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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2004



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
|- | -----------------------------------------------------------------------------------------------------------



For the transition period from
 to



Commission File Number 0-27560



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ACT Teleconferencing, Inc.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Colorado                                                       |  | 84-1132665                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)
|                                                               | 
|1526 Cole Boulevard, Suite 300, Golden, CO                     |  | 80401                            
|(Address of principle executive offices)                       |  | (Zip Code)                       
|                                                               | 
|303-235-3500                                                   |  | 303-235-4399                     
|(Registrants telephone number)                                |  | (Registrants facsimile number)  



Securities
registered under Section 12(b) of the Exchange Act:



|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on which registered
|None                |  | None                                     



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Securities registered under Section 12(g) of the Exchange Act:



Common stock, no par value

(Title of Class)



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



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule
12b-2).    Yes ̈No  x



The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 2004 was $37.4 million based on the closing price of the Companys common stock on the Nasdaq National Market on June 30, 2004 of $2.52 per share.



The number of shares outstanding of the Companys Common Stock, no par value was 16,661,562 shares as of April 11,
2005.



DOCUMENTS INCORPORATED BY REFERENCE



Certain information called for by Part III is incorporated by reference to
specified portions of the definitive Proxy Statement for the Registrants 2005 Annual Meeting of Stockholders, which is expected to be filed not later than 120 days after the Registrants fiscal year ended December 31, 2004.



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ACT Teleconferencing, Inc.



Form 10-K



Table of Contents



|          |  |                                                                                                               |  |         
|--------- |  | ------------------------------------------------------------------------------------------------------------- |  | --------
|          |  |                                                                                                               |  | Page No.
|PART I.   |  |                                                                                                               |  |         
|Item 1.   |  | Business                                                                                                      |  | 1       
|Item 2.   |  | Facilities                                                                                                    |  | 6       
|Item 3.   |  | Legal proceedings                                                                                             |  | 6       
|Item 4.   |  | Submission of matters to a vote of security holders                                                           |  | 7       
|          |  |                                                                                                              
|PART II.  |  |                                                                                                               |  |         
|Item 5.   |  | Market for registrants common equity, related stockholder matters and issuer repurchase of equity securities |  | 7       
|Item 6.   |  | Selected Financial Data                                                                                       |  | 9       
|Item 7.   |  | Managements discussion and analysis of financial condition and results of operations                         |  | 9       
|Item 7A   |  | Quantitative and qualitative disclosures about market risk                                                    |  | 20      
|Item 8    |  | Financial statements and supplementary data                                                                   |  | 20      
|Item 9    |  | Changes in and disagreements with accountants on accounting and financial disclosure                          |  | 20      
|Item 9A   |  | Controls and Procedures                                                                                       |  | 21      
|Item 9B   |  | Other Information                                                                                             |  | 21      
|          |  |                                                                                                              
|PART III. |  |                                                                                                               |  |         
|Item 10.  |  | Directors and executive officers of the registrant                                                            |  | 21      
|Item 11.  |  | Executive compensation                                                                                        |  | 21      
|Item 12.  |  | Security ownership of certain beneficial owners and management and related stockholder matters                |  | 21      
|Item 13.  |  | Certain relationships and related transactions                                                                |  | 21      
|Item 14.  |  | Principal Accountant Fees and Services                                                                        |  | 21      
|          |  |                                                                                                              
|PART IV.  |  |                                                                                                               |  |         
|Item 15.  |  | Exhibits and financial statement schedules                                                                    |  | 22      



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Caution Regarding Forward-Looking Statements



This annual report on Form 10-K contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as may, will, should, expect, plan,
intend, anticipate, believe, estimate, predict, potential or continue, the negative of such terms, or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these
statements, you should specifically consider various factors, including the risks outlined in Risk Factors herein. These factors may cause our actual results to differ materially from any forward-looking statement.



Although we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Important factors that could cause actual results to differ materially from such expectations described in this report include: the capital
requirements required for the development and expansion of the Companys business; risks relating to obtaining additional financing; risks associated with the expansion of the Companys business and the possible inability of the Company to
manage its growth; risks related to the Companys expansion into new products and new technologies; the competitive nature of the teleconferencing business; and the Companys dependence on its significant customers. Moreover, we do not
assume responsibility for the accuracy and completeness of the forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this annual report to conform such statements to actual results or to
changes in our expectations.



Throughout this report, ACT Teleconferencing may
be referred to as ACT, The Company, We, or Our.



PART I



Item 1. Business



Overview



General. We are a full-service provider of audio,
video, data and web-based conferencing services to businesses and organizations in North America, Europe and Asia Pacific. Our conferencing services enable our clients to cost-effectively conduct full service international conferences exchanging
video, data and audio, by linking participants in geographically dispersed locations. We are present in nine countries and provide local access dial in access from a total of 53 countries. Our primary focus is to provide high quality conferencing
services to organizations such as professional service firms, investment banks, high tech companies, law firms, investor relations firms, telecommunications companies and other domestic and multinational companies.



We were incorporated in December 1989 and began offering audio teleconferencing services at
our Denver location in January 1990. In 1992 we invested in an audio teleconferencing operation in the United Kingdom, and in 1995 we invested in a similar operation in the Netherlands. In 1997 we announced a capacity expansion plan through which we
intended to grow from our then three locations in three countries (United States, United Kingdom and the Netherlands) into Canada, France, Germany, Belgium, Australia, Hong Kong and Singapore offering a full range of audio, video data and web-based
conferencing services. In 2001 we acquired the assets of 1414c, the worldwide videoconferencing service delivery business of PictureTel Corporation. The assets acquired include equipment, software and customer contracts. The assets were previously
used by PictureTel Corporation to provide videoconferencing bridging services to its customers.



In 2002 we acquired Proximity, Inc., which provides room-based videoconferencing services in over 3,500 locations worldwide. With these acquisitions, we are able to offer a full range of video conferencing services to
augment our existing audioconferencing services. In 2002 we also signed an outsourcing agreement with AT&T to provide audioconferencing services to AT&T and its customers in 53 countries outside of the United States. In 2004, this agreement
was extended through 2006.



Our financial results for the last three fiscal
years, including geographic breakdown, are presented under Item 15, Exhibits, Financial Statements and Schedules.



Teleconferencing Market Growth Factors



Several key trends in todays business world are driving growth in the world market for teleconferencing services:



| |  |  | Concerns about the time, costs and security risks associated with business travel.
| | - |  | ----------------------------------------------------------------------------------



| |  |  | The need for accelerated decision-making and the trend toward increased teamwork within companies.
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | Growth of the Internet as a viable medium for the efficient transport of large volumes of voice, video and data traffic.
| | - |  | ------------------------------------------------------------------------------------------------------------------------



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| |  |  | Enhancements to the overall quality of audio, and ease of use of video and data conferencing.
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | Reduced costs of audio and data transmission.
| | - |  | ---------------------------------------------



| |  |  | Reduced costs of audio and videoconferencing hardware.
| | - |  | ------------------------------------------------------



| |  |  | Globalization and the resulting demand for additional business communication.
| | - |  | -----------------------------------------------------------------------------



Audioconferencing Services. Our attended ActionCallsmand automated Ready ConnectSMaudioconferencing services include full-service attended
conferencing; reservationless unattended conferencing; and a comprehensive suite of enhanced audioconferencing management services. Our web conferencing services supplement these offerings. Enhanced audioconferencing services, which are available on
request, include:



| |  |  | Continuous monitoring and operator access.
| | - |  | ------------------------------------------



| |  |  | Security codes.
| | - |  | ---------------



| |  |  | Blast dial-out.
| | - |  | ---------------



| |  |  | Participant volume control and muting.
| | - |  | --------------------------------------



| |  |  | Conference recording, translation and transcription.
| | - |  | ----------------------------------------------------



| |  |  | Digital replay.
| | - |  | ---------------



| |  |  | Network management and fault reporting.
| | - |  | ---------------------------------------



| |  |  | Broadcast faxes, pre-notification fax, E-mail and participant notification.
| | - |  | ---------------------------------------------------------------------------



| |  |  | Question-and-answer and polling services for large investor relations calls.
| | - |  | ----------------------------------------------------------------------------



| |  |  | Customized billing.
| | - |  | -------------------



We generate revenues by charging clients a fee-per-minute for bridging, call management and various additional conferencing services, as well as charges related to long distance transmission.



Videoconferencing Services. We offer videoconferencing services through multipoint
video bridging centers worldwide. We have video service delivery centers in the United States, United Kingdom, Singapore and Australia; and secondary network operating facilities in other locations.



Our videoconferencing offerings include full-service advanced technical management features
such as:



| |  |  | Operator-controlled conferences.
| | - |  | --------------------------------



| |  |  | Continuous on-screen presence of all participants.
| | - |  | --------------------------------------------------



| |  |  | Reservations and scheduling management.
| | - |  | ---------------------------------------



| |  |  | Global room reservations/rentals.
| | - |  | ---------------------------------



| |  |  | Videotaping and cassettes.
| | - |  | --------------------------



| |  |  | Multiple line speeds and voice-activated switching controls.
| | - |  | ------------------------------------------------------------



| |  |  | Training, installation and maintenance of equipment.
| | - |  | ----------------------------------------------------



| |  |  | Videoconferencing site certification.
| | - |  | -------------------------------------



| |  |  | Event management.
| | - |  | -----------------



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Revenue generation for videoconferencing is similar to audioconferencing, however the per-minute rate and transmission
costs are more expensive. Although videoconferencing is more expensive than audioconferencing, the shift to Internet Protocol will decrease transport costs and associated revenues. We expect that improvements in equipment, increased familiarity with
video, stable or declining transmission and equipment costs, and technology will drive volume growth.



Videoconferencing is the preferred medium in certain conferencing applications. Examples of professional and industry applications include: law (witness depositions), medicine (diagnosis and treatment through
telemedicine), business (executive searches, meetings of executives, boards and committees), and education (distance learning discussions).



Web Conferencing:ACT offers its global customers a full suite of web-based conferencing products and services. Services include on-demand web conferencing
(web-based visual plus telephone conference call), event web conferencing, as well as, web casting or streaming services. These services are used by ACT customers globally to support Investor Relations, Medical Marketing, Distance Learning and Event
programs. ACT has yet to realize significant revenues from these services and combines these services with audio and video conferencing, when applicable.



Total Conferencing Services Market. We service a niche of the teleconferencing services market by focusing on high value-added services for large, multinational
customers and large global telecommunications providers.



Audioconferencing
Services Market. We are planning our growth based on the expectation that our audioconferencing revenues will grow at or above an estimated 10% per year during 2005. .



Videoconferencing Services Market.Based on industry sources and independent research, we believe that our worldwide
videoconferencing revenues will be flat to slightly up in 2005.



Web
Conferencing Market: We believe based on industry sources and independent research that the overall web conferencing market will continue to grow in volume at more than 20% per year during 2005.



Strategy. Our strategy is to provide high quality conferencing with a broad
product line globally. Specifically, we aim to:



| |  |  | Capitalize on the global market for teleconferencing through a local presence.We generally use local service delivery centers staffed by country nationals. We operate in
local time zones and provide local language services. We employ local management and staff to develop customer loyalty and improve local market penetration. Our network of local centers provides our multinational conference customers with
knowledgeable and consistent service regardless of the continent or time zone.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Develop and leverage our present distribution channels through major third-party outsource relationships. Outsourcing arrangements with telecom carriers allow us to
concentrate on additional volume delivery to their major customers while they promote our conferencing services as part of an overall product portfolio.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Adapt and implement state-of-the-art and best-practices technology with equipment providers.Rather than independently invest in research and development, we collaborate with
equipment providers to improve our conferencing technology.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Foster and maintain long-term relationships with our customers. We train our people to be committed to the delivery of superior service through proprietary customer care and
service quality-training programs. High quality standards and solid customer relationships generate repeat business and frequent referrals from satisfied clients.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Service Quality and Client Care



We train all employees in the principles of client care management, including continuous service quality monitoring and the development of positive relationships with
clients. We pursue a philosophy of continuous process improvement, and we consistently measure our performance and endeavor to improve it. We actively monitor, analyze and control all facets of a conference including: reservations, conference
execution, and billing and follow-up with customer satisfaction surveys.



We
also review our performance with our customers on a regular basis, set specific performance improvement goals, and modify our operations accordingly. Feedback from our customers indicates that these factors contribute to a high customer retention
rate.



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Sales and Marketing



Our global sales and marketing targets customers that can be acquired through direct acquisition, and through multiple channel partners. As our revenues are generated on
a worldwide basis, and local countries have seasonal variations, there has been little consistent seasonal fluctuation in revenues on a worldwide basis, with the exception of revenue in Europe which typically slows down during the third quarter.



We attract our customers through direct and indirect sales efforts such as
customer referrals, telemarketing, trade show promotions, and advertising. Our direct sales force focuses on multinational and mid-market accounts. We also have several outsource relationships with telecommunications companies globally.



Our customer base is approximately 5,000 established accounts ranging from small
manufacturing firms to Fortune 500 companies. Each customer is unique, with end-user populations ranging from 20 to 20,000 users. We cross-sell services to our global customer base, and specialize in supporting vertical applications.



We target the following customer groups for our conferencing services and applications:



| |  |  | Major multinational companies, investment banks, pharmaceuticals, and professional services firms within the Fortune 1000 (global accounts).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Medium-to-large-sized domestic companies, associations and governmental organizations (direct accounts).
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Customers of major telecommunications providers that we access through outsourcing and co-marketing arrangements (outsourced and co-marketing relationships).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



Global Accounts. Our global account managers are
responsible for some 50 multinational accounts. We focus on the home country or headquarters of these multinationals as a base for developing our global business relationships. Each account manager deals with the customers home country office
or headquarters when establishing service. All sales directors and staffs participate in the account acquisition and implementation globally.



Our largest global account customer accounted for 16%, 7%, and 7%, of our consolidated revenues for the years ended December 2004, 2003 and 2002. AT&T Corporation was
our largest customer in 2003 and 2004. Our second largest global account customer accounted for 5%, 6%, and 7% of our consolidated revenues for the same years. In 2003, our third and fourth largest global account customers each accounted for 6% of
total revenues and all other customers individually accounted for less than 5% of total consolidated revenues for the year. In 2004 and 2002, all customers, other than the top two, individually amounted to less than 5% of total consolidated revenues
for the year.



Direct Accounts. Our direct sales staff targets medium to
large companies with a high volume of teleconferencing, as well as smaller companies with lower demand for our services. As in any business, purchasers of higher-volume sales benefit from volume discounts. While we continue to promote sales to our
global accounts, we also seek situations in which we can provide competitive services to mid-sized companies at higher margins.



Outsourced and Co-Marketing Relationships. We participate in outsourcing and co-marketing relationships with major telecommunications companies globally. AT&T
is the largest of these and accounted for 16% of our revenue in 2004.



Intellectual Property



We seek to protect our proprietary
information and business practices as trade secrets. We have developed customized software that we consider proprietary for our service and quality control functions and also have developed in-depth technical know-how with respect to the operation
of telecommunications equipment and the coordination of large-volume conference calls. We also require each of our employees to execute a nondisclosure agreement for the protection of confidential information.



We own the following United Kingdom trademark registrations (some of which include words that
are intentionally repeated): ACT; ACTIONCAST ACTIONCAST; ACTIONCALL ACTIONCALL; ACTIONSHOW ACTIONSHOW; ACTION FAX ACTION FAX and ACTION VIEW. We also own a Benelux trademark registration for ACT TELECONFERENCING. We own two pending U.S. trademark
applications for the terms CLARIONCALL and READY CONNECT. We do not own a federal trademark registration for the term ACT in the United States. Since a wide variety of companies use the term in their corporate name or advertising, the trademark
registration could be prohibitively expensive. We do claim a number of common law marks that use the terms ACT or ACTION as a part of such marks. We also believe that we are the only enterprise currently using ACT in the teleconferencing industry.



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Suppliers



We are not dependent on any single carrier or supplier for any of the services we sell. We have negotiated volume discounts with our primary long distance carriers and
believe we could negotiate similar arrangements at similarly competitive prices with one or more other carriers should our current carriers be unable to continue to provide service at competitive prices. For example, we have a three-year agreement
to purchase the bulk of our network services from AT&T. However, we have the right to negotiate our commitments down to the level of actual usage  without penalty  in the event of a business downturn or volume reductions beyond our
control. The equipment we purchase for use in our operations also is available from a variety of suppliers, some of which compete in the teleconferencing services business.



Competition



We compete with major long distance companies, independently-owned conferencing companies, in-house services such as company-operated bridges and private-branch exchange
equipment.



The principal competitive factors in the conferencing market are:
service, quality, reliability, price, name recognition, value added features and available capacity. The location of an operations center can also be a competitive factor, as a local presence will reduce transmission costs and reflect the language,
accent or business practices of local customers. In certain cities and countries we have opened local sales offices to ensure that marketing is more personal and effective.



Our competition comes from large companies such as British Telecom, AT&T, France Telecom, Deutsche Telekom, Telstra, Hong Kong Tel, MCI
and Sprint. We also face competition from independent conferencing companies similar to us, including Premiere Conferencing, Intercall-West Corp., V-Span, Genesys and Raindance. In the United States we also may face additional competition from the
regional carriers.



Although the major long distance carriers hold a large
share of the conferencing services market, we have been able to compete on the basis of quality of service for the large-volume business of prestigious companies such as investment banks, accounting and consulting firms, and law firms. Excess long
distance line capacity enables the long distance companies to offer discounted prices to high-volume conferencing customers, but they generally charge higher conferencing prices to smaller- and medium-volume customers. This creates a pricing
structure that supports competition on a price-and-service basis for the conferencing business of medium and smaller businesses.



There are few regulatory barriers to entry in the countries in which we operate, but new entrants into the conferencing business will face various economic barriers. The
complex planning, installation and operation of a global conferencing platform involving multiple facilities and office locations such as ours, together with the implementation of network technology and coordination of operations that is required to
operate such a global platform would likely require extensive funding, management, and time to replicate.



Some companies own and operate their own conferencing bridges, but many companies find that the costs of operating their own bridge outweigh the benefits and prefer to outsource their conferencing services. Technology
is available to enhance private branch exchange conferencing capability (usually up to six calls), but this type of conference call typically has poor sound quality, and each additional line weakens the overall sound volume. Additional competition
also may develop from more sophisticated telephone sets and other centralized switching devices. These alternative techniques may enable our customers to conduct some of their own conferences, but we believe they will continue to outsource larger
conferences, particularly if their remote meetings require a collaboration of audio, video and web conferencing techniques.



Regulation



Although the telecommunications industry has historically been subject to extensive regulation, deregulation in the countries in which we currently operate has resulted in no material regulatory impact on the delivery
of our teleconferencing services.



All of our foreign subsidiaries are
established as statutory reporting companies incorporated under the laws of their local jurisdiction. We operate each foreign subsidiary in the local currency. Material subsidiaries are subject to statutory audits once a year, and these statutory
results are reconciled to Generally Accepted Accounting Principles for consolidated reporting in the United States. We also pay excise taxes, import duties, sales taxes, payroll taxes and other taxes as required in each jurisdiction. We are in good
standing in all the countries in which we operate.



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Apart from company administration, tax laws and telecommunications laws, the other major area of regulation that impacts
us is employment legislation. Labor laws, especially in Europe, are particularly complex and expensive to administer in comparison to the flexibility of the US labor markets. From time to time we incur a significant cost when there is a need to
reduce our personnel in overseas jurisdictions. This cost is dependent upon the employees status, the employees history, and the reason for dismissal, retrenchment or layoff.



