrastructure,in which we plan to incorporate the latest technologies such as InternetProtocol and message switching. We intend to use our expertise in providinghighly accurate 9-1-1 data management services over the past twodecades to ensure that the same high standards are applied to future emergencymanagement solutions.

 

We have been careful to develop IEN withsignificant input from many stakeholders in this important venture: ourwireline and wireless customers, the public safety community, hardwaresuppliers and regulators. We believe this provides a solid foundation for theintroduction and acceptance of IEN over the coming years. As new products andservices are introduced to carriers, consumers and the public safety community,we believe we have the potential to both expand and garner a larger portion ofthe funding that is currently available for emergency services.

 

*Extend Our EmergencyCommunications Leadership Beyond North America.* Wecontinue to gain visibility into the European emergency communications andnotification market. We are actively involved with the EuropeanTelecommunications Standards Institute, or ETSI, in defining requirements for E1-1-2deployment. In addition, we have been active with the European Emergency NumberAssociation, or EENA, in advancing the development and implementation of E1-1-2.We are engaged in discussions with key European and Asian carriers, governmentorganizations and potential deployment partners.

 

*Focus on GovernmentOpportunities.* In 2004, we continued to focusattention in the federal, state and local government markets through ourGovernment Markets Group. This group acts as a cross-business-unit marketingand sales resource in analyzing potential government market opportunities anddeveloping and executing cohesive product portfolio plans, promotional programsand distribution strategies. The Group markets Intrado solutions innotification, PSAP 9-1-1, wireline 9-1-1 and wireless 9-1-1to prospective government buyers.

 

**Intrado Products and Services**

 

Intrado provides a wide range of products andservices for the telecommunications, public safety and commercial markets. Ourkey products are listed below.

 

3

----

 

***Wireline Offerings***

 

***IntelliBase****®**Data ManagementServices and Systems***

 

We provide wireline 9-1-1solutions on both service-based and license-based models. In the service model,we house and maintain the customer’s data; and the customer outsourcesvirtually all of its 9-1-1 data management operations, includingsystem activation, routine data administration, eventtransaction processing and performance management. Our services are secure,reliable and easily interface with an individual carrier’s proprietary or opensystems. In the license model, we provide licensed software applications thatallow carriers to manage the data on their own equipment, at their ownfacilities, with their own personnel.

 

***9-1-1Data Management Services—Outsourced Model***

 

*Customers: ILECs,CLECs, Independent Operating Companies (IOCs), State of Texas, VoIP carriers*

 

Data Management Services ensure that hundredsof millions of complex records are current, accurate and available on demand.These services encompass the processes that enable a 9-1-1 call tobe routed to the appropriate PSAP along with accurate and timely informationabout the caller’s identity, callback number and location. We receive dailyservice order updates from our telecommunications carrier customers, whichreflect changes to subscriber data. We also receive updates to boundary androuting data needed to route 9-1-1 calls to the appropriate PSAP.We screen this data for accuracy and analyze and resolve data discrepancies.Screened data is then inserted into the 9-1-1 databases. When a 9-1-1call occurs, it is routed to the 9-1-1 voice switch. The call isthen routed to the appropriate PSAP, which queries our database, and thedatabase then sends the caller’s location and callback number to the PSAP.

 

Our CLEC data management services provide asingle point of contact to process and format 9-1-1 data for CLECsand independent telephone companies. These entities may be located in multiplecommunities that have diverse requirements for delivery of 9-1-1information. CLECs and independent telephone companies electronically transmitsubscriber information to us. We then reformat the data to comply with thedestination community’s local standards, test for detectable errors and deliverthe data to the 9-1-1 data systems serving that community. Thesedata systems may be operated by us or by a carrier that does not use ourservices or products.

 

The individual components of our DataManagement Services include the following:

 

*Systems Preparation and Administration.*Collect, organize and analyze the data necessary to prepare our systems,including collecting information on PSAP jurisdictional boundaries, performinga full inventory of addresses located in an area and loading the subscriberinformation.

 

*Routine Data Administration.* Receiveand process daily service order updates from telecommunications carriers andperiodic boundary updates from PSAPs. The information received is verified andthen distributed throughout our network of geographically diverse servers.

 

*Event TransactionProcessing.* Manage requests for information androuting for 9-1-1 calls.

 

*Performance Management.* Provideperformance metrics on service operations including response time, systemsavailability, data accuracy and error resolution intervals.

 

*Mapping Services.* Document, review andanalyze call routing boundaries and specific address information for optimalmanagement of 9-1-1 call records. We also assist in systempreparation and quality control programs to ensure that geographicalinformation is current.

 

*Enhancements to 9-1-1 Data Management Services*.  We also offer the followingenhancements to 9-1-1 Data Management Services:

 

4

----

 

•      *9-1-1Net®* is a web-based toolfor maintaining the Master Street Address Guide, or MSAG, and AutomatedLocation Identification, or ALI, databases. Using 9-1-1Net®, users can view live addressrouting rules, send address updates, review inbound call load, error statisticsand ALI discrepancy reports and receive product updates.

 

•      *VoIP Services,*including V9-1-1SM Mobility Services, enable emergency calls over VoIP networks byproviding VoIP call interface to the Public Switched Telephone Network and callrouting to the appropriate PSAP.

 

•      *Private Switch/ALI*, or PS/ALI, allows PBXsystem managers to create and transmit appropriate data records that identify acaller’s precise extension location within a facility.

 

•      *Address Verification Manager* is aweb-based application linking Intrado to a local exchange carrier. AddressVerification Manager facilitates automated synchronization between the StreetAddress Guide, or SAG, and MSAG databases and provides a consistent method forresolving address discrepancies.

 

•      *e-Bonding* providesfull end-to-end electronic confirmation of each E9-1-1 transaction.e-Bonding reports help customers confirm recordsprocessed by carriers even when Intrado is not the designated ALI databasemanager.

 

•      *Advanced Error Correction* identifies,investigates and resolves specific records that error at the E9-1-1Service Provider.

 

***9-1-1 Data ManagementSystems—Licensed Model***

 

*Customers: ILECs,PSAPs*

 

Data Management Systems include both hardwareand software offerings. Our software offerings within Data Management Systemsinclude DBMS and ALISA.

 

*DBMS* is a tool forprocessing service orders, maintaining MSAG records and validating serviceorders.

 

*ALISA* is a databasethat uses automated number identification to recognize the number of the personcalling and associate this number with an address and emergency service number,or ESN, in the database. The ESN tells the PSAP the corresponding police, fire,or emergency medical dispatcher associated with the telephone number andaddress.

 

Add-on Data Management Systems offeringsinclude the following:

 

*9-1-1Information Manager*is a software tool for querying the MSAG and telephone numberdatabases used to help maintain the records within these databases.

 

*Telco Map Server* is a tool that geo-codes serviceorders, maintains graphic MSAG boundaries, validates service order addresses,and updates ALI nodes with telephone number and location coordinates andlocation-ESN data.

 

***Professional Services***

 

*Customers: CLECs andIOCs*

 

The following professional service offeringsenable customers to improve their operations:

 

*9-1-1 Reconciliation.*  Ensures data integrity between our transaction services systemdatabase and the E9-1-1 database provider’s database.

 

5

----

 

*9-1-1 Diagnostic Assessment.*Customized assessment conducted by one of our senior 9-1-1 subjectmatter experts to evaluate efficiency of existing 9-1-1 processes.

 

*9-1-1 Service Agreement Review.*Review of customer’s state-level service agreements, ILEC inter-connection agreementsand other agreements with PSAPs and other public safety agencies.

 

*9-1-1 Surcharge Review.*Review of customer’s billing, collection, and remittance methods andprocedures.

 

*9-1-1 Training.* Customizedtraining on a variety of 9-1-1-related topics.

 

***Wireless Offerings***

 

***IntelliVector®Services***

 

We are the leading provider of outsourcedemergency response services and solutions for wireless service providers. Weprovide a range of products and services, including outsourced transactionmanagement, system integration and a host of educational and professionalservices, all centered on our scalable and redundant software platforms.

 

IntelliVector wireless network transactionservices and systems route information quickly and accurately, assuring that callersreceive rapid and appropriate responses to their calls. These services providea wide range of applications, including support of Phase I and Phase II E9-1-1deployments, enhanced emergency services and wireless data services. We offerboth service and licensed models. In the service model, we manage the entire E9-1-1call delivery to the local exchange carrier infrastructure, which in turndelivers the calls to the PSAPs. We manage all of the wireless PSAP boundarydata and provisioning of all cell site information for our service customers.In the licensed model, we deliver our location-positioning platform to ourcustomers and provide professional services to implement, train and engineerthe in-house solution. We can also provide on-going remote provisioning andPSAP boundary data access for our licensed customers. In either model, ourwireless routing data is utilized in the provision of emergency responseservices throughout North America.

 

***Enhanced9-1-1 Services***

 

*Customers: Wirelessservice providers*

 

We provide wireless service providers with 9-1-1services similar to those provided to wireline customers. These services enablethe wireless service provider to comply with the FCC’s Phase I and Phase IImandates. After a wireless service provider receives an activation request froma PSAP, our program managers develop a plan with the wireless service providerto activate the service the PSAP is requesting. This plan includes developmentof ILEC network interconnections for both data and voice that are specific tothe local wireless network configuration and interface requirements. Theprogram managers develop graphic cell site coverage area maps that aresuperimposed on current maps of public safety agency boundaries. Routingrecommendations can then be made and coordinated with the appropriate PSAP. Asa result, 9-1-1 calls are routed to the appropriate PSAP, and thecallback number and cell location of the caller is delivered to that PSAP.Wireless 9-1-1 offerings include the following:

 

*IntelliVectorWireless Gateway (IWG)* is a network and services solution for integrating andmaintaining connectivity to national and regional ALI systems. IWG has theflexibility to handle the real-time ALI exchange interfaces, messagingrequirements, and data formats required by ILECs and PSAPs while usingstandards-based interfaces.

 

*IntelliVectorCoordinate Routing Database* provides wireless serviceproviders who already own a Mobile Positioning Center, or MPC, withprovisioning, data collection, mapping services, call routing facilitation,Emergency Services Messaging Entity and Emergency Services Network Entityprovisioning, as well as dedicated program management to be handled byexperienced professionals who understand 9-1-1 infrastructure.

 

6

----

 

*IntelliVectorPosition Determination Entity (PDE)* offers wirelessservice providers access to a full-service hosted hardware and softwareapplication for their Phase II Code Division Multiple Access, or CDMA, andGlobal System for Mobile Communications, or GSM, deployments. Our hosted PDEservice utilizes third party PDE software to locate the latitude and longitudeof the wireless caller with remarkable precision without the need for expensiveadditions or changes to the wireless service provider’s network. Hosted PDEservice provides access to a centralized PDE server as well as the necessaryapplication software and engineering expertise for a complete PDE solution.

 

*IntelliVector MobilePositioning Center* acts as the point of interface tothe wireless network for the location network. The MPC serves as the entitythat retrieves, forwards, stores and controls position data within the locationnetwork.

 

*IntelliVectorGateway Mobile Location Center* routes 9-1-1calls and provides call-back number and caller location information to thePSAP, as required by the FCC mandate.

 

*IntelliVectorStandalone ALI* connects PSAPs that utilize on-site ALIdatabases with IntelliVector Wireless Gateway Services, enabling PSAPs toreceive caller location information when wireless 9-1-1 calls areinitiated.

 

***ProfessionalServices***

 

*Customers: Wirelessservice providers*

 

Our wireless professional services providecustomers with the opportunity to meet their unique E9-1-1 projectmanagement requirements as well as their need to allocate resourceseffectively.

 

*IntelliVector E9-1-1Implementation Services* provide assessment of existingcapabilities with the technical and operational requirements for successfuldeployment and management of E9-1-1.

 

*IntelliVector E9-1-1Infrastructure Services* provide drive testing,translations and mapping information.

 

*IntelliVector CostRecovery Services* provides expertise in customizedcost recovery and billing services.

 

*IntelliVector E9-1-1Analytics* present performance indicators in areas suchas uncertainty and sector call counts that provide insight to E9-1-1system efficiency and integrity.

 

*IntelliVector E9-1-1Data Services* provide accurate cell site data.

 

***Government Professional Services***

 

*IntelliVector E9-1-1Consulting Services* provide states, counties andmunicipalities with technical and operational readiness assessments, facilityreviews, personnel training and other services that enable government entitiesto meet their unique E9-1-1 project management requirements.

 

***IntegrationLab Services***

 

*Customers: Wirelessservice providers*

 

*IntelliVectorIntegration Lab Services* allow wireless serviceproviders and vendors to perform regression testing, verification testing andlocation testing of new hardware, software and applications and ensureefficient optimization and operation of all technologies.

 

7

----

 

***EnhancedEmergency Services***

 

*Customers:Telematics Service Providers, Automotive Manufacturers, Call Centers*

 

*IntelliVectorEnhanced Emergency Services (EES)* allow commercialfleet operators, Telematics Service Providers and roadside assistance callcenters to receive emergency verbal or text messages from their subscribers.IntelliVector EES delivers vital information to call centers so that calls arequickly and correctly routed to the appropriate PSAP, the first time. After thePSAP dispatches the emergency first responders, IntelliVector EES is able todeliver critical, driver-approved medical and health care provider informationto the emergency medical service vehicle.

 

***LocationServices***

 

*Customers: Wirelessservice providers*

 

*IntelliVectorLocation Based Services (LBS)* support commercialdevelopment of an MPC and GMLC solution for both the CDMA and G markets.

 

***MobilityServices (bmd wireless)***

 

*Customers: Wirelessservice providers*

 

*Wireless ApplicationMessaging Server*enables global short-message service, or SMS, access to applications andservices.

 

*Personal CallCollector*capturesattempted or missed calls when a mobile user is out of coverage or when novoicemail is left.

 

*SMS Spam Filtering* offers functionality to block unsolicitedSMS messages from on-net or off-net sources.

 

***IntelliCast® Offerings***

 

***IntelliCastTelephone Notification/Call List Services***

 

*Customers:Government (Federal/State/Local) and Commercial Enterprises*

 

The concept of public safety officials andpolice and fire departments using the public telephone system to notifycitizens of crisis situations has modernized emergency communications services.Our IntelliCastTarget Notification and Call List services provide afast and efficient means of notifying the public and specialized groups duringa crisis. Call events can be launched on a geographical basis or through theuse of dedicated lists of telephone numbers. At the onset of an incident,IntelliCastnotification services can be used to provide citizensand emergency personnel with critical information and ongoing updates until thesituation is resolved. Our notification system and services lead the industryin high-volume voice notification. In 2004, we began a trial with the NationalWeather Service to explore weather-based scenarios for targeted notification.

 

*IntelliCastTargetNotification* is an emergency telephone notificationtool used by local officials to rapidly identify, notify and instructindividuals and first responders in crisis situations. Target Notification is afully redundant, hosted service, combining a high-capacity calling platformwith in-house expertise in database management. A web-based application, it canbe accessed via the Internet or any telephone.

 

*IntelliCast****Call List*is a telephone-based communications tool for reliably distributing informationto public safety officials, first responders and others who must rapidlymobilize in response to a crisis. Call list services are based on telephonenumber data supplied by the customer. The list typically contains the name,title and telephone number of

 

8

----

 

specificindividuals to be contacted. Call lists are built and maintained via theInternet. Call lists may contain multiple wireline and wireless telephonenumbers for each individual.

 

**Service and Product Pricing**

 

For revenue derived primarily from monthlydata management and maintenance services, we typically enter into long-termcontracts with our customers, ranging from two to ten years. Pricing isnegotiated based on a variety of factors, including current and expected marketconditions, scope of work and value of services provided.

 

For revenue derived from system, new productand professional services sales, including sales of software enhancements,pricing is primarily based on a competitive proposal and acceptance processthat takes into account a variety of factors including our costs to acquire,develop, or produce the related system or software enhancement, recovery ofoverhead, profit and the relative value to the customer.

 

**Seasonality**

 

Although we do not consider our business tobe highly seasonal, in recent years, the timing of our customers’ internalcapital budgeting processes occasionally has resulted in higher revenue in thesecond half of the year, especially in the area of system and software salesand enhancements. While the bulk of our business is stable and recurring,customer buying patterns and our ability to deliver and obtain customeracceptance relative to our expectations can create fluctuations in quarter toquarter results of operations.

 

**Customers**

 

We provide our products, services and systemsto a range of customers, including ILECs, CLECs, VoIP carriers, InterexchangeCarriers, or IXCs, wireless service providers, and federal, state and localgovernment agencies. Although we license our software to ILECs and provide 9-1-1data management services indirectly to a large number of independent telephonecompanies, we are primarily dependent upon large service contracts from alimited number of significant customers. In 2004, we received approximately 55%of our revenue from four customers. See “Risk Factors.”

 

Historically, we have entered into contractswith carriers and their affiliates to provide services to some or all of the carrier’s operating entities and we havecontracts that govern the licensing of our proprietary software. In 2004 we hadthree revenue generating segments: Wireless, Wireline and New Markets.Following is a partial list of carriers and government entities using ourservices or products within these segments. We believe this list isrepresentative of our overall customer base.

 
| ***Wireline Customers***                       | *** *** | *** ***                                                                                                                                 |
|------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------------------------------------------|
| *** ***                                   | *** *** | *** ***                                                                                                                                 |
| ***ILECs***                                    |         | BellSouth, Qwest, SBC, Verizon, Alaska  Communications, Frontier Communications, Cincinnati Bell                                             |
| *** ***                                   |         |                                                                                                                                         |
| ***CLECs/IXCs***                               |         | AT&T, MCI, XO Communications.                                                                                                            |
| *** ***                                   |         |                                                                                                                                         |
| ***VoIP Providers***                           |         | AT&T, BellSouth, CallTower, Level 3,  Primus, Qwest, Time Warner, Verizon, Vonage                                                        |
| *** ***                                   |         |                                                                                                                                         |
| ***Government Entities***                      |         | Texas Commission for State Emergency  Communications                                                                                         |
| *** ***                                   |         |                                                                                                                                         |
| ***Wireless Customers***                       |         | ALLTEL, Cingular, Cross Country Automotive  Services, Greater Harris County, Nextel, Qwest Wireless, Sprint PCS, Verizon,  Western Wireless. |
| *** ***                                   |         |                                                                                                                                         |
| ***New  Markets/IntelliCast  Customers*** |         | National Weather Service, Chicago, Denver,  Greater Harris County (Houston) and Maricopa County (Phoenix).                                   |

 

9

----

 

**Sales and Marketing**

 

Our marketing targets telecommunicationscarriers, government agencies and PSAPs in each geographical market throughadvertising in industry and government publications, participation in tradeshows, presentations at key events, direct sales and marketing campaigns andother initiatives. In addition, our employees serve as the chairpersons andmembers of key standards committees related to emergency communicationsservices and telecommunications technology and operations. Although our salesstrategy relies primarily on our direct channels of distribution, we also havean Alliance Program to jointly market our products and services with companieswho sell complementary products or address our target markets. Our accountteams work directly with existing and potential customers in a consultative,problem-solving sales process, to determine and fulfill their needs withappropriate offerings. Sales cycles range from one month to three years. Ourindirect channel program team provides distribution partners with a supportprogram framework including channel sales representative training, marketingcollateral, product and process support and incentive campaigns.

 

**Research and Development**

 

We direct our research and developmentefforts toward providing highly scalable, fault tolerant applications to thepublic safety, telecommunications and government markets. Development effortsin process are focused on integrating Internet technology, spatial data mappingsystems, advanced switching and transport elements capable of interfacing withexisting networks and enabling the more efficient E9-1-1 processesthat improve data quality.

 

**Competition**

 

The market for wireline and wireless 9-1-1solutions is competitive. We believe that the principal competitive factorsaffecting the market for 9-1-1 solutions include: effectiveness ofexisting infrastructure, scalability, reliability, ease of use, price,technical features, scope of product offerings, customer service and support,ease of technical migration, useful life of new technology and wireless support.

 

Although we believe that our solutions arecompetitive, we may not be able to maintain our competitive position,especially if companies with significantly greater financial, marketing,service support, technical and other competitive resources enter the market.

 

In the 9-1-1 solutions market,encompassing virtually all of our business units, our principal competitorsfall generally within one of four categories:

 

•      Internaldevelopment departments of major carriers or consulting firms that support suchdepartments;

 

•      Companies thatoffer applications featuring portions of our comprehensive set of E9-1-1solutions;

 

•      Largercompanies that are either in the process of entering our market or have thepotential to develop comparable products and services; and

 

•      Companies thatattempt to integrate product components from a number of providers into atargeted customer solution.

 

In addition, a number of companies currentlymarket or have under development software products and services to provide 9-1-1administration. In the wireless market, we compete primarily withTeleCommunications Systems, for the provision of 9-1-1 datamanagement services to wireless carriers. In the ILEC and CLEC market wecompete primarily with internally developed solutions of major carriers, aswell as with HBF Group. However, the development of new technologies, includingVoIP, may open the traditional 9-1-1 data services to ****new competitors withsubstantially greater resources than us****.

 

In the notification market, our competitorsinclude, among others, Dialogic Communications Corporation, SigmaCommunications LLC, FirstCall Network, Inc., and Twenty First CenturyCommunications, Inc. The

 

10

----

 

IntelliCastsystemis primarily designed for emergency warning applications, which requirehigh-volume, high-availability capabilities for the mass notification of thegeneral public within a dynamically defined geographic area. Most of ourcompetitors’ systems have been designed for workforce mobilizationapplications, where a pre-defined list of individuals is notified in the eventof an incident. IntelliCastand competing products can individuallysupport both applications to some degree; however, the difference inapplication focus impacts features, system architecture and cost structure.

 

**Intellectual Property Rights**

 

Wehave patent rights to protect some of our innovations and proprietary productsand technology. We market our products and services under our own names andmarks, many of which are registered in our principal markets in the UnitedStates and Europe. We own three issued patents. In addition, we have 19 patentapplications pending at the U.S. Patent and Trademark Office and patentapplications pending in numerous foreign patent offices for each of nineseparate inventions. We also have a limited exclusive license under 13 otherissued patents and nine other pending patent applications. The foreign patentsand applications are, for the most part, counterparts to our U.S. patents andapplications, although foreign patent rights might not be available or pursuedin technology areas for which U.S. patent rights are sought. We cannot assureyou that these patent applications will result in issued patents, nor guaranteethat, if issued, such patents will be valid and enforceable.

 

Werely on patent, trademark, trade secret, and copyright laws both to protect ourintellectual property, including our proprietary technology, and to protect usagainst claims from others. We believe that we have direct intellectualproperty rights or rights under licensing arrangements covering substantiallyall of our material technologies. However, third parties may assertinfringement claims against us or against our customers in connection with theuse of our systems and products. If such a claim were to be made against ourcustomers or us, the outcome would be difficult to predict because of thetechnical complexity of our systems and products. Further, future claimsor litigation, regardless of their merit, could be time consuming and result incostly litigation or settlement efforts.

 

**Employees**

 

As of March 1, 2005, we employed 743full-time employees in 16 states and three countries. No employees are coveredby any collective bargaining agreements. We believe that our relationships withour employees are good. The majority of our employees are located in ourLongmont headquarters. We have several satellite locations, including our bmdoperations in Zug, Switzerland and sales, development and support staff inTexas, Washington, DC and Illinois.

 

**Facilities**

 

Our corporate headquarters and principaladministrative, sales and marketing, research and development and supportfacilities are located in:

 

•      *Longmont, Colorado*, where we occupy275,000 square feet of office space under a lease expiring December 2011.As of December 31, 2004, the annual base rent for this facility wasapproximately $2.8 million.

 

•      *Lisle, Illinois*, where we occupy 29,000square feet of office and warehouse space under a lease that expires August 2007.As of December 31, 2004, the annual base rent for this facility wasapproximately $609,000.

 

•      *Austin, Texas*, where we occupyapproximately 2,600 square feet of office space on a month-to month basis. Asof December 31, 2004, the annual base rent for this facility wasapproximately $32,000.

 

•      *Zug, Switzerland*, where we occupy 3,700square feet of office space, with an annual base rent of approximately$120,000.

 

All of the above leases provide for periodic defined increases in rentover the life of the lease.

 

11

----

 

**Securities and Exchange Commission Filings**

 

We file the following reports with the SECunder Section 13(a) of the Securities Exchange Act of 1934: AnnualReports on Form 10-K; Quarterly Reports on Form 10-Q;Current Reports on Form 8-K; and any amendments to these reports. Wemake these reports available free of charge on or through our Internet website,www.intrado.com, as soon as reasonably practicable after we electronically filesuch material with, or furnish such material to, the SEC; however, informationon our website should not be considered to be a part of this report or anyother SEC filing. You may request a copy of these filings at no cost. Pleasedirect your requests to:

 

Michael D. Dingman, Jr.

Chief Financial Officer

Intrado Inc.

1601 Dry Creek Drive

Longmont, Colorado 80503

 

You can also read and copy any materials that we file with the SEC atthe SEC’s Public Reference Room at 450 Fifth Street, NW, Washington DC20549. You can obtain information on the operation of the Public Reference Room bycalling the SEC at 1-800-SEC-0330. The SEC also maintains anInternet site (http://www.sec.gov) that contains our reports, proxy andinformation statements and other information that we file electronically withthe SEC.

 

**RISKFACTORS**

 

*In evaluating our business, youshould carefully consider the risks and uncertainties discussed in thissection, in addition to the other information presented in this Annual Reporton Form 10-K. The risks and uncertainties described below may not bethe only risks that we face. If any of these risks or uncertainties actuallyoccurs, our business, operating results or financial condition could bematerially adversely affected and the market price of our common stock maydecline.*

 

**We depend on large contracts from a limited number ofsignificant customers and the loss of any of those contracts would adverselyaffect our operating results.**

 

We depend on large contracts from a limited numberof significant customers. We provide our services to a range of customers,including ILECs, CLECs, wireless carriers and state and local governmentagencies. During the year ended December 31, 2004, we recognizedapproximately 55% of our total revenue from BellSouth, Qwest, SBC and Verizon.BellSouth, SBC and Verizon each accounted for greater than 10% of our revenuein 2004. During the year ended December 31, 2003, we recognizedapproximately 55% of our total revenue from BellSouth, Qwest, SBC and Verizon,each of which accounted for greater than 10% of our revenue. During the yearended December 31, 2002, we recognized approximately 56% of total revenuefrom BellSouth, Qwest, SBC and Verizon, each of which accounted for greaterthan 10% of our revenue. No other customers accounted for more than 10% of ourtotal revenue during those periods.

 

We believe that these customers and others maycontinue to represent a substantial portion of our total revenue in the future.One ILEC contract will expire in the first half of 2005. Contracts for seven ofour largest thirteen Wireless customers are also scheduled to expire in 2005.As we enter negotiations to renew these contracts, our customers may demandprice or other contractual concessions. Our ILEC customers could decide to developand utilize their own proprietary 9-1-1 software and to performinternally the services that they presently outsource to us. Our Wirelesscustomers may also choose to not renew with us or to significantly decrease theamount of services they outsource to us in favor of competitors or their ownin-house solutions. Moreover, existing contract provisions allow thesecustomers and others to receive contract concessions or to cancel theircontracts in the event of customer consolidations, changes in regulatory,legal, labor or business conditions. Contract concessions, or the loss of amajor customer, could have a material adverse effect on our business, financialcondition, results of operations and cash flows.

 

12

----

 

**Acquisitions, consolidations, bankruptcies andreorganizations among our telecommunications customers may have a materialadverse effect on our market share, liquidity, financial position and operatingresults.**

 

Acquisitions and consolidations among ourtelecommunications customers, especially in the wireless sector, involveintegration risk and create uncertainties related to our pricing structure,ability to negotiate contracts and operating results. Although we believe thatwe are well positioned to maintain our market share without significant pricedegradation or loss of customers, we cannot be certain that our financialforecasts and renewal and retention strategies will be successful. Customerconsolidations and merger activity may have a material adverse effect on ourability to renew contracts as they expire and maintain current price levels,especially where a consolidated customer base will be able to negotiate volumeprice discounts. Therefore, customer consolidations and merger activity mayhave a material adverse effect on our market share, liquidity, financialposition, cash flows and operating results.

 

Moreover, some of our customers have filed voluntarypetitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.Other telecommunications customers have experienced cash flow and operatingdifficulties and may also file for protection from creditors under the federalbankruptcy laws. In addition to the fact that financially troubled customersmay be more susceptible to industry consolidations and merger activity, asdiscussed above, we may experience difficulty in collecting amounts due fromthese customers. Although we believe that we have provided adequate reservesfor bad debt on existing receivables as of the date of this report, futurebankruptcies, reorganizations and consolidations in the telecommunicationsindustry may have a material adverse effect on our market share, liquidity,financial position, cash flows and operating results.

 

**If wefail to integrate businesses and assets that we may acquire, we may losecustomers and our liquidity, capital resources and profitability may beadversely affected.**

 

Weacquired bmd wireless AG in February 2004. In the past, we have alsoacquired product source code rights to help broaden and strengthen our productportfolio. We expect to continue to evaluate strategic acquisitions as a partof our long-term business strategy. Acquisitions often involve a number ofspecial risks, including the following:

 

•      We may encounter difficulties integratingacquired software, operations and personnel and our management’s attentioncould be diverted from other business concerns;

 

•      We may not be able to successfullyincorporate acquired technology and rights into our service offerings and maintainuniform standards, controls, procedures and policies;

 

•      The businesses or assets we acquire may failto achieve the revenues and earnings we anticipated, causing us to incuradditional debt to fund operations and to write down the value of acquisitionson our financial statements;

 

•      We may assume product liability orintellectual property liability associated with the sale of the acquiredcompany’s products;

 

•      Our resources may be diverted in assertingand defending our legal rights and we may ultimately be liable for contingentand other liabilities, not previously disclosed to us, of the companies that weacquire;

 

•      The acquisition may disrupt our ongoingbusiness and dilute your ownership interest;

 

•      Acquisitions may result in litigation fromformer employees or third parties; and

 

•      Due diligence may fail to identifysignificant issues with product quality, product architecture, ownership rightsand legal contingencies, among other matters.

 

13

----

 

Anyof these factors could have a material adverse effect on our business and onthe market value of our common stock.

 

Withregard to our acquisition of bmd wireless AG, financial results were lower thanexpected in 2004 due to competitive pressure in Europe and a longer sales cyclethan expected at the time of the acquisition. As a result, we expect asignificantly slower path for penetration of bmd’s technology into the Europeanand North American markets. Based on these trends, we determined in the fourth quarterof 2004 that the five-year earnings forecast for bmd required a substantialdownward revision. As a result of an impairment analysis of goodwill and otherintangible assets, we recorded a goodwill impairment charge of $14.0 million inthe fourth quarter of 2004. There can be no assurance that we will realize thefull benefits that we anticipated from our acquisition of bmd wireless AG orany future acquisitions. Our failure to successfully gain market acceptance ofthe products acquired or to gain market share could seriously harm ourbusiness, operating results, cash flows and financial condition.

 

Inaddition, negotiation of potential acquisitions and the resulting integrationof acquired businesses, products, or technologies, could divert management’stime and resources. Future acquisitions could include the issuance of dilutiveequity securities or cause us to incur debt, contingent liabilities, additionalamortization charges from intangible assets, asset impairment charges, orwrite-off charges for in-process research and development and otherindefinite-lived intangible assets that could impact our financial condition,cash flows and operating results.

 

**Our market is characterized by rapid technologicalchange, as evidenced by the increased use of VoIP technology, and we could loseour competitive position if we are not successful in developing new productsthat achieve market acceptance.**

 

The market for 9-1-1 data managementsolutions is intensely competitive and we expect competition to increase in thefuture. We believe that the principal competitive factors affecting the marketfor 9-1-1 data management services include flexibility,reliability, manageability, technical features, performance, ease of use,price, scope of product offerings and customer service and support. We may notbe able to maintain our competitive position against current and potentialcompetitors, especially those with significantly greater financial, marketing,support service, technical and other competitive resources.

 

In addition, the market for our services ischaracterized by rapid technological change, frequent new product or serviceintroductions, evolving industry standards and changing customer needs.Existing products may become obsolete and unmarketable when productsintroducing new technologies are introduced. To be successful, we must be ableto enhance existing products and to develop new products that keep pace withtechnological changes, satisfy our customers and achieve market acceptance.This is best evidenced by the increasing use of VoIP in the traditionalwireline market during 2004. VoIP is a new technology that enables voicetraffic to be carried over an Internet Protocol-based network. The location ofthe VoIP caller is not necessarily fixed, presenting a challenge related to thehandling and routing of emergency 9-1-1calls. Increased use of VoIPand other new technologies could open the traditional 9-1-1 dataservices market to new competition with substantially greater resources thanus.

 

In addition to new enhancements to our traditional 9-1-1database services, we are attempting to expand into the highly competitive CDBmarket. If a new product or service does not achieve market acceptance, we mayhave to write-off related capitalized software costs. If we are unable todevelop and introduce new services and products to our traditional 9-1-1data services market or to new markets in a timely manner, our business,financial condition and results of operations could be adversely affected.

 

Historically, we have issued new releases of oursoftware periodically, with minor interim releases issued more frequently. As aresult of the complexities inherent in our offerings, major enhancements andnew products often require long development and testing periods before they arereleased. We have occasionally experienced delays in the scheduled release dateof new or enhanced products and we cannot provide assurance that we willachieve future scheduled release dates. The delay of products, or the failureof such products to achieve market acceptance, could materially affect ourbusiness.

 

14

----

 

**If we do not realize anticipated benefits from ourcapitalized software, we may be forced to record animpairment, thereby adversely affecting our operating results.**

 

In assessing the recoverability of our existingcapitalized software assets, we rely on estimates and judgments to determinethe net realizable value of each product. When evaluating the net realizablevalue of a given product, we prepare a forward-looking business case that iscomprised of an assessment of future expected benefits to be generated. Theexpected benefits are compared to the direct costs associated with supportingthe product on an ongoing basis to arrive at a contribution margin, defined asexpected benefits less direct costs. This contribution margin is compared tothe carrying value of the asset at the reporting date to determine if thecontribution margin exceeds the asset carrying value plus any additionalinvestments such as hardware or additional development required to enhance ormaintain the product. If the contribution margin is less than the carryingvalue, an impairment is recorded. Our ability toestimate future expected revenues and benefits with a measured degree ofprobability is the most significant factor in our estimate of recoverability.If our ability to estimate the expected benefits changes significantly in anygiven period, we could record impairment charges for certain assets and ouroperating results could be adversely affected.  In the second quarter of 2004, we determined that, due to thecontinued limited visibility regarding the timing of forecasted revenueopportunities for our Commercial Database product offerings, it was necessaryto impair $1.7 million of software assets. We also recorded an impairmentcharge of $588,000 in the second quarter of 2004 related to a subset of our MPCproduct offerings based on limited revenue visibility.

 

**The market price of our common stock may experienceprice fluctuations for reasons over which we have no control, including trendsthat affect the telecommunications industry as a whole.**

 

The market price of shares of our common stock hasfluctuated greatly since our initial public offering in June 1998 andcould continue to fluctuate due to a variety of factors, some of which are notwithin our control. In the past, companies that have experienced volatility inthe market price of their stock have been the objects of securities classaction litigation. If we were the object of securities class action litigation,it could result in substantial costs and a diversion of our management’sattention and resources.

 

**An economic slowdown and increased internationalpolitical instability may have a material adverse affect on our business andresults of operations.**

 

Aneconomic slowdown or increased international political instability, asdemonstrated by terrorist threats, the conflict in Iraq, increasing tension inthe Middle East and Korea, and the resulting need for enhanced securitymeasures may have a detrimental effect on our business. An economic slowdown,for example, may impact our customers’ purchasing  decisions. In addition, increasedpolitical instability may adversely affect our ability to obtain adequateinsurance at reasonable rates or require us to take extra security precautionsfor our operations and computer database systems. If the economic slowdown orinternational political instability continues or increases, our business,results of operations and the market price of our common stock could beadversely affected.

 

 **If we areunable to retain key executives, our operating results and growth potential maybe adversely affected.**

 

Our success greatly depends on our ability toattract and retain key technical, sales and executive personnel. We areespecially dependent on the continued services of our senior management team,particularly George K. Heinrichs, our co-founder, president, chief executiveofficer and chairman of the board. Although members of our executive team aresubject to non-competition agreements, they are not presently subject toemployment contracts. As a result, they can terminate their employment at anytime. The loss of Mr. Heinrichs, or any other member of our senior managementteam, could adversely affect our operating results and growth potential.

 

**Restrictionson state and local government budgets and other factors may cause our operatingresults to fluctuate and, as a result, our stock price may decline.**

 

Our revenue, operating results and cash flows aredifficult to predict and may fluctuate significantly from quarter to quarter asa result of restrictions on state and local government budgets, adverse trendsin the telecommunications industry and other factors. Therefore, you should notrely on period-to-period comparisons of

 

15

----

 

revenue or operating results as an indication of ourfuture performance. If our revenue, operating results and cash flows fall belowthe expectations of the investors or securities analysts, the price of ourcommon stock could fall substantially.

 

**If our institutional investors sell large volumes ofour common stock within a short period of time, the market price of our commonstock may decline.**

 

Approximately 72.1% of our common stock is owned bylarge institutional investors. Five institutional investors own approximately6.1 million shares of our common stock, representing approximately 34.5%of our outstanding common stock as of the date of this report. Theseinstitutions and others may sell their shares of common stock at any time,causing the market price of our common stock to decline.

 

***Thevalue of your common stock may decrease if employees and other security holdersexercise their options and warrants.***

 

Asshown in the table below, as of December 31, 2004, we have reserved 3,269,010 shares of common stock for future issuanceupon exercise of outstanding options and redeemable warrants.

 
| ** **                                          | ** ** | **Number of Securities to  be Issued upon Exercise  of Outstanding Options,  Warrants and Rights** | ** ** | **Weighted Average  Exercise Price of  Outstanding Options,  Warrants and Rights** | ** **  | **Number of Shares Remaining  Available for Issuance Under  Equity Compensation Plans as of  3/1/2005, Excluding Securities  Available in First Column (1)** | ** ** |
|-----------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans approved by  stockholders |       | 3,259,290                                                                                          |       | $                                                                                  |  11.24 |                                                                                                                                                         | 544,113    |   |
| Outstanding warrants                                |       | 9,720                                                                                              |       | $                                                                                  | 7.91        |                                                                                                                                                         | 0          |   |
|                                                |       |                                                                                               |       |                                                                               |        |                                                                                                                                                         |       |
| Total                                               |       | 3,269,010                                                                                          |       | $                                                                                  | 11.23       |                                                                                                                                                         | 544,113    |   |

 

We may issue additional equity-based securities inthe future, including stock options, warrants, stock appreciation rights andshares of restricted stock. As these securities are exercised or vest, you willexperience dilution in the market value and earnings per share of your commonstock.

 

**Our corporate documents and Delaware law make atakeover of our Company more difficult, which may adversely affect the marketprice of our common stock.**

 

Our charter and bylaws and Section 203 of theDelaware General Corporation Law contain provisions that may enable our managementto resist a corporate takeover. Among other things, the board of directors hasthe ability to issue “blank check” preferred stock without stockholderapproval. Furthermore, our directors are divided into three classes withstaggered terms. These provisions may discourage, delay or prevent a change incontrol or a change in our management. These provisions also could discourageproxy contests and make it more difficult for you to elect directors and takeother corporate actions. In addition, these provisions could adversely affectthe price that investors are willing to pay for shares of common stock andprevent you from realizing the premium return that stockholders may receive inconjunction with a corporate takeover.

 

**Substantially all of our revenue is derived from our 9-1-1data management solutions, and our operating results, financial position andcash flows may depend upon our ability to continue to sell these solutions.**

 

We currently derive substantially all of our revenuefrom the provisioning of our 9-1-1 data management solutions toILECs, CLECs, wireless carriers and state and local government agencies.Accordingly, we are susceptible to adverse trends affecting this marketsegment, including government regulation, technological obsolescence and theentry of new competition. We expect that this market may continue to accountfor substantially all of our revenue in the near future. As a result, ourfuture success depends on our ability to continue to sell our 9-1-1solutions, maintain and

 

16

----

 

increase our market share by providing other value-addedservices to the market, and successfully adapt our technology and services toother related markets. Markets for our existing services and products may notcontinue to expand and we may not be successful in our efforts to penetrate newmarkets.

 

**Our business is subject to government regulation andother legal uncertainties, which could adversely affect our operations.**

 

The market for our services and products has beeninfluenced by various laws and regulations, including:

 

•      The adoption of regulations under theTelecommunications Act of 1996;

 

•      The duties imposed on us or on our whollyowned subsidiary, Intrado Communications Inc., as a result of its status as aregulated competitive local exchange carrier or as an inter-exchange carrier;

 

•      The duties imposed on incumbent localexchange carriers by the Telecommunications Act of 1996, or other legislation,regulation or judicial or administrative determinations, to open localtelephone markets, including 9-1-1 service as a part of localexchange service, to competition;

 

•      The responsibilities of local exchangecarriers to provide subscriber records to emergency service providers under theWireless Communications and Public Safety Act of 1999;  and

 

•      The impact of various federal and stateregulations on wireless carriers that provide E9-1-1 service,including, but not limited to, regulations imposed by the FCC in C.C. Docket 94-102.

 

Anychanges to these legal requirements, including those caused by the adoption ofnew laws and regulations or by legal challenges, could have a material adverseeffect upon the market for our services and products. In particular, if new orexisting legislation or regulations are applied to VoIP services, our operatingresults and growth potential may be adversely affected. Moreover, any delay inimplementation of the requirements imposed by Congress, state legislatures, theFCC or state regulatory commissions could have a material adverse effect on ourbusiness, financial condition and results of operations.

 

**Our business is subject to reporting requirements thathave significantly increased our compliance costs in the impacted areas.**

 

Because our common stock is publicly traded, we aresubject to certain rules and regulations of federal, state and financialmarket exchange entities charged with the protection of investors and theoversight of companies whose securities are publicly traded. These entities,including the Public Company Accounting Oversight Board, the FinancialAccounting Standards Board, the Securities and Exchange Commission and theNASDAQ Stock Market, have recently issued new regulations and requirements andare currently developing additional regulations and requirements in response tolaws enacted by Congress, most notably the Sarbanes-Oxley Act of 2002. Ourcompliance with current and proposed rules, such as Section 404 of theSarbanes-Oxley Act, has required and is likely to continue to require thecommitment of significant financial and managerial resources. OurSarbanes-Oxley compliance costs exceeded $2 million in 2004. We also cannotpredict whether our compliance efforts will result in operational efficienciesthat will help to offset past or ongoing compliance costs. The expendituresnecessary to comply with new regulations and regulatory requirements maycontinue to have a material adverse impact on our financial condition andresults of operations.

 

**We could incur substantial costs from product liability,negligence, wrongful death and similar claims relating to our services and oursoftware.**

 

Because customers utilize our services and licensedsoftware products to provide critical 9-1-1 services, we aresubject to product liability, negligence, wrongful death and related claims.Our agreements with customers typically require us to indemnify customers forour own acts of negligence and non-performance. Product liability and otherforms of insurance are expensive and may not be available in the future. Wecannot be sure that we will be able to maintain or

 

17

----

 

obtain insurance coverage at acceptable costs or insufficient amounts or that our insurer may not disclaim coverage as to a futureclaim. Payments of material claims for product liability, negligence, wrongfuldeath or similar claims may adversely affect our business, operating results orfinancial condition.

 

**Our operating results, financial condition and cashflows could be adversely affected by unauthorized access to our system or anyinterruption of our services or system failure.**

 

Our operations depend on our ability to maintain ourcomputer and telecommunications equipment and systems in effective workingorder, and to protect our systems against unauthorized access to our system bythird parties or employees and against damage from fire, natural disaster,power loss, telecommunications failure, sabotage or other events. Anyunauthorized access or unanticipated interruption or delay in our operationscould have a material adverse effect on our financial condition, results ofoperations and cash flows. Furthermore, any addition or expansion of ourfacilities to increase capacity could increase our exposure to damage fromfire, natural disaster, power loss, telecommunications failure, unauthorizedaccess or similar events. Our property and business interruption insurance maynot be adequate to compensate us for any losses that may occur in the event ofa system failure or a breach of security. Furthermore, insurance may not beavailable to us at all or, if available, may not be available on commerciallyreasonable terms.

 

***Toprotect our proprietary rights or to deal with claims that we infringe theproprietary rights of others, we may be forced to incur substantial costs andto divert valuable managerial resources away from our business operations.***

 

The success of our business depends on ourability to assert and defend our intellectual property rights. To protect ourrights, we rely on a combination of copyright, trademark, patent and tradesecret laws, and contractual restrictions. We cannot be sure that these stepswill be adequate to prevent misappropriation or infringement of ourintellectual property. Nor can we be sure that competitors will not independentlydevelop technologies that are substantially equivalent or superior to ourproprietary property and technology.

 

In our industry, competitors often assertintellectual property claims against one another. As the functionality of ourservices and products increases and overlaps with the products and services ofother companies, we may be forced to assert our intellectual property rights orbecome subject to claims of infringement or misappropriation of theintellectual property rights of others. These claims could result insubstantial costs and diversion of resources, even if the claims are ultimatelydecided in our favor. In certain customer agreements, we agree to indemnify ourcustomers for any expenses or liabilities resulting from claimed infringementsof patents, trademarks or copyrights of third parties. In some instances, theamount of the indemnities may be greater than the revenue we received from thecustomer. Although we have not experienced any material claims to date, futureclaims or litigation, with or without merit, could be time consuming andexpensive or require us to enter into royalty or licensing arrangements. Wecannot be sure that such licenses would be offered or obtained on commerciallyreasonable terms, if at all. Any litigation or royalty or licensingarrangements, if required, may not be available on terms acceptable to us, ifat all, and could have a material adverse effect on our financial condition,results of operations and cash flows.

 

***If wedo not adequately anticipate and respond to the risks inherent in internationaloperations, our operating results and stock price could be adversely affected.***

 

***Although our consolidated financial statements are prepared in U.S.dollars, the operations of our foreign subsidiary, bmd wireless AG, areconducted primarily in Swiss francs, euros and other international currencies.Consequently, changes in exchange rates can unpredictably and adversely affectour consolidated operating results and could result in exchange losses. We do nothedge against the risks associated with fluctuations in exchange rates.Although we may use hedging techniques in the future, we may not be able toeliminate or reduce the effects of currency fluctuations. Thus, exchange ratefluctuations could have a material adverse impact on our operating results andstock price.***

 

18

----

 

In addition, ourfinancial results may be adversely affected by other international risks, suchas:

 

•      Changes ingovernment regulation in various countries;

 

•      Trade barriers;

 

•      Adverse taxconsequences;

 

•      The absence orsignificant inadequacy of legal protection for intellectual property rights;

 

•      The adoption ofdata privacy laws or regulations;

 

•      Political andeconomic instability; and

 

•      Costs associatedwith expansion into new territories.

 

Although bmd’s operations do not presently representa material portion of our business, we intend to seek other opportunities inEurope and Asia. If we do not anticipate and respond to the risks associatedwith international operations, it could have a material adverse effect on ouroperating results and stock price.

 

**The adoption of new accounting requirements relatingto expensing stock options is expected to significantly reduce our results ofoperations in future periods and may impact our ability to retain existingemployees and directors.**

 

Wecurrently account for the issuance of stock options under Accounting PrinciplesBoard Opinion No. 25, “Accounting for Stock Issued to Employees.” With theadoption of new accounting requirements related to historical and prospectivestock awards and incentives, including SFAS No. 123R (revised 2004), “Share-BasedPayment,” we will now be required to treat the value of the stock optionsgranted to employees and directors as compensation expense beginning in thethird quarter of 2005. As a result, we may decide to reduce the number of stockoptions granted to employees and directors or to grant other forms ofequity-based compensation, including restricted stock, restricted stock unitsand stock appreciation rights. This could adversely affect our ability toretain existing employees or directors and attract qualified candidates.Moreover, this could force us to increase the cash compensation we would have topay employees.

 

**ITEM 2.****  PROPERTIES**

 

Please see the disclosure under the caption “Item1. Business—Facilities.”

 

**ITEM 3.****  LEGALPROCEEDINGS**

 

We are involved in disputes and legal actionsthat arise in the ordinary course of our business. While it is not feasible topredict the outcome of these proceedings, in our opinion, based on a reviewwith legal counsel, none of these disputes and legal actions is expected tohave a material adverse effect on our consolidated financial or otherposition, results of operations or cash flows. However, litigation is subjectto inherent uncertainties, and an adverse result in these matters could arisethat may harm our business.

 

19

----

 

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

 

No matters were submitted for a vote ofsecurity holders during the fourth quarter of the fiscal year covered by thisreport.

 

**ITEM 5.****  MARKET FOR THEREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES**

 

Our common stock is traded on the NASDAQNational Market under the symbol “TRDO.” We commenced our initial publicoffering of the common stock on June 24, 1998 at a price of $12.00 pershare. Prior to this date, there was no public market for our common stock. Thefollowing table sets forth the high and low market prices for each fullquarterly period within the last two fiscal years and from January 1, 2005through March 1, 2005.

 
| ** **                  | ** ** | **Stock Price** | ** ** |
|-----------------------------|------------|-----------------|------------|
| ** **                  | ** ** | **High**        | ** ** | **Low** | ** ** |
| **2005**                    | ** ** | ** **      | ** ** | ** ** | ** ** |
| January 1-March 1 |       | $               | 14.66      |   | $ | 11.24 |   |
|                        |       |            |       |   |   |
| **2004**                    | ** ** | ** **      | ** ** | ** ** | ** ** |
| Fourth Quarter              |       | $               | 14.22      |   | $ | 10.06 |   |
| Third Quarter               |       | $               | 16.21      |   | $ | 8.54 |   |
| Second Quarter              |       | $               | 21.15      |   | $ | 15.33 |   |
| First Quarter               |       | $               | 25.14      |   | $ | 18.69 |   |
|                        |       |            |       |   |   |
| **2003**                    | ** ** | ** **      | ** ** | ** ** | ** ** |
| Fourth Quarter              |       | $               | 24.86      |   | $ | 16.11 |   |
| Third Quarter               |       | $               | 24.80      |   | $ | 15.23 |   |
| Second Quarter              |       | $               | 16.50      |   | $ | 6.59 |   |
| First Quarter               |       | $               | 10.73      |   | $ | 6.87 |   |

 

As of March 1, 2005, there were 113stockholders of record.

 

We have not paid any cash dividends on ourcapital stock since our inception and do not expect to pay cash dividends onour common stock in the foreseeable future. Covenants contained in our line ofcredit agreement restrict the payment of dividends without the lender’s priorconsent. Payment of future dividends, if any, may be declared at the discretionof our board of directors, subject to the restrictions discussed above, aftertaking into account various factors, including our financial condition,operating results, cash needs and expansion plans.

 

As shown in the table below, as of December 31,2004, we reserved 3,269,010 shares of common stock for future issuance uponexercise of outstanding options under equity compensation plans and warrants.

 
| ** **                                          | ** ** | **Number of Securities  to be Issued upon  Exercise of  Outstanding Options,  Warrants and Rights** | ** ** | **Weighted Average  Exercise Price of  Outstanding Options,  Warrants and Rights** | ** ** | **Number of Shares Remaining  Available for Issuance Under  Equity Compensation Plans,  Excluding Securities Available  in First Column (1)** | ** ** |
|-----------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans approved by  stockholders |       | 3,259,290                                                                                           |       | $                                                                                  | 11.24      |                                                                                                                                          | 19,755     |   |
| Outstanding warrants                                |       | 9,720                                                                                               |       | $                                                                                  | 7.91       |                                                                                                                                          | 0          |   |
|                                                |       |                                                                                                |       |                                                                               |       |                                                                                                                                          |       |
| Total                                               |       | 3,269,010                                                                                           |       | $                                                                                  | 11.23      |                                                                                                                                          | 19,755     |   |

 

----

(1)     Our 1998 Stock Incentive Plan, which wasapproved by stockholders, includes an evergreen provision in which the number ofshares issuable under the Plan automatically increases on the first trading dayin January of each calendar year by an amount equal to 3% of the totalnumber of shares of common stock outstanding on the last trading day in December ofthe preceding calendar year (but in no event shall such increase exceed 731,000shares). On December 31, 2004, we had 17,478,598 shares outstanding. On January 3,2005 (the first trading day in 2005), the number of shares issuable under the1998 Stock Incentive Plan increased by 524,358 shares. This amount is notincluded in the “Number of Shares Remaining Available for Issuance.”

 

20

----

 

 

**PART II**

 

**ITEM 6.**** SELECTED FINANCIAL DATA**

 

The following selected financial data isqualified by reference to and should be read in conjunction with ourconsolidated financial statements and notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations.” The consolidated statement of operations datafor the years ended December 31, 2004, 2003 and 2002 and the consolidatedbalance sheet data at December 31, 2004 and 2003 are derived from theaudited consolidated financial statements and notes included in “Item 8. Financial Statements and Supplementary Data.” Theconsolidated statement of operations data for the years ended December 31,2001 and 2000 and the consolidated balance sheet data at December 31, 2002,2001and 2000 are derived from audited consolidated financial statements notincluded in this Annual Report on Form 10-K.

 
| ** **                                                                                                | ** ** | **December 31,**                             | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                | ** ** | **2004**                                          | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                                                                                                | ** ** | **(Amounts in Thousands, Except Per Share Data)** | ** ** |
| **Consolidated Statement of Operations Data:**                                                            |       |                                              |       |   |   |   |   |   |   |   |   |
| Revenues                                                                                                  |       | $                                                 | 136,524    |   | $ | 124,654 |   | $ | 107,714 |   | $ | 78,187 |   | $ | 43,124 |   |
| Costs and expenses:                                                                                       |       |                                              |       |   |   |   |   |   |   |   |   |
| Direct costs                                                                                              |       | 75,685                                            | (1)        | 66,105 |   | 56,463 |   | 47,201 |   | 28,327 |   |
| Goodwill impairment                                                                                       |       | 14,233                                            |       | — |   | — |   | — |   | — |   |
| Sales and marketing                                                                                       |       | 20,084                                            |       | 16,933 |   | 16,902 |   | 13,109 |   | 8,869 |   |
| General and administrative                                                                                |       | 21,727                                            |       | 22,268 |   | 25,390 | (2) | 16,701 |   | 8,884 |   |
| Research and development                                                                                  |       | 2,909                                             |       | 2,322 |   | 2,769 |   | 6,423 |   | 4,174 |   |
| Total costs and expenses                                                                                  |       | 134,638                                           |       | 107,628 |   | 101,524 |   | 83,434 |   | 50,254 |   |
| Interest income (expense), net                                                                            |       | (809                                              | )          | (1,118 | ) | (1,134 | ) | (579 | ) | 712 |   |
| Income tax expense (benefit)                                                                              |       | 5,079                                             | (3)        | 5,194 |   | (6,006 | )(4) | — |   | — |   |
| Net income (loss) from continuing  operations, before cumulative effect of change in accounting principle |       | (4,002                                            | )          | 10,714 |   | 11,062 |   | (5,826 | ) | (6,418 | ) |
|                                                                                                      |       |                                              |       |   |   |   |   |   |   |   |   |
| Cumulative effect of change in accounting  principle, net of tax                                          |       | —                                            |       | — |   | — |   | — |   | (3,082 | )(5) |
| Net income (loss)                                                                                         |       | $                                                 | (4,002     | ) | $ | 10,714 |   | $ | 11,062 |   | $ | (5,826 | ) | $ | (9,500 | ) |
| Net earnings (loss) per share before  cumulative effect of change in accounting principle:                |       |                                              |       |   |   |   |   |   |   |   |   |
| Basic (6)                                                                                                 |       | $                                                 | (0.23      | ) | $ | 0.68 |   | $ | 0.72 |   | $ | (0.43 | ) | $ | (0.57 | ) |
| Diluted (6)                                                                                               |       | $                                                 | (0.23      | ) | $ | 0.63 |   | $ | 0.67 |   | $ | (0.43 | ) | $ | (0.57 | ) |
| Shares used in computing net earnings  (loss) per share:                                                  |       |                                              |       |   |   |   |   |   |   |   |   |
| Basic (6)                                                                                                 |       | 17,167                                            |       | 15,764 |   | 15,264 |   | 13,456 |   | 11,258 |   |
| Diluted (6)                                                                                               |       | 17,167                                            |       | 16,924 |   | 16,551 |   | 13,456 |   | 11,258 |   |

 

----

(1)          Includes asset impairment charges of $2.6million; Commercial Database asset impairments of $1.9 million, Wireless MPCcapitalized software impairment of $0.6 million and Palladium asset impairmentsof $0.1 million (see Note 3 of Notes to Consolidated Financial Statements forfurther information).