Employees



As of December 31, 2004 we had a total of 360 full-time equivalent employees worldwide. As a result of our current in-process reorganization, we anticipate this number to
decrease by approximately 15% by mid-2005. None of our employees are represented by labor unions. We have not experienced any work stoppages and consider our employee relations to be good.



Long Lived Assets



At 2004 year end, we had $25.4 million in long-lived assets. $13.0 million were located in the United States. $11.8 million were located at
foreign affiliates - $6.6 million in the United Kingdom, $1.9 million in Canada, $1.5 million in Australia, and $1.8 million in other countries.



Item 2. Facilities



At the end of 2004, we
leased office and service delivery space at all of our locations which are listed in the table below.



|           |  |                |  |                            |  |                 
|---------- |  | -------------- |  | -------------------------- |  | ----------------
|Location   |  | Country        |  | Description                |  | Year Established
|Denver     |  | United States  |  | Sales and service delivery |  | 1990            
|London     |  | United Kingdom |  | Sales and service delivery |  | 1992            
|Amsterdam  |  | Netherlands    |  | Sales                      |  | 1995            
|Sydney     |  | Australia      |  | Sales and service delivery |  | 1997            
|Paris      |  | France         |  | Sales                      |  | 1997            
|Ottawa     |  | Canada         |  | Sales and service delivery |  | 1998            
|Toronto    |  | Canada         |  | Sales and service delivery |  | 1998            
|Frankfurt  |  | Germany        |  | Sales                      |  | 1998            
|Adelaide   |  | Australia      |  | Sales and service delivery |  | 1999            
|Hong Kong  |  | China          |  | Sales and service delivery |  | 1999            
|Andover    |  | United States  |  | Sales and service delivery |  | 2001            
|Singapore  |  | Singapore      |  | Sales and service delivery |  | 2001            
|Slough     |  | United Kingdom |  | Sales and service delivery |  | 2001            
|Burlington |  | United States  |  | Sales and service delivery |  | 2002            
|Heerlen    |  | Netherlands    |  | Service delivery           |  | 2002            
|Beijing    |  | China          |  | Sales and service delivery |  | 2004            



Our development of local facilities
serves the dual purpose of providing local language, local currency and local time zone services to the areas served by each service delivery center, as well as, backup and overflow capacity among other centers in the event all or part of a
conference needs to be re-routed from a service delivery center that is at full capacity.



During 2005 we will be consolidating our Toronto, Burlington and Heerlen service delivery operations into other operating centers in the region. We believe that our consolidated facilities will be adequate for our
current operations.



Item 3. Legal Proceedings



We are engaged
from time to time in minor legal proceedings such as employee disputes and arbitration. These are in the normal course of business and we are not currently aware of any legal proceedings that we would consider material to our business or results of
operations.



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Item 4. Submission of Matters to a Vote of Security Holders



None



PART II



Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities



Our common stock is traded on the Nasdaq National Market under the symbol ACTT. On April 14, 2005, the last reported sale price of our common stock was $.53 per
share.



|                                    |  |      |      |     |   |     
|----------------------------------- |  | ---- | ---- | --- | - | ----
|                                    |  | High |      | Low
|Fiscal year ended December 31, 2003 |  |      |      |     |   |     
|First Quarter                       |  | $    | 1.80 |     | $ | .65 
|Second Quarter                      |  |      | 2.75 |     |   | 1.34
|Third Quarter                       |  |      | 2.69 |     |   | 1.73
|Fourth Quarter                      |  |      | 2.24 |     |   | .94 
|Fiscal year ended December 31, 2004 |  |      |      |     |   |     
|First Quarter                       |  | $    | 3.48 |     | $ | 1.10
|Second Quarter                      |  |      | 4.08 |     |   | 2.23
|Third Quarter                       |  |      | 2.52 |     |   | 1.03
|Fourth Quarter                      |  |      | 1.58 |     |   | .96 



Shareholders. As of
December 31, 2004 we had approximately 320 common shareholders of record and an estimated 2,100 additional beneficial holders whose stock was held in street-name by brokerage houses.



Dividends. We have never paid any dividends on our common stock. We have paid dividends on our Series A and Series C Preferred
Stock. Any future decision as to the payment of dividends will be at the discretion of our Board of Directors and will depend upon our earnings, financial position, capital requirements, plans for expansion, loan covenants and such other factors as
the Board of Directors deems relevant. The terms of our indebtedness currently prohibit us from paying any dividends.



Sales of Securities.



On January 2, 2004, the Company issued an aggregate of 250,000 ten year warrants with an exercise price of $1.10 to existing note holders in conjunction
with a debt restructuring.



On January 16, 2004, the Company
sold 2.1 million shares at $1.05 per share in a private placement financing of common stock with a private investment partnership.



The January 16 issuance triggered an antidilution clause related to warrants granted in connection with a preferred stock issuance in May, 2002. The
exercise price was decreased from $2.50 to $1.05 per share. An additional 659,681 warrants with an exercise price of $4.01 per share are also to be issued under the terms of this warrant agreement subject to warrant holder and NASDQ approval.



On February 24, 2004, the Company sold 1.5 million shares at a
purchase price of $2.20 per share in a private placement with an institutional investor. The transaction also included the issuance of 340,000 three-year warrants at an exercise price of $2.20 per share. Antidilution provisions in these warrants
later resulted in an increase to 389,583 warrants with a reduced exercise price of $1.92 per share. 210,000 five year warrants with an exercise price of $1.50 per share were issued to a placement agent for this sale. The exercise price of these
210,000 warrants was reduced later in 2004 to $1.05 due to antidilution provisions.



In September, 2004, the Company sold 1.7 million shares at a purchase price of $1.10 per share in a private placement. The transaction included the issuance of 336,178 warrants with an exercise price of $1.50 per share and 161,366 warrants
with an exercise price of $1.10 per share.



The 2004 stock issuances triggered
an antidilution clause related to warrants granted in 1999. The exercise price of these warrants decreased from $4.88 to $3.78 and the number of related warrants increased by 153,851.



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The Companys sales of common stock and issuance of warrants to purchase common stock were exempt from the
registration requirements of the Securities Act of 1933 (the Act) pursuant to Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder. Each investor was an accredited investor under the Act, and the
securities were sold without any general solicitation by the Company or its representatives.



The Company sold additional shares of common stock in September 2004 and adjusted the terms of certain warrants previously issued by the Company, in each case as reported by the Company in its Quarterly Report on Form
10-Q for the fiscal quarter ended September 30,2004.



Preferred Stock



The Companys Articles of Incorporation, authorize the issuance of
up to 1,797,500 shares of non-voting preferred stock, no par value, with rights, preferences, and privileges as determined by the Board of Directors. Although shareholder approval is not required in order for the Board to issue these undesignated
shares of preferred stock, applicable stock exchange restrictions require shareholder approval in order for the Company to issue shares of preferred stock convertible into more than 20% of the Companys outstanding common stock.



In addition, the Company can issue of up to 2,000 shares of Series A preferred stock, up to
200,000 shares of Series B preferred stock, and up to 500 shares of Series C preferred stock. On October 19, 1999, the Company issued 2,000 shares of Series A preferred stock to one investor, which were liquidated on October 11, 2001. Series A stock
has no par value, is non-voting, and is senior to Series B and C preferred stock.



On December 10, 1999, the Company created Series B Junior Participating Preferred Shares in connection with its shareholder rights plan, and increased the authorized number of shares Series B preferred to 200,000 on July 27, 2004. Each
share of Series B preferred stock is entitled to receive a dividend when declared by the Board of Directors out of funds legally available, payable at the rate of $1.00 per share. Series B preferred stock has priority in payment of dividends and
distributions on dissolution of the Company, which is senior to holders of common stock, but junior to creditors and to holders of Series A preferred stock. No shares of Series B preferred stock have been issued.



On May 17, 2002, the Company issued 500 shares of 6.5% Series C Convertible Preferred Stock.
Series C preferred stock was convertible into shares of the Companys common stock at a fixed price of $5.00 per share, and was subject to 15 mandatory monthly redemptions of approximately $333,000 commencing on August 17, 2002. The Company was
permitted to make redemption payments in cash or by delivering shares of its common stock based on a 10% discount to market price of the stock at the time of the redemption payment. No shares of Series C preferred stock remain outstanding.



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Item 6. Selected Consolidated Financial Data



The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and related Notes to the Consolidated Financial Statements appearing elsewhere in the filing and
Managements Discussion and Analysis of Financial Condition and Results of Operations. Additionally, quarterly selected financial data is presented in the Notes to the Consolidated Financial Statements.



|                                                                                   |  |                                         |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |       
|---------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------
|                                                                                   |  | Year ended December 31,                
|                                                                                   |  | 2004                                    |         |   | 2003 |   |        | 2002 |  |   | 2001   |   |  | 2000
|                                                                                   |  | ($ in thousands, except per share data)
|Consolidated statement of operations data :                                        |  |                                         |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |       
|Net revenues                                                                       |  | $                                       | 53,540  |   |      | $ | 55,751 |      |  | $ | 53,872 |   |  | $    | 46,643 |   |  | $ | 37,700
|Operating expenses - before restructuring and impairment of long-lived asset costs |  |                                         | 55,532  |   |      |   | 60,329 |      |  |   | 57,923 |   |  |      | 44,643 |   |  |   | 33,744
|Restructuring and Impairment of long-lived assets                                  |  |                                         | 16,442  |   |      |   |       |      |  |   | 2,000  |   |  |      |       |   |  |   |      
|Operating expenses                                                                 |  |                                         | 71,974  |   |      |   | 60,329 |      |  |   | 59,923 |   |  |      | 44,643 |   |  |   | 33,744
|Operating income (loss)                                                            |  |                                         | (18,434 | ) |      |   | (4,578 | )    |  |   | (6,051 | ) |  |      | 2,000  |   |  |   | 3,956 
|Net income (loss)                                                                  |  |                                         | (21,164 | ) |      |   | (8,493 | )    |  |   | (7,648 | ) |  |      | (216   | ) |  |   | 1,395 
|Net income (loss) per share                                                        |  |                                         |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |       
|Basic                                                                              |  | $                                       | (1.41   | ) |      | $ | (0.90  | )    |  | $ | (0.93  | ) |  | $    | (0.09  | ) |  | $ | 0.23  
|Diluted                                                                            |  | $                                       | (1.41   | ) |      | $ | (0.90  | )    |  | $ | (0.93  | ) |  | $    | (0.09  | ) |  | $ | 0.21  
|Consolidated balance sheet data:                                                   |  |                                         |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |       
|Total assets                                                                       |  | $                                       | 38,518  |   |      | $ | 54,623 |      |  | $ | 59,459 |   |  | $    | 53,487 |   |  | $ | 31,396
|Total short term debt and capital leases                                           |  |                                         | 16,026  |   |      |   | 7,781  |      |  |   | 5,019  |   |  |      | 8,101  |   |  |   | 3,923 
|Total long term debt and capital leases                                            |  |                                         | 201     |   |      |   | 10,667 |      |  |   | 10,053 |   |  |      | 7,039  |   |  |   | 4,653 
|Convertible, redeemable preferred stock                                            |  |                                         |        |   |      |   |       |      |  |   | 2,698  |   |  |      |       |   |  |   |      
|Shareholders equity                                                               |  | $                                       | 12,817  |   |      | $ | 22,110 |      |  | $ | 24,841 |   |  | $    | 29,163 |   |  | $ | 12,481



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations



Overview



We are a full-service provider of audio, video, data and web-based conferencing services to businesses and organizations in North America, Europe and Asia Pacific. Our global presence has allowed us to become the
provider of choice for large multinational companies. It has also allowed us to participate in outsourcing and co-marketing relationships with major telecommunications companies globally.



Changes in this customer base as well as changes in our industry have contributed to volatility in our earnings as well as our ability to
achieve profitability. Among these changes is a migration away from high-touch, operator assisted services to more automated services. Accompanying this trend has been significant price competition and reduced revenue per unit of service. At the end
of 2001, we lost a major customer that accounted for approximately 20% of our revenue. This also significantly impacted our operating results.



We have established a major outsourcing arrangement with AT&T Corporation that has largely replaced the customer we lost in 2001 and our service volumes are growing
significantly. This, however, has not offset the price erosion that the industry has experienced and the company has not shown an operating profit since 2001.



This has resulted in a $13.6 million dollar goodwill impairment charge and $1.8 million of restructuring costs being recognized in 2004. Additional reorganization
costs of approximately $2.0 million are expected to be recognized during the first half of 2005. The reorganization is expected to save over $3.0 million per year.



This action may not be enough, however, to return the company to profitability and resolve the liquidity and going concern issues noted in
the more detailed management discussion and analysis that follows.



The
following discussion and analysis should be read in conjunction with our audited consolidated financial statements, including the notes thereto, that begin on page F-1.



Components of Major Revenue and Expense Items



Revenues. We earn revenues from fees charged to clients for audio, video, data and web-based teleconference bridging services, from
charges for enhanced services, and from rebilling certain long-distance telephone costs. We also earn revenue on conferencing product sales and video event services.



Cost of Sales. Cost of sales consists of long distance telephony costs, depreciation on our teleconferencing bridges and equipment,
equipment product costs, operator and operations management salaries and office expenses for operations staff.



Selling, General and Administration Expense. Selling, general and administration expense consists of: salaries, benefits, professional fees and office expenses of our selling and administrative organizations.



Significant Accounting Policies



Internal Use SoftwareUnder the guidance provided in Statement of Position 98-1,
we capitalize costs incurred in developing internal use computer software. We capitalized internal use software development costs of $0.7 million, $1.1 million, and $1.0 million for the years ended December 31, 2004, 2003, and 2002, respectively.



GoodwillGoodwill represents the excess of purchase price over
tangible and other intangible assets acquired less liabilities assumed arising from business combinations. In compliance with SFAS No. 142 , Goodwill and Other Intangible Assets (SFAS 142), issued in June 2001, we have not
amortized goodwill for business combinations after June 2001 and we have ceased amortizing all such goodwill effective January 1, 2002. Prior to the adoption of SFAS 142, goodwill was amortized on a straight-line basis over 15 or 25 years.



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As required by SFAS 142, we completed our initial goodwill impairment test as of January 1, 2002 and have performed
impairment testing at least annually since then. As a result of this testing, we recorded goodwill impairment of $2.0 million in 2002 and $13.6 million in 2004.



As of December 31, 2004 the Company had a total of $8.4 million in net goodwill. $2.2 million is related to pre-2001 acquisitions. $4.3 million is attributed to
acquisitions occurring in 2001 (40% minority interest in UK subsidiary and PictureTel 1414c video conferencing business) and $1.9 million is related to the acquisition of Proximity in January, 2002. (See notes 1 and 15 to Consolidated Financial
Statements).



Foreign Currency Conversion ACT Teleconferencing
Inc. and its US subsidiaries (ACT) use the U.S. dollar as its functional currency and its international subsidiaries use their local currencies as their respective functional currencies. Financial statements of foreign subsidiaries are
translated into U.S. dollars at current rates, except that revenues, costs and expenses are translated at average exchange rates effective during the year.



Intercompany transactions between ACT and its affiliates are billed at current monthly rates. Payments on intercompany accounts are settled using spot rates in effect at
the date of settlement. Gains and losses resulting from these foreign currency transactions are included in the consolidated statement of operations. The foreign exchange loss arising from such transactions was $170,000 and $460,000 for the years
ended 2004 and 2003 respectively.



The effect of translating all other accounts
of ACTs foreign subsidiaries into U.S. dollars has been included in stockholders equity as a cumulative foreign currency translation adjustment. Prior to 2003, ACT treated intercompany transactions as investments, and translation
adjustments of those accounts were also were included in the cumulative foreign translation adjustment. Translation adjustments for the years ended December 31, 2004, 2003 and 2002 were $4.1 million, $1.6 million and $0.6 million respectively.



Employee Stock OptionsWe have elected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) instead of FASB Statement No. 123, Accounting for Stock-Based Compensation. If we had elected to adopt FASB Statement No. 123, our net (loss)
available to common shareholders would have been approximately $(22,000), $(9,900), and $(9,061) or $(1.46), $(0.97), and $(1.01) per diluted share for the years ended December 31, 2004, 2003, and 2002 respectively, as compared to our actual
reported net (loss) of $ (21,164), $(9,219), and $(8,285), or $(1.41), $(0.90), and $(0.93) per diluted share for the years ended December 31, 2004, 2003, and 2002, respectively.



Significant Business Activities



During 2004 and the first quarter of 2005, the following developments were of significance:



| |  | We experienced a significant increase in volume and revenues from our global conferencing platform due to increasing usage from our outsourcing relationship with AT&T. We
estimate this channel will continue to grow in 2005 and beyond. Revenues will depend upon customer usage. In 2004, this relationship contract was extended by two years, until the end of 2006. Because the contract includes a termination clause there
can be no assurance that it will continue until the end of its extension period.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | During 2004, ACT videoconferencing revenues fell by 22%. This decline was generally in line with lower worldwide videoconferencing revenues that fell by 21%. A major contributor to
this decline is the move from ISDN transport to internet protocol transport and loss of related revenue. As a result of this decline, ACT moderated its future growth target and took a $7.8 million goodwill impairment charge during the fourth quarter
of 2004.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Activity began in fourth quarter 2004 to reorganize the company functionally rather than geographically to drive revenue growth and obtain operating efficiencies in addition to
achieving cost reductions. Included in this reorganization is the consolidation of operating centers in North America and Europe and a workforce reduction of approximately 10%. The consolidation is expected to save ACT over $3 million per annum. A
$1.8 million dollar operating charge related to this reorganization was recognized during the fourth quarter. It is estimated that additional restructuring costs of approximately $2 million will be recognized during the first half of 2005.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | At year-end, we were out of compliance with the tangible net worth covenant of our ACT Teleconferencing Services Inc. line of credit agreement which had an outstanding balance of
$3.0 million. This was primarily the result of fixed asset impairment and restructuring charges taken during the fourth quarter. A forbearance through June 30, 2005 has been received from the lender.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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At year-end, we were also out of compliance with debt service coverage ratios, net worth and some other
lesser covenants related to our largest subordinated debt loan agreement. Because of this and because of cross default provisions on our other subordinated debt agreements, all of our subordinated debt ($11.1 million) has been classified as a
current liability. Accelerated payment could be demanded by our senior subordinated lender but they have agreed to a forbearance on their $8.3 million of debt through June, 2005 with an extension through August 31, 2005 if, in the lenders
reasonable discretion, they are satisfied with the companys financial condition and progress in obtaining new financing. The other subordinated debt lenders have agreed to subordinate repayment of their debt to that of the senior subordinated
debt lender.