 

(2)          Includes a write-off of $4.7 million ofinventory included in our acquisition of LPSS from Lucent in May 2001 (seeNote 3 of Notes to Consolidated Financial Statements for further information).

 

(3)          Income tax expense of $5.1 million was theresult of an effective tax rate of 472% on consolidated pre-tax income of $1.1million in 2004. The disproportional tax expense was attributable to a pre-taxloss of $14.8 million in our international bmd reporting unit and $0.5 millionat our Intrado International Ltd. subsidiary. The effective tax rate of 31.6%for domestic pre-tax income of $16.4 million was prior to consolidation of thelosses in the international subsidiaries.

 

(4)          Reversal of valuation allowance previouslyrecorded for net operating loss carryforwards and for temporary differencesbetween book and tax (see Note 11 of Notes toConsolidated Financial Statements for further information).

 

(5)          Charge related to the implementation of StaffAccounting Bulletin 101, “Revenue Recognition in Financial Statements.”

 

(6)          See Note 2 of Notes to ConsolidatedFinancial Statements for an explanation of the determination of the shares usedin computing net earnings (loss) per share.

 

21

----

 
| ** **                                                    | ** ** | **December 31,**           | ** ** |
|---------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                    | ** ** | **2004**                   | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                                                    | ** ** | **(Amounts in Thousands)** | ** ** |
| **Consolidated Balance Sheet Data:**                          |       |                       |       |   |   |   |   |   |   |   |   |
| Cash, cash equivalents, short-term and  long-term investments |       | $                          | 40,260     |   | $ | 37,981 |   | $ | 12,895 |   | $ | 15,716 |   | $ | 5,036 |   |
| Current assets                                                |       | 74,907                     |       | 72,214 |   | 43,391 |   | 44,161 |   | 22,530 |   |
| Current liabilities                                           |       | 35,454                     |       | 38,259 |   | 25,369 |   | 31,816 |   | 8,391 |   |
| Working capital                                               |       | 39,453                     |       | 33,955 |   | 18,022 |   | 12,345 |   | 14,139 |   |
| Goodwill and other intangibles, net                           |       | 34,538                     |       | 30,103 |   | 19,650 |   | 22,148 |   | — |   |
| Total assets                                                  |       | 151,548                    |       | 145,267 |   | 117,380 |   | 95,435 |   | 44,669 |   |
| Short term notes payable                                      |       | —                     |       | 4,250 |   | 3,312 |   | 4,393 |   | — |   |
| Mandatorily redeemable preferred stock  payable               |       | 4,431                      |       | 8,594 |   | — |   | — |   | — |   |
| Capital lease obligations, short-term and  long-term          |       | 2,816                      |       | 4,423 |   | 5,820 |   | 7,441 |   | 1,511 |   |
| Total debt                                                    |       | 9,247                      |       | 25,184 |   | 18,965 |   | 13,834 |   | 3,618 |   |
| Accumulated deficit                                           |       | (8,520                     | )          | (4,518 | ) | (15,232 | ) | (26,294 | ) | (20,468 | ) |
| Total stockholders’ equity                               |       | 104,345                    |       | 84,442 |   | 65,719 |   | 49,030 |   | 24,697 |   |
|                                                               |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**ITEM 7.**** MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

 

**Background**

 

We provide 9-1-1 infrastructure, systems andservices, as well as innovative solutions for telecommunications providers andpublic safety organizations. Our core business is the support of the nation’s9-1-1 emergency response infrastructure for wireline, wireless and VoIPnetworks. The data we manage enables a 9-1-1 call to be routed to theappropriate PSAP. We provide callback data and the caller’s location. Thiscritical information helps public safety organizations respond to calls forassistance. In addition, this data allows the telecommunications carriers tomeet state and federal regulatory mandates. Since we launched our 9-1-1 datamanagement services in 1994, our 9-1-1 data integrity infrastructure hasprovided virtually uninterrupted service to our telecommunications and publicsafety customers. Our customers include ILECs, CLECs, wireless carriers, IXCsand a wide variety of state, local and federal government agencies.

 

**Segments**

 

Effective January 1, 2003, we realignedour internal operating units by aggregating similar offerings withorganizational supervision and decision-making authorities. As a result, wehave historically identified and reported on three business units: Wireline,Wireless and New Markets. Beginning in 2003, revenue and direct costs have beenclassified in the consolidated statements of operations by these three businessunits. The change has not impacted our revenue recognition policies. As aresult of this change, revenue and direct costs for the year endedDecember 31, 2002 have been reclassified to conform to our current yearpresentation. This change had no effect on our financial position, totalrevenue, total direct costs, net income (loss) or cash flows for any of theperiods presented. Management further re-aligned certain operating units in2005 and will be reporting only two segments beginning in 2005, Wireline andWireless. The following table identifies the business unit alignments and therespective years in which results of operations have been and will be reportedgoing forward:

 

22

----

 
|            | ** ** | **2005 will include the following components:**                     | ** ** | **2004 included the following components:**  | ** ** |
|-----------------|------------|---------------------------------------------------------------------|------------|----------------------------------------------|------------|
| **Wireline**    |       | ILEC, CLEC,  Texas, ***IntelliCast***,  VoIP and ***CDB products*** |       | ILEC, CLEC,  Texas, Palladium and ***VoIP*** |       |
|            |       |                                                                |       |                                         |       |
| **Wireless**    |       | Wireless and  bmd                                                   |       | Wireless and  ***bmd**wireless AG***         |       |
|            |       |                                                                |       |                                         |       |
| **New Markets** |       | No longer  will be reported                                         |       | IntelliCast  and CDB                         |       |

----

***Note: Components that were added to, or realigned to, the designated BusinessUnit are depicted in***bold italics in the year impacted. The ILEC license business andPalladium business were acquired from LPSS in May 2001. We acquired bmdwireless AG business in February 2004. The VoIP product offering began togenerate revenue in 2004. IntelliCast and Commercial Database, or CDB, productofferings will be transferred from New Markets to Wireline beginning in January1, 2005. The Palladium business will be discontinued in February 2005 and willbe reported under discontinued operations in Wireline results beginning in thefirst quarter of 2005.

 

**Executive Summary**

 

Our revenue is derived from monthly datamanagement services, ongoing software and hardware maintenance, sales ofsoftware enhancements, sales of new products and systems and professionalservices. The majority of our revenue is derived from monthly data managementservices and ongoing maintenance of existing systems. We consider this “recurringrevenue.” In 2004, recurring revenue comprised $121 million, or 88%, ofour total revenue of $137 million. In 2003, recurring revenue accountedfor $109 million, or 88%, of our $125 million in total revenue. In2002, recurring revenue represented $94 million, or 87%, of our totalrevenue of $108 million. The following is a summary level discussion ofkey business drivers in our segments. A more detailed discussion is containedin the analysis of the results of operations and our liquidity and capitalresources section.

 

The following table represents total revenueamounts in thousands and percentages by business unit:

 
| ** **        | ** ** | **Year Ended December 31,** | ** ** |
|-------------------|------------|-----------------------------|------------|
| ** **        | ** ** | **Revenue**                 | ** ** | **Percentage** | ** ** |
| **Business Unit** | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|              |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Wireline          |       | $                           | 81,937     |   | $ | 83,836 |   | $ | 80,833 |   | 60 | % | 67 | % | 75 | % |
| Wireless          |       | 51,508                      |       | 38,976 |   | 25,835 |   | 38 | % | 31 | % | 24 | % |
| New Markets       |       | 3,079                       |       | 1,842 |   | 1,046 |   | 2 | % | 2 | % | 1 | % |
| Total             |       | $                           | 136,524    |   | $ | 124,654 |   | $ | 107,714 |   | 100 | % | 100 | % | 100 | % |

 

The following table represents totaloperating income (loss) amounts in thousands and percentages by business unit:

 
| ** **        | ** ** | **Year Ended December 31,** | ** ** |
|-------------------|------------|-----------------------------|------------|
| ** **        | ** ** | **Operating Income (Loss)** | ** ** | **Percentage** | ** ** |
| **Business Unit** | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|              |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Wireline          |       | $                           | 12,144     |   | $ | 19,175 |   | $ | 10,803 |   | 644 | % | 113 | % | 175 | % |
| Wireless          |       | (4,326                      | )          | 5,234 |   | (86 | ) | (229 | )% | 31 | % | (1 | )% |
| New Markets       |       | (5,932                      | )          | (7,383 | ) | (4,527 | ) | (315 | )% | (44 | )% | (74 | )% |
| Total             |       | $                           | 1,886      |   | $ | 17,026 |   | $ | 6,190 |   | 100 | % | 100 | % | 100 | % |

 

23

----

 

We have made additional investments infacilities and infrastructure and have incurred additional personnel costs tosupport new market and product opportunities. We have also reallocatedresources when necessary to support our initiatives.

 

## **Wireline**

 

The majority of our recurring revenue hasbeen derived from our Wireline segment. We generally enjoy long-term contractualrelationships with our customers over terms up to 10 years. Our revenuemodel in Wireline is built on the basis of recurring fees and the number ofrecords we either manage or support indirectly through licensing agreements. Weface limited competition in this segment. The primary competitive risk we faceis the possibility that our customers may decide to no longer outsource thisservice to us. Although we have long-term contracts, our customers could decideto either not renew contracts or to cancel them prior to the end date and bringthe services in-house. We have two primary customers in our ILEC licensebusiness, and three primary customers in our ILEC services business. We renewedone of these ILEC license agreements in 2004. Our non-recurring revenue for systems sales, software enhancements andsales of new products and services is dependent upon many factors, includinglength of sales cycles, market acceptance and product viability. Due to theseuncertainties and the continued fiscal constraints facing customers, thefrequency and magnitude of this incremental license revenue (beyond recurringmaintenance revenue) can be difficult to predict. We also face internalexecution risk to identify, build and gain customer acceptance for these productand service offerings. We expect the Wireline segment to continue to providethe majority of our forecasted revenue, operating income and operating cashflows for the foreseeable future.

 

**Wireless**

 

Revenue contribution in our Wireless segmentgrew from $39.0 million in 2003 to $51.5 million in 2004, an increase of 32%.We are executing strategies to deploy our services to the remaining contractedaddressable market in a prudent fiscal and operational manner. We believe ourability to successfully deploy our services to the remaining addressable marketunder contract could provide additional recurring revenue into the future,absent customer cancellations of our contracts, loss of market share to ourcompetitors or material price erosion with existing customers. Competition inthe Wireless segment for our services is much more prevalent than in ourWireline segment. We have one primary competitor,Telecommunications Systems Inc. Competitive pressures create pricing andexecution risk to our existing business. However, we believe we are wellpositioned to retain our existing customer base and acquire additional marketshare. Contracts in our Wireless segment are typically three years in length.Given the uncertainty that exists in the Wireless segment as a result of recentmergers and consolidations, it is difficult to predict the long-term viabilityof our core products and services. In 2005, seven of our largest 13 wirelesscustomer contracts are set to expire. We are currently in discussions withthese customers to either renew or extend our contracts. However, there can beno assurance that we will be successful in theseefforts, nor can we predict the length of any renewals or extensions or theprice we will be able to charge in the event we are successful.

 

On February 20, 2004, we completed theacquisition of bmd wireless to expand our product offerings outside of theUnited States. bmd wireless provides core networkmessaging solutions, enabling cross network mobile and application messagingtraffic for a wide range of mobile operators and service providers. bmd wireless will focus primarily on designing, building anddelivering messaging platforms, tools and solutions for wireless serviceproviders. Due to competitive pressure in Europe and a longer sales cycle thanexpected at the time of the acquisition, the financial results for bmd werelower than expected in 2004. As a result, we expect a significantly slower pathfor bmd’s technology to penetrate the European and North American markets.Based on these trends, we determined in the fourth quarter of 2004 that thefive-year earnings forecast for bmd required a substantial downward revision.As a result of the downward revision and an impairment analysis of goodwill andother intangible assets, we recorded a goodwill impairment charge of $14.0million in the fourth quarter of 2004. While the forecast for bmd is lower thanoriginally anticipated when acquired, we continue to believe there is a marketfor bmd technology in the growing wireless market and continue to support andpursue sales opportunities under a refined marketing and sales strategy.

 

24

----

 

**New Markets**

 

In our New Markets segment, we are pursuingrevenue and customer diversification efforts outside of our traditional 9-1-1product and service initiatives. The historical New Market revenue streams havebeen derived from IntelliCast and CDB services. Our New Markets segmentpresents unique challenges and competitive pressures beyond those we have traditionallyfaced. We believe the viability for our products exists, as evidenced by ourexisting customer base and recent customer wins. However, the sales cycles havebeen longer than we originally anticipated.

 

*IntelliCast*

 

We are pursuing IntelliCast sales at thefederal, state and local government level. Our success to date in IntelliCasthas been primarily at the city and county government level. As ofDecember 31, 2004, we had 12.1 million billable telephone numbers inour database. We need to increase the number of telephone numbers undercontract, as well as build revenue with the federal and state governments, inorder to achieve profitability in this market. If this occurs, we expect tocontinue to leverage our existing operating expenses. We currently have channelsales agreements with two major ILECs to jointly promote our products. Weintend to increase our sales efforts at the federal government level and we arepursuing further opportunities with agencies such as Federal EmergencyManagement Agency, National Oceanic and Atmospheric Administration and theDepartment of Homeland Security. We have also partnered with the NationalCenter for Missing and Exploited Children to promote our product offerings andto gain access to decision makers at the federal, state and local governmentlevels. Current revenues are generated from ongoing data management servicesand event launches, such as the delivery of voice and TDD telephonic warningsabout potential disasters and public safety issues to geographically targetedpopulations. The successes with the product have provided momentum to our salesefforts. However, sales cycles in IntelliCast are much longer than ourtraditional cycles and have proven to be more difficult to forecast due tounpredictable customer buying patterns and lack of available funding. Webelieve recent legislation such as the Burns-Clinton bill will provide apotential impetus to matching and direct governmental funding that could reducethe sales cycles among our target customers.

 

*Commercial Database(CDB)*

 

We believe there are opportunities for us toleverage our long-term customer relationships to gain entry and traction in theCDB markets. We are engaged in a substantial effort to retool our CDB productofferings to serve the larger commercial data opportunities we have identified.However, in the second quarter of 2004 we determined that, due to the continuedlimited visibility regarding the timing of forecasted revenue opportunities, itwas necessary to impair the entire $1.7 million of software assets. When weevaluated the net realizable value of the product, we prepared a forward-lookingbusiness case that assessed the future expected benefits to be derived from theasset against the direct costs associated with the delivery and ongoing supportof the product to arrive at a contribution margin, defined as expected benefitsless direct costs. The contribution margin was then compared to the carryingvalue of the asset. The expected contribution margin was significantly less thanthe asset carrying value, resulting in the impairment charge. While we continueto believe there are market opportunities in this area, we have significantlylowered our revenue expectations until market conditions improve. As a result,we also reduced operating expenses and re-aligned resources to correlate withexisting customer contracts. If market penetration is obtained and additionalcontracts are signed in this area, we may make additional operatinginvestments, but only when those opportunities actually materialize.

 

We continue to remain patient in our pursuitof both the IntelliCast and CDB market opportunities. We continue to invest inproduct enhancements in both markets, albeit at a lower level than originallyanticipated. If sales conditions do not improve, we will further reduce ourvariable spending patterns to mitigate the impact of such conditions on ouroverall profitability. We will be reporting results from both the IntelliCastand CDB product offerings as part of our Wireline Business Unit beginning inthe first quarter of 2005.

 

**Critical Accounting Policies, Estimates andAssumptions**

 

Our discussion and analysis of financialcondition and results of operations are based upon our consolidated financialstatements, which have been prepared in accordance with accounting principlesgenerally accepted in the

 

25

----

 

United States of America. Whilepreparing these financial statements, we made estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities. On an ongoing basis,we evaluate our estimates, including those related to bad debts, inventory,goodwill and intangible assets, capitalized software costs, income taxes,contingencies and litigation. We base our estimates on historical experienceand on various other assumptions that we believe to be reasonable under thecircumstances, the results of which form the basis for making judgments about thecarrying values of assets and liabilities that are not readily apparent fromother sources. Actual results may differ from these estimates. We believe thefollowing critical accounting policies affect our more significant judgmentsand estimates used in the preparation of our consolidated financial statements.

 

*Revenue Recognition*

 

*Amortization periodson remaining deferred revenue and cost balances:*  As of December 31, 2004, we hadapproximately $25.4 million in deferred revenue and $7.3 million indeferred costs. Of these amounts, $19.7 million of the deferred revenuebalance and $5.8 million of the deferred cost balance was classified asshort-term. The majority of these balances relate toservices previously provided to wireless customers and require deferral underStaff Accounting Bulletin 104, “Revenue Recognition” (“SAB 104”), since we haveremaining service obligations. It has been our policy to amortize thesebalances over the remaining future service period, which has historically beenthe remaining contractual life. In most cases, we engage in renewal strategieswell before the end of the contract. However, we cannot estimate with anycertainty which contracts will be extended and for how long. This is especiallyrelevant in the wireless segment, based on uncertainty that exists within theindustry due to potential consolidation of carriers and the financial decisionsour customers have made in the past or may make in the future related toutilizing our service offerings. Therefore, we have not extended theamortization periods for the remaining balances beyond the existing contractuallife. As there can be no assurances that the contracts will be extended, or, ifextended, for what period of time, we continue to believe that the bestestimate of the customer relationship period is the existing contractual life.

 

*Use of estimates andjudgment related to recognizing revenue for percentage of completion andmultiple element arrangements:* Revenue is accountedfor as either software revenue and related post-contract support, productrevenue, or services revenue in accordance with the guidelines provided bySOP 97-2, “Software Revenue Recognition,” SAB 104, which supersededSAB 101, and FTB 90-1 “Accounting for Separately Priced Extended Warrantyand Product Maintenance Contracts.”  Ourpolicy is to recognize revenue when the applicable revenue recognition criteriahave been met, which generally include the following:

 

•      Persuasiveevidence of an arrangement exists;

 

•      Price is fixedor determinable;

 

•      Delivery hasoccurred or services have been rendered; and

 

•      Collectibilityis reasonably assured.

 

We deliver products and services that arepart of multiple element arrangements. In addition to the above criteria fromSAB 104 and SOP 97-2, we also apply the guidance in Emerging IssuesTask Force 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”),which requires us to evaluate vendor specific objective evidence (“VSOE”) forcontracts under SOP 97-2 and vendor objective evidence (“VOE”) forcontracts under SAB 104 to determine the fair value of elements deliveredin situations where multiple elements exist.

 

The majority of our revenue is derived fromlong-term service agreements with our customers and is recognized ratably overthe term of the contract as services are performed. Revenues from monthly datamanagement services include up-front and monthly service fees. Our up-frontservices consist primarily of the data cleansing of the customer’s 9-1-1records, engineering services to enable the customer’s legacy system tointerface with our platform, thereby establishing network connectivity, publicsafety boundary mapping, customer training andtesting. The charges for these services are nonrefundable if the contract iscancelled after the services are performed. After the initial up-frontservices, data management customers often buy enhancements to these services,such as additional software engineering

 

26

----

 

toimprove system functionality or network services to make their network moreeffective (“Enhancement Services”). The fees received for up-front services andcertain Enhancement Services are deferred and recognized as revenue ratablyover the term of the contract or the expected life of the customerrelationship, whichever is longer, as these fees do not represent theculmination of a separate earnings process. We also receive a monthly service fee to provide the ongoing datamanagement services required to keep the records current for all subscribers,to maintain and monitor network components and to support and maintain thesoftware and systems required to provide the services. The fees received forthese monthly services are recognized as revenue in the period in which all ofthe above criteria have been met, which is generally the month services areprovided. For data management services we perform under our outsourced orlicensed model, customers do not have a contractual right to take possession ofour software; therefore, we account for these arrangements as servicecontracts.

 

Maintenance contracts are sold to customersthat either purchase or possess database and call handling systems. The feesreceived for ongoing maintenance obligations are deferred and recognized asrevenue over the contractual term of the arrangement.

 

Systems and new products revenue representsrevenue recognized from the sales of new database and call handling systems aswell as customized solutions sold to existing customers. Software licenserevenue and related hardware sales are recognized upon execution of a contractand completion of delivery obligations, provided that no uncertainties existregarding customer acceptance and that collection of the related receivable isreasonably assured.

 

Professional services revenue is generated byproviding consulting services and is recognized in the period in which all ofthe above criteria have been met.

 

In certain situations involving the deliveryof products with significant customization or modification services, we alsorecognize revenue on a percentage-of-completion basis, as prescribed bySOP 81-1, “Accounting for Performance of Construction-Type and CertainProduction-Type Contracts.” In these situations, we develop and utilizeestimates to ratably recognize costs and revenue as work is completed relativeto the total estimated time and costs to complete projects. Delays incompleting projects or significant changes to original cost estimates couldadversely impact future periods in that additional costs or amortizationperiods for both revenue and expenses may be necessary. When reasonableestimates cannot be determined at the onset of an agreement due to uniqueacceptance criteria or other factors, revenue is recognized on a completedcontract basis.

 

*Software Capitalization*

 

As of December 31, 2004, we had $16.6 millionin net capitalized software assets.

 

Capitalization of software under SOP 98-1, “Accountingfor the Costs of Computer Software Developed or Obtained for Internal Use,”requires judgment in determining:

 

•      When and if aproject is in the application development stage;

 

•      When thesoftware is available for general release and its intended use;

 

•      The expectedbenefits to be derived from the software product;

 

•      The useful lifeof the software product; and

 

•      The futurerecoverability of the capitalized amounts.

 

Capitalization of software under Statement ofFinancial Accounting Standards No. 86, “Accounting for the Costs ofComputer Software to be Sold, Leased or Otherwise Marketed,” requires judgmentin determining:

 

•      When and if aproject has reached technological feasibility;

 

27

----

 

•      When thesoftware is available for general release;

 

•      The expectedbenefits to be derived from the software product;

 

•      The useful lifeof the software product; and

 

•      The futurerecoverability of the capitalized amounts.

 

In assessing the recoverability of ourexisting capitalized software assets, we rely on estimates and judgments todetermine the net realizable value of each product. When evaluating the netrealizable value of a given product, we prepare a forward-looking business casethat includes an assessment of future expected benefits to be derived from theasset. The expected benefits are compared to the direct costs associated withthe delivery and ongoing support of the product to arrive at a contributionmargin, defined as expected benefits less direct costs. This contributionmargin is compared to the current carrying value of the asset at the reportingdate. If the contribution margin exceeds the current asset carrying value plusany additional investments, such as hardware or additional development requiredto enhance or maintain the product, no impairment is recorded. If thecontribution margin is less than the carrying value, the asset carrying valueis impaired to equal the expected contribution margin. Our ability to estimatefuture expected benefits to be derived from the asset, with a measured degreeof probability, is the most significant factor in our impairment analysis. Ifour ability to estimate the expected benefits changes significantly in anygiven period, we could record impairment charges for certain assets.

 

Each quarter, we also assess the expectedbenefit period of the assets and amortize the related assets over the expectedbenefit period. If our estimate of benefit period is impacted, we could adjustour estimated amortization periods accordingly, having either a positive ornegative impact on earnings in the period the estimate is changed. In 2004 werecorded $2.3 million in software impairment charges.

 

*Goodwill and Long-Lived Assets*

 

We assess the impairment of identifiableintangibles or long-lived assets, including property and equipment andgoodwill, annually or more frequently if events or changes in circumstancesindicate that the carrying value of the asset may not be recoverable. Factorswe consider important which could trigger an impairment review include thefollowing:

 

•      Significantunder-performance relative to historical or projected future operating results;

 

•      Significantchanges in the manner of our use of the acquired assets or the strategy of ouroverall business;

 

•      Significantnegative industry or economic trends;

 

•      Significantdecline in our stock price for a sustained period; or

 

•      Our marketcapitalization relative to net book value.

 

When we determine that the carrying value ofintangibles or long-lived assets may not be recoverable based on the existenceof one or more of the above indicators of impairment, we measure any impairmentbased on the estimated discounted cash flows expected to result from the use ofthe asset and its eventual disposition and compare the result to the asset’scarrying amount. Any impairment loss recognized represents the excess of theasset’s carrying value over its estimated fair value.

 

*Allowances*

 

We maintain allowances and reserves fordoubtful accounts for estimated losses resulting from the inability of ourcustomers to make required payments and for credit memos which may be grantedto customers in future periods that relate to revenue recognized in currentperiods. If the financial condition of our customers were to deteriorate, orconcessions or discounts are granted in future periods which exceed ourestimates, additional allowances and reserves

 

28

----

 

maybe required. Deterioration in the financial condition of our current customersmay cause our allowance for doubtful accounts to increase and our futureoperating results to be adversely affected. In the normal course of ourbusiness, we may be involved in billing disputes with certain customers. Theresolution of these disputes may result in the granting of credit memos to thecustomer.

 

*Deferred Tax Assets*

 

We follow SFAS No. 109, “Accounting forIncome Taxes” (“SFAS 109”). The current provision for income taxesrepresents actual or estimated amounts payable or refundable on tax returnsfiled each year. Deferred tax assets and liabilities are recognized for theestimated future tax effects attributable to the temporary differences betweenthe financial statement carrying amounts of existing assets and liabilities andtheir respective tax bases as well as operating loss and tax creditcarryforwards. Deferred tax assets and liabilities are measured using tax ratesexpected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled. Under SFAS 109, theeffect on deferred tax assets and liabilities of a change in enacted tax lawsis recognized as an adjustment to the tax provision or benefit in the period ofenactment. The overall change in deferred tax assets and liabilities during theperiod is equal to the deferred tax expense or benefit for the period. Thecarrying value of deferred tax assets may be reduced by a valuation allowanceif, based upon the judgmental assessment of available evidence, it is deemedmore likely than not that some or all of the deferred tax assets will not berealizable.

 

We periodically evaluate our estimates andjudgments related to the recoverability of deferred tax assets as required bySFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). Wecurrently do not have a reserve against our net deferred tax assets, with theexception of a valuation allowance of $59,000 that has been recorded againstdeferred tax assets in our Intrado International, Ltd. subsidiary.  If expected taxable income is not generated infuture years, it may be necessary to reverse some or all of the tax benefitrecorded, adversely impacting tax expense and net income in the future.

 

**Recent Accounting Pronouncements**

 

In December 2004, the FASB issued SFAS No. 123(revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFASNo. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”) andsupersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.”SFAS 123R requires all share-based payments to employees, including grantsof employee stock options, to be recognized in the financial statements basedon their fair values beginning with the first interim or annual period afterJune 15, 2005. The pro forma disclosures previously permitted underSFAS 123 no longer will be an alternative to financial statementrecognition. We are required to adopt SFAS 123R in the third quarter offiscal 2005, beginning July 1, 2005. Under SFAS 123R, we must determinethe appropriate fair value model to be used for valuing share-based payments,the amortization method for compensation cost and the transition method to beused at date of adoption. The transition methods include prospective andretroactive adoption options. Under the retroactive option, prior periods maybe restated either as of the beginning of the year of adoption or for allperiods presented. The prospective method requires that compensation expense berecorded for all unvested stock options and restricted stock at the beginningof the first quarter of adoption of SFAS 123R, while the retroactivemethods would record compensation expense for all unvested stock options andrestricted stock beginning with the first period restated. We are evaluatingthe requirements of SFAS 123R and expect that the adoption ofSFAS 123R will have a material impact on our consolidated results ofoperations and earnings per share. We have not yet determined the method ofadoption or the effect of adopting SFAS 123R, and we have not determinedwhether the adoption will result in amounts that are similar to the current proforma disclosures under SFAS 123.