The following table summarizes our most important revenue trends:



|                                             |  |                  |        |    |      |   |        |      |  |   |        |   |  |   |        |  
|-------------------------------------------- |  | ---------------- | ------ | -- | ---- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                             |  | 2004             |        |    | 2003 |   |        | 2002 |  |   | 2001   |  
|                                             |  | ($ in thousands) |       
|Revenues                                     |  |                  |        |    |      |   |        |      |  |   |        |   |  |   |        |  
|Audioconferencing/other revenues**           |  | $                | 29,086 |    |      | $ | 29,644 |      |  | $ | 29,705 |   |  | $ | 29,929 |  
|Concert Channel (audioconferencing)          |  |                  | 0      |    |      |   | 0      |      |  |   | 2,038  |   |  |   | 11,660 |  
|Global Services Channel (audioconferencing)* |  |                  | 10,037 |    |      |   | 7,545  |      |  |   | 4,160  |   |  |   |       |  
|                                             |  |                  |        |    |      |   |        |      |  |   |        |   |  |   |        |  
|Audioconferencing subtotal                   |  |                  | 39,123 |    |      |   | 37,189 |      |  |   | 35,903 |   |  |   | 41,589 |  
|Videoconferencing                            |  |                  | 14,417 |    |      |   | 18,562 |      |  |   | 17,969 |   |  |   | 5,054  |  
|                                             |  |                  |        |    |      |   |        |      |  |   |        |   |  |   |        |  
|Total revenues                               |  | $                | 53,540 |    |      | $ | 55,751 |      |  | $ | 53,872 |   |  | $ | 46,643 |  
|                                             |  |                  |        |    |      |   |        |      |  |   |        |   |  |   |        |  
|Revenue Growth Percentage                    |  |                  | (4.0   | )% |      |   | 3.5    | %    |  |   | 15.5   | % |  |   | 23.7   | %

---

|* | Principally AT&T and other global customers.
|- | --------------------------------------------

|** | Excluding Concert and Global Services
|-- | -------------------------------------



Concert Downsizing



Concert was a major customer, providing 2001 revenue of $11.7 million. In 2002, it was closed and merged into AT&T resulting in a significant audio revenue shortfall. Despite this drop in revenue, we continued to
maintain the worldwide infrastructure, telecommunications network and employee base that was installed to serve Concert. In 2002, our estimated costs for this, including depreciation, were approximately $5 million. This infrastructure was maintained
because it was critical to the signing of an outsourcing agreement with AT&T in August 2002.



AT&T Outsourcing Contract



Among
many other telecommunications services, AT&T provides high quality teleconferencing services to large corporate customers in the U.S. With over four million corporate customers, many of these use teleconferencing services domestically but also
have international requirements



As AT&T was previously a 50 percent
shareholder in Concert and due to the existence of ACTs established and extensive global service platform built for Concert, it was decided that ACTs worldwide teleconferencing network with established and dedicated local facilities
would be an effective way to provide conferencing services to those subsidiaries of American multinationals who are already AT&T customers in the U.S. but who require conferencing services overseas.



We started implementing this outsource contract in August, 2002 and have seen rapid revenue
growth since then. Current monthly revenues are at an estimated annualized run rate of approximately $10.7 million. We expect additional potential growth opportunities relating to this contract during 2005 and 2006.



The outsource contract requires ACT to provide detailed levels of quality, sales and service
positioning, customer provisioning and comprehensive pricing for a number of different conferencing products, services and applications. Although the contract contains certain termination clauses and no guaranteed volumes, the Company anticipates
continued volume and revenue growth into 2006. ACT believes that the strong relationship that has developed between the contracting parties will continue to grow.



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Audioconferencing Outlook



Automated voice conferencing volumes continued to grow at a rapid rate for 2004 and pricing remained competitive. Most of our U.S. and
Canadian customers have already made the transition to automated services, and we now expect strong growth in automated services in the European and Asian Pacific markets over the next few years. We expect that the growth of automated services at
reduced prices will continue unabated, but the emergence of this product line nevertheless has highlighted some fundamental applications whereby operator-attended services will continue to be required by our customers. Our strategy remains to
provide a broad range of services to our customers which fit their different communications needs. We expect our automated services to complement our fully-attended offering, and vice versa.



Attended voice conferencing services remains one of our core businesses and still accounts
for approximately 40 percent of total revenues. We are focused on developing new markets and applications for customers in attended voice conferencing services especially in areas such as training, education and large participant calls. While we do
expect that this overall market will grow at a much lower rate over the next few years, we also believe that we may be able to achieve a higher growth rate in attended services than the overall market because we are one of the specialized, niche
players and have the capacity for faster growth internationally.



Videoconferencing Outlook



Videoconferencing revenues have
become a more important component of our business, now comprising 27% of total revenue, due to our acquisition of PictureTels 1414c videoconferencing division in October 2001 and renamed ACT Videoconferencing, and our acquisition of Proximity
in January 2002.



Total videoconferencing revenues fell by 22% in 2004. This
reflects an overall slowdown in the videoconferencing industry.



We have
implemented and identified further cost reduction and network rationalization in our videoconferencing business. We have also identified new major outsourcing opportunities and opportunities to cross-sell our services from audioconferencing to
videoconferencing, and vice versa.



Anticipated growth rates in
videoconferencing, nevertheless, may be tempered by the emergence of web conferencing applications. Many applications which were previously more suited to a videoconference can now be handled by combining voice and web conferencing at a less
expensive price. We believe therefore that videoconferencing will continue to only be used in situations where it is specifically required by business executives for a specific reason. Web and audioconferencing will be used in most other
conferencing situations.



Results of Operations



Fiscal Year Ended December 31, 2004, compared to Fiscal Year Ended December 31, 2003



Net Revenues. Net revenues decreased 4 percent to $53.5
million for the year ended December 31, 2004, compared to $55.8 million for 2003. This decrease was due to a 22% drop in videoconferencing revenue which more than offset a 5% increase in audioconferencing revenue. Audioconferencing revenue accounted
for 73%, 67%, and 67% percent of revenue in 2004, 2003, and 2002 respectively. Videoconferencing accounted for the balance of our revenue. For a more detailed discussion of changes in our revenue streams refer to revenue trends above.



Geographic Breakdown: In 2004 North America, Europe and Asia/Pacificthe Companys
three primary geographic marketsgenerated approximately 60 percent, 28 percent and 12 percent, respectively, of our revenue, compared with 58 percent, 32 percent and 10 percent in 2003. In 2004, the United States accounted for 51% of our
revenue, the United Kingdom 24%, Australia 9%, Canada 9% and all other countries combined 7%.



Gross Profit. Gross profit increased 2 percent from $19.8 million for the year ended December 31, 2003, to $20.2 million for the year ended December 31, 2004. Gross profit as a percentage of net revenue
increased from 35 percent for 2003 to 38 percent for 2004. This gross profit increase reflects reduced network costs, increased usage of our worldwide infrastructure as a result of the AT&T contract, and the further stabilization of our
operating costs. We anticipate continuing improvement in our gross margins as a result of reduced network costs and cost reductions related to our reorganization activities. Competitive price pressure could offset these reductions.



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##### Table of Contents

Selling, General and Administrative Expense. Selling, general and administrative expense for the year ended
December 31, 2004 was $22.2 million or 41 percent of revenue, compared to $24.4 million or 44 percent of revenue for 2003. We expect that continued strong control of our operating expenses and our current reorganization efforts will result in
additional reductions in selling, general and administrative expenses in 2005.



Operating Loss. Our operating loss increased from $4.6 million for 2003 to $18.4 million for 2004. This is due to a noncash goodwill impairment charge of $13.6 million in 2004 and $2.8 million of reorganization and long-lived asset
impairment costs. The goodwill impairment charge is a result of a decline in the revenue and profit in our video unit and our United Kingdom teleconferencing unit. The video unit decline reflects an overall decline in the video conferencing
industry. The decline in the teleconferencing unit is due primarily to price erosion.



Interest Expense. Net interest expense dropped by 13 percent from $3.1 million in 2003 to $2.7 million in 2004. This is due to a reduction in outstanding senior and subordinated debt.



Provision for Income Taxes. Provision for income taxes decreased to $88,000 for 2004
compared to $342,000 for 2003, as a result of decreased taxable income in our United Kingdom and Canada subsidiaries. Due to available domestic and international tax loss carry-forwards we paid no other income taxes.



Net Loss. Net loss increased from $9.2 million in 2003 to $21.2 million in 2004. This
increase is the result of a goodwill impairment charge of $13.6 million and reorganization and long-lived tangible asset impairment cost of $2.8 million.



Fiscal Year Ended December 31, 2003, compared to Fiscal Year Ended December 31, 2002



Net Revenues. Net revenues increased 4 percent to $55.8 million for the year ended December 31, 2003, compared to $53.9 million for
2002. Concert audioconferencing revenues ceased in 2003. This loss of revenue, which was $2.0 million in 2002, was offset by a $3.4 million increase in global service channel audioconferencing. Audioconferencing accounted for 67%, 67%, and 89%
percent of revenue in 2003, 2002, and 2001 respectively. Videoconferencing and other revenue grew by $0.6 million, or 3% in 2003. It accounted for the balance of our revenue. For a detailed discussion of changes in our revenue streams refer to
Significant Business Activities, above.



Geographic Breakdown: In 2003 North
America, Europe and Asia/Pacificthe Companys three primary geographic marketsgenerated approximately 58 percent, 32 percent and 10 percent, respectively, of our revenue, compared with 61 percent, 31 percent and 8 percent in 2002.
In 2003, the United States accounted for 50% of net revenues, the United Kingdom 28%, Canada 8%, Australia 8%, and all other countries combined 6%.



Gross Profit. Gross profit increased 7 percent to $19.8 million for the year ended December 31, 2003, compared to $18.5 million for the prior year. Gross profit
percentage increased to 35 percent of net revenues for the year ended December 31, 2003, compared to 34 percent of net revenues for 2002. This gross profit increase reflects reduced network costs, and increased usage of our worldwide infrastructure
as a result of the AT&T contract, and the further stabilization of our operating costs.



Selling, General and Administrative Expense. Selling, general and administrative expense for the year ended December 31, 2003 was $24.4 million or 44 percent of revenue, compared to $22.5 million or 42 percent
of revenue for 2002. A large part of the 8 percent increase in such expense was incurred as legal settlement and staff severance costs.



Operating Loss. Operating loss declined by $1.5 million to a loss of $4.6 million. A goodwill impairment charge of $2 million in 2002 negatively impacted that
years results. Other operating costs were comparable with 2002.



Interest Expense. Net interest expense grew by 100 percent to $3.1 million from $1.5 million. This is due primarily to an increase in debt during the year of approximately 25% at interest rates substantially higher than prior debt,
and recognition as a finance cost of the earned performance provision in connection with subordinated debt issues in June 2003.



Provision for Income Taxes. Provision for income taxes increased to approximately $342,000 for 2003 compared to $125,000 for 2002, as a result of increased taxable
income earned by our United Kingdom and Canada subsidiaries. Due to available domestic and international tax loss carry-forwards, we paid no other income taxes.



NetLoss. Net loss increased by $0.9 million for the reasons discussed under Operating Loss, above, plus the effects of a loss on foreign currency transactions
of $0.5 million.



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Liquidity, Capital Resources and Cashflow



Sources and Uses of Funds



For the year ended December 31, 2004 we generated and used cash proceeds as follows:



| |  | $46 thousand was generated from operating activities.
|- |  | -----------------------------------------------------



| |  | We purchased $1.9 million of capital assets.
|- |  | --------------------------------------------



| |  | Net cash provided by financing activities was $3.0 million. We repaid debt of $7.5 million and received proceeds from the issuance of new debt of $3.3 million. The Company also
issued $6.9 million of common stock and warrants.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



At December
31, 2004 we had approximately $12.4 million in current assets, and $25.3 million in current liabilities. This imbalance is primarily the result of $15.6 million of current debt. This $15.6 million balance includes $10.2 million that has been
classified as current, in accordance with generally accepted accounting principles, because the company is in default of related loan covenants and waivers have not been received through year-end 2005.



At year-end, we were in default on our outstanding Services Inc. line of credit of $3.0
million. A forbearance has been received through June 30, 2005 . Our senior subordinated debt lenders who carry $8.3 million of debt, have also provided a forbearance through June 30, 2005 which will be extended through August 31, 2005 if, in the
lenders reasonable discretion, they are satisfied with the companys progress in obtaining new financing and with the Companys financial condition. Our other subordinated debt lenders have agreed to subordinate repayment of their
debt to that of the senior subordinated debt lenders.



Management believes that
it will be able to improve the Companys operating performance in 2005 based on actions that have been taken and the following considerations:



| |  | The audio segment of the business continues to grow. A major audio outsource contract that commenced in late 2002 has been and is expected to continue growing rapidly. The contract
related to this business was extended for two years in 2004.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | A major restructuring effort began in late 2004. This restructuring is targeting those business units that underperformed in 2004. It includes the consolidation of operating centers
in both Europe and North America and will reduce payroll and other operating costs. It is expected to save about $3.0 million per annum.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Additional resources have been devoted to expanding the companys sales effort. This increased sales focus is expected to result in increased sales.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



The financial statements do not include any adjustments that could be required if the
Company were unable to refinance this debt or continue as a going concern. The Company has recorded net losses of $21.8 million in 2004 and $8.5 million in 2003. These losses and deficit cash flows have significantly impacted the Companys
ability to obtain financing at desirable terms.



Our independent auditors have
expressed doubt about our ability to continue as a going concern. Their report includes an explanatory paragraph stating there is substantial doubt about our ability to continue as a going concern because we have suffered recurring losses from
operations, our total liabilities exceed our total assets, and we are not in compliance with debt covenants on substantially all of our debt.



We have assessed our cash flow needs for 2005 as follows:



| | We believe we can generate cash from operating activities of approximately $6 to $10 million during 2005 based upon our current 2005 operating plan.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | To supplement working cashflow needs, we are currently in the process of seeking additional financing to consolidate and accelerate the pay down of certain debt items. On March 28,
2005, the Company also announced that it had retained an investment banker to evaluate and advise the board regarding strategic alternatives, including the sale of all or part of the company.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Capital expenditures for 2005 are anticipated to be in line with 2004 levels.
|- | -----------------------------------------------------------------------------



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The facilities-based teleconferencing service business is a capital intensive business. In line with our current
liquidity position, we will constrain our capital expenditures and expansion plans in the short term. Our operations have required and will continue to require capital investment for: (i) the purchase and installation of conferencing bridges and
other equipment in existing bridging networks and in additional bridging networks to be constructed in new service areas; (ii) the acquisition and expansion of conferencing platforms currently owned and operated by other companies; and (iii) the
evolution of the platform to support new products, services and technologies. Our expected capital expenditures for general corporate and working capital purposes include: (i) expenditures with respect to our management information system and
corporate service support infrastructure and (ii) operating and administrative expenses with respect to new bridging platforms, networks and debt service. We plan to make ongoing capital investments in connection with plans to construct and develop
new bridging networks, as well as for technology upgrades. Expansion of our bridging networks could include the geographic expansion of our existing operations, and we will consider the development of new markets. Any significant expansion will
depend upon our financial condition and the availability of adequate financing.



Our plans or assumptions could change or prove to be inaccurate. Our revenue and costs are dependent upon factors that are not within our control, such as regulatory changes, changes in technology, customer mergers and acquisitions and
increased competition. Due to the uncertainty of these and other factors, actual revenue and costs may vary from expected amounts, possibly to a material degree, and such variations are likely to affect the level of our future capital expenditures
and our cashflow needs.



Our Contractual Obligations as of December 31, 2004
are as follows:



|                                                                   |  |       |        |               |   |            |  |               |       |  |   |  
|------------------------------------------------------------------ |  | ----- | ------ | ------------- | - | ---------- |  | ------------- | ----- |  | - | -
|Contractual Obligations                                            |  | Total |        | Within 1 year |   | 1 -3 years |  | After 3 years
|(in thousands)                                                     |  |       |        |               |   |            |  |              
|Debt                                                               |  | $     | 15,647 |               | $ | 15,576     |  | $             | 71    |  | $ | 
|Capital lease obligations (including interest portion of payments) |  |       | 632    |               |   | 497        |  |               | 135   |  |   | 
|Operating leases                                                   |  |       | 6,857  |               |   | 2,884      |  |               | 3,973 |  |   | 
|                                                                   |  |       |        |               |   |            |  |               |       |  |   |  
|                                                                   |  | $     | 23,136 |               | $ | 18,957     |  | $             | 4,179 |  | $ | 



Recent Accounting Pronouncements



In December 2004, the FASB issued SFAS No. 123 (revised 2004),
Shared-Based Payment (SFAS 123R), which replaces SFAS No. 123, Accounting for Stock-Based Compensation, (SFAS 123) and supercedes APB Opinion N0. 25, Accounting for Stock Issued to Employees. SFAS 123R
requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first annual period after June 15, 2005, with early adoption
encouraged. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. The Company is required to adopt SFAS 123R in 2006. Under SFAS 123R, the Company must determine the
appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition methods include prospective and retroactive adoption
options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock
options at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive method would record compensation expense for all unvested stock options beginning with the first period restated. The Company is evaluating the
requirements of SFAS 123R, has not yet determined the method of adoption, has not determined what impact the adoption of SFAS 123R will have on its consolidated results of operations and earnings per share, and has not determined whether adoption
will result in amounts that are similar to the current pro forma disclosures under SFAS



The FASB issued SFAS 153, Exchanges of Nonmonetary Assets, which changes the guidance in APB Opinion 29, Accounting for Nonmonetary Transactions. This Statement amends Opinion 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. SFAS 153 is effective during fiscal years beginning after June 15, 2005. The Company does not believe the adoption of SFAS 153 will have a material impact on the Companys
financial statements



15



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##### Table of Contents

RISK FACTORS



An investment in our common stock involves a high degree of risk. Investors evaluating us and our business should carefully consider the factors described below and
all other information contained in this Annual Report on Form 10-K before purchasing our common stock. Any of the following factors could materially harm our business, operating results and financial condition. Additional factors and uncertainties
not currently known to us or that we currently consider immaterial could also harm our business, operating results and financial condition. Investors could lose all or part of their investment as a result of these factors. As defined in the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995, except for the historical information contained herein, some of the matters discussed in this Annual Report on Form 10-K contain forward looking statements regarding future
events that are subject to risks and uncertainties. The following factors, among others, could cause actual results to differ materially from those described by such statements.



Our independent auditors have expressed doubt about our ability to continue as a going concern.



We received a report on our consolidated financial statements for the year
ended December 31, 2004 from our independent accountants that includes an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern because we suffered significant losses from operations in fiscal
2004 and are in default on certain debt covenants made to major lenders and consequently are not in compliance with the cross default provisions of certain of our other loans and capital leases. We can offer no assurance that the actions we plan to
take to address these conditions will be successful.



We are out of
compliance with certain loan covenants.



We relied on bank
financing and debt transactions to provide needed capital when the equity markets were depressed. These financings require compliance with certain covenants. We are out of compliance to a material degree with covenants, and have not been able to
obtain waivers of non-compliance from all of our lenders. This could result in penalties ranging from the issuance of shares or warrants to these lenders or to our lenders accelerating the due date of our indebtedness to them. We may not have
sufficient capital to repay any amounts of accelerated indebtedness and this could impact our ability to operate, grow, or continue as a going concern. Our senior subordinated lenders have agreed to a forbearance through June 30, 2005 with an
extension through August 31, 2005 if, in the lenders reasonable discretion, they are satisfied with the companys progress in obtaining refinancing and with the companys financial condition. Our other subordinated lenders have
agreed to subordinate repayment of their debt to that of the largest subdebt lender. We cannot guarantee that in the future they will grant forbearances or waive failures to comply with applicable covenants.



Our plans to operate, grow or continue as a going concern may be limited if we are unable
to obtain sufficient financing.



Our growth into automated
conferencing, web-conferencing services, video, and as an outsource provider for international calls has strained our financial resources. Nonetheless, we may need to be prepared to expand our business through further strategic acquisitions and new
markets when we identify desirable opportunities. We may need additional equity and debt financing, collaborative arrangements with channel partners, or funds from other sources for these purposes. We may not be able to obtain such financing on
acceptable terms, or at all. Recent debt financing has added interest expense that has further burdened our cost structure. Failure to obtain additional financing could weaken our operations, prevent us from achieving our expansion goals, or
continue as a going concern. Equity financings, as well as debt financing with accompanying warrants, can be dilutive to our shareholders and may make it difficult to sell additional equity at depressed prices, and certain debt financings may impose
restrictive covenants on the way we operate our business.



In
March, 2005, the company announced engaging an investment banker to assist in seeking financing and advise it on strategic alternatives, including the sale of all or part of the company.



Restructuring plans may impact our operating performance



We have announced restructuring actions that we expect to benefit our business. Restructuring plans being implemented
include consolidation of operating locations, staff reductions and constraints on capital expenditures. The implementation of these changes may adversely affect our results of operations due to diversion of managements attention, negative
reactions from customers and other factors. Furthermore, the costs of the restructuring may be higher than our estimates or may have a higher cash component. The restructuring may take longer to implement than we expect and anticipated cost savings
may not fully materialize. If our implementation of restructuring actions is not successful or if such actions do not benefit us to the extent planned, our operating results may suffer,



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We may fail to meet market expectations because of large fluctuations in our quarterly operating results.



As a result of increased competition, changes in the mix
of automated versus attended audio conferences, competitive price pressure, and the other risks described in this section, our quarterly operating results have varied significantly from period to period in the past and are likely to continue to vary
significantly in future periods. The primary factors that may cause fluctuations in our quarterly operating results include increased competition, continued pricing pressure, and ongoing market demand for conferencing services. Additionally, we
expect our results to fluctuate based on seasonal sales patterns. The usage of our services declines during the northern hemisphere summer (especially in Europe in August) and around the Thanksgiving and December holidays. Our revenue during these
seasons historically does not maintain the same pace as other periods of the year because of less use of our services by business customers. Quarterly variations in our operating results may make it difficult to project our future performance and
could result in increased volatility in our stock price.



We may be
adversely affected by downward price pressure in the teleconferencing industry.



The prices for our services are subject to rapid and frequent changes. In many cases, competitors provide their services at significantly reduced rates, or even free of charge, or on a trial basis in order to win
customers. In addition, major telecommunications providers enjoy lower telephony costs as a result of their ownership of the underlying telecommunications network. As a result, these carriers can offer services similar to ours with certain volume
discounts or substantially reduced prices. Price competition in the long distance market has had a negative impact on our ability to mark-up our wholesale prices on long distance transport. In response to these factors, we have reduced our pricing
in certain circumstances and may be required to reduce prices further. Reductions in the prices we are able to charge may not be offset by increases in the volumes we handle, and accordingly may decrease our operating margins.



Increased use of automated teleconferencing services may result in a decrease in the
average prices we charge our customers.



The trend toward
increased use of teleconferencing has been accompanied by more demand for low priced automated conferencing. As the volumes of all types of teleconferences have grown, the percentage of conferences that are higher-priced, operator-attended
conferences has declined, and we expect this trend to continue at least for the near term. Migration to automated services has the effect of decreasing our price per minute and may reduce our margins.



We face operational and financial risks relating to our international operations.



International sales comprise a significant portion of our
revenues, and we anticipate that this will continue. As a result of their distance from the United States, different time zones, culture, management and language differences, international operations pose greater risk than our domestic operations.
For example:



| |  |  | These factors make it more challenging to manage and administer a globally-dispersed business.
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | Since certain international calls are billed in the currency of the country of origin, and in-country operating expenses are paid in local currency, currency fluctuations can affect
our operating results.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in taxes, duties, labor costs, and labor regulations could adversely affect our competitive pricing in some countries.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | Economic or political instability in one or more of our international markets could adversely affect our operations in those markets.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



Our major competitors in the telecommunications industry have greater capital resources
and brand name recognition than we have, which makes it difficult for us to compete with them.



The telecommunications industry is highly competitive, and most of our competitors and potential competitors have substantially greater capital resources
and name recognition than we have. Accordingly, we cannot compete with them in terms of advertising, marketing, sales, and deployment of capital. Certain of our competitors that have emphasized automated conferencing services have achieved operating
efficiencies through volumes that we do not yet have. To compete successfully against other telecommunications and teleconferencing providers, we must maintain competitive pricing while at the same time offering significantly higher quality
services. Pricing pressures may result in a reduction in our operating margins. Alternatively, if our service quality does not meet customer expectations, our customers may move away from us in favor of more established competitors. Either of these
could hinder our ability to grow our revenues and to achieve our operating goals.



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Third party vendor dependency.



We rely on third party telecommunications providers for transmission of our conferencing calls. The failure of any of these
providers could have an adverse effect on our ability to seamlessly service our customers.



Our revenues may fluctuate because we draw significant revenues from major clients, who may transfer their business away from us.



Our two largest customers accounted for 21 percent of our revenues in 2004, and we expect revenues from AT&T
Corporation, our largest customer, to grow rapidly over the near term. Due to concentration of our revenues, the loss of any one of our largest customers or one of our principal outsource channel partners would have a significant adverse effect on
our conference volumes. The loss of several of our larger customers would also have an adverse effect on our volumes and this risk will increase if our largest customers increase their volumes of business with us faster than we increase volumes from
other sources. Any such reduction in our volumes would have a material adverse effect on our revenues and results of operations.



Our agreements with customers generally do not contain minimum purchase commitments, and customers can easily switch to a competing provider or allocate
their business among several vendors. Our customers may discontinue business with us in the future if our products and services become obsolete or technological advances allow our customers to satisfy their own teleconferencing needs. Mergers,
consolidations, or other changes in ownership or alliances that impact any of our customers may also cause our customers to curtail or cease doing business with us. To the extent we lose customers due to any of these factors, our revenues will be
adversely affected.



AT&T Corporation recently announced
that it has signed an agreement to be acquired by SBC Communications, Inc., and there can be no assurance that if AT&T Corporation is acquired the acquirer will continue to use our services.



We have made only a limited entry into the web conferencing market.



We have recently entered the web or Internet based conferencing market. The
annual market for Internet based conferencing services is growing rapidly. Although still small in relation to the audio conferencing market that we serve, our customers are increasingly demanding a full range of conferencing services and our
web-based conferencing services are beginning to grow. However, if we do not fully develop this market, especially in web conferencing and Internet telephony, we may experience a slowdown in our overall conferencing revenue growth and our
competitors may grow faster than we are able to grow. The expansion of our business into Internet-based service offerings, simultaneously with other growth needs, will place a strain on our current financial and staff resources. If we are not able
to deploy the assets and personnel needed to fully support web-based services, we expect to miss out on significant growth opportunities.



If our Internet telephony conferencing services do not gain market acceptance or we are unable to finance this opportunity, our potential for growth in this market
sector will be limited.



We estimate that over the next 3
years we will convert certain of our existing high volume multinational customers to an Internet telephony based conferencing service with the ability to handle higher volumes at lower prices. We cannot be certain that Internet telephony services
will continue to gain worldwide corporate acceptance or prove to be a viable alternative to traditional telephone service. If the Internet telephony market fails to develop or develops slower than we expect, our future revenues from teleconferencing
over the Internet will be limited. This could adversely affect the revenue growth rate that we currently expect to achieve. Our prospective Internet telephony solutions also will be affected by the availability of capital.



Other technological innovations could render our current services obsolete.



We expect technical innovations to stimulate new
developments in teleconferencing services. Such technical innovations include the development of more sophisticated computers, telephone sets, private branch exchanges, customer-owned bridges, centralized office switching equipment, and Internet
telephony services. Other technology-based competitive developments within the telecommunications industry, such as low-priced long distance services and new uses for the Internet, may lead the major telecommunications companies to offer low-cost
teleconferencing services as a strategy to obtain greater market share in other product areas. These innovations and developments could render our current service offerings obsolete or uneconomic, which could cause us to lose customers and revenues.



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We occasionally experience technical malfunctions and other hazards which adversely affect our operations and create
costs.



We depend upon our software systems,
communications hardware, and enhanced services platform to conduct our conferencing business on a worldwide basis. Our systems, communications hardware, vendors services, and platform are vulnerable to damage or interruption from:



| |  |  | Natural disasters.
| | - |  | ------------------



| |  |  | Power loss.
| | - |  | -----------



| |  |  | Telecommunication failures.
| | - |  | ---------------------------



| |  |  | Loss of Internet access.
| | - |  | ------------------------



| |  |  | Physical and electronic break-ins.
| | - |  | ----------------------------------



| |  |  | Hardware defects.
| | - |  | -----------------



| |  |  | Computer viruses.
| | - |  | -----------------



| |  |  | Intentional acts of vandalism, terrorism, or similar events.
| | - |  | ------------------------------------------------------------



In previous years our business has been affected by occasional network failures with consequent poor service and loss of customer goodwill. We expect that
we will have major failures every year as a result of the factors listed above. Any increase in outages or failures due to these types of hazards would result in additional costs resulting from business interruption, and we could lose customers
affected by these outages.



There are few regulatory barriers to entry into
our current markets, and new competitors may enter at any time.



There are few regulatory barriers to competition in our markets. Recent federal legislation in the United States allows local exchange carriers to offer teleconferencing services. This legislation may result in additional competition if
some or all of the local exchange carriers, including any of the regional Bell operating companies, choose to enter or expand their activities in the teleconferencing market in the United States.



Moreover, there are no significant regulatory barriers to enter the foreign
markets we serve in Australia, Canada, France, Germany, Hong Kong, the Netherlands, Singapore, or the United Kingdom, and competitors may enter at any time. To the extent that our customers or potential customers choose to do business with these
competitors, their entry into our markets would adversely affect our ability to grow our conferencing volumes and generate revenue.



Our common stock price has been highly volatile, and we expect this volatility to continue, and we are currently not in compliance with NASDAQ listing requirements due
to the level of our stock price.



The market price of our
common stock is highly volatile and may decline further. For example, from January 1, 2003 through December 31, 2004 our stock price ranged from a high of $4.08 to a low of $.65, and closed on December 31, 2004 at $1.32. On March 28, 2005 our common
stock closed at $.61. We anticipate that the volatility of our common stock price may continue due to factors such as:



| |  |  | Actual or anticipated fluctuations in results of our operations.
| | - |  | ----------------------------------------------------------------



| |  |  | Changes in or failure to meet securities analysts expectations.
| | - |  | ----------------------------------------------------------------



| |  |  | Changes in market valuations of other teleconferencing companies.
| | - |  | -----------------------------------------------------------------



| |  |  | Announcements by us or our competitors of significant technological innovations, contracts, acquisitions, strategic partnerships, joint ventures, or capital commitments.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Introduction of new services by us or our competitors.
| | - |  | ------------------------------------------------------



| |  |  | Conditions and trends in the teleconferencing industry and related technology industries.
| | - |  | -----------------------------------------------------------------------------------------



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| |  |  | Future sales of our common stock by warrant and option holders, including sales by the selling shareholders listed in this prospectus.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



These factors are in addition to significant price and volume fluctuations in
the securities markets that may be unrelated to our operating performance.



On March 9, 2005, we received notice from Nasdaq that the price of our common stock closed below the minimum $1.00 per share for the preceding 30 days, as required under Marketplace Rule 4450(a)(5). Under Marketplace
Rule 4450(e)(2), we have 180 calendar days, or until September 6, 2005, to correct its bid price deficiency. If, prior to September 6, 2005, the price of our common stock closes at $1.00 per share or more for a minimum of ten consecutive trading
days, the bid price deficiency will be corrected.



If we do not
correct its bid price deficiency within the next 180 days, Nasdaq will provide us with written notification that our common stock will be delisted. At that time, we will have the right to appeal Nasdaqs determination to a Listings
Qualifications Panel. Alternatively, we may apply to transfer our common stock to the Nasdaq SmallCap Market if we satisfy the requirements in Marketplace Rule 4310(c). If our transfer application were approved, we would have an additional 180-day
period to regain compliance. We cannot assure that our stock price will increase sufficiently to maintain our Nasdaq listing.



Provisions of our articles of incorporation and agreements we have entered could delay or prevent a change in control of ACT.



Certain provisions of our articles of incorporation, and certain agreements
we have entered, may discourage, delay, or prevent a merger or acquisition that a shareholder may consider favorable. These provisions include:



| |  |  | Authority of the board of directors to issue preferred stock.
| | - |  | -------------------------------------------------------------



| |  |  | Prohibition on cumulative voting in the election of directors.
| | - |  | --------------------------------------------------------------



| |  |  | Election of directors by class for terms of three years.
| | - |  | --------------------------------------------------------



| |  |  | Limitations on the ability of third parties to acquire us by their offer of a premium price to selected shareholders.
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | Agreements with key executives which provide special termination payments in the event of a change in control.
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | A share rights plan that enables shareholders to dilute an acquiring persons investment through the shareholders purchase of a large number of shares.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



Item 7A. Quantitative and Qualitative Disclosures About Market Risk



Our interest expense is sensitive to changes in the general level of interest rates. In this regard, changes in interest rates can affect the interest paid on our long term debt. To mitigate the impact of fluctuations
in interest rates, we generally enter into fixed rate financing arrangements. We believe the fair value of long-term debt approximates the related carrying amount based on market interest rates available to us. Almost all our long term debt is
denominated in United States dollars. The following table provides information about our financial instruments that are sensitive to changes in interest rates:



|                                           |  |      |        |   |      |   |    |            |  |   |       |   |  |   |        |  
|------------------------------------------ |  | ---- | ------ | - | ---- | - | -- | ---------- |  | - | ----- | - |  | - | ------ | -
|                                           |  | 2005 |        |   | 2006 |   |    | After 2006 |  |   | Total |  
|Long term debt (including current portion) |  |      |        |   |      |   |    |            |  |   |       |   |  |   |        |  
|Fixed rate                                 |  | $    | 15,576 |   |      | $ | 71 |            |  | $ | 0     |   |  | $ | 15,647 |  
|Average interest rate                      |  |      | 16.0   | % |      |   | 7  | %          |  |   | 0     | % |  |   | 16.0   | %



We are also subject to foreign
exchange currency rate risk as a result of our international operations. Our foreign subsidiaries financial statements have been translated into United States dollars at the average exchange rate during the year for the statement of operations and
year-end rate for the balance sheet. Our policy for the long term is to invest in the international teleconferencing market as it is a growth market. For as long as this policy remains in effect, our net income, assets, and liabilities in overseas
markets will continue to fluctuate in accordance with exchange rate fluctuations. We historically have not entered into any derivative arrangements to hedge foreign currency risks and have no firmly committed future sales exposures.



Item 8. Financial Statements and Supplementary Data



See Index to Consolidated Financial Statements at page F-1.



Item 9. Changes and Disagreements With accountants on Accounting and Financial Disclosure



None



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Item 9A Controls and Procedures



Evaluation
of Disclosure Controls and Procedures



An evaluation was performed under
the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15 d 0 15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on the evaluation and communication from Hein & Associates LLP to our Audit Committee in April, 2005 that identified
a material weakness, our chief executive officer and chief financial officer concluded that the Companys disclosure controls and procedures are not effective.



The material weakness identified was that review of the consolidated financial statements failed to detect the proper foreign currency
translation adjustment as it relates to intangible assets. This appeared to be caused by an inadequate level of accounting staffing to allow sufficient time for the accounting department to (i) perform a review of the consolidation and supporting
financial statement disclosure schedules independent of the preparer and (ii) research all applicable accounting pronouncements as relates to the Companys financial statements and underlying disclosures.



Due to this material weakness, the Company, in preparing its financial statements for the
year ended December 31, 2004, performed additional analysis and other post close procedures to ensure that such financial statements were stated fairly in all material respects in accordance with U.S. generally accepted accounting principles.



Changes in Internal Control over Financial Reporting



There were no changes in the Companys internal control over financial reporting
identified in connection with the evaluation of internal control that occurred during the Companys last fiscal quarter that have materially affected, or are reasonably likely to materially affect the Companys internal control over
financial reporting.



However, given the subsequent identification of the above
material weakness, the Company has decided on a course of action reasonably assured to remediate this material weakness. This includes the hiring of additional experienced accounting staff to provide sufficient time and resources to review the
consolidation and supporting financial statement disclosure schedules independent of the preparer and research all applicable accounting pronouncements as relates to the Companys financial statements and underlying disclosures.



Item 9B. Other Information



On April 12, 2005,
the Company executed a forbearance agreement with Silicon Valley Bank, pursuant to which SVB agreed to forebear through June 30, 2005, from accelerating the indebtedness due under the Companys credit facility with SVB, as a result of the
Companys failure to comply with the minimum tangible net worth covenant in the credit facility.



PART III



Item 10. Directors and Executive Officers of the Registrant



Incorporated by reference from the Companys Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended
December 31, 2004.



Item 11. Executive Compensation



Incorporated by reference from the Companys Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended December 31, 2004.



Item 12. Security Ownership of Certain Beneficial Owners and Management



Incorporated by reference from our Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended December 31, 2004.



Item 13. Certain Relationships and Related Transactions



Incorporated by reference from our Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended December 31, 2004.



Item 14. Principal Accountant Fees and Services



Incorporated by reference from our Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended December 31, 2004.



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PART IV



Item 15. Exhibits and Financial Statement Schedules



(a)(1), (2) The Financial Statements and Schedule I Condensed Financial Information of Registrant and Schedule II Valuation and Qualifying Accounts listed on the index on Page F-1 following are included
herein by reference. All other schedules are omitted, either because they are not applicable or because the required information is shown in the financial statements or the notes thereto.