 

**Results of Operations**

 

The following table sets forth, for theperiods indicated, our consolidated statements of operations reflected as apercentage of total revenue:

 

29

----

 
| ** **                     | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Revenues                       |       | 100.0    | %          | 100.0    | %          | 100.0    | %          |
| Costs and expenses:            |       |     |       |     |       |     |       |
| Direct costs (1)               |       | 65.9     | %          | 53.0     | %          | 52.4     | %          |
| Sales and marketing            |       | 14.7     | %          | 13.6     | %          | 15.6     | %          |
| General and administrative (2) |       | 15.9     | %          | 17.9     | %          | 23.6     | %          |
| Research and development       |       | 2.1      | %          | 1.9      | %          | 2.6      | %          |
| Total costs and expenses       |       | 98.6     | %          | 86.4     | %          | 94.2     | %          |
| Income from operations         |       | 1.4      | %          | 13.6     | %          | 5.8      | %          |
| Interest income (expense), net |       | (0.6     | )%         | (0.9     | )%         | (1.1     | )%         |
| Income before income taxes     |       | 0.8      | %          | 12.7     | %          | 4.7      | %          |
| Income tax expense (benefit)   |       | 3.7      | %          | 4.2      | %          | (5.6     | )%         |
| Net income (loss)              |       | (2.9     | )%         | 8.5      | %          | 10.3     | %          |

 

----

(1)     Direct Costs includesgoodwill and other asset impairment charges of $16.9 million, or 12.4%, in2004.

(2)     General and administrativeexpenses included $4.7 million, or 4.4%, in 2002 related to inventoryimpairment charges for assets acquired in the LPSS acquisition in 2001.

 

**Year Ended December 31, 2004 Compared toYear Ended December 31, 2003**

 

**Total Company**

 

**Revenues**

 

Total revenues increased $11.9 millionto $136.5 million in 2004. The increase is primarily attributable toincreased revenue in the Wireless unit of $12.5 million.

 

*Wireline*revenues decreased $1.9 million to $81.9 million in 2004:

 

•      Recurring datamanagement services revenues decreased $4.3 million due to reduced pricing inour ILEC services unit associated with contract extensions as well asconsolidation of customers in our CLEC unit, which led to volume pricingdiscounts for certain customers;

 

•      Maintenance forsoftware enhancements increased $2.0 million related to additionalmaintenance and pricing increases related to certain customers;

 

•      Sales of newsoftware enhancements and systems decreased $1.0 million due to timingdifferences between year-end 2003 and 2004 related to the delivery of softwareenhancements; and

 

•      Professionalservices revenues increased $1.3 million primarily due to VoIP and IEN productsand services and the associated integration efforts with the sale of systemsand software enhancements.

 

*Wireless*revenues increased $12.5 million to $51.5 million in 2004 due toincreased recurring data management services revenues of $12.2 millionattributable to increased deployments and $2.0 million in revenue from our bmdsubsidiary, offset by a reduction in professional services revenue of $1.6million.

 

*New Markets*revenues increased by $1.2 million to $3.1 million in 2004:

 

•      IntelliCastrevenues increased $1.1 million to $2.5 million due to previous deployments inChicago, Phoenix, New Orleans and other municipalities which increased thenumber of records under management relative to the prior year, as well as trialrevenue from a 2004 trial with the National Oceanic and AtmosphericAdministration; and

 

30

----

 

•      CDB revenuesincreased $141,000 to $534,000 due to additional transaction services revenuesrelative to the prior year. In 2004, we received a full-year of transactionalservices revenue from certain key customers including AT&T and Vartec.

 

**Costs**

 

Total costs increased $27.0 million to $134.6million in 2004. The significant areas where costs increased from 2003 includethe following items:

 

•      Goodwill andother asset impairment charges increased by $16.9 million primarily due to a$14.0 million goodwill impairment charge in the bmd reporting unit, a $1.9impairment charge related to our CDB product offerings, a $588,000 softwareimpairment charge in our Wireless unit and a $322,000 impairment chargeassociated with certain Palladium intangible assets.

 

•      Salaries andfringe expense, which includes payroll taxes, accrued vacation, costs toprovide medical coverage, and401(k) employer matching contributions, increased $4.4 million due toannual merit increases and the hiring of additional staff to support revenuegrowth and new product initiatives, offset by a reduction in accrued vacationexpenses of approximately $720,000 due to forfeited vacation time.

 

•      Amortization ofcapitalized software assets increased $1.3 million primarily due to the statusof several larger capitalized software projects reaching the stage of availablefor general release or intended use during 2004.

 

•      Consulting andcontract labor expenses increased $3.5 million primarily to support IEN and9-1-1 IM product development efforts, as well as to support compliance effortsassociated with Sarbanes-Oxley governance and internal control regulations.

 

•      Travel expensesincreased by $720,000 primarily as a result of international businessdevelopment activities and integration efforts associated with our bmdreporting unit.

 

•      Maintenance anddirect costs for cost of goods sold increased by $1.4 million due to increased salesof IEN products which carried significant hardware costs.

 

•      Accounting,audit and consulting fees increased by $1.2 million primarily due to audit feesassociated with Section 404 of the Sarbanes-Oxley Act of 2002.

 

•      Amortization ofpreviously deferred costs associated with deferred revenue increased byapproximately $800,000. Also, the amount of period costs incurred in 2004 butdeferred to future periods decreased by approximately $800,000 relative to2003.

 

•      Commission andbonus expense increased by $1.2 million primarily due to payments for renewalsof existing contracts and bookings of future contracts.

 

•      Bad debtexpenses increased by approximately $200,000 as a result of additionalwrite-offs in our CLEC business unit resulting from customer bankruptcies,partially offset by the collection of a previously reserved-for bankruptcyclaim.

 

The significant areas where costs decreasedfrom 2003 include the following:

 

•      Capitalizedsoftware development costs, representing 2004 period costs deferred to futureperiods which effectively reduces current period expenses, increased by $4.7million as a result of several large projects

 

31

----

 

in2004 reaching technological feasibility, including IEN and VoIP, and increasedspending related to delivery of our 9-1-1 IM software product to meet customerdelivery schedules in early 2005.

 

•      Depreciationand amortization expenses decreased by $1.3 million as a result of severalassets being fully depreciated, including certain intangible assets originallyacquired in the 2001 LPSS acquisition.

 

•      Telecommunicationexpenses decreased by approximately $500,000 as a result of efficienciesassociated with consolidated provisioning systems and reduced reliance on outsourcedsolutions in favor of in-house platforms and networks.

 

•      Legal expensesdecreased by approximately $500,000 relative to 2003 as a result of asignificant reduction in the use of outside legal resources.

 

**Income Before Income Taxes**

 

Income before income taxes decreased $14.8million to $1.1 million in 2004:

 

•      Wireline incomebefore taxes decreased $6.8 million due to a $1.9 million decrease in revenue,a $3.9 million increase in direct costs attributable to higher cost of goodssold and a $1.2 million increase in indirect overhead costs associated withadditional product development and support costs.

 

•      Wireless incomebefore taxes decreased $9.5 million due to $14.6 million in asset impairmentcharges, a $3.6 million increase in other direct costs, a $3.8 million increasein indirect overhead costs to support growth and product developmentinitiatives, offset by a $12.5 million increase in revenue.

 

•      New Marketsloss before taxes decreased $1.4 million due to $1.9 million in assetimpairment charges, offset by a $1.8 million decrease in indirect overheadcosts resulting from reduced operating expenses and a $1.2 million increase inrevenue.

 

**Income Tax Expense(Benefit)**

 

Income tax expense decreased from $5.2million in 2003 to $5.1 million in 2004. The effective tax rate of 472% onconsolidated pre-tax income of $1.1 million in 2004 was a result of a pre-taxloss of $14.8 million in our international bmd reporting unit related primarilyto a goodwill impairment charge of approximately $14.0 million. Our effectivetax rate was 31.6% for domestic income of $16.4 million, prior to consolidationof net losses of $14.8 million at bmd and $0.5 million at our IntradoInternational Ltd. subsidiary.

 

**Balance Sheet Items**

 

*Current assets*increased $2.7 million to $74.9 million at December 31, 2004. Thisincrease is primarily a result of the following factors:

 

•      *Cash and cash equivalents* decreased by$6.6 million to $10.7 million in 2004. The decrease is attributable to net cashused in investing activities of $26.2 million and net cash used in financingactivities of $13.2 million, offset by net cash provided by operatingactivities of $32.8 million. Of the $26.2 million of net cash used in investingactivities, $8.9 million is attributable to a net increase in purchases ofshort-term and long-term marketable securities.

 

•      *Short-term investments*increased by $8.0million due to the purchase of short-term commercial paper, municipaltax-exempt bonds and certificates of deposits, in an effort to increaseinterest income.

 

•      *Accounts receivable, net of allowances*,increased $1.9 million to $17.6 million due to increased billings associatedwith the higher year-over-year revenue of $11.9 million in 2004.

 

32

----

 

•      *Prepaids and other assets* increased $1.3million to $3.0 million due to increases in prepaid commissions associated withincreased revenue and bookings relative to 2003 and an increase in prepaidinsurance premiums and advanced maintenance payments.

 

•      *Deferred contract costs—short term*increased $1.6 million to $5.8 million in 2004 primarily due to a proportional increase in the amount of deferredrevenue that was considered short-term.

 

•      *Deferred income taxes—short-term* decreased$3.6 million to $7.5 million in 2004. We estimate that all of the remainingdeferred tax assets will be utilized to offset taxable income in 2005.

 

Non-current assets increased by $3.5 millionprimarily due to the following:

 

•      *Property, plant and equipment, net*decreased by $3.5 million primarily due to current year depreciation expense.

 

•      *Goodwill* increased $5.8 million to $30.3million in 2004, primarily due to a $20.0 million increase in goodwill andother intangible assets associated with the acquisition of our bmd subsidiary,offset by a goodwill impairment charge of $14.0 million in the bmd reportingunit and $222,000 in the Palladium business.

 

•      *Other intangibles, net* decreased by $1.3million due to current year amortization expense.

 

•      *Long-term investments* increased by$898,000 due to the purchase of long-term commercial paper, municipaltax-exempt bonds and certificates of deposits in an effort to increase interestincome.

 

•      *Deferred contract costs* decreased by $1.3million primarily due to reclassification of these amounts from long-term toshort-term, based on the expected amortization of these costs in the upcomingyear.

 

•      *Software development costs, net* increased$3.6 million to $16.6 million in 2004. This increase is primarily due toinvestments in several significant projects that reached technologicalfeasibility during 2004, offset by current year amortization expense andsoftware impairment charges of $1.7 million in our New Markets segment for CDBproduct offerings and $588,000 in our Wireless segment related to an MPC productoffering.

 

•      *Other assets* decreased by $545,000primarily due to the conversion of our previous minority investment inTechnoCom, Inc. to a note receivable.

 

*Current liabilities*decreased $2.8 million to $35.5 million in 2004 primarily as a result of thefollowing factors:

 

•      *Accounts payable and accrued liabilities*decreased $1.1 million to $9.8 million in 2004, as a result of timingdifferences in the payment of obligations accrued at year-end and a reductionin the vacation accrual due to usage and forfeiture.

 

•      *Current portion of capital lease obligations*decreased$1.4 million to $1.5 million as a result of payments made in 2004, offset byreclassifications of long-term lease obligations into current portion.

 

•      *Notes payable—current* decreased $4.3million in 2004. The notes payable were prepaid in full in December 2004.

 

•      *Deferred contract revenue—short term*increased $4.0 million to $19.7 million in 2004, primarily due to therealization of current year revenue and the reclassification of deferredrevenue from long-term to current liabilities based on our estimatedrealization of these revenues in the next year.

 

33

----

 

*Long-termliabilities* decreased $10.8 million to $11.7 millionin 2004. This decrease is primarily a result of the following factors:

 

•      *Notes payable, net of current portion*decreased$5.9 million in 2004. We repaid all term notes payable outstanding in 2004 withthe exception of $2.0 million, which represents the minimum required borrowinglevel on our line of credit with GE Capital.

 

•      *Mandatorily redeemable preferred stock payable*decreased by $4.2 million as a result of the second of three redemptions madein June 2004 and reclassification of the third and final payment which is duein June 2005 to short-term obligations.

 

•      *Deferred contract revenue—long-term*decreased $735,000 in 2004, primarily due to its reclassification to a currentliability, offset by deferral of revenues for new contracts in 2004.

 

**Results of Operations by Business Unit**

 

**Year EndedDecember 31, 2004 Compared to Year Ended December 31, 2003**

 

The following table sets forth, for theperiods indicated, our consolidated statements of operations by businesssegment reflected as a percentage of total revenue:

 
| ** **                        | ** ** | **For the Year Ended December 31,** | ** ** |
|-----------------------------------|------------|-------------------------------------|------------|
| ** **                        | ** ** | **Wireline**                        | ** ** | **Wireless** | ** ** | **New Markets** | ** ** |
| ** **                        | ** ** | **2004**                            | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Total revenue                     |       | 100.0                               | %          | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| Direct costs                      |       | 53.5                                | %          | 47.6 | % | 48.2 | % | 77.4 | % | 55.4 | % | 57.1 | % | 203.6 | % | 252.0 | % | 262.7 | % |
| Indirect business unit costs      |       | 10.4                                | %          | 10.3 | % | 12.6 | % | 9.7 | % | 12.0 | % | 17.9 | % | 68.0 | % | 231.9 | % | 245.1 | % |
| Corporate overhead                |       | 21.4                                | %          | 19.3 | % | 25.9 | % | 21.3 | % | 19.2 | % | 25.3 | % | 21.0 | % | 17.0 | % | 25.0 | % |
| Total costs and expenses          |       | 85.3                                | %          | 77.1 | % | 86.6 | % | 108.4 | % | 86.6 | % | 100.3 | % | 292.6 | % | 500.8 | % | 532.8 | % |
| Income (loss) from operations     |       | 14.7                                | %          | 22.9 | % | 13.4 | % | (8.4 | )% | 13.4 | % | (0.3 | )% | (192.6 | )% | (400.8 | )% | (432.8 | )% |
| Interest/other income             |       | 0.3                                 | %          | 0.2 | % | 0.1 | % | 0.3 | % | 0.2 | % | 0.2 | % | 0.3 | % | 0.2 | % | 0.2 | % |
| Interest/other expense            |       | (0.9                                | )%         | (1.1 | )% | (1.2 | )% | (0.9 | )% | (1.1 | )% | (1.2 | )% | (0.8 | )% | (1.0 | )% | (1.2 | )% |
| Income (loss) before income taxes |       | 14.1                                | %          | 22.0 | % | 12.4 | % | (9.0 | )% | 12.5 | % | (1.4 | )% | (193.1 | )% | (401.6 | )% | (433.8 | )% |
| Income tax expense (benefit)      |       | 4.2                                 | %          | 4.4 | % | (5.3 | )% | 3.1 | % | 3.9 | % | (6.3 | )% | — |   | — |   | (5.8 | )% |
| Net income (loss)                 |       | 9.9                                 | %          | 17.6 | % | 17.7 | % | (12.1 | )% | 8.6 | % | 4.9 | % | (193.1 | )% | (401.6 | )% | (428.0 | )% |

 

*Direct costs* include all costs directly attributable to abusiness unit’s operations and revenue-earning activities, includingdepreciation and amortization expense for those assets that can be identifiedto a specific business unit or product (see Note 11) and goodwill and otherasset impairment losses.

 

*Indirect business unit costs* include the costs of business unit supportfunctions, including sales and marketing, general and administrative andresearch and development.

 

*Corporate overhead*includes these same costs allocated from corporate to business units based on aweighted average revenue percentage.

 

34

----

 

**Wireline BusinessUnit**

 

Revenue decreased by $1.9 million to$81.9 million in 2004 primarily due to the following:

 

•      Recurring datamanagement services revenues decreased $4.3 million due to reduced pricing inour ILEC services unit associated with contract extensions as well asconsolidation of customers in our CLEC unit which led to volume pricingdiscounts for certain customers;

 

•      Maintenance forsoftware enhancements increased $2.0 million related to additionalmaintenance and pricing increases related to certain customers;

 

•      Sales of newsoftware enhancements and systems decreased $1.0 million due to timingdifferences between year-end 2003 and 2004 related to delivery of softwareenhancements; and

 

•      Professionalservices revenues increased $1.3 million primarily due to VoIP and IEN productsand services and the associated integration efforts with the above sale ofsystems and software enhancements.

 

Direct costs increased by $3.9 millionprimarily due to higher cost of goods sold for system sales related to our IENproduct offerings.

 

Indirect expenses  increased $1.2 million to $26.0million in 2004. This increase is primarily due to increased contract labor andpersonnel costs to support new product initiatives such as IEN, 9-1-1 IM and9-1-1 Plus.

 

**Wireless BusinessUnit**

 

Revenues increased $12.5 million to$51.5 million in 2004 due to increased recurring data management servicesrevenues of $12.2 million attributable to increased deployments and $2.0million in revenue from our bmd subsidiary, offset by a reduction in professionalservices revenues of $1.6 million.

 

Direct costs increased by $18.3 million to$39.9 million in 2004. Costs increased due to a $14.0 million goodwillimpairment charge in our bmd subsidiary, a $588,000 software impairment charge,the hiring of additional operations staff to support cell site implementations,increased systems maintenance and $1.8 million of costs attributable to our bmdsubsidiary.

 

Indirect expenses increased by $3.8 millionto $16.0 million in 2004. The increase is due to the addition of productmanagement, sales and finance personnel to support growth, and $1.1 million ofexpenses in our bmd subsidiary.

 

**New Markets BusinessUnit**

 

Revenue increased $1.2 million to $3.1million, primarily due to the following:

 

•      IntelliCastrevenues increased $1.1 million to $2.5 million due to previous deployments inChicago, Phoenix, New Orleans and other municipalities which increased thenumber of records under management relative to the prior year, as well asrevenue from a 2004 trial with the National Oceanic and AtmosphericAdministration; and

 

•      CDB revenuesincreased $141,000 to $534,000 due to additional transaction services revenuesrelative to the prior year. In 2004, we received a full-year of transactionalservices revenue from certain key customers including AT&T and Vartec.

 

Direct costs increased by $1.6 million to$6.3 million in 2004. The increase is due to $1.9 million of software and otherasset impairment charges in our CDB unit, offset slightly by reductions inoperational personnel expenses as a result of lower than anticipated revenue inour CDB unit.

 

Indirect expenses decreased by $1.8 millionto $2.7 million in 2004 due to reductions and reassignments of sales andsupport personnel due to lower than anticipated revenue in our CDB unit.

 

35

----

 

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

 

**Wireline BusinessUnit**

 

Revenue increased by $3.0 million to$83.8 million in 2003 primarily due to the following:

 

•      Recurring datamanagement services revenue increased $300,000;

 

•      Maintenance forsoftware enhancements increased $3.0 million related to additionalmaintenance on software enhancements;

 

•      Sales of newsoftware enhancements and systems decreased $800,000 due to timing differencesbetween year-end 2002 and 2003 related to delivery of software enhancements;and

 

•      Professionalservices revenues increased $500,000 primarily due to VoIP services and otherprojects for CLEC customers.

 

Direct costs increased $900,000. We were ableto leverage direct costs through consolidation of administrative and managementfunctions and an increase in productivity in key operating units.

 

Indirect business unit costs decreased$6.3 million to $24.8 million in 2003. This decrease is due tosavings realized as a result of a reorganization of general and administrativesupport personnel which occurred in the fourth quarter of 2002. We alsorealized savings in salary and consulting expenses as a result of a reorganization in our sales and product management teams.In 2002, we also had higher bad debt expenses due to the accrual for potentialbad debt write-offs for certain CLEC customers, most notably MCI (formerlyknown as WorldCom, Inc.) which did not occur at the same level in 2003.

 

**Wireless BusinessUnit**

 

Revenue increased by $13.1 million to$39.0 million in 2003 due to an increase in cell site deployments andsales of enhancements for new and existing products, such as EES and PDE.

 

Direct costs increased by $6.8 millionto $21.6 million in 2003. Costs increased due to the hiring of additionaloperations staff to support cell site implementations and increased systemsmaintenance and circuit costs to accommodate growth. Direct costs decreasedslightly as a percentage of revenue, from 57% to 55%, primarily due toeconomies of scale associated with the increase in cell sites under managementand the resulting increased revenue base.

 

Indirect business unit costs increased by$1.0 million to $12.2 million in 2003. The increase in expense is dueto the addition of product management, sales and finance personnel to supportgrowth. The decrease as a percentage of revenue, from 43% to 31%, is primarilydue to economies of scale associated with the revenue increase.

 

**New Markets BusinessUnit**

 

Revenue increased $800,000 to$1.8 million, primarily due to increases in records under IntelliCastmanagement and an increase in sales by the CDB Group.

 

Direct costs increased by $1.9 millionto $4.6 million in 2003. The $1.9 million increase due to dataacquisition costs, increases in operational personnel expenses and amortizationof the software development expenditures related to the development ofIntelliCast and CDB product offerings.

 

Indirect business unit costs increased by$1.8 million to $4.6 million in 2003. The increase in indirectbusiness unit costs is due to the addition of sales and support personnel, aswell as increased marketing and advertising costs for IntelliCast and CDB productofferings.

 

36

----

 

**Corporate Overhead**

 

Corporateoverhead, consisting of expenses incurred by various corporate support units,decreased by $3.7 million. This decrease wasprimarily due to a $4.7 million asset impairment charge in 2002 that didnot occur in 2003, offset by increases in general and administrative costs dueto the increased payroll, benefit, insurance and legal costs as outlinedearlier.

 

**Liquidity and Capital Resources**

 

***CashRequirements***

 

The following information summarizes, as ofthe last fiscal year end and balance sheet date, our known significantcontractual obligations (in thousands):

 
| ** **                                             | ** ** | **December 31,** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------------------|------------|------------------|------------|------------|------------|------------|------------|
| ** **                                             | ** ** | **2005**         | ** ** | **2006**   | ** ** | **2007**   | ** ** | **2008** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Operating leases                                       |       | $                | 3,964      |       | $          | 3,747      |       | $ | 3,623 |   | $ | 3,185 |   | $ | 13,777 |   | $ | 28,296 |   |
| Debt interest                                          |       | 229              |       | 115        |       | —     |       | — |   | — |   | 344 |   |
| Capital leases, net                                    |       | 1,658            |       | 1,104      |       | 288        |       | — |   | — |   | 3,050 |   |
| Line of credit                                         |       | —           |       | 2,000      |       | —     |       | — |   | — |   | 2,000 |   |
| Mandatorily redeemable preferred stock  payable, gross |       | 4,431            |       | —     |       | —     |       | — |   | — |   | 4,431 |   |
| Total commitments                                      |       | $                | 10,282     |       | $          | 6,966      |       | $ | 3,911 |   | $ | 3,185 |   | $ | 13,777 |   | $ | 38,121 |   |

 

In addition to our contractual obligations,we estimate that we will require cash to:

 

•      Continue tofund ongoing operations, including the addition of sales and productdevelopment personnel;

 

•      Completeexisting product strategies, including our IntelliCast, IEN and other majorwireline and wireless product initiatives;

 

•      Complete marketpenetration strategies;

 

•      Invest in newproduct development;

 

•      Completeleasehold improvements to our existing facilities;

 

•      Invest inadditional hardware and software to maintain and enhance our existing networksand software applications;

 

•      Increaseresearch and development efforts to design and implement IEN platforms tosupport future technological requirements (our IEN initiative is focused ondesigning and delivering the next generation of emergency communicationsservices and is a key element of our strategy to enhance our existing 9-1-1services business);

 

•      Begin payingfederal and state income taxes once available tax assets and credits are fullyutilized;

 

•      Pay interest onour existing debt obligations and any other future debt obligations that we mayincur; and

 

•      Continue tocomply with the provisions of Section 404 of the Sarbanes-Oxley Act of2002.

 

In 2005, we estimate that we will spendapproximately $7 million related to capitalized software projects and $8million for capital expenditures to support the above initiatives. We will alsorequire $4.4 million in June 2005 to complete the redemption ofpreferred stock held by NV Partners II LP, or NVP II, which will also representthe final earn-out payment related to our 2001 acquisition of LPSS. We expectto fund our capital obligations, ongoing operational activities and incometaxes with cash provided by operations and existing cash, cash equivalent andinvestment balances of $40.3 million at December 31, 2004.

 

37

----

 

We cannot predict with certainty the cashrequirements for our proposed strategies and ongoing operational requirements,as technological requirements for new product strategies, contemplated marketconditions, competitive pressure and customer requirements change rapidly. Ifwe are unable to generate the cash from operations at a level we currentlyestimate, our efforts to complete existing products, enhance our platforms andenter new markets could be adversely impacted.

 

We estimate that we will enter intoadditional capital leases in 2005 to finance major hardware and softwarepurchases at a level commensurate with past years. We may also require cash tocomplete additional acquisitions. At present, we have no binding commitmentswith any third parties to obtain any material amount of equity or debtfinancing other than the equity and debt financing arrangements described inthis report. However, if business opportunities arise in the future, we mayenter into discussions regarding potential equity and debt financingarrangements to satisfy actual or anticipated capital needs.

 

***Sourcesand Uses of Cash***

 

Cashprovided by (used in) our operating, investing and financing activities issummarized as follows (in thousands):

 
| * *             | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------|------------|----------|------------|----------|------------|----------|------------|
| Operating activities |       | $        | 32,752     |     | $          | 36,831   |       | $ | 18,014 |   |
| Investing activities |       | $        | (26,222    | )        | $          | (29,369  | )          | $ | (25,343 | ) |
| Financing activities |       | $        | (13,178    | )        | $          | (3,076   | )          | $ | 4,508 |   |

 

***OperatingActivities***

 

Our ability to generate cash from operations is primarily a function ofour ability to continue to generate net income, improve our collection effortson outstanding accounts receivable and execute sound cash management related toaccounts payable.  Our ability togenerate operating income is primarily a function of increased revenue withouta corresponding increase in our cash expenses. From 2003 to 2004, our revenueincreased from $124.7 million to $136.5 million, a 10% increase. For the sameperiod, our total operating expenses increased 25%, from $107.6 million in 2003to $134.6 million in 2004. However, our total operating expenses in 2004include $16.9 million in non-cash asset impairment charges. From 2002 to 2003,our revenue increased from $107.7 million to $124.7 million, a 16%increase. For the same period, our total operating expenses increased 6%, from$101.5 million in 2002 to $107.6 million in 2003.

 

Our days sales outstanding, or DSO, defined asending gross accounts receivable and unbilled revenue divided by the trailing90 days average daily sales, increased slightly from 48 days atDecember 31, 2003 to 49 days at December 31, 2004. Our ability tomaintain our DSO is a result of our concerted efforts to work with ourcustomers at the time of billing remittance to improve payment processing andapprovals and understanding of the billing content and services provided.Further, we realized a benefit of $3.2 million in 2004 from the collection ofup-front fees related to customer payments in advance for service fees that arerequired to be deferred under SAB 104.

 

We cannot predict with certainty whether wewill be able to continue to maintain or improve our DSO. If our customers delaypayment to us in the future, our DSO, operating cash flow and cash balancescould be adversely impacted.

 

***InvestingActivities***

 

Our use of cash for investing activities in2004 included $12.9 million of investments in capital assets and softwaredevelopment projects, $4.4 million to complete the bmd acquisition in February2004 and $8.9 million of purchases, net of sales, of low-risk investmentinstruments such as commercial paper, municipal bonds and certificates ofdeposit. Our software development investments in 2004 totaled $10.1 million,compared to $5.1 million in 2003 and $8.9 million in 2002. The significantsoftware development efforts in 2004 included our 9-1-1 IM product, which is aweb-based front-end application for our ILEC license customers and our VoIP andIEN product offerings. The decline in capitalized software investmentactivities from $8.9 million in 2002 to $5.1 million in 2003 was attributableto completion of several of the initiatives undertaken in 2002, most notablyour CDB and IntelliCast product offerings in

 

38

----

 

New Marketsand our MPC and PDE products in Wireless. Also, in2003 development resources were re-allocated to support efforts related tocustomer support initiatives that were not capitalized. In 2003, we alsopurchased $20.7 million in low-risk investment instruments such as commercialpaper, municipal bonds and certificates of deposit. The following tablesummarizes our cash investments in capitalized software development projects bysegment in the respective years (amounts are in thousands):

 

**Cash Investments in Capitalized Software**

 
| ** **        | ** ** | **Year Ended December 31,** | ** ** | ** ** | ** ** |
|-------------------|------------|-----------------------------|------------|------------|------------|
| **Business Unit** | ** ** | **2004**                    | ** ** | **2003**   | ** ** | **2002** | ** ** | **Total** | ** ** |
|              |       |                        |       |       |       |   |   |   |   |
| Wireline          |       | $                           | 6,883      |       | $          | 2,677 |   | $ | 3,911 |   | $ | 13,471 |   |
| Wireless          |       | 1,977                       |       | 747        |       | 2,369 |   | 5,093 |   |
| New Markets       |       | 673                         |       | 1,027      |       | 2,361 |   | 4,061 |   |
| Corporate         |       | 615                         |       | 645        |       | 233 |   | 1,493 |   |
| Total             |       | $                           | 10,148     |       | $          | 5,096 |   | $ | 8,874 |   | $ | 24,118 |   |

 

Capital asset purchases of $2.8 million in2004 related primarily to additional hardware and software investments toenhance our infrastructure and software applications. We also acquiredadditional equipment and software of $3.0 million through capital leases. Whilethese purchases did not require cash outlays, they did increase our cashobligations in future periods for both principal and interest payments over theterms of the leases. These expected outlays are depicted in the table abovethat summarizes estimated cash requirements by year.

 

The $25.3 million utilized in 2002 forinvesting activities included a material investment in leasehold improvementsand capital assets for our new corporate facility that totaled approximately$11.0 million. In 2002, we also acquired approximately $5.0 millionin capital assets for enhancements to our software applications and networkinfrastructure, along with an additional $3.7 million in new capitalleases.

 

***Financing Activities***

 

In 2004, we paid $4.6 million for the second of three payments to NVPII associated with our contingent purchase obligation. We also repaid $3.2million on capital lease obligations and paid principal payments of $10.2million on notes payable to GE Capital, which included the pre-payment of $5.9million of remaining principal payments in December 2004 for two previous termloans.

 

An additional source of funds in 2004 was$3.8 million related to stock option exercises and $894,000 in proceeds fromstock sold through our 1998 Employee Stock Purchase Plan. Given the volatilityof our stock price relative to the weighted average exercise price of the stockoptions we have issued in the past, we cannot predict the level to whichadditional options will be exercised in future periods or whether they will be exercisedat all. As such, the source of cash from future exercises should not be reliedupon.

 

As of December 31, 2004, we have arevolving line of credit that is available to meet operating needs. Borrowingavailability may not exceed the lower of: (i) $20.0 million; or(ii) two times adjusted EBITDA (or $49.3 million at December 31,2004) as defined in the line of credit agreement, which was amended inNovember 2003. The interest rate on amounts borrowed under the line ofcredit is equal to the lower of the prime rate plus 1.5%, which was 6.75% as ofDecember 31, 2004, or LIBOR plus 3.75% per annum, which was 5.76% as ofDecember 31, 2004. The line of credit matures on December 31, 2006,requires a $2.0 million minimum balance to be maintained and is collateralizedby accounts receivable and certain other assets. As of December 31, 2004,$2.0 million was outstanding and $17.2 million was available foradditional borrowings. An additional $850,000 is being utilized to satisfyletter of credit obligations related to the occupancy of our primary facilitiesin Longmont, Colorado and Lisle, Illinois.

 

We also have access to a maximum of $10.0million through capital lease lines with two entities. The interest rate isequal to the entities’ cost of funds plus an additional interest rate profit atthe time of each lease. Each lease schedule is collateralized by the underlyingassets and is subject to review and approval by the lessor at the time of ourapplication. Each lease has either a 24-month or a 36-month termination date.As of December 31, 2004, we have utilized approximately $2.8 million ofthe $10.0 million available under the capital lease lines.

 

39

----

 

On February 19, 2004, we entered intothe Fifth Amendment to our Loan and Security Agreement with General ElectricCapital Corporation in order to ensure that we will have additional flexibilityin conducting domestic and international operations by eliminating therequirement to obtain the lender’s consent for:

 

•      An acquisitionor acquisitions that, in aggregate, are valued at less than $15.0 million;or

 

•      Inter-companytransfers of funds between us and any foreign subsidiary that, in aggregate,would exceed a $2.0 million balance at any point in time.

 

***CovenantCompliance***

 

We were in compliance with all debt covenantsas of December 31, 2004.

 

***Assessmentof Future Liquidity***

 

Based on available cash resources,anticipated capital expenditures and projected operating cash flow, we believethat we will be able to adequately fund our operations through at least thenext twelve months. In making this assessment, we have considered:

 

•      Ourconsolidated cash, cash equivalents and short-term investments of $39.4 millionas of December 31, 2004;

 

•      Theavailability of funding under our revolving credit facility;

 

•      The anticipatedlevel of capital expenditures during 2005;

 

•      The$4.4 million redemption of Preferred Stock, presently held by NVPartners II LP, to be made in June 2005;

 

•      Presentlyscheduled debt service requirements during 2005; and

 

•      Our expectationof realizing positive cash flow from operations through 2005.

 

The availability of borrowings under ourcredit facility and lease line of credit is subject to covenants andlimitations that require us to maintain compliance with specified operating andfinancial parameters as described earlier. While we were in compliance with allcovenant ratios at December 31, 2004, there can be no assurance that wewill continue to be in compliance with these ratios over time, especially ifour debt borrowings increase or our operating results are not sufficient tocover our fixed financing payments.

 

**ITEM 7A.**** QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Market risk represents the risk of loss thatmay impact our financial position, results of operations or cash flows due toadverse changes in financial and commodity market prices and rates. We areexposed to market risk to the extent that United States interest rates changedue to inflation or other factors. This exposure is directly related to ournormal operating and funding activities. The interest payable on our line ofcredit is determined based on the lower of prime rate plus 1.5% or LIBOR plus3.75% per annum, and, therefore, is affected by changes in market interestrates. Interest rates on our capital lease lines are dependent on interestrates in effect at the time the lease line is drawn upon. Total liabilitiesoutstanding at December 31, 2004 under the line of credit and capitallease lines were approximately $4.8 million. Based on amounts borrowed as ofDecember 31, 2004, we would have a resulting decline in future annualearnings and cash flows of approximately $48,000 for every 1% increase in primelending rates. We have no plans to use derivative instruments or engage inhedging activities.

 

40

----

 

**ITEM 8.****     FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

 

**INTRADO INC.**

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**

 
| Report of Independent Registered Public  Accounting Firm                                                             |   |
|----------------------------------------------------------------------------------------------------------------------|--------|
| Consolidated Statements of Operations for  the Years Ended December 31, 2004, 2003 and 2002                |   |
| Consolidated Balance Sheets as of December 31, 2004 and 2003                                                    |   |
| Consolidated Statements of Stockholders’  Equity for the Years Ended December 31, 2004, 2003 and 2002 |   |
| Consolidated Statements of Cash Flows for  the Years Ended December 31, 2004, 2003 and 2002                |   |
| Notes to Consolidated Financial Statements                                                                           |   |

 

41

----

 

### **                                                 Reportof Independent Registered Public Accounting Firm**

** **

To Board of Directors and

Stockholders of Intrado Inc.:

** **

We have completed an integrated audit of Intrado Inc.’s 2004consolidated financial statements and of its internal control over financialreporting as of December 31, 2004 and audits of its 2003 and 2002 consolidatedfinancial statements in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Our opinions, based on ouraudits, are presented below.

 

Consolidatedfinancial statements

 

In our opinion, theconsolidated financial statements listed in the accompanying index present fairly, in all material respects,the financial position of Intrado Inc. and its subsidiaries at December 31,2004 and 2003, and the results of their operations and their cash flows foreach of the three years in the period ended December 31, 2004 in conformitywith accounting principles generally accepted in the United States ofAmerica.  These financial statements arethe responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based onour audits.  We conducted our audits ofthese statements in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit offinancial statements includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

Internal control over financial reporting

 

Also, in our opinion, management’s assessment, Management’s Report onInternal Control Over Financial Reporting, appearing under Item 9A, that theCompany maintained effective internal control over financial reporting as ofDecember 31, 2004 based on criteria established in *InternalControl – Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO), is fairly stated, in allmaterial respects, based on those criteria. Furthermore, in our opinion, theCompany maintained, in all material respects, effective internal control overfinancial reporting as of December 31, 2004, based on criteria established in *Internal Control – Integrated Framework* issued by theCOSO.  The Company’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting.  Our responsibility is toexpress opinions on management’s assessment and on the effectiveness ofthe Company’s internal control over financial reporting based on our audit. Weconducted our audit of internal control over financial reporting in accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects.  An audit of internalcontrol over financial reporting includes obtaining an understanding ofinternal control over financial reporting, evaluating management’s assessment,testing and evaluating the design and operating effectiveness of internalcontrol, and performing such other procedures as we consider necessary in thecircumstances.  We believe that our auditprovides a reasonable basis for our opinions. 

 

A company’s internal control over financialreporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples.  A company’s internal controlover financial reporting includes those policies and procedures that(i) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assetsof the company; (ii) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and(iii) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use, or disposition of the company’sassets that could have a material effect on the financial statements. 

 

Because of its inherent limitations, internalcontrol over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

/s/ PricewaterhouseCoopersLLP

 

PricewaterhouseCoopersLLP

Denver,Colorado

March16, 2005

 

42

----

 

**INTRADO INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Dollarsin Thousands, Except Per Share Data)**

 
| ** **                                             | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                             | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** |
| Revenues:                                              |       |                             |       |   |   |   |   |
| Wireline                                               |       | $                                | 81,937     |   | $ | 83,836 |   | $ | 80,833 |   |
| Wireless                                               |       | 51,508                           |       | 38,976 |   | 25,835 |   |
| New Markets                                            |       | 3,079                            |       | 1,842 |   | 1,046 |   |
| Total  revenues                                        |       | 136,524                          |       | 124,654 |   | 107,714 |   |
| Costs and  expenses:                                   |       |                             |       |   |   |   |   |
| Direct costs—Wireline                             |       | 43,574                           |       | 39,890 |   | 38,954 |   |
| Direct costs—Wireless                             |       | 25,842                           |       | 21,574 |   | 14,761 |   |
| Direct costs—New  Markets                         |       | 6,269                            |       | 4,641 |   | 2,748 |   |
| Goodwill  impairment                                   |       | 14,233                           |       | — |   | — |   |
| Sales and  marketing                                   |       | 20,084                           |       | 16,933 |   | 16,902 |   |
| General and  administrative                            |       | 21,727                           |       | 22,268 |   | 25,390 |   |
| Research and  development                              |       | 2,909                            |       | 2,322 |   | 2,769 |   |
| Total costs  and expenses                              |       | 134,638                          |       | 107,628 |   | 101,524 |   |
| Income from  operations                                |       | 1,886                            |       | 17,026 |   | 6,190 |   |
| Other income  (expense):                               |       |                             |       |   |   |   |   |
| Interest and  other income                             |       | 438                              |       | 290 |   | 158 |   |
| Interest  expense and other                            |       | (1,247                           | )          | (1,408 | ) | (1,292 | ) |
| Income  before income taxes                            |       | 1,077                            |       | 15,908 |   | 5,056 |   |
| Income tax  expense (benefit)                          |       | 5,079                            |       | 5,194 |   | (6,006 | ) |
| Net income  (loss)                                     |       | $                                | (4,002     | ) | $ | 10,714 |   | $ | 11,062 |   |
|                                                   |       |                             |       |   |   |   |   |
| Net income  (loss) per share:                          |       |                             |       |   |   |   |   |
| Basic                                                  |       | $                                | (0.23      | ) | $ | 0.68 |   | $ | 0.72 |   |
| Diluted                                                |       | $                                | (0.23      | ) | $ | 0.63 |   | $ | 0.67 |   |
| Shares used  in computing net income (loss) per share: |       |                             |       |   |   |   |   |
| Basic                                                  |       | 17,166,594                       |       | 15,764,081 |   | 15,263,676 |   |
| Diluted                                                |       | 17,166,594                       |       | 16,924,130 |   | 16,550,623 |   |

 

The accompanying notes to the consolidatedfinancial statements are an integral part of these consolidated statements.

 

43

----

 

**INTRADO INC.CONSOLIDATED BALANCE SHEETS(Dollars in Thousands)**

 
| ** **                                                                                                             | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                             | ** ** | **2004**              | ** ** | **2003** | ** ** |
| **ASSETS**                                                                                                             |       |                  |       |   |   |
| Current  assets:                                                                                                       |       |                  |       |   |   |
| Cash and  cash equivalents                                                                                             |       | $                     | 10,657     |   | $ | 17,281 |   |
| Short-term  investments                                                                                                |       | 28,705                |       | 20,700 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $190 and $357                                          |       | 17,556                |       | 15,678 |   |
| Unbilled  revenue                                                                                                      |       | 1,675                 |       | 1,560 |   |
| Prepaids and  other                                                                                                    |       | 3,032                 |       | 1,695 |   |
| Deferred  contract costs                                                                                               |       | 5,775                 |       | 4,195 |   |
| Deferred  income taxes                                                                                                 |       | 7,507                 |       | 11,105 |   |
| Total  current assets                                                                                                  |       | 74,907                |       | 72,214 |   |
| Property and  equipment, net of accumulated depreciation of $46,591 and $38,808                                        |       | 22,703                |       | 26,220 |   |
| Goodwill,  net of accumulated amortization of $1,394                                                                   |       | 30,278                |       | 24,517 |   |
| Other  intangibles, net of accumulated amortization of $7,836 and $6,172                                               |       | 4,260                 |       | 5,586 |   |
| Long-term  investments                                                                                                 |       | 898                   |       | — |   |
| Deferred  contract costs                                                                                               |       | 1,541                 |       | 2,865 |   |
| Software  development costs, net of accumulated amortization of $8,875 and $6,189                                      |       | 16,551                |       | 12,910 |   |
| Other assets                                                                                                           |       | 410                   |       | 955 |   |
| Total assets                                                                                                           |       | $                     | 151,548    |   | $ | 145,267 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                         |       |                  |       |   |   |
| Current  liabilities:                                                                                                  |       |                  |       |   |   |
| Accounts  payable and accrued liabilities                                                                              |       | $                     | 9,777      |   | $ | 10,906 |   |
| Current  portion of capital lease obligations                                                                          |       | 1,504                 |       | 2,935 |   |
| Current  portion of notes payable                                                                                      |       | —                |       | 4,250 |   |
| Mandatorily  redeemable preferred stock payable                                                                        |       | 4,431                 |       | 4,435 |   |
| Deferred  contract revenue                                                                                             |       | 19,742                |       | 15,733 |   |
| Total  current liabilities                                                                                             |       | 35,454                |       | 38,259 |   |
| Capital  lease obligations, net of current portion                                                                     |       | 1,312                 |       | 1,488 |   |
| Line of  credit                                                                                                        |       | 2,000                 |       | 2,000 |   |
| Deferred  rent, net of current portion                                                                                 |       | 1,643                 |       | 1,566 |   |
| Notes  payable, net of current portion                                                                                 |       | —                |       | 5,917 |   |
| Mandatorily  redeemable preferred stock payable                                                                        |       | —                |       | 4,159 |   |
| Deferred  contract revenue                                                                                             |       | 5,620                 |       | 6,355 |   |
| Deferred tax  liability—long term                                                                                 |       | 1,174                 |       | 1,081 |   |
| Total  liabilities                                                                                                     |       | 47,203                |       | 60,825 |   |
| Commitments  and Contingencies (Note 9)                                                                                |       | —                |       | — |   |
| Stockholders’  equity:                                                                                            |       |                  |       |   |   |
| Preferred  stock, $.001 par value; 15,000,000 shares authorized; 4,552 and 9,104  shares issued and outstanding        |       | —                |       | — |   |
| Common  stock, $.001 par value; 50,000,000 shares authorized; 17,473,860 and  16,164,007 shares issued and outstanding |       | 17                    |       | 16 |   |
| Accumulated  other comprehensive income                                                                                |       | 656                   |       | — |   |
| Additional  paid-in capital                                                                                            |       | 112,192               |       | 88,944 |   |
| Accumulated  deficit                                                                                                   |       | (8,520                | )          | (4,518 | ) |
| Total  stockholders’ equity                                                                                       |       | 104,345               |       | 84,442 |   |
| Total  liabilities and stockholders’ equity                                                                       |       | $                     | 151,548    |   | $ | 145,267 |   |

 

The accompanying notes to the consolidatedfinancial statements are an integral part of these consolidated statements.

 

44

----

 

**INTRADO INC.CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY(Dollars in Thousands, Except Share Data)**

 
| ** **                                                 | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Other  Comprehensive  Income (Loss)** | ** ** | **Accumulated  Deficit** | ** ** | **Total  Stockholders’  Equity** | ** ** |
|------------------------------------------------------------|------------|------------|------------|------------|------------|----------------------------------|------------|-----------------------------------------|------------|--------------------------|------------|---------------------------------------|------------|
| Balances, at December 31, 2001                        |       | 15,054,102 |       | $          | 15         |                             | $          | 75,309                                  |       | $                        | —     |                                  | $          | (26,294 | ) | $ | 49,030 |   |
| Issuance of  common stock under compensation arrangements  |       | 343,448    |       | —     |       | 2,693                            |       | —                                  |       | —                   |       | 2,693                                 |       |
| Issuance of  common stock upon exercise of warrants        |       | 44,590     |       | —     |       | 8                                |       | —                                  |       | —                   |       | 8                                     |       |
| Tax benefit  of stock option exercises                     |       | —     |       | —     |       | 2,926                            |       | —                                  |       | —                   |       | 2,926                                 |       |
| Net income                                                 |       | —     |       | —     |       | —                           |       | —                                  |       | 11,062                   |       | 11,062                                |       |
| Balances, at  December 31, 2002                       |       | 15,442,140 |       | $          | 15         |                             | $          | 80,936                                  |       | —                   |       | $                                     | (15,232    | ) | $ | 65,719 |   |
| Issuance of  common stock under compensation arrangements  |       | 713,003    |       | 1          |       | 6,025                            |       | —                                  |       | —                   |       | 6,026                                 |       |
| Issuance of  common stock upon exercise of warrants        |       | 8,864      |       | —     |       | 70                               |       | —                                  |       | —                   |       | 70                                    |       |
| Tax benefit of  stock option exercises                     |       | —     |       | —     |       | 1,913                            |       | —                                  |       | —                   |       | 1,913                                 |       |
| Net income                                                 |       | —     |       | —     |       | —                           |       | —                                  |       | 10,714                   |       | 10,714                                |       |
| Balances, at  December 31, 2003                       |       | 16,164,007 |       | $          | 16         |                             | $          | 88,944                                  |       | $                        | —     |                                  | $          | (4,518 | ) | $ | 84,442 |   |
| Issuance of  common stock under compensation arrangements  |       | 566,851    |       | —     |       | 5,073                            |       | —                                  |       | —                   |       | 5,073                                 |       |
| Issuance of  common stock upon exercise of warrants        |       | 8,000      |       | —     |       | 63                               |       | —                                  |       | —                   |       | 63                                    |       |
| Issuance of  common stock for acquisition                  |       | 735,002    |       | 1          |       | 16,697                           |       | —                                  |       | —                   |       | 16,698                                |       |
| Tax benefit  of stock option exercises                     |       | —     |       | —     |       | 1,415                            |       | —                                  |       | —                   |       | 1,415                                 |       |
| Comprehensive  income:                                     |       |       |       |       |       |                             |       |                                    |       |                     |       |                                  |       |
| Net loss                                                   |       | —     |       | —     |       | —                           |       | —                                  |       | (4,002                   | )          | (4,002                                | )          |
| Foreign currency translation adjustment                    |       | —     |       | —     |       | —                           |       | 692                                     |       | —                   |       | 692                                   |       |
| Unrealized gain (loss) from  available-for-sale securities |       | —     |       | —     |       | —                           |       | (36                                     | )          | —                   |       | (36                                   | )          |
| Total comprehensive income                                 |       |       |       |       |       |                             |       |                                    |       |                     |       | (3,346)                               |       |
| Balances, at  December 31, 2004                       |       | 17,473,860 |       | $          | 17         |                             | $          | 112,192                                 |       | $                        | 656        |                                  | $          | (8,520 | ) | $ | 104,345 |   |

 

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

 

45

----

 

**INTRADO INC.CONSOLIDATED STATEMENTS OFCASH FLOWS(Dollars in Thousands)**

 
| ** **                                                                               | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                               | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** |
| Cash flows  from operating activities:                                                   |       |                             |       |   |   |   |   |
| Net income  (loss)                                                                       |       | $                                | (4,002     | ) | $ | 10,714 |   | $ | 11,062 |   |
| Adjustments  to reconcile net income (loss) to net cash provided by operating activities |       |                             |       |   |   |   |   |
| Depreciation  and amortization                                                           |       | 15,540                           |       | 15,450 |   | 10,252 |   |
| Stock-based  compensation                                                                |       | 395                              |       | 183 |   | 219 |   |
| Accretion of  interest on mandatorily redeemable preferred stock payable                 |       | 389                              |       | 483 |   | — |   |
| Non-cash  interest                                                                       |       | —                           |       | — |   | 201 |   |
| Provision  for doubtful accounts                                                         |       | 31                               |       | (233 | ) | 433 |   |
| Asset  impairment                                                                        |       | 16,868                           |       | — |   | 4,697 |   |
| Loss on  disposal of assets                                                              |       | 96                               |       | 26 |   | 208 |   |
| Tax benefit  of stock option exercises                                                   |       | 1,415                            |       | 1,913 |   | 2,926 |   |
| Change in—                                                                          |       |                             |       |   |   |   |   |
| Accounts  receivable and unbilled revenue                                                |       | (1,644                           | )          | 4,059 |   | (6,859 | ) |
| Prepaids and  other                                                                      |       | (704                             | )          | 170 |   | 4,847 |   |
| Deferred  contract costs                                                                 |       | (189                             | )          | (1,153 | ) | (251 | ) |
| Deferred  income taxes, net                                                              |       | 3,560                            |       | 2,983 |   | (8,931 | ) |
| Accounts  payable and accrued liabilities                                                |       | (2,164                           | )          | 2,774 |   | (6,547 | ) |
| Deferred  revenue                                                                        |       | 3,161                            |       | (538 | ) | 5,757 |   |
| Net cash  provided by operating activities                                               |       | 32,752                           |       | 36,831 |   | 18,014 |   |
| Cash flows  from investing activities:                                                   |       |                             |       |   |   |   |   |
| Acquisition  of property and equipment                                                   |       | (2,767                           | )          | (3,573 | ) | (15,969 | ) |
| Purchases of  investments                                                                |       | (48,126                          | )          | (20,700 | ) | — |   |
| Proceeds  from sales of investments                                                      |       | 39,193                           |       | — |   | — |   |
| Acquisition,  net of cash acquired                                                       |       | (4,374                           | )          | — |   | — |   |
| Investment  in TechnoCom                                                                 |       | —                           |       | — |   | (500 | ) |
| Capitalized  software development costs                                                  |       | (10,148                          | )          | (5,096 | ) | (8,874 | ) |
| Net cash  used in investing activities                                                   |       | (26,222                          | )          | (29,369 | ) | (25,343 | ) |
| Cash flows  from financing activities:                                                   |       |                             |       |   |   |   |   |
| Principal  payments on capital lease obligations                                         |       | (3,200                           | )          | (3,322 | ) | (4,726 | ) |
| Proceeds  from line of credit                                                            |       | —                           |       | — |   | 6,000 |   |
| Proceeds  from notes payable                                                             |       | —                           |       | 3,900 |   | 3,000 |   |
| Repayment on  payables to Lucent and notes payable                                       |       | (10,167                          | )          | (5,016 | ) | (2,248 | ) |
| Payments on  mandatorily redeemable preferred stock payable                              |       | (4,552                           | )          | (4,551 | ) | — |   |
| Proceeds  from exercise of stock options                                                 |       | 3,784                            |       | 5,043 |   | 1,503 |   |
| Issuance of  stock upon exercise of warrants                                             |       | 63                               |       | 70 |   | 8 |   |
| Proceeds  from issuance of common stock through employee stock purchase plan             |       | 894                              |       | 800 |   | 971 |   |
| Net cash  provided by (used in) financing activities                                     |       | (13,178                          | )          | (3,076 | ) | 4,508 |   |
| Effect of  exchange rate changes on cash                                                 |       | 24                               |       | — |   | — |   |
| Net increase  (decrease) in cash and cash equivalents                                    |       | (6,624                           | )          | 4,386 |   | (2,821 | ) |
| Cash and  cash equivalents, beginning of period                                          |       | 17,281                           |       | 12,895 |   | 15,716 |   |
| Cash and  cash equivalents, end of period                                                |       | $                                | 10,657     |   | $ | 17,281 |   | $ | 12,895 |   |
| Supplemental  disclosure of cash flow information:                                       |       |                             |       |   |   |   |   |
| Cash paid  during the period for interest                                                |       | $                                | 626        |   | $ | 347 |   | $ | 513 |   |
| Supplemental  schedule of noncash financing and investing activities:               |       |                             |       |   |   |   |   |
| Property and  equipment under capital leases and accounts payable                        |       | $                                | 3,027      |   | $ | 1,924 |   | $ | 3,665 |   |

 

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

 

46

----

 

**INTRADO INC.NOTES TO CONSOLIDATEDFINANCIAL STATEMENTSDECEMBER 31, 2004**

 

**(1)****                                 ORGANIZATIONAND BUSINESS**

 

Intrado Inc., a Delaware corporation(the “Company”), provides emergency-telephony solutions that manage and delivermission-critical information for telecommunications providers includingincumbent local exchange carriers (“ILECs”), competitive local exchangecarriers (“CLECs”), wireless carriers, state and local governments in theUnited States and public safety organizations. The Company manages the datathat enables 9-1-1 calls to be routed to the appropriate public safety agencywith accurate and timely information about the caller’s identification,callback number and location. In addition, the Company licenses its software tocarriers that wish to manage the delivery of 9-1-1 data management servicesin-house.

 

**(2)****                                 SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

**Use of Estimates**

 

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions. Theseestimates affect the reported amounts of assets and liabilities, disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenue and expenses during the reporting period.Actual results could differ from those estimates.

 

**Principles of Consolidation**

 

The consolidated financial statements includethe accounts of the Company and its wholly owned subsidiaries, bmd Wireless, AGand Intrado International Ltd. All inter-company accounts and transactions havebeen eliminated in consolidation.

 

**Cash and Cash Equivalents**

 

All highly liquid investments with original maturityof three months or less when purchased are considered to be cash equivalents.All cash equivalents are carried at cost, which approximates fair value due tothe short maturities of the underlying instruments. Cash equivalents areshort-term, highly liquid investments that are both:

 

a)              Readily convertibleto known amounts of cash

b)             So near theirmaturity that they present insignificant risk of changes in value because ofchanges in interest rate.

 

##### **Investments**

 

Investments are classified as either short-termor long-term depending on the underlying investment’s original maturity or “reset”date. Investments are classified as short-term if their maturity or “reset”date is less than twelve months, long-term for those with a maturity or “resetdate” longer than twelve months. Auction rate securities are considered “available-for-sale”securities using the criteria in SFAS 115 and are classified as eithershort-term or long-term investments based upon the underlying “reset” date, ifapplicable, associated with each individual security. Auction rate securities areclassified as short-term or long-term investments. Auction rate securities(ARS) are variable rate investments tied to short-term interest rates generallywith maturities on the face of the securities that vary from 7, 28 or 35 days.The Company also holds certain ARS with reset dates extending beyond 90 daysand in some cases greater than one year. Interest paid during a given period isbased upon the interest rate determined during the prior auction period.Although these securities are issued and rated as long-term investments, theyare priced and traded as short-term instruments because of the liquidityprovided through the interest rate reset. The Company had historicallyclassified these instruments as cash equivalents if the period between theresets was 90 days or less, which

 

47

----

 

was based on the Company’s ability to either liquidate or roll over theinvestment to the next reset period without risk of degradation of par value.The Company only invests in securities with active secondary or resale marketsto ensure portfolio liquidity and the ability to readily convert investments tocash to fund current operations, or satisfy other cash requirements as needed.Based upon the Company’s re-evaluation of the maturity dates associated withthe underlying investments, the Company reclassified its ARS, previouslyclassified as cash equivalents, as short-term investments for each of theperiods presented in the accompanying balance sheet. The amounts reclassifiedfrom cash equivalents to short-term investments at December 31, 2004 and2003 were $20.5 million and $20.7 million, respectively. We have also madecorresponding adjustments to our consolidated statements of cash flows toreflect the gross purchases and sales of these securities as investingactivities rather than as a component of cash and cash equivalents.  These reclassifications had no impact on theresults of operations of the Company.