(a) (3) Exhibits:



Index to Exhibits



All exhibits are filed electronically or incorporated by reference.



|                  |  |                                                                                                                                                                                                                       
|----------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number            |  | Description                                                                                                                                                                                                           
|2.1(1)            |  | Share purchase agreement dated January 17, 2001 by and between ACT Teleconferencing, Inc. and David L. Holden & others.                                                                                               
|                  | 
|2.2(2)            |  | Asset Purchase Agreement by and between ACT Teleconferencing, Inc., ACT Videoconferencing, Inc. and PictureTel Corporation dated as of October 4, 2001.                                                               
|                  | 
|2.3(3)            |  | Agreement and Plan of Merger dated as of December 21, 2001, by and among ACT Teleconferencing, Inc., ACT Proximity, Inc., Proximity, Inc., Robert C. Kaphan, Richard Parlato, and North
Atlantic Venture Fund II, L.P.
|                  | 
|3.1(4)            |  | Restated articles of incorporation of ACT Teleconferencing, Inc., dated April 15, 1996, as amended October 18, 1999, and November 26, 2001                                                                            
|                  | 
|3.1.1(5)          |  | Certificate of Designations, Preferences and Rights of Series B Junior Participating Preferred Shares, filed December 2, 1999                                                                                         
|                  | 
|3.1.2(6)          |  | Certificates of Designations, Preferences, and rights of Series C Preferred Stock, filed May 17, 2002                                                                                                                 
|                  | 
|3.1.3(22)         |  | Articles of Amendment to Certificate of Designations, Preferences and Rights of Series B Junior Participating Preferred Shares, filed February 6, 2004 (previously filed)                                             
|                  | 
|3.2(7)            |  | Bylaws of ACT, amended and restated as of May 22, 2001                                                                                                                                                                
|                  | 
|4.1(8)            |  | Form of specimen certificate for common stock of ACT                                                                                                                                                                  
|                  | 
|10.1(8)        ** |  | Stock option plan of 1991, as amended, authorizing 400,000 shares of common stock for issuance under the plan                                                                                                         
|                  | 
|10.2(8)        ** |  | Form of stock option agreement                                                                                                                                                                                        
|                  | 
|10.3(9)           |  | Form of representatives warrant dated June 9, 2000                                                                                                                                                                   
|                  | 
|10.10(8)      **  |  | Split dollar insurance agreement dated March 1, 1990, between ACT and Gerald D. Van Eeckhout                                                                                                                          
|                  | 
|10.11(1)      **  |  | Variation of D. Holdens Service Agreement, dated January 17, 2001 by and between ACT Teleconferencing Limited and David Holden                                                                                       
|                  | 
|10.13(1)          |  | Instrument constituting £1,172,000 convertible secured A loan notes and £2,980,000 convertible secured B loan notes by and between ACT Teleconferencing, Inc. and David L. Holden
& others                            
|                  | 
|10.19(10)    **   |  | Stock option plan of 1996, as amended                                                                                                                                                                                 
|                  | 
|10.20(4)      **  |  | Employee stock purchase plan of 1998, as amended                                                                                                                                                                      
|                  | 
|10.22(11)         |  | Loan and security agreement dated March 31, 1998 and form of stock purchase warrant with Sirrom Capital Corporation and Equitas L.P.                                                                                  
|                  | 
|10.27(12)         |  | Agreement for Videoconferencing Equipment and Services among ACT Videoconferencing, Inc. and the GTE Telephone Operating Companies named therein, dated October 1, 1998                                               
|                  | 
|10.28(4) **       |  | Stock option plan of 2000, as amended                                                                                                                                                                                 
|                  | 
|10.29(4)          |  | Service order attachment signed March 15, 2001, between ACT Teleconferencing Services, Inc. and AT&T Corporation for the supply of domestic voice/data services                                                       
|                  | 
|10.31(2)          |  | Note in the original principal amount of $2.25 Million with ACT Teleconferencing, Inc. as maker and PictureTel Corporation as holder                                                                                  



22



---

##### Table of Contents

|             |  |                                                                                                                                                                                                                
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.33(2)     |  | Amended and Restated Warrant dated October 11, 2001 between ACT Teleconferencing, Inc. and GMN Investors II, L.P.                                                                                              
|             | 
|10.36(13)    |  | Promissory Note from Gerald Van Eeckhout in favor of ACT Teleconferencing, Inc. dated July 25, 2001                                                                                                            
|             | 
|10.37(13)    |  | Security Agreement between Gerald Van Eeckhout and ACT Teleconferencing, Inc. dated July 25, 2001                                                                                                              
|             | 
|10.42(14)    |  | Videoconference Services Agreement between ACT Videoconferencing and Bristol Meyers Squibb Company*                                                                                                            
|             | 
|10.46(15) ** |  | 2002 Performance Incentive Plan                                                                                                                                                                                
|             | 
|10.51(17)    |  | Note Agreement for Senior Secured Subordinated Notes and Warrant to Purchase Common Stock among ACT Teleconferencing, Inc. and certain of its subsidiaries, and the investors named therein,
dated May 12, 2003
|             | 
|10.52(18)    |  | First Amendment, Consent and Waiver among ACT Teleconferencing, Inc. and certain of its subsidiaries, and the investors named therein, effective as of May 12, 2003                                            
|             | 
|10.53(18)    |  | Second Amendment, Consent and Waiver among ACT Teleconferencing, Inc. and certain of its subsidiaries, and the investors named therein, effective as of August 14, 2003                                        
|             | 
|10.54(18)    |  | Third Amendment among ACT Teleconferencing, Inc. and certain of its subsidiaries, and the investors named therein, dated October 23, 2003                                                                      
|             | 
|10.55(18)    |  | Fourth Amendment, Consent, Waiver and Forbearance Agreement among ACT Teleconferencing, Inc., certain subsidiaries thereof, and the investors named therein, effective as of January 8,
2004                   
|             | 
|10.56(19)    |  | Form of Warrant Agreement by and between ACT Teleconferencing, Inc. and CapEx, L.P. dated October 15, 2003                                                                                                     
|             | 
|10.58(20)    |  | Securities Purchase Agreement by and among ACT Teleconferencing, Inc. and certain preferred stock purchasers, dated May 17, 2002                                                                               
|             | 
|10.59(20)    |  | Registration Rights Agreement by and among ACT Teleconferencing, Inc. and certain preferred stock purchasers, dated May 17, 2002                                                                               
|             | 
|10.60(18)    |  | Form of Stock Purchase Agreement of January 8, 2004 with Barron Partners, L.P.                                                                                                                                 
|             | 
|10.61(18)    |  | Form of Registration Rights Agreement of January 8, 2004 with Barron Partners, L.P.                                                                                                                            
|             | 
|10.62(21)    |  | Stock Purchase Agreement dated February 18, 2004 with Fuller and Thaler Behavioral Finance Fund, Ltd.                                                                                                          
|             | 
|10.63(21)    |  | Stock Purchase Warrant dated February 18, 2004 with Fuller and Thaler Behavioral Finance Fund, Ltd.                                                                                                            
|             | 
|10.66(23)**  |  | Amended and Restated Employment Agreement between Gene Warren and ACT Teleconferencing, Inc., dated May 1, 2003                                                                                                
|             | 
|10.67(24)    |  | Loan and Security Agreement with Silicon Valley Bank of November 19, 2004.                                                                                                                                     
|             | 
|10.68(25)    |  | Stock and Warrant Purchase Agreement among ACT Teleconferencing, Inc., Casimir Capital, and Investors as of September 2004                                                                                     
|             | 
|10.69(26)    |  | Terms and Conditions for Purchase of Shares and Warrants between ACT Teleconferencing, Inc. as of September 2004                                                                                               
|             | 
|10.70(27)    |  | Form of Stock Purchase Warrant between ACT Teleconferencing and Investors as of September 2004.                                                                                                                
|             | 
|10.71(28)    |  | Ninth Waiver, Amendment and Forebearance Agreement among ACT Teleconferencing, Inc. certain subsidiaries, and the investors named in the document as of November 19, 2004.                                     
|             | 
|10.72        |  | Forebearance agreement among ACT Teleconferencing, Inc., certain subsidiairies, and Silicon Valley Bank as of April 12, 2005 (filed herewith)                                                                  
|             | 
|23.1         |  | Consent of Hein & Associates LLP (filed herewith)                                                                                                                                                              
|             | 
|23.2         |  | Consent of Ernst & Young LLP (filed herewith)                                                                                                                                                                  
|             | 
|31.1         |  | Rule 13a-14(a) certification of Chief Executive Officer (filed herewith)                                                                                                                                       
|             | 
|31.2         |  | Rule 13a-14(a) certification of Chief Financial Officer/principal financial officer (filed herewith)                                                                                                           
|             | 
|32.1         |  | Section 1350 certification of Chief Executive Officer (filed herewith)                                                                                                                                         
|             | 
|32.2         |  | Section 1350 certification of Chief Financial Officer/principal financial officer (filed herewith)                                                                                                             

---

|** | Management contract or compensatory arrangement.
|-- | ------------------------------------------------

|(1) | Incorporated by reference, attached as an exhibit to our report on Form 8-K filed with the Securities and Exchange Commission on January 31, 2001, File No. 0-27560.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference, attached as an exhibit to our report on Form 8-K filed with the Securities and Exchange Commission on October 18, 2001, File No. 0-27560.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference, attached as exhibit 10.1 to our report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2002, File No. 0-27560.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference, attached as an exhibit to our registration statement on Form S-1, filed with the Securities and Exchange Commission on December 3, 2001, File No.
333-744138.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference, attached as Exhibit A to Exhibit 1 to our registration statement on Form 8A, filed with the Securities and Exchange Commission on December 7, 1999, File
No. 0-27560.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference, attached as an exhibit to our report on Form 8-K filed with the Securities and Exchange Commission on May 23, 2002, File No. 0-27560.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference, attached as an exhibit to our Form 10-Q for the quarter ended June 30, 2001, filed with the Securities and Exchange Commission on August 21, 2001, File
No. 0-27560.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference, attached as an exhibit to our registration statement on Form SB-2, filed with the Securities and Exchange Commission on October 10, 1995, and amendments
to our Form SB-2, File No. 33-97908-D.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Incorporated by reference, attached as Exhibit 1.3 to our registration statement on Form S-1, filed with the Securities and Exchange Commission on March 10, 2000, File No. 33-32156.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference, attached as an exhibit to our schedule 14A Information filed with the Securities and Exchange Commission on April 30, 1997, File No. 0-27560, and amended
and attached as exhibit 4.6 to our Form S-8, filed on July 2, 1998, File 333-58403.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | Incorporated by reference, attached as Exhibit 10.22 to our Amendment No. 1 to Form 10-QSB for the quarter ended June 30, 1998, filed with the Securities and Exchange Commission on
August 24, 1998 (originally filed under cover of Form SE on August 14, 1998) File 0-27560.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference, attached as an exhibit to our Form 10-QSB for the quarter ending September 30, 1998, filed with the Securities and Exchange Commission on November 16,
1998, File 0-27560.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference, attached as an exhibit to our annual report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2002, File No. 0-27560.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference, attached as an exhibit to our report on Form 10-Q filed with the Securities and Exchange Commission on May 15, 2002, File No. 0-27560. Certain portions of
the exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the Securities and Exchange Commission.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) | Incorporated by reference, attached as an exhibit to our annual report on Form 10-K filed with the Securities and Exchange Commission on April 15, 2003, File No. 0-27560.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(16) | Incorporated by reference, attached as an exhibit to our amendment to annual report on Form 10-K/A filed with the Securities and Exchange Commission on April 30, 2003, File No.
0-27560.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(17) | Incorporated by reference, attached as an exhibit to our report on Form 8-K filed with the Securities and Exchange Commission on June 9, 2003, File No. 0-27560.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(18) | Incorporated by reference, attached as an exhibit to our registration statement on Form S-3 filed with the Securities and Exchange Commission on February 13, 2004, File No.
333-112822.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(19) | Incorporated by reference, attached as an exhibit to our registration statement on Form S-3 filed with the Securities and Exchange Commission on December 31, 2003, File No.
333-111657.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(20) | Incorporated by reference, attached as an exhibit to our report on Form 8-K filed with the Securities and Exchange Commission on May 23, 2002, File No. 0-27560.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(21) | Incorporated by reference, attached as an exhibit to amendment no. 1 to our registration statement on Form S-3/A filed with the Securities and Exchange Commission on March 15, 2004,
File No. 333-112822.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(22) | Incorporated by reference, attached as an exhibit to our report on Form 10-K filed with the Securities and Exchange Commission on April 14, 2004, File No. 000-27560
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(23) | Incorporated by reference, attached as an exhibit to our report on Form 10-K filed with the Securities and Exchange Commission on April 14, 2004, File No. 000-27560
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(24) | Incorporated by reference, attached as an exhibit 10.1 to our report on Form 8-K filed with the Securities and Exchange Commission on November 19, 2004, File No. 000-27560
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(25) | Incorporated by reference, attached as an exhibit 99.1 to our report on Form 8-K filed with the Securities and Exchange Commission on August 31, 2004, File No. 000-27560
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(26) | Incorporated by reference, attached as an exhibit 99.2 to our report on Form 8-K filed with the Securities and Exchange Commission on August 31, 2004, File No. 000-27560
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(27) | Incorporated by reference, attached as an exhibit 99.3 to our report on Form 8-K filed with the Securities and Exchange Commission on August 31, 2004, File No. 000-27560
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(28) | Incorporated by reference, attached as an exhibit 10.2 to our report on Form 8-K filed with the Securities and Exchange Commission on November 19, 2004, File No. 000-27560
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|



23



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##### Table of Contents

SIGNATURES



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



|                     |  |                            |  |                                                                  
|-------------------- |  | -------------------------- |  | -----------------------------------------------------------------
|                     |  | ACT TELECONFERENCING, INC.
|                     |  |                           
|Date: April 15, 2005 |  | By:                        |  | /s/ Gene Warren                                                  
|                     |  |                            |  | Gene Warren Chief Executive Officer (Principal Executive Officer)



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



|                                       |  |                                                                     
|-------------------------------------- |  | --------------------------------------------------------------------
|Signature                              |  | Title                                                               
|/s/ Edward J. BernicaEdward J. Bernica |  | Chief Financial Officer (Principal Financial and Accounting Officer)
|                                       | 
|/s/ RONALD J. BACHRonald J. Bach       |  | Director                                                            
|                                       | 
|/s/ JAMES F. SEIFERTJames F. Seifert   |  | Director                                                            
|                                       | 
|/s/ Malcolm M. Aslin                   |  | Director                                                            
|Malcolm M. Aslin                       |  |                                                                     
|                                       | 
|/s/ Lew Jaffe                          |  | Director                                                            
|Lew Jaffe                              |  |                                                                     
|                                       | 
|/s/ Jules DeVigne                      |  | Director                                                            
|Jues DeVigne                           |  |                                                                     
|                                       | 
|/s/ MACK V. TRAYNOR III                |  | Director and Chairman of the Board                                  
|Mack V. Traynor III                    |  |                                                                     



|                           |  |                               
|-------------------------- |  | ------------------------------
|/s/ GERALD D. VAN EECKHOUT |  | Director and Chairman Emeritus
|Gerald D. Van Eeckhout     |  |                               



24



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##### Table of Contents

Item 15A. ACT Teleconferencing, Inc. Index to Consolidated Financial Statements



Contents



|                                                         |  |     
|-------------------------------------------------------- |  | ----
|Report of Independent Registered Public Accounting Firms |  | F-2 
|Consolidated Balance Sheets                              |  | F-4 
|Consolidated Statements of Operations                    |  | F-5 
|Consolidated Statements of Shareholders Equity          |  | F-6 
|Consolidated Statements of Cash Flows                    |  | F-7 
|Notes to Consolidated Financial Statements               |  | F-8 
|Schedule ICondensed Financial Information of Registrant |  | F-26
|Schedule IIValuation and Qualifying Accounts            |  | F-30



F-1



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors

ACT Teleconferencing, Inc.

Golden, Colorado



We have audited the accompanying consolidated
balance sheets of ACT Teleconferencing, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, changes in stockholders deficit, and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.



In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated financial position of ACT Teleconferencing, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for the years
then ended in conformity with the U.S. generally accepted accounting principles.



The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, its total
liabilities exceed its total assets, and the Company is not in compliance with debt covenants on substantially all of its debt. This raises substantial doubt about the Companys ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this uncertainty.



Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedules listed in the index of consolidated financial statements are presented for purposes of complying with
the Securities and Exchange Commissions rules and are not part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.



HEIN & ASSOCIATES LLP



Denver, Colorado

April 11, 2005



F-2



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Shareholders

ACT Teleconferencing, Inc.



We have audited the accompanying consolidated statement of operations of ACT Teleconferencing, Inc., and the related consolidated statements of shareholders equity and cash flows for the year ended December 31,
2002. Our audit also included the financial statement schedules listed in the index at page F-1 for the year ended December 31, 2002. These financial statements and schedules are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and schedules based on our audit.



We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of ACT Teleconferencing,
Inc.s operations and its cash flows for the year ended December 31, 2002, in conformity with United States generally accepted accounting principles. Also in our opinion, the related financial statement schedules for the year ended December 31,
2002, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects the information set forth therein.



/s/ ERNST & YOUNG LLP



Denver, Colorado

March 9, 2003



F-3



---

##### Table of Contents

ACT Teleconferencing, Inc.



Consolidated Balance Sheets

December 31, 2004 and 2003



|                                                                                                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|(In thousands, except shares)                                                                                                                                                                                                                                                                                                               |  | 2004 |         |   | 2003 |  
|Assets                                                                                                                                                                                                                                                                                                                                      |  |      |         |   |      |   |         |  
|Current assets:                                                                                                                                                                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                                                                                                                                   |  | $    | 2,740   |   |      | $ | 1,726   |  
|Accounts receivable (net of allowance for doubtful accounts of $413 and $652)                                                                                                                                                                                                                                                               |  |      | 8,394   |   |      |   | 10,258  |  
|Prepaid expenses and other current assets                                                                                                                                                                                                                                                                                                   |  |      | 1,271   |   |      |   | 1,210   |  
|                                                                                                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|Total current assets                                                                                                                                                                                                                                                                                                                        |  |      | 12,405  |   |      |   | 13,194  |  
|Equipment:                                                                                                                                                                                                                                                                                                                                  |  |      |         |   |      |   |         |  
|Telecommunications equipment                                                                                                                                                                                                                                                                                                                |  |      | 22,348  |   |      |   | 23,021  |  
|Software                                                                                                                                                                                                                                                                                                                                    |  |      | 7,335   |   |      |   | 6,591   |  
|Office equipment                                                                                                                                                                                                                                                                                                                            |  |      | 12,030  |   |      |   | 11,667  |  
|Less: accumulated depreciation and impairment                                                                                                                                                                                                                                                                                               |  |      | (25,310 | ) |      |   | (19,998 | )
|                                                                                                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|Total equipmentnet                                                                                                                                                                                                                                                                                                                         |  |      | 16,403  |   |      |   | 21,281  |  
|Other assets:                                                                                                                                                                                                                                                                                                                               |  |      |         |   |      |   |         |  
|Goodwill                                                                                                                                                                                                                                                                                                                                    |  |      | 8,428   |   |      |   | 18,264  |  
|Other intangible assets (net of accumulated amortization of $1,548 and $784)                                                                                                                                                                                                                                                                |  |      | 521     |   |      |   | 780     |  
|Investments                                                                                                                                                                                                                                                                                                                                 |  |      | 100     |   |      |   | 100     |  
|Other long term assets                                                                                                                                                                                                                                                                                                                      |  |      | 661     |   |      |   | 1004    |  
|                                                                                                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|Total assets                                                                                                                                                                                                                                                                                                                                |  | $    | 38,518  |   |      | $ | 54,623  |  
|                                                                                                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|Liabilities and shareholders equity                                                                                                                                                                                                                                                                                                        |  |      |         |   |      |   |         |  
|                                                                                                                                                                                                                                                                                                                                            |  |     
|Current liabilities:                                                                                                                                                                                                                                                                                                                        |  |      |         |   |      |   |         |  
|Accounts payable                                                                                                                                                                                                                                                                                                                            |  | $    | 3,869   |   |      | $ | 6,171   |  
|Accrued liabilities                                                                                                                                                                                                                                                                                                                         |  |      | 4,858   |   |      |   | 4,729   |  
|Deferred revenue                                                                                                                                                                                                                                                                                                                            |  |      | 84      |   |      |   | 1,648   |  
|Current portion of debt                                                                                                                                                                                                                                                                                                                     |  |      | 11,478  |   |      |   | 6,378   |  
|Current portion of debt to related party                                                                                                                                                                                                                                                                                                    |  |      | 4,098   |   |      |   | 634     |  
|Capital lease obligations due in one year                                                                                                                                                                                                                                                                                                   |  |      | 450     |   |      |   | 769     |  
|Income taxes payable                                                                                                                                                                                                                                                                                                                        |  |      | 414     |   |      |   | 51      |  
|                                                                                                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|Total current liabilities                                                                                                                                                                                                                                                                                                                   |  |      | 25,251  |   |      |   | 20,380  |  
|Commitments and contingenciesNotes 1, 3, 4 and 13                                                                                                                                                                                                                                                                                          |  |      |         |   |      |   |         |  
|Long-term debt                                                                                                                                                                                                                                                                                                                              |  |      | 71      |   |      |   | 3,121   |  
|Long-term debt due to related party                                                                                                                                                                                                                                                                                                         |  |      |        |   |      |   | 7,080   |  
|Capital lease obligations due after one year                                                                                                                                                                                                                                                                                                |  |      | 130     |   |      |   | 466     |  
|Other long term liabilities                                                                                                                                                                                                                                                                                                                 |  |      |        |   |      |   | 939     |  
|Deferred income taxes                                                                                                                                                                                                                                                                                                                       |  |      | 249     |   |      |   | 527     |  
|                                                                                                                                                                                                                                                                                                                                            |  |     
|Shareholders equity:                                                                                                                                                                                                                                                                                                                       |  |      |         |   |      |   |         |  
|Preferred stock, 1,797,500 undesignated shares of non-voting, no par value shares authorized, none issued. 2,000 shares series A non-voting,
no par, none outstanding, 200,000 shares of series B entitled to receive dividends at $1.00 per share, authorized none issued, 500 shares of convertible series C authorized, none outstanding |  |      |        |   |      |   |        |  
|Common stock, no par value; 50,000,000 shares authorized, 16,661,562 and 11,022,043 shares issued and 16,572,162 and 10,932,643 outstanding in
2004 and 2003, respectively                                                                                                                                                                  |  |      | 51,049  |   |      |   | 43,310  |  
|Treasury stock, at cost (89,400 shares)                                                                                                                                                                                                                                                                                                     |  |      | (241    | ) |      |   | (241    | )
|Accumulated deficit                                                                                                                                                                                                                                                                                                                         |  |      | (42,836 | ) |      |   | (21,671 | )
|Accumulated other comprehensive income                                                                                                                                                                                                                                                                                                      |  |      | 4,845   |   |      |   | 712     |  
|                                                                                                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|Total shareholders equity                                                                                                                                                                                                                                                                                                                  |  |      | 12,817  |   |      |   | 22,110  |  
|                                                                                                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|Total liabilities and shareholders equity                                                                                                                                                                                                                                                                                                  |  | $    | 38,518  |   |      | $ | 54,623  |  
|                                                                                                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  



See accompanying notes to
consolidated financial statements.