 

Investments are recorded at fair marketvalue. Unrealized gains or losses pertaining to auction rate securities arereported as part of Other Comprehensive Income (Loss). Purchases and sales ofavailable-for-sale investments are shown gross in the Statement of Cash Flows -Investing section. The following table summarizes the aggregate fair values ofall available-for-sale securities by major security types and the contractualmaturities of these securities as of December 31, 2004 and December 31,2003, respectively (amounts in thousands, except for maturity ranges):

 
| ** **               | ** ** | **Fair Value as of  December 31, 2004** | ** ** | **Fair Value as of  December 31, 2003** | ** ** | **Range of Contractual  Maturities** | ** **        |
|--------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------|-------------------|
| US  government debt      |       | $                                            | 2,704      |                                         | $          | —                               |              | 15 to 75 days |   |
| Corporate  debt          |       | 3,768                                        |       | —                                       |       | 3 to 13 months                       |              |
| Auction rate  securities |       | 31,042                                       |       |                                         | 31,777     |                                 | 5 days to 3 years |   |
| Total                    |       | $                                            | 37,514     |                                         | $          | 31,777                               |              |   |   |

 

**Valuation and Qualifying Accounts**

 

Valuation and qualifyingaccounts for each of the years in the three year-period ended December 31, 2004is detailed below (in thousands):****

** **
| **Fiscal Year** | ** ** | **Description**                  | ** ** | **Balances at   Beginning of   Period** | ** ** | **Charged to   Bad Debt   Expense** | ** ** | **Write-Offs   Charged to   Allowance** | ** ** | **Balances   at End of   Period** | ** ** |
|-----------------|------------|----------------------------------|------------|-----------------------------------------|------------|-------------------------------------|------------|-----------------------------------------|------------|-----------------------------------|------------|
| 2004            |       | Allowance  for doubtful accounts |       | $                                       | 357        |                                | $          | 28                                      |       | $                                 | (195       | ) | $ | 190 |   |
| 2003            |       | Allowance  for doubtful accounts |       | $                                       | 589        |                                | $          | (139                                    | )          | $                                 | (93        | ) | $ | 357 |   |
| 2002            |       | Allowance  for doubtful accounts |       | $                                       | 156        |                                | $          | 572                                     |       | $                                 | (139       | ) | $ | 589 |   |

 

 

**Property and Equipment**

 

Property and equipment are carried athistorical cost. Depreciation of property and equipment is computed using thestraight-line method over estimated useful lives of three to five years forcomputer hardware and equipment, seven years for furniture and fixtures and thelesser of the asset life or lease term for leasehold improvements. The costs ofrepairs and maintenance are expensed while expenditures that extend the usefulphysical or economic life of property and equipment are capitalized. Gains andlosses on disposition of property and equipment are recognized in operations inthe year of disposition.

 

**Goodwill and Other Intangibles**

 

The Company adopted Statement of FinancialAccounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”),on January 1, 2002. SFAS 142 states that goodwill is no longer subjectto amortization over its useful life. Rather, goodwill will be subject to, at aminimum, an annual assessment for impairment and will be written down to itsfair value only if the carrying amount is greater than the fair value. Inaddition, intangible assets will be recognized separately if the benefit of theintangible asset is obtained through contractual or other legal rights, or ifthe intangible asset can be sold, transferred, licensed, rented or exchanged,regardless of the acquirer’s intent to do so. Prior to 2002, the Company wasamortizing goodwill over 7 years. The Company has assigned goodwill to thelowest reporting unit identifiable, which are ILEC, Palladium and bmd wireless.

 

The Company hired an independent firm, QuistValuation Inc., to complete its annual impairment test, as required underSFAS 142, for the years ended December 31, 2004 and 2003. The incomeapproach was used to determine the fair value of each reporting unit that hadbeen assigned goodwill. That approach involves discounting each reporting unit’sprojected free cash flow at its weighted average cost of capital to ascertainwhether the fair value is higher than the book value, including goodwill. Usingthis method, the Company determined that the fair value of the Wirelinereporting unit exceeded its book value and therefore no impairment existed.Therefore, in accordance with the adoption of SFAS 142, no further testingwas necessary for this reporting unit.

 

48

----

 

The Company determined that, based on theanalysis, the carrying value of the goodwill for the bmd reporting unit wasimpaired. As a result, the Company recorded an impairment charge of $14.0million, lowering the carrying value of goodwill to $6.0 million. Included inthe impairment charge was $593,907 of additional consideration related to thevalue of the earn-out shares recorded at December 31, 2004 (see Note 3).The Company’s decision to impair the goodwill was primarily based onsignificantly lower performance of the bmd reporting unit since the time ofacquisition and a downward revision of the five-year earnings forecast for bmd.The Company determined that the downward revision was necessary due tocompetitive pressure in Europe and a longer sales cycle than expected at thetime of the acquisition. As a result, the Company expects a significantlyslower path for bmd’s technology to penetrate the European and North Americanmarkets.

 

The Company has recorded $4.3 million (net ofaccumulated amortization of $7.8 million) on its balance sheet relating toother acquired intangible assets as of December 31, 2004. The acquiredintangible assets include intellectual property and contracts acquired as partof the LPSS and bmd acquisitions. In accordance with SFAS 142, the Companyreevaluated the carrying value and the useful lives of these assets at December 31,2004 and determined that no adjustments were necessary. Accordingly, theCompany continues to amortize the amounts originally assigned to intellectualproperty and contracts. For the year ended December 31, 2004, the Companyrecorded approximately $1.7 million of amortization expense related to theseseparately identifiable intangible assets.

 

The following table details the intangiblesas of December 31, 2004 by class (dollars in thousands):

 
| ** **              | ** ** | **Gross Balance as  of December 31,  2004** | ** ** | **Accumulated  Amortization as of  December 31,  2004** | ** ** | **Amortization expense   Year ended  December 31, 2004** | ** ** | **Amortization  Life** | ** ** |
|-------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------------------|------------|---------------------------------------------------------------|------------|------------------------|------------|
| Goodwill and  workforce |       | $                                                | 31,672     |                                                         | $          | 1,394                                                         |       | $                      | —     |   | N/A |   |
| Customer  contracts     |       | 3,916                                            |       | 3,596                                                        |       | 522                                                           |       | 3 years                |       |
| Intellectual  property  |       | 8,180                                            |       | 4,240                                                        |       | 1,142                                                         |       | 7 years                |       |
| Total                   |       | $                                                | 43,768     |                                                         | $          | 9,230                                                         |       | $                      | 1,664      |   |   |   |

 

For the separately identifiable intangibleassets above pertaining to contracts and intellectual property, the Companyestimates that it will record the following amortization amounts over the nextfour years upon which time all current intangible assets will be fullyamortized years:

 

| 2005 |   | $ | 1.3 million |   |
|------|--------|---|------------------|--------|
| 2006 |   | $ | 1.3 million |   |
| 2007 |   | $ | 1.2 million |   |
| 2008 |   | $ | 0.4 million      |   |

 

The changes in the carrying amount ofgoodwill for the year ended December 31, 2004 are as follows (dollars inthousands):

 
| ** **                          | ** ** | **ILEC Reporting  Unit** | ** ** | **Palladium  Reporting Unit** | ** ** | **Bmd wireless, AG  Reporting Unit** | ** ** | **Total** | ** ** |
|-------------------------------------|------------|--------------------------|------------|-------------------------------|------------|--------------------------------------|------------|-----------|------------|
|                                |       |                     |       |                          |       |                                 |       |      |       |
| Balance as  of January 1, 2004 |       | $                        | 24,295     |                          | $          | 222                                  |       | $         | —     |   | $ | 24,517 |   |
| Goodwill  acquired during the year  |       | —                   |       | —                        |       | 19,994                               |       | 19,994    |       |
| Impairments                         |       | —                   |       | (222                          | )          | (14,011                              | )          | (14,233   | )          |
| Total                               |       | $                        | 24,295     |                          | $          | 0                                    |       | $         | 5,983      |   | $ | 30,278 |   |

 

49

----

 

 

## **Software**

##  

The Company capitalizes certain internal andexternal software acquisition and development costs that benefit future yearsin accordance with Statement of Position 98-1, “Accounting for the Costs ofComputer Software Developed or Obtained for Internal Use” (“SOP 98-1), iffor internal use, or SFAS No. 86, “Accounting for the Costs of ComputerSoftware to be Sold, Leased or Otherwise Marketed” (“SFAS 86”), if thesoftware is to be sold.

 

For software developed for internal use, theCompany expenses the costs of developing computer software until the softwarehas reached the application development stage and capitalizes all costsincurred from that time until the software has been installed at which timeamortization of the capitalized costs begins. Determination of when thesoftware has reached the application development stage is based upon completionof conceptual designs, evaluation of alternative designs and performancerequirements. Costs of major enhancements to internal use software arecapitalized while routine maintenance of existing software is charged toexpense as incurred. The determination of when the software is in theapplication development stage and the ongoing assessment of the recoverabilityof capitalized computer software development costs requires considerablejudgment by management with respect to certain factors, including, but notlimited to estimated economic life and changes in software and hardwaretechnology. The Company also contracts with third parties to help develop ortest internal use software and generally capitalizes these costs.

 

For software developed for external use, theCompany expenses the costs of developing computer software until technologicalfeasibility is established and capitalizes all costs incurred from that timeuntil the software is available for general customer release or ready for itsintended use, at which time amortization of the capitalized costs begins.Technological feasibility for the Company’s computer software products is basedupon the earlier of the achievement of: (a) a detailed program design freeof high-risk development issues; or (b) completion of a working model.Costs of major enhancements to existing products are capitalized while routinemaintenance of existing products is charged to expense as incurred. Theestablishment of the technological feasibility and the ongoing assessment ofthe recoverability of capitalized computer software development costs requiresconsiderable judgment by management with respect to certain external factors,including, but not limited to, technological feasibility, anticipated futuregross revenue, estimated economic life and changes in software and hardwaretechnology. The Company also contracts with third parties to develop or testsoftware that will be sold to customers and generally capitalizes these costs.

 

Internal- and external- use capitalizedsoftware costs are amortized on a product-by-product basis over their expecteduseful life, which is generally three to five years. The annual amortizationrelated to software to be sold is the greater of the amount computed using(a) the ratio that current gross revenue for a product compares to thetotal of current and anticipated future gross revenue for that product or(b) the straight-line method over the remaining estimated economic life ofthe product, which is typically three years. Amortization expense related tocapitalized software costs totaled approximately $5.3 million,$3.9 million and $1.3 million for the years ended December 31, 2004,2003 and 2002, respectively.

 

In the second quarter of 2004 the Companydetermined that, due to the continued limited visibility regarding the timingof forecasted revenue opportunities, it was necessary to impair $1.7 million ofsoftware assets related to the Company’s commercial database product offerings.The Company also recorded an impairment charge of $588,000 related tocapitalized software for an MPC product offering.  When the Company evaluated the net realizablevalue of each of these products, forward-looking business cases were preparedthat assessed the future expected benefits to be derived from the assetsagainst the direct costs associated with the delivery and ongoing support ofthe products to arrive at a contribution margin, defined as expected benefitsless direct costs. The contribution margins were then compared to the carryingvalue of the assets. The expected contribution margins were significantly lessthan the asset carrying values, resulting in the impairment charges.

 

50

----

 

**Revenue and Cost Recognition**

 

Revenue is accounted for as either softwarerevenue and related post-contract support, product revenue, or services revenuein accordance with the guidelines provided by SOP 97-2, “Software RevenueRecognition,” SAB 104, which superseded SAB 101, and FTB 90-1 “Accountingfor Separately Priced Extended Warranty and Product Maintenance Contracts.”  Our policy is to recognize revenue when theapplicable revenue recognition criteria have been met, which generally includethe following:

 

•     Persuasiveevidence of an arrangement exists;

 

•     Priceis fixed or determinable;

 

•     Deliveryhas occurred or services have been rendered; and

 

•                  Collectibilityis reasonably assured.

 

We deliver products and services that arepart of multiple element arrangements. In addition to the above criteria fromSAB 104 and SOP 97-2, we also apply the guidance in Emerging IssuesTask Force 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”),which requires us to evaluate vendor specific objective evidence (“VSOE”) forcontracts under SOP 97-2 and vendor objective evidence (“VOE”) forcontracts under SAB 104 to determine the fair value of elements deliveredin situations where multiple elements exist.

 

The majority of our revenue is derived fromlong-term service agreements with our customers and is recognized ratably overthe term of the contract as services are performed. Revenues from monthly datamanagement services include up-front and monthly service fees. Our up-frontservices consist primarily of the data cleansing of the customer’s 9-1-1records, engineering services to enable the customer’s legacy system tointerface with our platform, thereby establishing network connectivity, publicsafety boundary mapping, customer training and testing. The charges for theseservices are nonrefundable if the contract is cancelled after the services areperformed. After the initial up-front services, data management customers oftenbuy enhancements to these services, such as additional software engineering toimprove system functionality or network services to make their network moreeffective (“Enhancement Services”). The fees received for up-front services andcertain Enhancement Services are deferred and recognized as revenue ratablyover the term of the contract or the expected life of the customerrelationship, whichever is longer, as these fees do not represent theculmination of a separate earnings process. We also receive a monthly service fee to provide the ongoing datamanagement services required to keep the records current for all subscribers,to maintain and monitor network components and to support and maintain thesoftware and systems required to provide the services. The fees received for thesemonthly services are recognized as revenue in the period in which all of theabove criteria have been met, which is generally the month services areprovided. For services we perform under our outsourced or licensed model,customers do not have a contractual right to take possession of our software;therefore, we account for these arrangements as service contracts.

 

Maintenance contracts are sold to customersthat license software enhancements and purchase systems. The fees received forongoing maintenance obligations are deferred and recognized as revenue over thecontractual term of the arrangement.

 

Systems and new products revenue representsrevenue recognized from the sales of new database and call handling systems aswell as customized solutions sold to existing customers. Software licenserevenue and related hardware sales are recognized upon execution of a contractand completion of delivery obligations, provided that no uncertainties existregarding customer acceptance and that collection of the related receivable isreasonably assured.

 

Professional services revenue is generated byproviding consulting services and is recognized in the period in which all ofthe above criteria have been met.

 

In certain situations involving the deliveryof products with significant customization or modification services, we alsorecognize revenue on a percentage-of-completion basis, as prescribed bySOP 81-1, “Accounting for

 

51

----

 

Performance of Construction-Type and Certain Production-Type Contracts.”In these situations, we develop and utilize estimates to ratably recognizecosts and revenue as work is completed relative to the total estimated time andcosts to complete projects. Delays in completing projects or significantchanges to original cost estimates could adversely impact future periods inthat additional costs or amortization periods for both revenue and expenses maybe necessary. When reasonable estimates cannot be determined at the onset of anagreement due to unique acceptance criteria or other factors, revenue isrecognized on a completed contract basis.

 

As of December 31, 2004, the Company hadtotal deferred contract revenue of approximately $25.4 million anddeferred contract costs of approximately $7.3 million. Deferred contractrevenue represents fees for certain software enhancements and up-front feesthat have been billed but are yet to be delivered or that have been deliveredbut are required to be deferred under SAB 104. Of the total deferredcontract revenue at December 31, 2004, $24.0  million has already been received and $1.4million is included in accounts receivable. The Company estimates that totaldeferred contract revenue, net of deferred contract costs, will be recognized asfollows (in thousands):

 

| 2005                     |   | $      | 13,966 |   |
|--------------------------|--------|--------|--------|--------|
| 2006                     |   | 1,310  |   |
| 2007                     |   | 958    |   |
| 2008                     |   | 781    |   |
| 2009                     |   | 613    |   |
| 2010                     |   | 237    |   |
| 2011 through  2013 total |   | 180    |   |
|                     |   |   |   |
| Total                    |   | $      | 18,045 |   |

 

**Direct Costs**

 

Direct costs include costs related tomanaging the data, which enables 9-1-1 calls to be routed to the appropriatepublic safety agency with accurate and timely information about the caller’sidentification, callback number and location. These direct costs includeallocations of facility costs, corporate technical operations support costs andcorporate software engineering and maintenance costs, as well as depreciationexpense related to equipment used to manage the data.

 

**Research and Development**

 

Research and development efforts consist ofsalaries, supplies and other related costs incurred while the Company isdeveloping computer software prior to reaching technological feasibility oravailable for its intended use. These costs are expensed as incurred.

 

**Income Taxes**

 

The Company follows SFAS No. 109, “Accountingfor Income Taxes” (“SFAS 109”). The current provision for income taxesrepresents actual or estimated amounts payable or refundable on tax returnsfiled each year. Deferred tax assets and liabilities are recognized for theestimated future tax effects attributable to the temporary differences betweenthe financial statement carrying amounts of existing assets and liabilities andtheir respective tax bases as well as operating loss and tax creditcarryforwards. Deferred tax assets and liabilities are measured using tax ratesexpected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled. Under SFAS 109, theeffect on deferred tax assets and liabilities of a change in enacted tax lawsis recognized as an adjustment to the tax provision or benefit in the period ofenactment. The carrying value of deferred tax assets may be reduced by avaluation allowance if, based upon the judgmental assessment of availableevidence, it is deemed more likely than not that some or all of the deferredtax assets will not be realizable.

 

52

----

 

**Advertising Costs**

 

Advertising costs are expensed as incurred.

 

**Concentration of Credit Risk**

 

Financial instruments, which potentiallysubject the Company to concentrations of credit risk, are primarily cash andcash equivalents, accounts receivable and auction rate securities such asinvestments in high-grade treasury bonds and commercial paper. The Companymaintains its cash balances in the form of bank demand deposits, money marketaccounts, treasury bonds and commercial paper with original maturities of lessthan ninety days. The Company’s deposits and investments are with financialinstitutions that management believes are creditworthy and the investments arehigh-grade. The Company’s accounts receivable are from customers that aregenerally telecommunications service providers; accordingly, the Company’saccounts receivable are concentrated in the telecommunications industry. TheCompany’s major customers (see Note 14) accounted for 48% and 41% of theCompany’s accounts receivable as of December 31, 2004 and 2003,respectively. The Company has no significant financial instruments withoff-balance sheet risk of accounting loss, such as foreign exchange contracts,option contracts or other foreign currency hedging arrangements.

 

**Fair Value of Financial Instruments**

 

Financial instruments include cash and cashequivalents, corporate debt securities, accounts receivable and debtobligations. The carrying amounts for cash and cash equivalents and accountsreceivable approximate fair market value because of the short maturity of theseinstruments. The fair value of debt obligations are estimated based on currentrates available for debt with similar maturities and securities, and at December 31,2004 and 2003, approximates the carrying value.

 

**Stock-Based Compensation Plans**

 

At December 31, 2004, the Company hastwo stock-based employee compensation plans, which are described more fully inNote 7. The Company accounts for these plans under the recognition andmeasurement principles of APB Opinion No. 25, “Accounting for Stock Issuedto Employees” (“APB 25”) and related Interpretations. Stock-based employeecompensation cost of $395,000 for certain stock option issuances is included innet loss. All other options granted under these plans had an exercise priceequal to the market value of the underlying common stock on the date of grantand, accordingly, no stock-based employee compensation cost is included in netloss for these stock option issuances in 2004. The Company accounts for stock-basedcompensation awards to non-employees under the provisions of SFAS No. 123,“Accounting for Stock-Based Compensation” (“SFAS 123”) and recognizescompensation expense ratably over the vesting period of such awards. Thefollowing table illustrates the effect on net income (loss) and earnings (loss)per share if the Company had applied the fair value recognition provisions ofSFAS 123 to stock-based employee compensation (in thousands except pershare amounts):

 
| ** **                                                                                                           | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Net income  (loss), as reported                                                                                      |       | $        | (4,002     | )        | $          | 10,714   |       | $ | 11,062 |   |
| Add: Total  stock-based employee compensation                                                                        |       | 395      |       | 183      |       | 219      |       |
| Deduct:  Total stock-based compensation expense determined under fair value based  method for all awards, net of tax |       | (3,589   | )          | (3,657   | )          | (4,853   | )          |
| Pro forma  net income (loss)                                                                                         |       | $        | (7,196     | )        | $          | 7,240    |       | $ | 6,428 |   |
| Earnings  (loss) per share:                                                                                          |       |     |       |     |       |     |       |
| Basic—as  reported                                                                                              |       | $        | (0.23      | )        | $          | 0.68     |       | $ | 0.72 |   |
| Basic—pro  forma                                                                                                |       | $        | (0.42      | )        | $          | 0.46     |       | $ | 0.42 |   |
|                                                                                                                 |       |     |       |     |       |     |       |
| Diluted—as  reported                                                                                            |       | $        | (0.23      | )        | $          | 0.63     |       | $ | 0.67 |   |
| Diluted—pro  forma                                                                                              |       | $        | (0.42      | )        | $          | 0.43     |       | $ | 0.39 |   |

 

53

----

 

SFAS 123 defines a fair value basedmethod of accounting for employee stock options or similar equity instruments.However, SFAS 123 allows the continued measurement of compensation costfor such plans using the intrinsic value based method prescribed byAPB 25, provided that pro forma disclosures of net income or loss assumingthe fair value based method of SFAS 123 had been applied are provided inaccordance with SFAS 123 and SFAS 148, “Accounting for Stock-BasedCompensation.”  The Company has electedand continues to account for its stock-based compensation plans underAPB 25 for stock-based awards issued to employees and directors; forawards issued to non-employees and consultants, the Company applies theprovisions of SFAS 123. Accordingly, for purposes of the pro formadisclosures presented above, the Company has computed the fair values of alloptions granted under the plans during 2004, 2003 and 2002, using the Black-Scholesoption pricing model and the following weighted average assumptions:

 
| ** **               | ** ** | **2004**  | ** ** | **2003**       | ** ** | **2002**       | ** ** |
|--------------------------|------------|-----------|------------|----------------|------------|----------------|------------|
|                     |       |      |       |           |       |           |       |
| Risk-free  interest rate |       | 3.65      | %          | 3.30           | %          | 6.00           | %          |
| Estimated  life          |       | 4.2 years |       | 4.2 years |       | 4.2 years |       |
| Volatility               |       | 60.39     | %          | 73.50          | %          | 81.99          | %          |

 

Certain assumptions were used in determiningthe stock-based compensation expense under the fair-value-based method. Toestimate lives of options for this valuation, it was assumed options would beexercised upon becoming fully vested and all options will eventually becomefully vested. Cumulative compensation costs recognized in pro forma net incomeor loss with respect to options that are forfeited prior to vesting is adjustedas a reduction of pro forma compensation expense in the period of forfeiture.The expected volatility refers to the volatility of the Company’s common stockover the expected life of a given option. In 2004, 2003 and 2002, the Companyused the actual volatility of its common stock over a one-year period. Theassumed risk-free interest rates were determined using government securitieswith original maturities similar to the respective expected option lives atdate of grant.

 

**Impairment of Long-Lived Assets**

 

The Company reviews its long-lived assets forimpairment, excluding goodwill, whenever events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable fromfuture undiscounted cash flows. Impairment losses are recorded for the excess,if any, of the carrying value over the fair value of the long-lived assets.

 

**Foreign Currency Translation**

 

Assets and liabilities of foreign operations,where the local currency is the functional currency, are translated usingperiod-end exchange rates, and revenues and expenses are translated usingaverage exchange rates during each period. Translation gains and losses arereported in accumulated other comprehensive income as a component ofstockholder’s equity.

 

**Other Comprehensive Income**

 

Comprehensive income (loss) includes allchanges in stockholders’ equity during a period from non-owner sources,including unrealized holding gains and losses from available-for-salesecurities and cumulative translation adjustments.

 

**Earnings Per Share**

 

Basic earnings (loss) per share is determinedby dividing net income (loss) available to common stockholders by the weightedaverage number of common shares outstanding during each period. Diluted income(loss) per share includes the effects of potentially issuable common stock, butonly if dilutive (i.e., a loss per share is never reduced). The treasury stockmethod, using the average price of the Company’s common stock for the period,is applied to determine dilution from options and warrants. The computation ofbasic and diluted earnings per share was as follows (in thousands, except pershare amounts):

 

54

----

 
| ** **                                                                                                                           | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                           | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** |
| Numerator:                                                                                                                           |       |                             |       |   |   |   |   |
| Net income  (loss)                                                                                                                   |       | $                                | (4,002     | ) | $ | 10,714 |   | $ | 11,062 |   |
| Denominator:                                                                                                                         |       |                             |       |   |   |   |   |
| Basic income  (loss) per share—weighted average shares outstanding                                                              |       | 17,167                           |       | 15,764 |   | 15,264 |   |
| Dilutive  effect of common stock equivalents                                                                                         |       | —                           |       | 1,160 |   | 1,287 |   |
| Diluted  income (loss) per share—adjusted weighted-average shares outstanding,  assuming conversion of common stock equivalents |       | 17,167                           |       | 16,924 |   | 16,551 |   |
| Basic net  income (loss) per share                                                                                                   |       | $                                | (0.23      | ) | $ | 0.68 |   | $ | 0.72 |   |
| Diluted net  income (loss) per share                                                                                                 |       | $                                | (0.23      | ) | $ | 0.63 |   | $ | 0.67 |   |
|                                                                                                                                 |       |                             |       |   |   |   |   |
| Options not  included in diluted shares because of the exercise prices                                                               |       | 731                              |       | 425 |   | 250 |   |
| Options,  restricted stock, and potential shares not included in diluted shares because  anti-dilutive due to net loss               |       | 893                              |       | — |   | — |   |

 

**Recent Accounting Pronouncements**

 

In December 2004, the FASB issued SFAS No. 123(revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFASNo. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”) andsupersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.”SFAS 123R requires all share-based payments to employees, including grantsof employee stock options, to be recognized in the financial statements basedon their fair values beginning with the first interim or annual period after June 15,2005, with early adoption encouraged. The pro forma disclosures previouslypermitted under SFAS 123 and provided in Note 2 will no longer be analternative to financial statement recognition. The Company is required toadopt SFAS 123R in the third quarter of fiscal 2005, beginning July 1,2005. Under SFAS 123R, the Company must determine the appropriate fairvalue model to be used for valuing share-based payments, the amortizationmethod for compensation cost and the transition method to be used at date ofadoption. The transition methods include prospective and retroactive adoptionoptions. Under the retroactive option, prior periods may be restated either asof the beginning of the year of adoption or for all periods presented. Theprospective method requires that compensation expense be recorded for allunvested stock options and restricted stock at the beginning of the firstquarter of adoption of SFAS 123R, while the retroactive methods wouldrecord compensation expense for all unvested stock options and restricted stockbeginning with the first period restated. The Company is evaluating therequirements of SFAS 123R and expects that the adoption of SFAS 123Rwill have a material impact on the Company’s consolidated results of operationsand earnings per share. The Company has not yet determined the method ofadoption or the effect of adopting SFAS 123R, and it has not determinedwhether the adoption will result in amounts that are similar to the current proforma disclosures under SFAS 123.

 

**(3)****                                 ACQUISITIONS**

 

# **LPSSAcquisition – May 2001**

 

On May 11, 2001, the Company acquiredcertain assets and assumed certain liabilities associated with the callhandling and database divisions of Lucent Public Safety Systems (“LPSS”), aninternal venture of Lucent Technologies Inc. (“Lucent”). The Companyaccounted for this transaction using the purchase method of accounting.

 

As part of the acquisition, the Company:

 

•                  Issued2,250,000 shares of its common stock to Lucent;

 

55

----

 

•                  Paidapproximately $4.8 million to Lucent for inventory; and

 

•                  Issued13,656 shares of mandatorily redeemable, non-voting, Series A preferredstock (“Preferred Stock”), with an original recorded value of$12.8 million as of May 31, 2003 and a face value of $13.7 million,based on the Company’s total combined revenue of $211.8 million over the24-month period that began on June 1, 2001 and ended on May 31, 2003(“Total Revenue”).

 

*Inventory.*  The obligation to purchase inventory fromLucent was paid in four equal installments that began in August 2002 andended in May 2003. The inventory was written off during the second quarterof 2002 after management determined that there was a significant level ofuncertainty regarding the Company’s ability to use these assets internally orto sell the assets to its customer base, resulting in an impairment of theasset value. However, the obligation to pay Lucent remained and was fully paidby the second quarter of 2003.

 

*Common Stock.*  In January 2002, Lucent created a newpartnership named NV Partners II LP (“NVP II”) and transferred itsshares of Intrado common stock and its right to receive Intrado Preferred Stockto NVP II. As of December 31, 2004, 1,109,329 shares of the 2,250,000shares of common stock issued in connection with the May 2001 acquisitionof LPSS continued to be held by NVP II.

 

*Preferred Stock.*  Based on the Company’s Total Revenue of$211.8 million during the 24-month contingency period that commenced on June 1,2001 and ended on May 30, 2003, the Company was required, under the termsof the purchase agreement between Lucent and Intrado, to issue Preferred Stockto NVP II at a rate of $417,000 for each million dollars of totalrevenue in excess of $179 million (the “contingent consideration”). In July 2003,the Company issued approximately $12.8 million of Preferred Stock toNVP II. The Preferred Stock was recorded at a fair value of$12.8 million (defined as the present value of future redemption paymentsusing a 6.07% interest rate) and was structured to accrete to its face value of$13.7 million over the redemption period. The purchase agreement requiredthe Company to redeem the Preferred Stock in three increments:

 

•                  Thefirst 33.3% was redeemed in August 2003 for $4.6 million;

 

•                  Anadditional 33.3% was redeemed in June 2004 for $4.6 million; and

 

•                  Theremaining 33.4% is scheduled for redemption on June 1, 2005.

 

Early redemption is available at the Company’soption. In addition, the Company must redeem shares of Preferred Stock with 25%of the gross proceeds of any underwritten public offering after June 1,2003. No dividends have been or will be paid on the Preferred Stock.

 

Exclusive of the contingent consideration,the recorded purchase price of the gross assets acquired in this transactionwas approximately $30.1 million. The purchase price is comprised of2,250,000 shares of common stock valued at $9.91 per share, issuance of acommitment to purchase inventory from Lucent with a fair value of approximately$4.1 million, approximately $899,000 of liabilities recognized inconnection with the acquisition, acquisition fees of approximately$1.5 million paid to investment bankers and other transaction costs ofapproximately $1.2 million. As part of the acquisition, the Companyacquired net tangible assets consisting of inventory valued at approximately$4.1 million and property and equipment valued at approximately$1.0 million. The $25.0 million of purchase price over the estimatedfair value of net tangible assets acquired, was allocated to intangible assetsas follows: $11.6 million to goodwill; $8.2 million to intellectualproperty; $3.5 million to customer contracts acquired; and$1.7 million to workforce.

 

The Company has recorded on its balance sheet$30.3 million of net goodwill as of December 31, 2004. Of the $30.3million in goodwill, $24.3 million relates to the excess of the purchase priceover the estimated fair value of net identifiable assets acquired in theMay 2001 LPSS acquisition and includes the additional $12.8 million ofgoodwill recorded during the second quarter of 2003 in conjunction with theCompany’s issuance of mandatorily redeemable preferred stock as contingentconsideration owed to Lucent for the LPSS acquisition. As part of the adoptionof

 

56

----

 

SFAS 142, the Company combined the previously separate workforceintangible of $1.3 million with goodwill. All of the $24.3 million isassociated with the ILEC reporting unit.

 

# **bmd Wireless AG Acquisition – February 2004**

 

On February 3,2004, the Company entered into a share purchase agreement to acquire bmdwireless AG (“bmd”), a Swiss corporation headquartered in Zug, Switzerland. bmdprovides core network messaging solutions, enabling cross network mobile andapplication messaging traffic for a wide range of mobile operators and serviceproviders. Upon closing the acquisition on February 20, 2004, bmd became awholly owned subsidiary of Intrado.  Theresults of operations for the bmd subsidiary were a net loss of $14.8 million,which included goodwill impairment charges of $14.0 million.

 

Under the terms of the agreement, the Company acquired all of theoutstanding common stock of bmd in exchange for:

 

•                  approximately$4.4 million of cash;

 

•                  700,002shares of common stock; and

 

•                  anobligation to issue up to 200,000 additional shares of common stock (the “Earn-outShares”).

 

Under the earn-out provision, the Company will issue 0.02 Earn-outShares for each $1.00 of qualifying revenue from January 1 through December 31,2004, as defined in the share purchase agreement, up to a maximum of 200,000Earn-out Shares. The Earn-out Shares will be issued within five days of theCompany’s filing of its 2004 Annual Report on Form 10-K, but in no event laterthan April 10, 2005. Based upon the qualifying revenue of $2.3 million,the Company will issue 46,746 additional shares under the earn-out provision.At December 31, 2004, the value of these shares was estimated at $12.10per share (the closing price of the Company’s stock on December 31, 2004).The Company recorded the $593,907 as additional paid-in capital and as anadditional impairment charge to coincide with its SFAS 142 impairment analysis.In conjunction with the acquisition of bmd, the Company also paid $200,000,issued 35,000 shares of common stock and incurred an obligation to issue up to10,000 Earn-out Shares to bmd’s representative agent as a finder’s fee.

 

Underthe purchase method of accounting at the date of acquisition, the Companyrecorded an aggregate purchase price (excluding the earn-out provision) ofapproximately $20.9 million, which consisted of approximately $4.4 million incash, $16.1 million in Intrado common stock, and $503,000 in deal costsand other incurred liabilities, which primarily consisted of fees paid forlegal, accounting and financial advisory services. A total of 735,002 Intradoshares were issued in the transaction. The bmd shareholders tendered all of theoutstanding shares of bmd. The value of the stock issued by the Company wascalculated as $21.91, based upon the average closing price of the Company’scommon stock for the five trading days beginning on January 30, 2004 andending on February 5, 2004.

 

Inaccordance with SFAS141, the Company allocated the purchase price to the tangible assets,intangible assets, and liabilities acquired, including core technology(capitalized software) and customer relationships, based on their estimatedfair values. The excess purchase price over the fair values was recorded asgoodwill. The fair value assigned to intangible assets acquired was based on anindependent appraisal. The Company assigned the goodwill to the bmd reportingunit, part of the Wireless segment. The amount of goodwill generated as aresult of the acquisition will not be deductible for tax purposes. Inaccordance with SFAS 142, goodwill and purchased intangibles with indefinite livesacquired after June 30, 2001 are not amortized but will be reviewedperiodically for impairment. Purchased intangibles with finite lives areamortized on a straight-line basis over their respective useful lives. Thetotal purchase price was allocated as follows (in thousands):

 

57

----

 

| Current assets                                |   | $      | 886    |   |
|-----------------------------------------------|--------|--------|--------|--------|
| Property and equipment                        |   | 202    |   |
| Capitalized software                          |   | 1,059  |   |
| Goodwill                                      |   | 18,938 |   |
| Intangible assets and other                   |   | 304    |   |
| Total assets acquired                         |   | $      | 21,389 |   |
| Current liabilities                           |   | (210   | )      |
| Deferred revenue – current               |   | (103   | )      |
| Deferred tax liability – current portion |   | (25    | )      |
| Deferred tax liability – long-term       |   | (170   | )      |
|                                          |   |   |   |
| Total purchase price                          |   | $      | 20,881 |   |
|                                               |        |        |        |        |  |

 

The Company acquired bmd wireless to enhance the breadth and depth ofthe Company’s commercial product offerings in domestic and internationalmarkets and to access new international distribution channels. Managementbelieves that integration of bmd’s key development capabilities, products andresources with the Company’s platforms and business models will enable theCompany to design and build messaging solutions that allow wireless operatorsand service providers to offer innovative new services to their subscribers.

 

Inperforming this purchase price allocation, the Company considered, among otherfactors, its intention for future use of the acquired assets, analyses ofhistorical financial performance and estimates of future performance of bmd’sproducts. The fair value of intangible assets was primarily based on thereplacement cost approach and the relief from royalty approach. The discountrates used were 20% for customer contracts and related relationships, and 25%for core technology (capitalized software). These discount rates weredetermined after consideration of the Company’s rate of return on debt capitaland equity, the weighted average return on invested capital, and the riskassociated with achieving forecasted sales related to the technology and assetsacquired from bmd. At December 31, 2004, identifiable intangible assetspurchased in the bmd acquisition consist of the following (in thousands, exceptfor useful life):

 
| **Identifiable  Intangible Assets**           | ** ** | **Gross Value** | ** ** | **Accumulated  Amortization** | ** ** | **Useful Life** | ** ** |
|-----------------------------------------------|------------|-----------------|------------|-------------------------------|------------|-----------------|------------|
|                                          |       |            |       |                          |       |            |       |
| Capitalized software                          |       | $               | 1,084      |                          | $          | 533             |       | 2 years |   |
| Customer contracts and related  relationships |       | 409             |       | 88                            |       | 3 years         |       |
|                                          |       |            |       |                          |       |            |       |
| **Balance,  December 31, 2004**          |       | $               | 1,493      |                          | $          | 621             |       |   |   |

 

The Company hired an independent firm, Quist Valuation Inc., tocomplete its annual impairment test, as required under SFAS 142, for theyears ended December 31, 2004 and 2003. The income approach was used todetermine the fair value of each reporting unit that had been assignedgoodwill. That approach involves discounting each reporting unit’s projectedfree cash flow at its weighted average cost of capital to ascertain whether thefair value is higher than the book value, including goodwill.

 

The Company determined that, based on theanalysis, the carrying value of the goodwill for the bmd reporting unit wasimpaired. As a result, the Company recorded an impairment charge of $14.0million, lowering the carrying value of goodwill to $6.0 million. The Company’sdecision to impair the goodwill was primarily based on significantly lower

 

58

----

 

performance of the bmd reporting unit since the time of acquisition anda downward revision of the five-year earnings forecast for bmd. The Companydetermined that the downward revision was necessary due to competitive pressurein Europe and a longer sales cycle than expected at the time of theacquisition. As a result, the Company expects a significantly slower path forbmd’s technology to penetrate the European and North American markets.

 

**(4)****                                 PROPERTYAND EQUIPMENT**

 

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

 
| ** **                                      | ** ** | **December 31,** | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **2004**              | ** ** | **2003** | ** ** |
| Computer hardware and equipment                 |       | $                     | 56,849     |   | $ | 53,169 |   |
| Furniture and fixtures                          |       | 2,825                 |       | 2,459 |   |
| Leasehold improvements                          |       | 9,620                 |       | 9,400 |   |
|                                            |       | 69,294                |       | 65,028 |   |
| Less accumulated depreciation and  amortization |       | (46,591               | )          | (38,808 | ) |
|                                            |       | $                     | 22,703     |   | $ | 26,220 |   |
|                                                 |            |                       |            |  |  |  |  |  |

 

Depreciation expense on property and equipment totaled approximately$8.5 million, $9.2 million and $6.7 million for the years ended December 31,2004, 2003 and 2002, respectively.

 

**(5)****                                 ACCOUNTSPAYABLE AND ACCRUED LIABILITIES**

 

Accounts payable and accrued liabilities consist of the following (inthousands):

 
| ** **                | ** ** | **December 31,** | ** ** |
|---------------------------|------------|-----------------------|------------|
| ** **                | ** ** | **2004**              | ** ** | **2003** | ** ** |
| Accounts payable          |       | $                     | 6,574      |   | $ | 5,756 |   |
| Payroll-related accruals  |       | 1,113                 |       | 1,769 |   |
| Other accrued liabilities |       | 2,090                 |       | 3,381 |   |
|                      |       | $                     | 9,777      |   | $ | 10,906 |   |
|                           |            |                       |            |  |  |  |  |  |

 

**(6)****                                 STOCKHOLDERS’EQUITY**

 

**Preferred Stock**

 

As discussed in Note 3, during 2003, the Company issued 13,656shares, or approximately $12.8 million, of mandatorily redeemable,non-voting preferred stock to NVP II and redeemed 4,552 of these shares for$4.6 million in each of the years ended December 31, 2004 and 2003.

 

The Company’s Board of Directors has the ability to issue “blank check”preferred stock without stockholder approval as a mechanism to resist acorporate takeover.

 

**Stock Incentive Plan**

 

As of December 31, 2004, the Company has a total of 19,755 sharesof common stock available for issuance under the 1998 Stock Incentive Plan (“1998Plan”). Under the terms of the 1998 Plan, the shares reserved for issuanceautomatically increase on the first trading day of each calendar year by 3% ofthe number of shares of common stock outstanding on the last trading day of theimmediately preceding calendar year. The share reserve was increased by524,358, 485,062 and 463,406 shares under this provision in 2005, 2004 and2003, respectively. The total number of

 

59

----

 

shares remaining eligible for issuance under the 1998 Plan as of January 3,2005 is 544,113 shares. The 1998 Plan allows for issuances of options toemployees, officers, non-employee board members and consultants.

 

The total fair value of options granted under the 1998 Option Plan wascomputed to be approximately $6.2 million, $5.4 million and$6.7 million for the years ended December 31, 2004, 2003 and 2002,respectively. Pro forma stock-based compensation, net of the effect offorfeitures and tax, was $3.6 million, $3.7 million and$4.9 million for 2004, 2003 and 2002, respectively.

 

The following table summarizes information about the optionsoutstanding at December 31, 2004:

 
| ** **                    | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**                                     | ** ** |
|-------------------------------|------------|-------------------------|------------|-------------------------------------------------------------|------------|
| **Range  of Exercise Prices** | ** ** | **Number  Outstanding** | ** ** | **Weighted  Average  Remaining  Contractual  Life (Years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Number  Exercisable** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| $ 1.50 - $6.63           |       | 310,092                 |       | 4.86                                                        |       | $ | 5.63 |   | 309,042 |   | $ | 5.64 |   |
| $ 6.75 - $6.75           |       | 327,039                 |       | 5.79                                                        |       | $ | 6.75 |   | 327,039 |   | $ | 6.75 |   |
| $ 7.03  - $7.63          |       | 5,704                   |       | 6.15                                                        |       | $ | 7.35 |   | 4,544 |   | $ | 7.38 |   |
| $ 7.66 - $7.66           |       | 400,793                 |       | 8.12                                                        |       | $ | 7.66 |   | 166,030 |   | $ | 7.66 |   |
| $ 7.69 - $9.22           |       | 305,833                 |       | 6.64                                                        |       | $ | 8.35 |   | 255,113 |   | $ | 8.32 |   |
| $ 9.75 - $9.75           |       | 475,458                 |       | 7.80                                                        |       | $ | 9.75 |   | 213,458 |   | $ | 9.75 |   |
| $ 9.90 - $13.18          |       | 416,329                 |       | 7.62                                                        |       | $ | 11.08 |   | 205,709 |   | $ | 9.96 |   |
| $ 14.10 - $16.32         |       | 212,902                 |       | 7.41                                                        |       | $ | 15.38 |   | 117,767 |   | $ | 15.26 |   |
| $ 16.88 - $16.88         |       | 591,000                 |       | 9.40                                                        |       | $ | 16.88 |   | 0 |   | $ | 16.88 |   |
| $ 17.40 - $32.86         |       | 214,140                 |       | 6.91                                                        |       | $ | 21.12 |   | 156,730 |   | $ | 21.20 |   |
| $ 1.50 - $32.86          |       | 3,259,290               |       | 7.43                                                        |       | $ | 11.24 |   | 1,755,432 |   | $ | 9.47 |   |

 

A summary of stock options under the 1998 Plan as of December 31,2004, 2003 and 2002 and changes during the years then ended are presentedbelow:

 
| ** **                                      | ** ** | **2004**   | ** ** | **2003**                               | ** ** | **2002**   | ** ** |
|-------------------------------------------------|------------|------------|------------|----------------------------------------|------------|------------|------------|
| ** **                                      | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| Outstanding at beginning of year                |       | 3,093,103  |       | $                                      | 9.71       |       | 3,374,741  |   | $ | 9.51 |   | 3,013,784 |   | $ | 8.59 |   |
| Granted                                         |       | 776,500    |       | $                                      | 15.79      |       | 542,500    |   | $ | 8.76 |   | 935,750 |   | $ | 12.10 |   |
| Exercised                                       |       | (458,563   | )          | $                                      | 8.23       |       | (646,738   | ) | $ | 7.87 |   | (250,946 | ) | $ | 6.06 |   |
| Canceled                                        |       | (151,750   | )          | $                                      | 12.31      |       | (177,397   | ) | $ | 10.97 |   | (323,847 | ) | $ | 11.12 |   |
| Outstanding at end of year                      |       | 3,259,290  |       | $                                      | 11.24      |       | 3,093,106  |   | $ | 9.65 |   | 3,374,741 |   | $ | 9.51 |   |
| Options exercisable at year-end                 |       | 1,755,432  |       |                                   |       | 1,426,253  |       |   |   | 1,229,891 |   |   |   |
| Weighted average fair value of options  granted |       | $          | 8.00       |                                   |       |       | $          | 9.16 |   |   |   | $ | 7.17 |   |   |   |
|                                                 |            |            |            |                                        |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Employee Stock Purchase Plan**

 

On March 18, 1998, the Company adopted an Employee Stock PurchasePlan, or ESPP, under which eligible employees may contribute up to 10% of theirsalaries through payroll deductions to purchase shares of the Company’s commonstock. The offering periods are successive six-month periods starting January 1and July 1 of each year. At the end of each offering period, amountscontributed by employees will be used to purchase shares of the Company’s

 

60

----

 

common stock at a price equal to 85% of the lower of the closing priceof the common stock on the first day or last day of the offering period. TheCompany’s board of directors has authorized the issuance of up to 200,000shares under the ESPP and may terminate the ESPP at any time. On March 1of each year, the shares available under the ESPP will be restored to 200,000,although the Company’s board of directors may elect to restore a lesser numberof shares. The Company issued 77,827, 80,605 and 84,275 shares under the ESPPin 2004, 2003 and 2002, respectively.

 

Effective January 1, 2005, the Companyhas indefinitely suspended the ESPP plan.

 

**Warrants**

 

During 2004, 2003 and 2002, the Company issued 8,000, 8,864 and 44,590shares, respectively, of common stock upon exercise of warrants related toconsulting services provided to the Company. Of these warrants, 9,720 remainoutstanding at an exercise price of $7.91.

 

**(7)****                                 CAPITALIZEDLEASE OBLIGATIONS**

 

The Company had capitalized lease obligations for equipment due onvarious dates through 2007 of $2.8 million and $4.4 million as of December 31,2004 and 2003, respectively.  There isapproximately $234,000 of imputed interest on these leases at December 31,2004 and the interest rates range from 1.1% to 8.5% per annum. These leaseobligations are collateralized by the related assets with a net book value of$3.3 million and $5.1 million as of December 31, 2004 and 2003,respectively.

 

Maturities of capital lease obligations as of December 31, 2004,are as follows (in thousands):

 

| 2005                                    |   | $      | 1,658  |   |
|-----------------------------------------|--------|--------|--------|--------|
| 2006                                    |   | 1,104  |   |
| 2007                                    |   | 288    |   |
| Thereafter                              |   | — |   |
| Total minimum lease payments            |   | 3,050  |   |
| Less—amount related to interest    |   | (234   | )      |
| Principal portion of future obligations |   | 2,816  |   |
| Less—current portion               |   | (1,504 | )      |
|                                    |   | $      | 1,312  |   |

 

The following table summarizes the assetsrecorded in property, plant and equipment in Note 4 that are recorded ascapital leases (in thousands):

 
| ** **                    | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2004**              | ** ** | **2003** | ** ** |
| Carrying value, gross         |       | $                     | 5,018      |   | $ | 7,740 |   |
|                          |       |                  |       |   |   |
| Less accumulated depreciation |       | (1,711                | )          | (2,612 | ) |
|                          |       | $                     | 3,307      |   | $ | 5,128 |   |

 

**(8)****                                 LINEOF CREDIT AND NOTES PAYABLE**

 

As of December 31, 2004, the Company owed $2.0 million on arevolving line of credit arrangement and an additional amount of $850,000 wasutilized to satisfy letter of credit obligations. Borrowing availability underthe line of credit is not to exceed the lesser of $20 million or two timesEBITDA, as defined in the line of credit agreement. The interest rate onamounts borrowed under the line of credit is equal to the lower of the primerate plus 1.5%, which was 6.75% at December 31, 2004, or LIBOR plus 3.75%per annum, which was 5.76% as of December 31, 2004. The line of creditmatures on December 31, 2006, requires a $2.0 million minimum balanceto be maintained and is collateralized by accounts receivable and certain otherassets. As of December 31, 2004, $2.0 million was outstanding and anadditional $17.2 million was available for additional borrowings.

 

The terms of the revolving line of credit, term loans and capital leaseobligations require the Company to maintain compliance with certain financialcovenants, including current asset ratios and total indebtedness ratios. As of December 31,2004, the Company was in compliance with all operating and financial debtcovenants.

 

The Company paid principal of $10.2 millionin 2004 on notes payable which included a pre-payment of $5.9 million forprincipal on two previous term notes payable to GE Capital.  There were no pre-payment penalties incurred

 

61

----

 

in 2004.  However, the Companyhad previously been amortizing the origination fees of $100,000 over the lifeof the term loans.  The remainingamortization was accelerated at the time of pre-payment.

 

**(9)****                                 COMMITMENTSAND CONTINGENCIES**

 

**Operating Leases**

 

The Company leases its office and research facilities and certainequipment under operating lease agreements which expire through December 2011.Some lease terms contain escalation clauses and the total amount of rent isexpensed on a straight-line basis over the term of the lease. Rent expense forthe years ended December 31, 2004, 2003 and 2002 was approximately$4.1 million, $4.3 million and $4.4 million, respectively.Future minimum lease obligations under these agreements are as follows (inthousands):

 

| 2005       |   | $      | 3,964  |   |
|------------|--------|--------|--------|--------|
| 2006       |   | 3,747  |   |
| 2007       |   | 3,623  |   |
| 2008       |   | 3,185  |   |
| Thereafter |   | 13,777 |   |
|       |   | $      | 28,296 |   |

 

**Litigation**

 

The Company is subject to various claims and business disputes in theordinary course of business, none of which are considered to be material to thefinancial position, operations or cash flows of the Company.

 

The Company provides wireline and wireless E9-1-1 database managementand related network services for the State of Texas pursuant to a serviceagreement (“Agreement”) that the Company entered in November 1998. On February 4,2003, the Company filed suit in a Texas County District Court against the TexasCommission on State Emergency Communications (“CSEC”) and numerous otherdefendants for failure to pay amounts due and payable to Intrado for certainwireless services rendered pursuant to the Agreement. During the quarter ended June 30,2003, the Company agreed to a settlement with CSEC related to this dispute.Under the settlement, CSEC and the other defendants agreed to pay Intradoapproximately $200,000 of the $500,000 that had previously been in dispute. TheCompany also provided wireless services through August 2003 and agreed tocontinue to provide wireline services through June 2004. The wirelineservices agreement was subsequently extended through June 2005.

 

**Indemnification**

 

The Company has agreements whereby it indemnifies officers anddirectors for certain events or occurrences while the officer or director is,or was, serving in such capacity at the Company’s request. The term of theindemnification period is for the officer’s or director’s lifetime. The maximumpotential amount of future payments the Company could be required to make underthese indemnification agreements is unlimited; however, the Company has adirector and officer insurance policy that limits exposure and the Companybelieves that this policy would enable it to recover a portion, if not all, ofany future indemnification payments. As a result of its insurance policycoverage, the Company believes that its estimated exposure on theseindemnification agreements is minimal.

 

The Company enters into standard indemnification agreements in theordinary course of business. Pursuant to these agreements, the Companyindemnifies, holds harmless, and agrees to reimburse the indemnified party forlosses suffered or incurred by the indemnified party in connection with anyclaim by any third party, including customers, with respect to the Company’sproducts or services, including, but not limited to, alleged negligence, breachof contract, or infringement of  apatent, copyright or other intellectual property right. The term is any timeafter execution of the agreement. The maximum potential amount of futurepayments the Company could be required to make under these indemnificationagreements is unlimited. The Company has never incurred costs to defendlawsuits or settle claims

 

62

----

 

related to these indemnification agreements. As a result, the Companybelieves that its estimated exposure on these agreements is minimal.

 

**(10)****                          INCOMETAXES**

 

The Company has approximately $13.9 million of net operating losscarryforwards and approximately $4.8 million of research and development taxcredit carryforwards available to offset future federal taxable income orfederal tax liabilities in the United States. These carryforwards expire atvarious dates through 2025. The Company also has approximately $540,000 and$231,000 of net operating loss carryforwards available to offset future taxableincome in Ireland and Switzerland respectively. The Irish net operating losses have no expiration period while the Swissnet operating losses expire in 2011.

 

Deferred income tax assets and liabilities at December 31, 2004and 2003, were as follows (in thousands):

 
| ** **                               | ** ** | **December 31,** | ** ** |
|------------------------------------------|------------|-----------------------|------------|
| ** **                               | ** ** | **2004**              | ** ** | **2003** | ** ** |
| Deferred tax assets:                     |       |                  |       |   |   |
| Accrued liabilities and other            |       | $                     | 1,002      |   | $ | 1,098 |   |
| Amortization of goodwill and intangibles |       | 562                   |       | 753 |   |
| Equipment impairment                     |       | 686                   |       | 805 |   |
| Net operating loss carryforwards         |       | 5,303                 |       | 7,098 |   |
| Tax credit carryforwards                 |       | 4,835                 |       | 3,615 |   |
| Deferred revenue                         |       | 2,845                 |       | 4,324 |   |
| Deferred rent expense                    |       | 651                   |       | 599 |   |
| Foreign net operating loss carryforwards |       | 87                    |       | — |   |
| Total deferred tax assets                |       | 15,971                |       | 18,292 |   |
| Deferred tax liabilities:                |       |                  |       |   |   |
| Depreciation differences                 |       | (3,546                | )          | (3,783 | ) |
| Capitalized software                     |       | (5,972                | )          | (4,485 | ) |
| Foreign deferred tax liabilities         |       | (74                   | )          | — |   |
| Total deferred tax liabilities           |       | (9,592                | )          | (8,268 | ) |
| Valuation Allowance                      |       | (59                   | )          | — |   |
| Net deferred tax assets                  |       | $                     | 6,320      |   | $ | 10,024 |   |

 

A reconciliation of income tax expense computed by applying the federalincome tax rate of 35% to income (loss) before income taxes as of December 31,2004, 2003 and 2002, were as follows (in thousands):

 
| ** **                                     | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|-----------------------|------------|
| ** **                                     | ** ** | **2004**              | ** ** | **2003** | ** ** | **2002** | ** ** |
| Computed statutory tax expense                 |       | $                     | 377        |   | $ | 5,567 |   | $ | 1,770 |   |
| Impairment of nondeductible goodwill           |       | 4,904                 |       | — |   | — |   |
| Tax effect of permanent differences and  other |       | 129                   |       | 137 |   | (187 | ) |
| State tax, net of federal tax impact           |       | 539                   |       | 530 |   | 164 |   |
| Tax credit                                     |       | (1,220                | )          | (1,040 | ) | (357 | ) |
| Impact of foreign tax rate differential        |       | 291                   |       | — |   | — |   |
| Change in valuation allowance                  |       | 59                    |       | — |   | (7,396 | ) |
| Income tax expense (benefit)                   |       | $                     | 5,079      |   | $ | 5,194 |   | $ | (6,006 | ) |

 

During the year ended December 31, 2002, the Company reversedvaluation allowances previously recorded for net operating loss carryforwardsand for temporary differences between book and tax based upon the Company’sestimate that it would be more likely than not that it would realize thebenefits for these assets in the future. As of December 31, 2004, theCompany established a valuation allowance on certain foreign net operatinglosses. The

 

63

----

 

domestic and foreign components of book income (loss) before incometaxes as of December 31, 2004, 2003 and 2002 were as follows (in thousands):

 
| ** ** | ** ** | **December 31,** | ** ** |
|------------|------------|-----------------------|------------|
| ** ** | ** ** | **2004**              | ** ** | **2003** | ** ** | **2002** | ** ** |
| U.S.       |       | $                     | 16,401     |   | $ | 15,908 |   | $ | 5,056 |   |
| Foreign    |       |                  | (15,324    | ) |   | — |   |   | — |   |
| Total.     |       | $                     | 1,077      |   | $ | 15,908 |   | $ | 5,056 |   |

 

The components of the provision (benefit) for income taxes attributableto income from operations as of December 31, 2004, 2003 and 2002, were asfollows (in thousands):

 
| ** **                     | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2004**              | ** ** | **2003** | ** ** | **2002** | ** ** |
| Current                        |       |                  |       |   |   |   |   |
| U.S.                           |       | $                     | 106        |   | $ | 105 |   | $ | — |   |
| State                          |       | —                |       | — |   | — |   |
| Foreign                        |       | —                |       | — |   | — |   |
| Total current                  |       | 106                   |       | 105 |   | — |   |
|                           |       |                  |       |   |   |   |   |
| Deferred                       |       | —                |       | — |   | — |   |
| U.S.                           |       | 4,532                 |       | 4,559 |   | (5,376 | ) |
| State                          |       | 539                   |       | 530 |   | (630 | ) |
| Foreign                        |       | (98                   | )          | — |   | — |   |
| Total Deferred                 |       | 4,973                 |       | 5,089 |   | (6,006 | ) |
|                           |       |                  |       |   |   |   |   |
| Income tax provision (benefit) |       | $                     | 5,079      |   | $ | 5,194 |   | $ | (6,006 | ) |

 

The Company does not currently intend to repatriate foreign earningsdue to such earnings being permanently reinvested in the foreignsubsidiaries.  The Company receives a taxdeduction for certain compensation in excess of that recognized for financialpurposes. Such benefit arises from an increase in the market price of the stockunder employee option agreements between the measurement date (as defined inAPB No. 25) and the date at which the compensation deduction for incometax purposes is determinable. This benefit was recorded directly to additionalpaid-in capital in 2004, 2003 and 2002 was $1.4 million, $1.9 millionand $2.9 million, respectively.