F-4



---

##### Table of Contents

ACT Teleconferencing, Inc.



Consolidated Statements of Operations

For the years ended December 31, 2004, 2003, and 2002



|                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|--------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | --------- | -
|(In thousands, except shares and per share data.)               |  | 2004 |            |   | 2003 |   |            | 2002 | 
|Net revenues                                                    |  | $    | 53,540     |   |      | $ | 55,751     |      |  | $ | 53,872    |  
|Cost of service                                                 |  |      | 33,313     |   |      |   | 35,962     |      |  |   | 35,396    |  
|                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|Gross profit                                                    |  |      | 20,227     |   |      |   | 19,789     |      |  |   | 18,476    |  
|Selling, general and administration expense                     |  |      | 22,219     |   |      |   | 24,367     |      |  |   | 22,527    |  
|Impairment of goodwill                                          |  |      | 13,600     |   |      |   |           |      |  |   | 2,000     |  
|Restructuring Costs                                             |  |      | 1,761      |   |      |   |           |      |  |   |          |  
|                                                                |  |      |           
|Impairment of long-lived tangible assets                        |  |      | 1,081      |   |      |   |           |      |  |   |          |  
|                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|Operating loss                                                  |  |      | (18,434    | ) |      |   | (4,578     | )    |  |   | (6,051    | )
|Interest expense net                                            |  |      | (2,733     | ) |      |   | (3,113     | )    |  |   | (1,472    | )
|Foreign currency loss                                           |  |      | (170       | ) |      |   | (460       | )    |  |   |          |  
|Gain on extinguishment of note payable                          |  |      | 261        |   |      |   |           |      |  |   |          |  
|                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|Loss before income taxes                                        |  |      | (21,076    | ) |      |   | (8,151     | )    |  |   | (7,523    | )
|Provision for income taxes                                      |  |      | (88        | ) |      |   | (342       | )    |  |   | (125      | )
|                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|Net loss                                                        |  |      | (21,164    | ) |      |   | (8,493     | )    |  |   | (7,648    | )
|Preferred stock dividends                                       |  |      |           |   |      |   | (726       | )    |  |   | (637      | )
|                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|Net loss available to common shareholders                       |  | $    | (21,164    | ) |      | $ | (9,219     | )    |  | $ | (8,285    | )
|                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|Weighted average number of shares outstandingbasic and diluted |  |      | 15,052,180 |   |      |   | 10,216,279 |      |  |   | 8,952,840 |  
|                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|Net loss per share                                              |  |      |            |   |      |   |            |      |  |   |           |  
|Basic and Diluted                                               |  | $    | (1.41      | ) |      | $ | (0.90      | )    |  | $ | (0.93     | )
|                                                                |  |      |            |   |      |   |            |      |  |   |           |  



See accompanying
notes to consolidated financial statements.



F-5



---

##### Table of Contents

ACT Teleconferencing, Inc.



Consolidated Statements of Shareholders Equity

For the years ended December 31, 2004, 2003, and 2002



|                                                                                    |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   |         |  
|----------------------------------------------------------------------------------- |  | ------------ | - | ------------- | ------ | ------ | ------------------ | - | ---- | ------------------------------------------ |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                                                    |  | Common Stock |   | TreasuryStock |        |        | AccumulatedDeficit |   |      | AccumulatedOtherComprehensiveIncome (Loss) |  |   | Total   |  
|($ In Thousands)                                                                    |  | Shares       |   |               | Amount |        |                    |   |     
|Balance at January 1, 2002                                                          |  | 8,620,134    |   |               | $      | 34,766 |                    | $ | (37  | )                                          |  | $ | (4,167  | ) |  | $ | (1,399 | ) |  | $ | 29,163  |  
|Shares issued for acquisition                                                       |  | 350,000      |   |               |        | 2,663  |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   | 2,663   |  
|Issuance of warrants in association with debt and preferred stock                   |  |              |   |               |        | 718    |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   | 718     |  
|Exercise of options                                                                 |  | 20,000       |   |               |        | 20     |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   | 20      |  
|Shares issued to employees & consultants                                            |  | 58,889       |   |               |        | 203    |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   | 203     |  
|Purchase of treasury stock                                                          |  | (76,400      | ) |               |        |        |                    |   | (199 | )                                          |  |   |         |   |  |   |        |   |  |   | (199    | )
|Preferred dividend and accretion to redemption value of convertible preferred stock |  |              |   |               |        |        |                    |   |      |                                            |  |   | (637    | ) |  |   |        |   |  |   | (637    | )
|Comprehensive loss                                                                  |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   |         |  
|Net loss                                                                            |  |              |   |               |        |        |                    |   |      |                                            |  |   | (7,648  | ) |  |   |        |   |  |   | (7,648  | )
|Other comprehensive income, net of tax                                              |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   |         |  
|Foreign currency translation adjustment                                             |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   | 558    |   |  |   | 558     |  
|                                                                                    |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   |         |  
|Total comprehensive loss                                                            |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   | (7,090  | )
|                                                                                    |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2002                                                        |  | 8,972,623    |   |               |        | 38,370 |                    |   | (236 | )                                          |  |   | (12,452 | ) |  |   | (841   | ) |  |   | 24,841  |  
|Issuance of warrants in association with debt                                       |  |              |   |               |        | 2,098  |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   | 2,098   |  
|Exercise of options                                                                 |  | 31,649       |   |               |        | 36     |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   | 36      |  
|Shares issued to employees & consultants                                            |  | 479,407      |   |               |        | 659    |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   | 659     |  
|Shares and warrants issued in legal settlement                                      |  | 150,000      |   |               |        | 430    |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   | 430     |  
|Purchase of treasury stock                                                          |  | (5,500       | ) |               |        |        |                    |   | (5   | )                                          |  |   |         |   |  |   |        |   |  |   | (5      | )
|Preferred dividend and accretion to redemption value of convertible preferred stock |  |              |   |               |        |        |                    |   |      |                                            |  |   | (726    | ) |  |   |        |   |  |   | (726    | )
|Redemption of preferred stock through issuance of common stock                      |  | 1,393,864    |   |               |        | 1,717  |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   | 1,717   |  
|Comprehensive loss                                                                  |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   |         |  
|Net loss                                                                            |  |              |   |               |        |        |                    |   |      |                                            |  |   | (8,493  | ) |  |   |        |   |  |   | (8,493  | )
|Other comprehensive income, net of tax                                              |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   |         |  
|Foreign currency translation adjustment                                             |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   | 1,553  |   |  |   | 1,553   |  
|                                                                                    |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   |         |  
|Total comprehensive loss                                                            |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   | (6,940  | )
|                                                                                    |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2003                                                        |  | 11,022,043   |   |               |        | 43,310 |                    |   | (241 | )                                          |  |   | (21,672 | ) |  |   | 712    |   |  |   | 22,110  |  
|                                                                                    |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   |         |  
|Shares issued in private placement                                                  |  | 5,280,900    |   |               |        | 6,887  |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   | 6,887   |  
|Issuance of warrants in association with debt                                       |  |              |   |               |        | 137    |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   | 137     |  
|Exercise of options                                                                 |  | 61,516       |   |               |        | 80     |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   | 80      |  
|Shares issued to employees & consultants                                            |  | 297,103      |   |               |        | 635    |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   | 635     |  
|Comprehensive loss                                                                  |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   |         |  
|Net loss                                                                            |  |              |   |               |        |        |                    |   |      |                                            |  |   | (21,164 | ) |  |   |        |   |  |   | (21,164 | )
|Other comprehensive income, net of tax                                              |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   |         |  
|Foreign currency translation adjustment                                             |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   | 4,133  |   |  |   | 4,133   |  
|                                                                                    |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   |         |  
|Total comprehensive loss                                                            |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   | (17,031 | )
|                                                                                    |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2004                                                        |  | 16,661,562   |   |               | $      | 51,049 |                    | $ | (241 | )                                          |  | $ | (42,836 | ) |  | $ | 4,845  |   |  | $ | 12,817  |  
|                                                                                    |  |              |   |               |        |        |                    |   |      |                                            |  |   |         |   |  |   |        |   |  |   |         |  



See accompanying
notes to consolidated financial statements.



F-6



---

##### Table of Contents

ACT Teleconferencing, Inc.



Consolidated Statements of Cash Flow

For the years ended December 31, 2004, 2003, and 2002



|                                                                                           |  |      |         |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------------------------------ |  | ---- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|($ In Thousands)                                                                           |  | 2004 |         |   | 2003 |   |        | 2002 | 
|Operating activities                                                                       |  |      |         |   |      |   |        |      |  |   |        |  
|Net loss                                                                                   |  | $    | (21,164 | ) |      | $ | (8,493 | )    |  | $ | (7,648 | )
|Adjustments to reconcile net loss to net cash provided by (used for) operating activities: |  |      |         |   |      |   |        |      |  |   |        |  
|Depreciation                                                                               |  |      | 5,152   |   |      |   | 5,058  |      |  |   | 4,472  |  
|Impairment and Loss on Disposal of Assets                                                  |  |      | 2,053   |   |      |   |       |      |  |   |       |  
|Impairment of Goodwill                                                                     |  |      | 13,600  |   |      |   |       |      |  |   | 2,000  |  
|Bad debt expense                                                                           |  |      | 21      |   |      |   | 368    |      |  |   | 853    |  
|Foreign Currency Transaction Loss                                                          |  |      | 170     |   |      |   | 460    |      |  |   |       |  
|Amortization of intangibles                                                                |  |      | 397     |   |      |   | 363    |      |  |   | 319    |  
|Amortization of debt costs                                                                 |  |      | 1,047   |   |      |   | 447    |      |  |   | 204    |  
|Deferred income taxes                                                                      |  |      | (305    | ) |      |   | 100    |      |  |   | (71    | )
|Shares issued for consulting fees and employee service                                     |  |      | 560     |   |      |   | 659    |      |  |   | 111    |  
|                                                                                           |  |      |         |   |      |   |        |      |  |   |        |  
|Cash flow before changes in operating assets and liabilities:                              |  |      | 1,531   |   |      |   | (1,038 | )    |  |   | 240    |  
|Changes in operating assets and liabilities:                                               |  |      |         |   |      |   |        |      |  |   |        |  
|Accounts receivable                                                                        |  |      | 2,204   |   |      |   | 1,668  |      |  |   | (2,219 | )
|Prepaid expenses and other assets                                                          |  |      | 52      |   |      |   | (331   | )    |  |   | (388   | )
|Accounts payable                                                                           |  |      | (2,464  | ) |      |   | (1,657 | )    |  |   | 2,775  |  
|Deferred Income                                                                            |  |      | (1,567  | ) |      |   | (1,722 | )    |  |   |       |  
|Accrued liabilities                                                                        |  |      | (51     | ) |      |   | 1,510  |      |  |   | (113   | )
|Income taxes payable                                                                       |  |      | 341     |   |      |   | (527   | )    |  |   | (609   | )
|                                                                                           |  |      |         |   |      |   |        |      |  |   |        |  
|Net cash (used for) provided by operating activities                                       |  |      | 46      |   |      |   | (2,097 | )    |  |   | (224   | )
|Investing activities                                                                       |  |      |         |   |      |   |        |      |  |   |        |  
|Equipment purchases                                                                        |  |      | (1,935  | ) |      |   | (1,619 | )    |  |   | (5,221 | )
|Cash held in escrow                                                                        |  |      |        |   |      |   |       |      |  |   | 1,356  |  
|Cash paid for acquisitions net of cash acquired                                            |  |      |        |   |      |   |       |      |  |   | (611   | )
|                                                                                           |  |      |         |   |      |   |        |      |  |   |        |  
|Net cash used for investing activities                                                     |  |      | (1,935  | ) |      |   | (1,619 | )    |  |   | (4,476 | )
|Financing activities                                                                       |  |      |         |   |      |   |        |      |  |   |        |  
|Net proceeds from the issuance of debt and warrants in association with debt               |  |      | 3,475   |   |      |   | 9,740  |      |  |   | 6,020  |  
|Repayments of debt                                                                         |  |      | (7,547  | ) |      |   | (5,792 | )    |  |   | (5,867 | )
|Exercise of options                                                                        |  |      | 250     |   |      |   | 36     |      |  |   |       |  
|Net proceeds from the issuance of common stock                                             |  |      | 6,792   |   |      |   | 430    |      |  |   | 223    |  
|Purchase of treasury stock                                                                 |  |      |        |   |      |   | (5     | )    |  |   | (199   | )
|Net proceeds from issuance of preferred stock                                              |  |      |        |   |      |   |       |      |  |   | 4,600  |  
|Payments of preferred stock dividends and redemption of preferred stock                    |  |      |        |   |      |   | (1,708 | )    |  |   | (1,850 | )
|                                                                                           |  |      |         |   |      |   |        |      |  |   |        |  
|Net cash provided by financing activities                                                  |  |      | 2,970   |   |      |   | 2,101  |      |  |   | 2,927  |  
|Effect of exchange rate changes on cash                                                    |  |      | (67     | ) |      |   | 165    |      |  |   | (178   | )
|                                                                                           |  |      |         |   |      |   |        |      |  |   |        |  
|Net (decrease) increase in cash and cash equivalents                                       |  |      | 1,014   |   |      |   | (1,450 | )    |  |   | (1,951 | )
|Cash and cash equivalents beginning of year                                                |  |      | 1,726   |   |      |   | 3,176  |      |  |   | 5,127  |  
|                                                                                           |  |      |         |   |      |   |        |      |  |   |        |  
|Cash and cash equivalents end of year                                                      |  | $    | 2,740   |   |      | $ | 1,726  |      |  | $ | 3,176  |  
|                                                                                           |  |      |         |   |      |   |        |      |  |   |        |  
|Supplemental Information                                                                   |  |      |         |   |      |   |        |      |  |   |        |  
|Cash Paid for                                                                              |  |      |         |   |      |   |        |      |  |   |        |  
|Interest                                                                                   |  |      | 1,458   |   |      |   | 1,437  |      |  |   | 1,263  |  
|                                                                                           |  |      |        
|Income taxes                                                                               |  |      |        |   |      |   | 725    |      |  |   | 739    |  
|Non cash                                                                                   |  |      |         |   |      |   |        |      |  |   |        |  
|Warrants issued for debt                                                                   |  |      |        |   |      |   |       |      |  |   |       |  



See accompanying notes to
consolidated financial statements.



---

##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements



December 31, 2004 and 2003



1. Organization and Significant
Accounting Policies



Business



ACT Teleconferencing, Inc. (the Company) is engaged in the business of providing high
quality audio, video, data and web based conferencing products and services to business clients worldwide. The Company operates principally in the United States, Canada, the United Kingdom, France, the Netherlands, Germany, Australia, Hong Kong and
Singapore.



Basis of Presentation, Liquidity and Continuing Operations



The consolidated financial statements include the accounts of ACT
Teleconferencing, Inc, and its wholly-owned domestic and worldwide subsidiaries. Significant intercompany accounts and transactions have been eliminated.



The financial statements do not include any adjustments that could be required if the Company were unable to refinance debt or continue as a going concern.



At year-end, we were in default on our outstanding US Services Inc. line of credit of $3.0
million. A forbearance has been received through June 30, 2005. We are also in default on $8.2 million of senior subordinated debt and $4.5 million other subordinated debt. Our senior subordinated debt holders have provided a forbearance through
June 30, 2005 which will be extended through August 31, 2005 if, in the lenders reasonable discretion, they are satisfied with the companys progress in obtaining new financing and with the Companys financial condition. Our other
subordinated debt lenders have agreed to subordinate repayment of their debt to that of the senior subordinated debt lenders.



Management believes that it will be able to improve the Companys operating performance in 2005 based on actions that have been taken and the following
considerations:



| |  | The audio segment of the business continues to grow. A major audio outsource contract that commenced in late 2002 has been and is expected to continue growing rapidly. The contract
related to this business was extended for two years in 2004.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | A major restructuring effort began in late 2004 to move from a geographic to a functional management structure to drive revenue growth and obtain operating efficiencies in addition
to achieving cost reductions. This restructuring is targeting those business units that underperformed in 2004. It includes the consolidation of operating centers in both Europe and North America and will reduce payroll and other operating costs.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Additional resources have been devoted to expanding the companys sales effort. This increased sales focus is expected to result in increased sales.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



However, if substantial losses continue, if the company is unable to successfully
renegotiate the terms of its existing debt for which it is out of compliance or if the company is unable to raise sufficient additional capital through debt and equity offerings, liquidity problems will cause the company to curtail operations,
liquidate or sell assets or entities or pursue other actions that could adversely effect future operations. These factors raise substantial doubt about the Companys ability to continue as a going concern.



On March 28, 2005, the Company announced that it had retained an investment banker to
evaluate and advise the board regarding strategic alternatives, including the sale of all or part of the company.



Revenue Recognition



Revenue is recognized upon completion of conferencing services. The Company generally does not charge up-front fees and bills its customers based on usage. Revenue for video and other equipment sales is recognized
upon delivery and installation.



In 2002, the Company received unused audio
conference ports as compensation for audio conferencing services rendered and to be rendered under an existing contract. The fair market value of this equipment was recorded as deferred revenue and recognized over the remaining term of the supplier
contract which ended December 31, 2004. $1.6 million, $1.6 million and $.4 million of revenue related to this contract was recognized in 2004, 2003 and 2002 respectively.



F-8



---

##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



1. Organization and Significant Accounting Policies (continued)



Use of Estimates



The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are
reflected in the consolidated financial statements in the period they are determined to be necessary.



Advertising Costs



The company expenses
all advertising costs as they are incurred. Advertising costs were approximately $194,000, $516,000, and $640,000 for 2004, 2003 and 2002 respectively.



Equipment and Depreciation



Equipment is stated at cost. Depreciation is calculated on a straight-line basis over the estimated useful lives of five years for software, and five to ten years for
office furniture, video equipment and telecommunications equipment. Certain equipment obtained through capital lease obligations are amortized over the life of the related lease. Improvements to leased property are amortized over the lesser of the
life of the lease or the life of the improvement. Depreciation expense includes capital lease amortization charges.



Internal Use Software



The Company capitalizes costs of materials, consultants, and payroll and payroll-related costs which are incurred in developing internal-use computer software, beginning once the application development stage is
attained and continuing until the post-implementation/operation stage is achieved. Costs incurred prior and subsequent to the application development stage are charged to general and administrative expenses. The Company capitalized internal use
software development costs of approximately $.7 million, $1.1 million, and $1.0 million for the year ended December 31, 2004, 2003, and 2002, respectively.



Goodwill



Goodwill represents the excess of purchase price over tangible and other intangible assets acquired less liabilities assumed arising from business combinations. SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142), issued in June 2001, requires that goodwill acquired in business combination after June 30, 2001 not be amortized but instead be periodically tested for impairment.



As required by SFAS 142, the Company ceased amortizing all goodwill effective January 1,
2002. In addition, the Company completed the initial goodwill impairment test as of January 1, 2002 when it adopted SFAS 142. No impairment charges were necessary. The company again reviewed goodwill for impairment at the end of 2002. As a result of
this review, an impairment was identified in the goodwill of the room rental portion of video segment of the business where revenues and profits did not meet original expectations. This resulted in a noncash charge to operations for a goodwill
write-down of $2.0 million in the fourth quarter of 2002. In completing this assessment, the Company compared the estimated fair value to the current carrying value of goodwill. The fair value was derived using cash flow analysis. The assumptions
used in the cash flow analysis used discounted cash flow rates of 30% and included estimates of future growth, gross margins and effective tax rates.



No impairments were identified in the 2003 impairment test assessment.



Our testing for 2004 indicated an impairment in the value of our video and United Kingdom teleconferencing reporting units. The impairment in the video unit was the
result of a drop in the units revenue and profit, which mirrored industry performance. A resulting noncash goodwill impairment charge of $9.9 million was made to operations for the video segment of our business. A $3.7 impairment charge was
made to our United Kingdom teleconferencing unit. The impairment in the teleconferencing unit was due to a drop in revenue due primarily to price erosion. The value of the reporting units was based on the income approach. The assumptions used in the
related cash flow analysis used discounted cash flow rates of 26% for the video unit and 21% for the audio unit and included estimates of future growth, gross margins, terminal value, and effective tax rates



F-9



---

##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



1. Organization and Significant Accounting Policies (continued)



Goodwill (Continued)



As of December 31, 2004 the Company had a total of $8.4 million in net goodwill. $2.2 million is attributed to pre-2001 acquisitions. $4.3
million is attributed to acquisitions occurring in 2001 (40% minority interest in UK subsidiary and PictureTel 1414c video conferencing business) and $1.9 million is related to the acquisition of Proximity in January, 2002. (See notes 1 and 15 to
Consolidated Financial Statements).



Video conferencing goodwill was recorded
at $3.0 million, $11.3 million, and $11.3 million for the years ending December 31, 2004, 2003, and 2002 respectively. Audio conferencing goodwill was recorded at $4.8 million as of December 31, 2004 and $7.0 million for 2003 and 2002.



Other Intangible Assets



Other long term assets includes a 2001 non-compete agreement valued at $2.0 million that is
being amortized over five years. For the years ended December 31, 2004, 2003, and 2002 the Company amortized approximately $0.4 million, $0.4 million and $0.3 million respectively, related to intangible assets. Accumulated amortization related to
this asset at December 31, 2004 and 2003 was approximately $1.5 million, and $1.0 million respectively.



Foreign Currency Conversion and Translation



ACT Teleconferencing Inc. and its US subsidiaries (ACT) use the U.S. dollar as its functional currency and its international subsidiaries use their local currencies as their respective functional currencies. Financial statements
of foreign subsidiaries are translated into U.S. dollars at current rates, except that revenues, costs and expenses are translated at average exchange rates effective during the year.



Intercompany transactions between ACT and its affiliates are billed at current monthly rates. Payments on intercompany accounts are settled
using spot rates in effect at the date of settlement. Gains and losses resulting from these foreign currency transactions are included in the consolidated statement of operations. The foreign exchange loss arising from such transactions was $170,000
and $460,000 for the years ended 2004 and 2003 respectively.



The effect of
translating all other accounts of ACTs foreign subsidiaries into U.S. dollars has been included in stockholders equity as a cumulative foreign currency translation adjustment. Prior to 2003, ACT treated intercompany transactions as
investments, and translation adjustments from remeasurement of those accounts were also were included in the cumulative foreign translation adjustment. Gains due to foreign currency translation adjustments for the years ended December 31, 2004, 2003
and 2002 were $4.1 million, $1.6 million and $0.6 million respectively.



Cash and Cash Equivalents



The Company considers all liquid
investments not supporting letters of credit and with original maturities of three months or less when purchased to be cash equivalents.



Treasury Stock



The Company records treasury stock purchases under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. The FIFO method is used on the subsequent reissue of shares and any
resulting gains or losses are credited or charged to retained earnings



Accounts Receivable



Trade receivables consist of
uncollateralized customer obligations due under normal trade terms, generally requiring payment within 30 days of the invoice date. Periodically, management reviews the estimated recoverability of trade receivables and reduces their carrying amount
by utilizing a valuation allowance that reflects managements best estimate of the amount that may not be collectible.



F-10



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##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



1. Organization and Significant Accounting Policies (continued)



Concentration of Credit Risk



The Company maintains cash, cash equivalents, and certificates of deposit, with various
financial institutions. The Company limits its concentration of these financial instruments with any one institution, and periodically reviews the credit standings of these institutions. The company has a large diverse customer base across various
industries, thereby minimizing the credit risk of any one customer to ACTs accounts receivable amounts.



Earnings Per Share



Basic earnings per
share is based on the weighted average number of common shares outstanding. Diluted earnings per share is based on the weighted average number of common shares outstanding and all dilutive potential common shares outstanding. Because the company has
a net loss for the periods presented, there is no dilutive effect and the basic and diluted loss per share are the same. On December 31, 2004 there were 6,210,055 warrants and 2,355,568 options outstanding. (See notes 5 and 6 to the consolidated
financial statements.)



Long-Lived Assets



We periodically evaluate the carrying amount of long-lived assets (including property, plant
and equipment, and intangible assets with determinable lives) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. We evaluate events or changes in circumstances based on a number of
factors including operating results, business plans and forecasts, general and industry trends and, economic projections and anticipated cash flows. An impairment is assessed when the undiscounted expected future cash flows derived from an asset are
less than its carrying amount. Impairment losses are measured as the amount by which the carrying value of an asset exceeds its fair value and are recognized in earnings. We also continually evaluate the estimated useful lives of our long-lived
assets and periodically revise such estimates based on current events.



In
2004, $2.1 million was charged to operations due to long-lived asset impairment. $1.9 million was charged to the audio segment of the business and $.2 million to the video segment of the business.



Stock Based Compensation



We account for our fixed stock option plans under Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB No. 25). Under APB No. 25, there is no compensation cost recognized for fixed stock option plans, because the options granted under these plans have an exercise price equal to the market
value of the underlying stock at the grant date. Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), as amended, allows, but does not require companies to record compensation cost
for fixed stock option plans using a fair value based method. As permitted by SFAS 123, we elected to continue to account for compensation cost for our fixed stock option plans using the intrinsic value based method under APB 25. See Recent
Accounting Pronouncements section of this Note for discussion of recently issued rules (SFAS 123R) regarding accounting for share-based payments.



F-11



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##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



1. Organization and Significant Accounting Policies (continued)



Stock Based Compensation (Continued)



For purposes of pro forma disclosures, the estimated fair value of the options is amortized
to expense over the options vesting period.



The Companys pro forma
information is as follows:



The fair value for these options was estimated at
the date of grant using a Black-Scholes option pricing model. The following are weighted-average assumptions for 2004, 2003, and 2002 respectively: risk-free interest rate of 2.5% in 2004 and 2003, and 3.0% in 2002; a dividend yield of 0%;
volatility factors of the expected market price of the Companys common stock of 0.97 in 2004 and 2003, and 0.76 in 2002; and a weighted-average expected life of the option of 5.0 years in 2004 and 2003, and 5.2 years in 2002. In 2004 and 2003,
the value of options was also adjusted by 37% for long term to expiration and marketability factors based on an independent evaluation of the value of our options.



|                                                                              |  |      |         |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|(Amounts in $000s except per share amounts)                                   |  | 2004 |         |   | 2003 |   |        | 2002 | 
|Net (loss) available to common shareholders                                   |  | $    | (21,164 | ) |      | $ | (9,219 | )    |  | $ | (8,285 | )
|Net (loss) per share available to common shareholders                         |  | $    | (1.41   | ) |      | $ | (0.90  | )    |  | $ | (0.93  | )
|Amortization of estimated fair value of employee stock options under SFAS 123 |  | $    | (836    | ) |      | $ | (681   | )    |  | $ | (776   | )
|Adjusted net (loss) available to common shareholders                          |  | $    | (22,000 | ) |      | $ | (9,900 | )    |  | $ | (9,061 | )
|Adjusted net (loss) per share available to common shareholders                |  | $    | (1.46   | ) |      | $ | (.97   | )    |  | $ | (1.01  | )



Income Taxes



Deferred tax liabilities or assets reflect temporary differences between amounts of assets
and liabilities for financial and tax reporting. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when temporary differences reverse. A valuation allowance has been established to offset any
deferred tax assets since it is likely that some or all of the deferred tax assets will not be realized



Certain Risks and Concentrations



A
significant customer concentration is represented by sales or accounts receivable equal to or greater than 10% of the Companys sales or accounts receivable for the year. The Companys largest customer accounted for 16%, 7%, and 7%, of
consolidated revenues and the Companys second largest customer accounted for 5%, 6%, and 7% of consolidated revenues for the years ended December 31, 2004, 2003, and 2002, respectively. AT&T Corporation was the companys largest
customer in 2004. In 2003, the companys third and fourth largest customers each accounted for 6% of total revenues and all other customers individually accounted for less than 5% of total consolidated revenues for the year. In 2004 and 2002,
all customers, other than the top two, individually amounted to less than 5% of total consolidated revenues for the year.



The company purchases network services from a number of suppliers worldwide. Their major provider, AT&T Corporation, supplied services valued at $6.9 million, $9.7
million, and $8.3 million in 2004, 2003 and 2002 respectively.



Recent
Accounting Pronouncements



In December 2004, the FASB issued SFAS No. 123
(revised 2004), Shared-Based Payment (SFAS 123R), which replaces SFAS No. 123, Accounting for Stock-Based Compensation, (SFAS 123) and supersedes APB Opinion N0. 25, Accounting for Stock Issued to
Employees. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first annual period after June 15,
2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. The Company is required to adopt SFAS 123R in 2006. Under SFAS 123R, the Company
must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition methods include prospective and
retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all
unvested stock options at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive method would record compensation expense for all unvested stock options beginning with the first period restated. The Company is evaluating
the requirements of SFAS 123R, has not yet determined the method of adoption, and has not determined what impact the adoption of SFAS 123R will have on its consolidated results of operations and earnings per share. It has not determined whether
adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123.



F-12



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##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



Recent Accounting Pronouncements (Continued)



The FASB issued SFAS 153, Exchanges of Nonmonetary Assets, which changes the guidance in APB
Opinion 29, Accounting for Nonmonetary Transactions. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that
do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective during fiscal years beginning after June
15, 2005. The Company does not believe the adoption of SFAS 153 will have a material impact on the Companys financial statements.



2. Restructuring and Other Charges



In the fourth quarter of 2004 the company recorded $1.8 million in reorganization costs. The reorganization costs consist of $.8 million of severance cost that will
be paid out over twelve months beginning in January, 2005, and $1.0 million of noncash charges to operations for a loss on the disposal of fixed assets.



In the fourth quarter of 2004, the company also recorded $1.1 million of noncash costs to operations due to asset value reductions related to asset disposal,
obsolescence, or a change in the estimated useful life of the asset.





F-13



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##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



3. Long and Short Term Debt



The following debt instruments are owed by ACT Teleconferencing, Inc., unless otherwise
noted.



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                  |         |   |      |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ---- | - | ------ | -
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | December 31,     |        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | 2004             |         |   | 2003 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | ($ in thousands) |        
|Senior Debt:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                  |         |   |      |   |        |  
|ACT Teleconferencing Services, Inc., a United States subsidiary, has a bank line of credit collateralized by its tangible and intangible
assets. The line of credit carries an interest rate of prime plus 1.5% (5.25% at December 31, 2004) per annum with a borrowing base restricted to qualified accounts receivable up to $3.5 million. The line of credit expires on November 12, 2005. The
company is in default of the minimum net worth covenant for this loan, a forbearance has been received through June 30, 2005.                                                                                                                                                                                                                            |  | $                | 2,994   |   |      | $ |       |  
|ACT Teleconferencing Services, Inc., bank line of credit collateralized by its tangible and intangible assets. The line of credit carries an
interest rate of prime plus 1.25% per annum with a borrowing base restricted to qualified accounts receivable up to $2.0 million. This note is paid in full.                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                  |        |   |      |   | 2,000  |  
|Note payable to equipment vendor bearing interest at 7% per annum. Term is 60 months with a maturity date of November 25, 2007. The company is
in violation of cross default covenant provisions of this note at December 31, 2004. Waivers have not been received. This note is collateralized by telecommunications equipment.                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                  | 819     |   |      |   | 1,056  |  
|ACT Teleconferencing Limited., a UK subsidiary, has a revolving bank line of credit which carries an interest rate of prime plus 2%. It is
collateralized by qualified accounts receivable and continues month-to-month until ended by either party.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                  | 384     |   |      |   | 659    |  
|Notes payable and revolving lines of credit, through vendors and various banks, collateralized by accounts receivable and equipment at
interest rates ranging from 5.9% to 9.8%. Amounts are due between January and October 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                  | 159     |   |      |   | 474    |  
|$1.8 million line of credit to equipment vendor bearing interest at 6% per annum. Payments are due in monthly installments calculated on 8% of
principal balance plus interest. This note is collateralized by telecommunications equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                  | 168     |   |      |   | 285    |  
|Term note due to a bank, in monthly installments, by ACT Teleconferencing, Inc at an interest rate of 7% per annum. This note is paid in
full.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                  |        |   |      |   | 1,528  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                 
|Subordinated Debt:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                  |         |   |      |   |        |  
|Subordinated note payable for $7.3 million bearing interest at 12% and recorded net of $847 of the unaccreted warrant value of 2.3 million
warrants issued in conjunction therewith and secured by a second lien on the Companys US tangible and intangible assets and is subordinated to the bank. (Total current loan pay off is $8.3 million). The scheduled due date of this note is April
30, 2006. Monthly interest only payments are required. Also included in this balance is a noninterest bearing royalty payment of $958. The company is in violation of debt service coverage, net worth and capital expenditures limit covenants. A
forbearance through June 30, 2005 with a potential extension through August 31, 2005 has been received. |  |                  | 7,419   |   |      |   | 5,863  |  
|Notes payable to a related party for the acquisition of the 40% interest in ACT Teleconferencing Limited that was purchased during 2001. It is
collateralized by the 40% interest purchased and is subordinated to the Companys senior lenders. The amounts bear interest at 7%-11%. At December 31, 2004, the Company was in violation of intercompany transaction and cross default covenants on
these notes. Waivers have not been received.                                                                                                                                                                                                                                                                                                           |  |                  | 3,038   |   |      |   | 3,212  |  
|Subordinated promissory note payable due to the sellers of Proximity, Inc. It is collateralized by a second lien on the Companys
tangible and intangible assets and is subordinated to the Companys senior lenders. The Company was in violation of cross default covenants of this note at December 31, 2004. Waivers have not been received.                                                                                                                                                                                                                                                                                                                                                                                                           |  |                  | 500     |   |      |   | 750    |  
|Subordinated promissory note payable bearing an interest rate of 13.5% per annum. Principal is due on the maturity date of January 1, 2005.
The note is collateralized by a second lien on Company assets, subordinated to the Companys senior lenders. The Company was in violation of cross default covenants of this note at December 31, 2004. Waivers have not been
received.                                                                                                                                                                                                                                                                                                                                                                        |  |                  | 166     |   |      |   | 518    |  
|Uncollateralized promissory note payable due to the seller of the 1414c video conferencing assets. The note carried an annual interest rate of
10%. This note was paid in full in 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                  |        |   |      |   | 621    |  
|Note payable, due on demand, by ACT Videoconferencing, Inc., a United States subsidiary, to an equipment vendor at an interest rate of 7%.
This 1998 disputed note payable was a write-off in first quarter of 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                  |        |   |      |   | 263    |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                  |         |   |      |   |        |  
|Subtotal                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                  | 15,647  |   |      |   | 17,229 |  
|Less deferred interest cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                  |        |   |      |   | (16    | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                  |         |   |      |   |        |  
|Subtotal                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                  | 15,647  |   |      |   | 17,213 |  
|Less, current portion of long term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                  | (15,576 | ) |      |   | (7,012 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                  |         |   |      |   |        |  
|Long term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | $                | 71      |   |      | $ | 10,201 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                  |         |   |      |   |        |  



F-14



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##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



3. Long and Short Term Debt (Continued)



The aggregate minimum annual payments as of December 31, 2004 for long-term debt are as
follows:



|                 |  |   |       
|---------------- |  | - | ------
|($ in Thousands) |  |  
|2005             |  | $ | 15,576
|2006             |  |   | 71    
|2007             |  |   |      
|                 |  |   |       
|                 |  | $ | 15,647
|                 |  |   |       



The company is currently in default on
$14.9 million of the above debt due to violation of various covenants including minimum debt service coverage ratios, net worth ratios, and cross default provisions. As such all of the related debt has been classified as current. Our senior line of
credit lender has provided a forbearance on their $3.0 million balance through June 30, 2005. Our senior subordinated debt lender has provided a forbearance on their $8.3 million balance ($7.4 million plus $0.9 million for the unaccreted value of
warrants issued in conjunction with this loan.) through June 30, 2005 which will be extended through August 31, 2005 if, in the lenders reasonable discretion they are satisfied with the companys progress in obtaining refinancing and with
the companys financial condition. The other subordinated lenders have agreed to subordinate their debt to that of the senior subordinated debt lender.



In 2003, a personal trust controlled by James F. Seifert, one of our directors, contributed $1.0 million to the senior subordinated debt financing. The trust purchased
$1.0 million principal amount of the notes and 333,333 warrants. This balance is still outstanding at December 31, 2004.



4. CommitmentsOperating and Capitalized Leases



Operating Leases



The Company leases office space and equipment under operating leases that expire at various dates through July, 2008. Total rent expense charged to operations was $3.8 million, $3.3 million and $3.2 million for the
years ended December 31, 2004, 2003 and 2002, respectively.



Capitalized
Leases



The Company leases telecommunication equipment and office
equipment, including computers and furniture, under long-term leases classified as capital leases. For several of these leases, the Company has the option to purchase the equipment for a nominal cost at the termination of the lease.