 

**(11)****                          REPORTABLESEGMENTS**

 

Effective January 1, 2003, the Company realigned its internaloperating units by aggregating similar service offerings with organizationalsupervision and decision-making authorities. As a result, the Company condensedits operating segments into three business units: Wireline, Wireless and NewMarkets. Wireline includes the former ILEC and CLEC business units, the Stateof Texas wireline portion of the former Direct business unit and call handlingproducts, also formerly reported under the Direct business unit. New Markets,which carries responsibility for services and products that are in the earlystages of development or market penetration, currently includes IntelliCast andCDB. IntelliCast results were previously reported as part of the Directbusiness unit and CDB results were previously reported as part of the Corporatebusiness unit. No changes were made to the Wireless segment as previouslyreported.

 

In 2003, the Company also began allocating indirect expenses fromcorporate support groups to Wireline, Wireless and New Markets based on thepercentage of total Company revenue each unit generates in the reported period.These expenses, which include indirect costs, corporate overhead and incometaxes, were previously reported as part of the Corporate business unit.

 

Direct costs include all costs directlyattributable to a business unit’s operations and revenue-earning activities,including depreciation and amortization expense for those assets that can beidentified to a specific business unit or product. Direct costs in 2004 alsoincludes goodwill and other asset impairment charges as follows: Wirelessincludes

 

64

----

 

$14.0 million related to a bmd goodwill impairment charge and $0.6million for a capitalized software impairment charge related to the MPC productoffering; New Markets direct costs includes $1.7 million for a capitalizedsoftware impairment charge related to the CDB product offering; Wireline directcosts includes $0.3 million in goodwill and other asset impairment chargesrelated to the Palladium product offerings.

 

Indirect business unit costs include the costs of business unit supportfunctions, including sales and marketing, general and administrative andresearch and development. Corporate overhead includes these same costsallocated from corporate to business units based on a weighted average revenuepercentage. Included in the costs allocated from Corporate are depreciation andamortization expenses for assets that cannot be specifically identified to abusiness unit or product.

 

Income taxes are also allocated to the new segments based on thepercentage of income before taxes each unit generated in the period. TheCompany believes this methodology improves its financial reporting as each unitis fully burdened with an appropriate allocation of the Company’s operatingexpenses and income taxes if the segment was profitable in the period reported.The expenses allocated from Corporate are shown as a separate line item belowdirect and indirect costs.

 

Corresponding items for segments in periods prior to January 1,2003 have been reclassified to conform to the Company’s new segments. TheCompany does not segregate assets between segments as it is currentlyimpractical to do so. On a geographical basis, the vast majority of the Company’srevenues are derived in the US, and segments are determined based on aggregationof customers and associated products and services, not geographical regions.The Company does operate its bmd subsidiary in Zug, Switzerland, but revenueand operating income contributions on a consolidated basis were not material tooverall results. Also, the Company formed Intrado International Ltd. inIreland, to conduct certain European business development activity in 2004 buthad no revenue generating activities. 

 
|                               |       | **For the  Year Ended December 31,  (dollars in thousands)** |       |
|------------------------------------|------------|-------------------------------------------------------------------|------------|
|                               |       | **WIRELINE**                                                      |       | **WIRELESS** |   | **NEW  MARKETS** |   | **TOTAL** |   |
| ** **                         | ** ** | **2004**                                                          | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Data management                    |       | $                                                                 | 50,436     |   | $ | 54,688 |   | $ | 54,390 |   | $ | 48,567 |   | $ | 36,368 |   | $ | 24,919 |   | $ | 2,878 |   | $ | 1,842 |   | $ | 1,046 |   | $ | 101,881 |   | $ | 92,898 |   | $ | 80,355 |   |
| Maintenance                        |       | 18,318                                                            |       | 16,340 |   | 13,316 |   | 405 |   | — |   | — |   | — |   | — |   | — |   | 18,723 |   | 16,340 |   | 13,316 |   |
| Systems                            |       | 11,020                                                            |       | 11,978 |   | 12,821 |   | 1,004 |   | — |   | 500 |   | — |   | — |   | — |   | 12,024 |   | 11,978 |   | 13,321 |   |
| Professional  services             |       | 2,163                                                             |       | 830 |   | 306 |   | 1,532 |   | 2,608 |   | 416 |   | 201 |   | — |   | — |   | 3,896 |   | 3,438 |   | 722 |   |
|                               |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total revenue                      |       | 81,937                                                            |       | 83,836 |   | 80,833 |   | 51,508 |   | 38,976 |   | 25,835 |   | 3,079 |   | 1,842 |   | 1,046 |   | 136,524 |   | 124,654 |   | 107,714 |   |
| Direct costs                       |       | 43,796                                                            |       | 39,890 |   | 38,954 |   | 39,853 |   | 21,574 |   | 14,761 |   | 6,269 |   | 4,641 |   | 2,748 |   | 89,918 |   | 66,105 |   | 56,463 |   |
| Indirect business  unit costs      |       | 8,496                                                             |       | 8,595 |   | 10,164 |   | 4,994 |   | 4,692 |   | 4,624 |   | 2,095 |   | 4,271 |   | 2,564 |   | 15,585 |   | 17,558 |   | 17,352 |   |
| Corporate  overhead                |       | 17,501                                                            |       | 16,176 |   | 20,912 |   | 10,987 |   | 7,476 |   | 6,536 |   | 647 |   | 313 |   | 261 |   | 29,135 |   | 23,965 |   | 27,709 |   |
|                               |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total costs and  expenses          |       | 69,793                                                            |       | 64,661 |   | 70,030 |   | 55,834 |   | 33,742 |   | 25,921 |   | 9,011 |   | 9,225 |   | 5,573 |   | 134,638 |   | 107,628 |   | 101,524 |   |
| Income (loss)  from operations     |       | 12,144                                                            |       | 19,175 |   | 10,803 |   | (4,326 | ) | 5,234 |   | (86 | ) | (5,932 | ) | (7,383 | ) | (4,527 | ) | 1,886 |   | 17,026 |   | 6,190 |   |
| Interest and  other income         |       | 264                                                               |       | 195 |   | 119 |   | 165 |   | 91 |   | 38 |   | 9 |   | 4 |   | 1 |   | 438 |   | 290 |   | 158 |   |
| Interest and  other expense        |       | (748                                                              | )          | (947 | ) | (971 | ) | (474 | ) | (443 | ) | (310 | ) | (25 | ) | (18 | ) | (11 | ) | (1,247 | ) | (1,408 | ) | (1,292 | ) |
|                               |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  before income taxes |       | 11,660                                                            |       | 18,423 |   | 9,951 |   | (4,635 | ) | 4,882 |   | (358 | ) | (5,948 | ) | (7,397 | ) | (4,537 | ) | 1,077 |   | 15,908 |   | 5,056 |   |
| Income tax  expense (benefit)      |       | 3,469                                                             |       | 3,685 |   | (4,324 | ) | 1,610 |   | 1,509 |   | (1,622 | ) | — |   | — |   | (60 | ) | 5,079 |   | 5,194 |   | (6,006 | ) |
|                               |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                  |       | $                                                                 | 8,191      |   | $ | 14,738 |   | $ | 14,275 |   | $ | (6,245 | ) | $ | 3,373 |   | $ | 1,264 |   | $ | (5,948 | ) | $ | (7,397 | ) | $ | (4,477 | ) | $ | (4,002 | ) | $ | 10,714 |   | $ | 11,062 |   |

 

65

----

 

The following table depicts (a) the amount of capitalized softwareassets assigned to each of its reportable segments and (b) the amount ofdepreciation and amortization expenses recorded in each segment for therespective periods used in determining the segment’s operating results by thechief operating decision maker. Certain capitalized software and other fixedassets, and the resulting depreciation and amortization expense, are notassigned to reporting segments as they represent assets not specificallyidentifiable to any given segment. Rather, these assets are recorded in various corporate support units andallocated to segments via a corporate overhead allocation that is based onweighted revenue of the given segment for the given period.  These expenses are recorded in indirect costsfor purposes of determining segment profitability.

 
| ** **                                                                                             | ** ** | **For the Year Ended December 31,  (dollars in thousands)** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                                                                             | ** ** | **WIRELINE**                                                     | ** ** | **WIRELESS** | ** ** | **NEW  MARKETS** | ** ** | **TOTAL** | ** ** |
| ** **                                                                                             | ** ** | **2004**                                                         | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                             | ** ** | ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Carrying value,  gross                                                                                 |       | $                                                                | 14,794     |   | $ | 8,426 |   | $ | 5,884 |   | $ | 5,622 |   | $ | 4,172 |   | $ | 3,425 |   | $ | 1,493 |   | $ | 3,719 |   | $ | 3,099 |   | $ | 21,909 |   | $ | 16,317 |   | $ | 12,408 |   |
| Accumulated  Amortization                                                                              |       | 3,665                                                            |       | 2,336 |   | 1,408 |   | 3,106 |   | 1,323 |   | 248 |   | 608 |   | 1,319 |   | 473 |   | 7,379 |   | 4,978 |   | 2,129 |   |
|                                                                                                   |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Carrying value,  net                                                                                   |       | $                                                                | 11,129     |   | $ | 6,090 |   | $ | 4,476 |   | $ | 2,516 |   | $ | 2,849 |   | $ | 3,177 |   | $ | 885 |   | $ | 2,400 |   | $ | 2,626 |   | $ | 14,530 |   | $ | 11,339 |   | $ | 10,279 |   |
| Total  depreciation and amortization expenses included in *direct costs* for the period, approximate   |       | $                                                                | 6,000      |   | $ | 4,800 |   | $ | 3,500 |   | $ | 4,800 |   | $ | 4,600 |   | $ | 2,300 |   | $ | 1,200 |   | $ | 1,600 |   | $ | 570 |   | $ | 12,000 |   | $ | 11,000 |   | $ | 6,370 |   |
| Total  depreciation and amortization expenses included in *indirect costs* for the period, approximate |       | $                                                                | 941        |   | $ | 1,300 |   | $ | 1,100 |   | $ | 706 |   | $ | 627 |   | $ | 377 |   | $ | 148 |   | $ | 194 |   | $ | 55 |   | $ | 1,795 |   | $ | 2,121 |   | $ | 1,532 |   |

 

**(12)****                          EMPLOYEEBENEFIT PLAN**

 

The Company has a 401(k) plan under which eligible employees may deferup to 15% of their compensation subject to a maximum annual amount of $13,000;employees over 50 years of age can contribute up to $16,000. The Company maymake matching contributions and discretionary contributions if approved by theboard of directors. The Company matched 50% of employee contributions up to 6%of the employee’s salary to the extent these matching contributions did notexceed $2,000 in 2004, 2003 and 2002. Matching contributions vest 35%, 70% and100% for one, two and three years of service, respectively. The total expenserelated to the employer match was approximately $835,000, $792,000 and $802,000for the years ended December 31, 2004, 2003 and 2002, respectively.Employee and employer contributions are not directly invested in Company stock.

 

**(13)****                          RELATEDPARTY TRANSACTIONS**

 

*TechnoCom Corporation*

 

During the year ended December 31, 2002,the Company purchased 294,118 shares of TechnoCom Corporation’s Series APreferred Stock for $500,000, representing 2.9% of the aggregate dilutivevoting power of TechnoCom as of September 30, 2002. The Company does notexercise any control or influence over TechnoCom and does not have any boardrepresentation. As a result, the Company has accounted for its investment on acost rather than equity basis. TechnoCom is under contract to providedevelopment and implementation services to the Wireless business unit inconnection with the Company’s PDE service offering. TechnoCom also providessubcontracted services to the Company’s ILEC customers. During the years ended December 31,2004 and 2003, the Company paid TechnoCom $505,000 and $316,000, respectively,for their services.

 

On March 25, 2004, TechnoCom redeemedthe preferred stock by issuing a $500,000 promissory note to the Company, whichbears interest at 4% per year. TechnoCom repaid $150,000 of principal on thepromissory note in 2004. The Company will receive principal and interestpayments on the remaining $350,000 note balance in quarterly installments of$27,000 through March 2008.

 

66

----

 

**(14)****                          MAJORCUSTOMERS**

 

Revenue from certain customers exceeded 10% of total revenue for therespective years as follows:

 

| ** ** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|
| SBC        |       | 16       | %          | 18       | %          | 16       | %          |
| Verizon    |       | 20       | %          | 15       | %          | 16       | %          |
| Bell South |       | 10       | %          | 11       | %          | 12       | %          |
| Qwest      |       | 9        | %          | 11       | %          | 12       | %          |

 

Accounts receivables from the above 10% revenue customers aboverepresented the following percentage of overall company receivables as of December 31for the respective years:

 

| ** ** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|
| SBC        |       | 3        | %          | 19       | %          | 10       | %          |
| Bell South |       | 5        | %          | 7        | %          | 6        | %          |
| Qwest      |       | 13       | %          | 8        | %          | 7        | %          |
| Verizon    |       | 27       | %          | 7        | %          | 9        | %          |

 

Contracts with certain of these customers have a duration through 2012and provide for fixed monthly fees based upon the number of subscriber recordsmanaged and upon the services selected by the customer. All of these customersare in the Company’s Wireline and Wireless business units.

 

**(15)****                          QUARTERLYINFORMATION (UNAUDITED)**

 

The following summarizes selected unaudited quarterly financialinformation for each of the two years in the period ended December 31,2004:

 
| ** **                                             | ** ** | **Three months ended,**                           | ** ** |
|--------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                             | ** ** | **March 31,**                                | ** ** | **June 30,** | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
| ** **                                             | ** ** | **2004**                                          | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                             | ** ** | **(Amounts in thousands, except per share data)** | ** ** |
| Revenue                                                |       | $                                                 | 32,132     |   | $ | 29,869 |   | $ | 32,341 |   | $ | 30,151 |   | $ | 36,066 |   | $ | 31,683 |   | $ | 35,985 |   | $ | 32,951 |   |
| Direct  costs                                          |       | 18,039                                            |       | 16,758 |   | 19,995 |   | 15,590 |   | 18,678 |   | 16,418 |   | 33,206 |   | 17,339 |   |
| Net income  (loss)                                     |       | $                                                 | 1,921      |   | $ | 1,142 |   | $ | 171 |   | $ | 2,584 |   | $ | 3,996 |   | $ | 3,102 |   | $ | (10,090 | ) | $ | 3,886 |   |
| Net  income (loss) per share:                          |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                  |       | $                                                 | 0.12       |   | $ | 0.07 |   | $ | 0.01 |   | $ | 0.17 |   | $ | 0.23 |   | $ | 0.20 |   | $ | (0.58 | ) | $ | 0.25 |   |
| Diluted                                                |       | $                                                 | 0.11       |   | $ | 0.07 |   | $ | 0.01 |   | $ | 0.16 |   | $ | 0.22 |   | $ | 0.18 |   | $ | (0.58 | ) | $ | 0.23 |   |
| Shares  used in computing net income (loss) per share: |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                  |       | 16,631                                            |       | 15,503 |   | 17,069 |   | 15,541 |   | 17,361 |   | 15,750 |   | 17,404 |   | 15,767 |   |
| Diluted                                                |       | 17,958                                            |       | 15,863 |   | 18,073 |   | 16,353 |   | 17,803 |   | 17,237 |   | 17,404 |   | 17,181 |   |

 

During the quarter ended December 31, 2004, the Company recorded a$14.0 million goodwill impairment charge relating to its bmd subsidiary, and acredit to expenses of $720,000 related to certain forfeiture of accruedvacation, as well as a $282,000 credit to bad debt expenses related to recoveryof previously reserved for receivables. During the quarter ended December 31,2003, the Company recognized a tax benefit of $445,000 due to a change inestimate of its effective tax rate, primarily due to lower than expectedoperating income.

 

67

----

 

**(16)****                          SUBSEQUENTEVENT**

 

On February 10, 2005, the Company completed an Asset PurchaseAgreement with Tel-Control, Inc. (TCI) to sell its Palladium business, areporting unit in our Wireline business unit. Under the terms of the agreement,the Company agreed to assign its existing intellectual property rights acquiredfrom LPSS as well as existing maintenance contracts to TCI. The Company wouldretain revocation rights if TCI failed to adequately perform go-forwardmaintenance or if TCI became insolvent. There was no immediate compensation tothe Company as a result of this transaction. The Company wrote-off $322,000 of assets as of December 31, 2004,which included a goodwill impairment charge of $222,000 and the write-off ofother intangible assets.  The Companyexpects to account for the wind-down of remaining Palladium operations duringthe transition period as a discontinued operation.

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

 

None.

 
| **ITEM 9A****.** | **CONTROLS AND PROCEDURES** |
|------------------|-----------------------------|

 

**Evaluation of Disclosure Controls and Procedures**

 

We have established disclosure controls and procedures to ensure thatmaterial information relating to the company, including its consolidatedsubsidiaries, is made known to the officers who certify the company’s financialreports and to other members of senior management and the board of directors.

 

Based on their evaluation as of December 31, 2004, the chief executiveofficer and chief financial officer of the company have concluded that thecompany’s disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934) are effective to ensurethat the information required to be disclosed by the company in the reportsthat it files or submits under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified in SECrules and forms. 

 

## **Management’s Report on Internal Control Over Financial Reporting**

##  

Our management is responsible for establishing and maintaining adequateinternal control over financial reporting, as such term is defined in ExchangeAct Rule 13a-15(f). Under the supervision and with the participation of ourmanagement, including our Chief Executive Officer and Chief Financial Officer,we conducted an evaluation of the effectiveness of our internal control overfinancial reporting based on the framework in “Internal Control – IntegratedFramework” issued by the Committee of Sponsoring of the Treadway Commission.Based on our evaluation under the framework in “Internal Control – IntegratedFramework,” our management concluded that our internal control over financialreporting was effective as of December 31, 2004. Our management’sassessment of the effectiveness of our internal control over financialreporting as of December 31, 2004, has been audited byPricewaterhouseCoopers LLP, an independent registered public accounting firm,as stated in their report which is included in Item 8, “Financial Statementsand Supplementary Data.”

 

**Changes in Internal Control**

 

There were no other changes in our internal control over financialreporting for the year ended December 31, 2004, that have materially affected,or are reasonably likely to materially affect, our internal control overfinancial reporting. 

 
| **ITEM 9B****.** | **OTHER INFORMATION** |
|------------------|-----------------------|

 

In February 2005, we paid a cash bonus of $136,142 to our six executiveofficers based on fourth quarter 2004 performance objectives, bringing theaggregate cash bonus paid to our six executive officers to approximately$607,223 in fiscal 2004. A copy of our 2004 Pay for Results Plan has been filedas an exhibit to this Annual Report on Form 10-K.

 

**PART III**

 
| **ITEM 10.** | **DIRECTORS AND EXECUTIVE OFFICERS OF THE  REGISTRANT** |
|--------------|---------------------------------------------------------|

 

Information required by this item will be contained in our definitiveProxy Statement with respect to the 2005 Annual Meeting of Stockholders (the “2005Proxy Statement”) and is hereby incorporated by reference thereto.

 
| **ITEM 11.** | **EXECUTIVE COMPENSATION** |
|--------------|----------------------------|

 

Information required by this item will be contained in the 2005 ProxyStatement and is hereby incorporated by reference thereto.

 

68

----

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

 

Information required by this item will be contained in the 2005 ProxyStatement and is hereby incorporated by reference thereto.

 
| **ITEM 13.** | **CERTAIN RELATIONSHIPS AND RELATED  TRANSACTIONS** |
|--------------|-----------------------------------------------------|

 

Information required by this item will be contained in the 2005 ProxyStatement and is hereby incorporated by reference thereto.

 
| **ITEM 14.** | **PRINCIPAL ACCOUNTANT FEES AND SERVICES** |
|--------------|--------------------------------------------|

 

Information required by this item will be contained in the 2005 ProxyStatement and is hereby incorporated by reference thereto.

 

**PART IV**

 
| **ITEM 15.** | **EXHIBITS AND FINANCIAL STATEMENT SCHEDULES** |
|--------------|------------------------------------------------|

 

**(a)****                                  (1)  Financial Statements**

 

The financial statements filed as part of this report are listed on theindex to financial statements on page 41.

 

**(2) Financial Statement Schedules**

 

All financial statement schedules have been omitted because they arenot required, are not applicable or the information is included in theFinancial Statements or Notes thereto.

 

**(3) Exhibits**

 
| **Exhibit  Number** | ** ** | **Description** |
|---------------------|------------|-----------------|
| ** **          | ** ** | ** **      |
| 3.01                | (1)        |            | Restated Certificate of Incorporation. |
| 3.02                | (2)        |            | Amended and Restated Bylaws. |
| 4.01                | (3)        |            | Specimen Certificate for SCC Communications Corp. Common Stock. |
| 4.02                | (4)        |            | Specimen Certificate for Intrado Inc. Common Stock. |
| 4.03                | (3)        |            | Reference is made to Exhibits 3.01 and 3.02. |
| 4.04                | (5)        |            | Certificate of Designation for Series A Preferred Stock. |
| 10.01               | (3)        |            | 1990 Stock Option Plan. |
| 10.02               | (3)        |            | 1998 Stock Incentive Plan. |
| 10.03               | (3)        |            | 1998 Employee Stock Purchase Plan, as amended. |
| 10.04               | (3)        |            | Form of Directors’ and Officers’ Indemnification Agreement. |
| 10.05               | (6)        |            | Genesis Select Corporation and SCC Communications Corp. Common Stock  Purchase Warrant Agreement, dated April 19, 2000. |
| 10.06               | (7)        |            | General Electric Capital Corporation Loan and Security Agreement,  dated as of July 31, 2001. |
| 10.07               | (2)        |            | First Amendment to General Electric Loan and Security Agreement,  dated July 1, 2002. |

 

69

----

 
| **Exhibit  Number** | ** ** | **Description** |
|---------------------|------------|-----------------|
| ** **          | ** ** | ** **      |
| 10.08               | (1)        |            | Second Amendment to General Electric Loan and Security Agreement,  dated September 26, 2002. |
| 10.09               | (5)        |            | Third Amendment to General Electric Loan and Security Agreement,  dated May 16, 2003. |
| 10.10               | (8)        |            | Fourth Amendment to General Electric Loan and Security Agreement,  dated November 5, 2003. |
| 10.11               | (8)        |            | Fifth Amendment to General Electric Loan and Security Agreement,  dated February 19, 2004. |
| 10.12               | (9)        |            | Sixth Amendment to General Electric Loan and Security Agreement,  dated March 14, 2005. |
| 10.13               | (8)        |            | Share Purchase Agreement (bmd wireless AG), dated February 3,  2004. |
| 10.14               | (10)       |            | Registration Rights Agreement (bmd wireless AG), dated February 20,  2004. |
| 10.15               | (10)       |            | Form of Non-Competition Agreement. |
| 10.16               | (9)        |            | 2004 Pay for Results Plan |
| 14.01               | (8)        |            | Code of Ethics. |
| 21.01               | (9)        |            | List of Subsidiaries. |
| 23.01               | (9)        |            | Consent of PricewaterhouseCoopers LLP, Independent Registered Public  Accounting Firm. |
| 31.01               | (9)        |            | Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) under  the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302  of the Sarbanes-Oxley Act of 2002. |
| 31.02               | (9)        |            | Certification of Chief Financial Officer and Treasurer pursuant to Rule 13a-14(a) under  the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302  of the Sarbanes-Oxley Act of 2002. |
| 32.01               | (9)        |            | Certification of President and Chief Executive Officer Pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
| 32.02               | (9)        |            | Certification of Chief Financial Officer and Treasurer Pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

----

(1)     Incorporatedby reference to the Registrant’s Form 10-Q for the Quarter ended September 30,2002.

(2)     Incorporatedby reference to the Registrant’s Form 10-Q for the Quarter ended June 30,2002.

(3)     Incorporatedby reference to the Registrant’s Registration Statement on Form S-1(File No. 333-49767), as amended.

(4)     Incorporatedby reference to the Registrant’s Current Report on Form 8-K, asfiled with the SEC on June 4, 2001.

(5)     Incorporatedby reference to the Registrant’s Form 10-Q for the Quarter ended June 30,2003.

(6)     Incorporatedby reference to the Registrant’s Form 10-Q for the Quarter ended June 30,2000.

(7)     Incorporatedby reference to the Registrant’s Form 10-Q for the Quarter ended September 30,2001.

(8)     Incorporatedby reference to the Registrant’s Form 10-K for the Fiscal Year endedDecember 31, 2004.

(9)     Filedherewith.

(10)   Incorporatedby reference to the Registrant’s Registration Statement on Form S-3(File No. 333-114141), as amended.

 

70

----

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized, as of March16, 2005.

 

 
|   | INTRADO INC.  a Delaware Corporation |
|--------|--------------------------------------|
|   |                                 |   |
|   | By:                                  | /s/ Michael D. Dingman, Jr. |   |
|   | Name:                                | Michael D. Dingman, Jr. |
|   | Title:                               | *Chief Financial Officer* |

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below as of March 16, 2005 by the following personson behalf of the registrant and in the capacities indicated.

 
| **Signature**               | ** ** | **Title**                                       |
|-----------------------------|------------|-------------------------------------------------|
|                        |       |                                            |
| /s/ George K. Heinrichs     |       |                                            | President, Chief Executive Officer and Chairman of the Board |
| **George K. Heinrichs**     |       | *(Principal Executive Officer)*                 |
|                        |       |                                            |
| /s/ Michael D. Dingman, Jr. | ** ** | ** **                                      | Chief Financial Officer |
| **Michael D. Dingman, Jr.** |       | *(Principal Financial and Accounting  Officer)* |
|                        |       |                                            |
| /s/ Stephen O. James        | ** ** | ** **                                      | Director |
| **Stephen O. James**        |       |                                            |
|                        |       |                                            |
| /s/ David Kronfeld          |       |                                            | Director |
| **David Kronfeld**          |       |                                            |
|                        |       |                                            |
| /s/ Winston J. Wade         |       |                                            | Director |
| **Winston J. Wade**         |       |                                            |
|                        |       |                                            |
| /s/ Darrell A. Williams     | ** ** | ** **                                      | Director |
| **Darrell A. Williams**     |       |                                            |
|                        |       |                                            |
| /s/ Art Zeile               | ** ** | ** **                                      | Director |
| **Art Zeile**               |       |                                            |

 

71

----

 

**EXHIBIT INDEX**(1)

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                              |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.12               |       | Sixth Amendment to General Electric Loan and Security Agreement, dated  March 14, 2005.                                                                                 |
| 10.16               |       | 2004 Pay For Results Plan                                                                                                                                                    |
| 21.01               |       | List of Subsidiaries.                                                                                                                                                        |
| 23.01               |       | Consent of PricewaterhouseCoopers LLP, Independent Registered Public  Accounting Firm.                                                                                       |
| 31.01               |       | Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) under  the Securities Exchange Act of 1934, as amended.                          |
| 31.02               |       | Certification of Chief Financial Officer and Treasurer pursuant to Rule 13a-14(a) under  the Securities Exchange Act of 1934, as amended.                          |
| 32.01               |       | Certification of President and Chief Executive Officer Pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
| 32.02               |       | Certification of Chief Financial Officer and Treasurer Pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

----

| (1) | This Exhibit Index only includes exhibits filed with this Annual  Report on Form 10-K and excludes exhibits incorporated by  reference. For a list of exhibits incorporated by reference, refer to “Item  15. Exhibits” above. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

72

----