The following property is pledged as collateral under capital leases ($ in Thousands):



|                                                                 |      |              |        |      |  |   |        |  
|---------------------------------------------------------------- | ---- | ------------ | ------ | ---- |  | - | ------ | -
|                                                                 |      | December 31, |       
|                                                                 | 2004 |              |        | 2003 | 
|Telecommunications and office equipment, computers and furniture |      | $            | 2,282  |      |  | $ | 5,178  |  
|Less accumulated depreciation                                    |      |              | (1,325 | )    |  |   | (1,802 | )
|                                                                 |      |              |        |      |  |   |        |  
|Net carrying value of equipment pledged                          |      | $            | 957    |      |  | $ | 3,376  |  
|                                                                 |      |              |        |      |  |   |        |  



The Company incurred no capital lease
obligations in 2004. In 2003, the Company incurred approximately $0.3 million in connection with capital lease agreements to acquire equipment. The terms of the capital leases range from three to five years. At December 31, 2004, $0.6 million of
this balance was outstanding of which $0.5 million was classified as a current liability.



F-15



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##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



4. CommitmentsOperating and Capitalized Leases (Continued)



The aggregate minimum annual commitments for operating and capital leases as of December 31,
2004 are as follows:



|                                                     |  |                 |       |               |   |      |  
|---------------------------------------------------- |  | --------------- | ----- | ------------- | - | ---- | -
|($ in thousands)                                     |  | OperatingLeases |       | CapitalLeases |  
|2005                                                 |  | $               | 2,884 |               | $ | 497  |  
|2006                                                 |  |                 | 2,320 |               |   | 135  |  
|2007                                                 |  |                 | 1,388 |               |   |     |  
|2008                                                 |  |                 | 265   |               |   |     |  
|2009 and thereafter                                  |  |                 |      |               |   |     |  
|                                                     |  |                 |       |               |   |      |  
|Total minimum lease payments                         |  | $               | 6,857 |               |   | 632  |  
|                                                     |  |                 |       |               |   |      |  
|Less amounts representing interest                   |  |                 |       |               |   | (52  | )
|                                                     |  |                 |       |               |   |      |  
|Present value of net minimum capital leases payments |  |                 |       |               |   | 580  |  
|Less capital lease obligations due within one year   |  |                 |       |               |   | (450 | )
|                                                     |  |                 |       |               |   |      |  
|Capital lease obligations due after one year         |  |                 |       |               | $ | 130  |  
|                                                     |  |                 |       |               |   |      |  



5. Shareholders Equity



Preferred Stock



The Companys Articles of Incorporation, authorize the issuance of up to 1,797,500
shares of non-voting preferred stock, no par value, with rights, preferences, and privileges as determined by the Board of Directors. Although shareholder approval is not required in order for the Board to issue these undesignated shares of
preferred stock, applicable stock exchange restrictions require shareholder approval in order for the Company to issue shares of preferred stock convertible into more than 20% of the Companys outstanding common stock.



In addition, the Companys can issue of up to 2,000 shares of Series A preferred stock,
up to 200,000 shares of Series B preferred stock, and up to 500 shares of Series C preferred stock. On October 19, 1999, the Company issued 2,000 shares of Series A preferred stock to one investor, which were liquidated on October 11, 2001. Series A
stock has no par value, is non-voting, and is senior to Series B and C preferred stock.



On December 10, 1999, the Company created Series B Junior Participating Preferred Shares in connection with its shareholder rights plan, and increased the authorized number of shares Series B preferred to 200,000 on July 27, 2004. Each
share of Series B preferred stock is entitled to receive a dividend when declared by the Board of Directors out of funds legally available, payable at the rate of $1.00 per share. Series B preferred stock has priority in payment of dividends and
distributions on dissolution of the Company, which is senior to holders of common stock, but junior to creditors and to holders of Series A preferred stock. No shares of Series B preferred stock have been issued.



On May 17, 2002, the Company issued 500 shares of 6.5% Series C Convertible Preferred Stock.
Series C preferred stock was convertible into shares of the Companys common stock at a fixed price of $5.00 per share, and was subject to 15 mandatory monthly redemptions of approximately $333,000 commencing on August 17, 2002. The Company was
permitted to make redemption payments in cash or by delivering shares of its common stock based on a 10% discount to market price of the stock at the time of the redemption payment. No shares of Series C preferred stock remain outstanding.



Common Stock



In January, 2004, the company issued 250,000 ten year warrants with an exercise price of
$1.10 in conjunction with a debt restructuring.



During January, 2004, it also
issued 2.1 million shares of common stock at $1.05 per share in a private placement financing. This issuance triggered an antidilution clause related to warrants granted in connection with the 2002 preferred stock issuance. The exercise price was
decreased from $2.50 to $1.05 per share. All previous warrants were cancelled and 435,009 of new warrants exerciseable at $1.05 were issued. An additional 659, 681 warrants with an exercise price of $4.01 per share were also issued under the terms
of this warrant agreement.



In February, 2004, the Company sold 1.5 million
shares at a purchase price of $2.20 per share in a private placement with an institutional investor. The transaction also included the issuance of 340,000 three-year warrants at an exercise price of $2.20 per share. Antidilution provisions in these
warrants later resulted in an increase to 389,583 warrants with a reduced exercise price of $1.92 per share. 210,000 5 year warrants with an exercise price of $1.05 per share were issued to an agent for this placement.



In September, 2004, the Company sold 1.7 million shares at a purchase price of $1.10 per
share in a private placement. The transaction included the issuance of 336,178 warrants with an exercise price of $1.50 per share and 161,366 warrants with an exercise price of $1.10 per share.



The above 2004 stock issuances triggered an antidilution clause related to warrants granted
in 1999. The exercise price of these warrants decreased from $4.88 to $3.78 and the number of related warrants increased by 153,851.



F-16



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##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



5. Shareholders Equity (Continued)



Warrants



The following table summarizes the various warrants outstanding on December 31, 2004.



|                                |  |                   |  |                |  |                               |  |               |     
|------------------------------- |  | ----------------- |  | -------------- |  | ----------------------------- |  | ------------- | ----
|Purpose                         |  | NumberOutstanding |  | Issue Date     |  | Expiration Date               |  | ExercisePrice
|Subordinated debt financing     |  | 200,825           |  | March 1998     |  | April 2007                    |  |               | 1.78
|Subordinated debt financing     |  | 27,585            |  | April 2002     |  | April 2007                    |  |               | 1.78
|Agent fees                      |  | 10,000            |  | April 2001     |  | April 2005                    |  |               | 7.00
|Underwriter                     |  | 80,000            |  | May 2000       |  | May 2005                      |  |               | 6.60
|Institutional private placement |  | 46,000            |  | May 2000       |  | May 2005                      |  |               | 6.05
|Equity placement                |  | 37,956            |  | February 1999  |  | February, 2006                |  |               | 3.50
|Preferred stock issuance        |  | 682,538           |  | October 1999   |  | October 2006                  |  |               | 3.78
|Agent fees for preferred stock  |  | 50,000            |  | May 2002       |  | May 2007                      |  |               | 5.00
|Preferred stock issuance        |  | 435,009           |  | May 2002       |  | May 2007                      |  |               | 1.05
|Preferred stock issuance        |  | 659,681           |  | May 2004       |  | November 2009                 |  |               | 4.01
|Subordinated debt financing     |  | 2,333,334         |  | May 2003       |  | May 2010                      |  |               | 2.50
|Legal settlement                |  | 300,000           |  | September 2003 |  | September 2008                |  |               | 2.50
|Subordinate debt refinancing    |  | 250,000           |  | January 2004   |  | January 2014                  |  |               | 1.10
|Institutional private placement |  | 389,583           |  | February 2004  |  | February 2007                 |  |               | 1.92
|Agent fees                      |  | 210,000           |  | March 2004     |  | March 2009                    |  |               | 1.05
|Institutional private placement |  | 336,178           |  | September 2004 |  | September 2009                |  |               | 1.50
|Agent fees                      |  | 161,366           |  | September 2004 |  | September 2009                |  |               | 1.10
|                                |  | 6,210,055         |  |                |  | WeightedAverageExercise Price |  | $             | 2.55
|                                |  |                   |  |                |  |                               |  |               |     



All warrants are also subject to
customary anti-dilution provisions and to adjustment in the event of stock splits, stock dividends, consolidations, and the like. Holders of shares issued upon the exercise of these warrants have piggy-back rights to registration and certain
investors have demand registration rights.



The Company accounts for warrants
issued for consulting services and in conjunction with debt instruments by determining the fair value of the warrant and amortizing the expense over the consulting period or the maturity term of the debt. Warrants issued in association with equity
instruments are not valued as the valuation would have no financial effect on the Company. In certain instances involving significant issuances, the Company has determined valuations of the fair value of warrants using accredited valuation
specialists.



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##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



6. Stock Option Plan



The Companys various Stock Option Plans, as approved and amended by shareholders, authorize the grant of options to officers, key
employees, and consultants for up to 3,100,000 shares of the Companys common stock. This number includes 1,500,000 shares under the 2004 equity incentive plan approved by shareholders on May 20, 2004. Prior year options granted under all plans
generally have 10-year terms and vest 25% each year following the date of grant. Of the options granted in 2004, 124,301 vested immediately, 250,000 vest in one year, 398,000 vest 25% each year following the date of grant, and 200,000 vest 10% each
year following the date of the grant.



The Company has elected to follow
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of the Companys
employee stock options is generally equal to the market price of the underlying stock on the date of grant, no compensation expense is recognized. FASB Statement No. 123, Accounting for Stock-Based Compensation establishes an alternative
method of expense recognition for stock-based compensation awards to employees based on fair values. The Company elected not to adopt FASB Statement No. 123 for expense recognition purposes.



A summary of the Companys stock option activity, and related information for the years
ended December 31 follows:



|                                                        |  |         |           |      |                              |      |         |  |   |                              |   |         |   |      |                               |   |           |   |  |   |     
|------------------------------------------------------- |  | ------- | --------- | ---- | ---------------------------- | ---- | ------- |  | - | ---------------------------- | - | ------- | - | ---- | ----------------------------- | - | --------- | - |  | - | ----
|                                                        |  | 2004    |           | 2003 |                              | 2002
|                                                        |  | Options |           |      | WeightedAverageExercisePrice |      | Options |  |   | WeightedAverageExercisePrice |   | Options |   |      | WeightedAverageExercise Price
|Outstanding-beginning of year                           |  |         | 1,445,161 |      |                              | $    | 4.31    |  |   | 1,349,807                    |   |         | $ | 4.39 |                               |   | 936,691   |   |  | $ | 5.21
|Granted                                                 |  |         | 1,035,884 |      |                              |      | 2.02    |  |   | 355,000                      |   |         |   | 1.04 |                               |   | 495,696   |   |  |   | 2.42
|Exercised                                               |  |         | (61,516   | )    |                              |      | 1.27    |  |   | (31,649                      | ) |         |   | 1.49 |                               |   | (25,585   | ) |  |   | 1.75
|Forfeited                                               |  |         | (63,961   | )    |                              |      | 3.40    |  |   | (227,997                     | ) |         |   | 4.76 |                               |   | (56,995   | ) |  |   | 5.21
|                                                        |  |         |           |      |                              |      |         |  |   |                              |   |         |   |      |                               |   |           |   |  |   |     
|Outstanding-end of year                                 |  |         | 2,355,568 |      |                              | $    | 2.90    |  |   | 1,445,161                    |   |         | $ | 3.44 |                               |   | 1,349,807 |   |  | $ | 4.25
|                                                        |  |         |           |      |                              |      |         |  |   |                              |   |         |   |      |                               |   |           |   |  |   |     
|Exercisable at end of year                              |  |         | 1,271,872 |      |                              | $    | 3.52    |  |   | 841,836                      |   |         | $ | 4.31 |                               |   | 833,627   |   |  | $ | 4.39
|                                                        |  |         |           |      |                              |      |         |  |   |                              |   |         |   |      |                               |   |           |   |  |   |     
|Weighted average fair value of options at date of grant |  | $       | 1.72      |      |                              |      |         |  | $ | 1.04                         |   |         |   |      |                               | $ | 1.56      |   |  |   |     



The following table summarizes our
stock options outstanding at December 31, 2004:



|                     |  |           |  |                                           |  |                               |     
|-------------------- |  | --------- |  | ----------------------------------------- |  | ----------------------------- | ----
|Exercise Price Range |  | Shares    |  | Weighted-Averageremainingcontractual life |  | Weighted-Averageexerciseprice
|$1.00-$1.50          |  | 826,599   |  | 8.84 years                                |  | $                             | 1.26
|$1.60-$2.50          |  | 622,656   |  | 8.88 years                                |  | $                             | 2.39
|$2.75-$3.03          |  | 329,497   |  | 5.79 years                                |  | $                             | 2.91
|$4.00-$5.00          |  | 295,595   |  | 5.90 years                                |  | $                             | 4.81
|$5.25-$6.50          |  | 164,275   |  | 4.33 years                                |  | $                             | 5.76
|$7.00-$9.00          |  | 116,946   |  | 4.04 years                                |  | $                             | 8.38
|                     |  |           |  |                                           |  |                               |     
|Total                |  | 2,355,568 |  |                                           |  |                               |     



The Black-Scholes option valuation
model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of subjective assumptions including the expected stock
price volatility and appropriate adjustments for restrictions on exercising the options. Because the Companys employee stock options have characteristics significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in managements opinion, this model does not necessarily provide a reliable single measure of the fair value of its employee stock options.





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##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



7. Income Taxes



Income tax expense and the related current and deferred tax liabilities for all periods presented relate primarily to the Companys
U.K. and Canadian operations.



For financial reporting purposes, income (loss)
before income taxes includes the following components ($ in 000s):



|                      |  |      |         |   |      |   |        |      |  |   |        |  
|--------------------- |  | ---- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                      |  | 2004 |         |   | 2003 |   |        | 2002 | 
|Pretax income (loss): |  |      |         |   |      |   |        |      |  |   |        |  
|United States         |  | $    | (7,406  | ) |      | $ | (7,679 | )    |  | $ | (5,540 | )
|Foreign               |  |      | (13,670 | ) |      |   | (472   | )    |  |   | (1,983 | )
|                      |  |      |         |   |      |   |        |      |  |   |        |  
|                      |  | $    | (21,076 | ) |      | $ | (8,151 | )    |  | $ | (7,523 | )
|                      |  |      |         |   |      |   |        |      |  |   |        |  



The provision for income taxes for the
years ended December 31, is comprised of the following ($ in 000s):



|         |  |      |      |   |      |   |      |  |   |     |  
|-------- |  | ---- | ---- | - | ---- | - | ---- |  | - | --- | -
|         |  | 2004 |      |   | 2003 |   | 2002 | 
|Current  |  | $    | 351  |   |      | $ | 193  |  | $ | 163 |  
|Deferred |  |      | (263 | ) |      |   | 149  |  |   | (38 | )
|         |  |      |      |   |      |   |      |  |   |     |  
|         |  | $    | 88   |   |      | $ | 342  |  | $ | 125 |  
|         |  |      |      |   |      |   |      |  |   |     |  



The reconciliation of income tax
attributable to continuing operations computed at the U.S. federal statutory tax rates to actual income tax expense is ($ in 000s):



|                                    |  |      |        |   |      |   |        |      |  |   |        |  
|----------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                    |  | 2004 |        |   | 2003 |   |        | 2002 | 
|Expected rate at 35%                |  | $    | (7,379 | ) |      | $ | (2,806 | )    |  | $ | (2,631 | )
|State Taxes                         |  |      | (150   | ) |      |   |       |      |  |   |       |  
|Effect of permanent difference      |  |      |        |   |      |   |        |      |  |   |        |  
|Goodwill amortization/writedown     |  |      |       |   |      |   |       |      |  |   | 700    |  
|Foreign dividends                   |  |      | 384    |   |      |   |       |      |  |   |       |  
|Other                               |  |      | 51     |   |      |   | 395    |      |  |   | 63     |  
|Utilization of net operating losses |  |      |       |   |      |   | (237   | )    |  |   | (22    | )
|Foreign Taxes                       |  |      | 427    |   |      |   | (206   | )    |  |   | (43    | )
|Valuation allowance                 |  |      | 6,778  |   |      |   | 2,291  |      |  |   | 2,058  |  
|Other                               |  |      | (23    | ) |      |   | 905    |      |  |   |       |  
|                                    |  |      |        |   |      |   |        |      |  |   |        |  
|                                    |  | $    | 88     |   |      | $ | 342    |      |  | $ | 125    |  
|                                    |  |      |        |   |      |   |        |      |  |   |        |  



F-19



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##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



7. Income Taxes (Continued)



Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys deferred tax liabilities and assets as of December 31 are as follows ($ in
000s):



|                                                |  |      |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                |  | 2004 |        |   | 2003 |   |        | 2002 | 
|Deferred Tax Liabilities-Domestic               |  |      |        |   |      |   |        |      |  |   |        |  
|Tax depreciation in excess of book depreciation |  | $    | (2,263 | ) |      | $ | (922   | )    |  | $ | (847   | )
|Other                                           |  |      |       |   |      |   | (965   | )    |  |   | (146   | )
|                                                |  |      |        |   |      |   |        |      |  |   |        |  
|                                                |  |      | (2,263 | ) |      |   | (1,887 | )    |  |   | (993   | )
|                                                |  |      |       
|Deferred Tax Assets-Domestic                    |  |      |        |   |      |   |        |      |  |   |        |  
|Net operating loss carry-forward                |  |      | 7,746  |   |      |   | 5,988  |      |  |   | 2,237  |  
|Goodwill Impairment                             |  |      | 1,224  |   |      |   |       |      |  |   |       |  
|Deferred Income                                 |  |      | 8      |   |      |   | 640    |      |  |   | 1,308  |  
|Foreign currency translation                    |  |      | 374    |   |      |   | 18     |      |  |   |       |  
|Reserves for doubtful accounts                  |  |      | 83     |   |      |   | 152    |      |  |   | 149    |  
|Other                                           |  |      | 41     |   |      |   |       |      |  |   |       |  
|                                                |  |      |        |   |      |   |        |      |  |   |        |  
|                                                |  |      | 9,476  |   |      |   | 6,798  |      |  |   | 3,694  |  
|Valuation allowance for deferred tax assets     |  |      | (7,213 | ) |      |   | (4,911 | )    |  |   | (2,701 | )
|                                                |  |      |        |   |      |   |        |      |  |   |        |  
|Net deferred tax-Domestic                       |  | $    |       |   |      | $ |       |      |  | $ |       |  
|                                                |  |      |        |   |      |   |        |      |  |   |        |  
|Deferred Tax Liabilities-International          |  |      |        |   |      |   |        |      |  |   |        |  
|Tax depreciation in excess of book depreciation |  | $    | (248   | ) |      | $ | (511   | )    |  | $ | (378   | )
|Deferred Tax Assets-International               |  |      |        |   |      |   |        |      |  |   |        |  
|Net operating loss carry-forward                |  |      | 3,349  |   |      |   | 1,901  |      |  |   | 1,980  |  
|Goodwill Impairment                             |  |      | 3,189  |   |      |   |       |      |  |   |       |  
|Valuation allowance for deferred tax assets     |  |      | (6,537 | ) |      |   | (1,901 | )    |  |   | (1,980 | )
|                                                |  |      |        |   |      |   |        |      |  |   |        |  
|Net deferred tax liability-International        |  | $    | (248   | ) |      | $ | (511   | )    |  | $ | (378   | )
|                                                |  |      |        |   |      |   |        |      |  |   |        |  



Taxes of $289,000, $800,000 and
$705,000 were paid during 2004, 2003, and 2002 respectively. The domestic and international net operating loss carry forwards of approximately $20.8 million and $10.7 million, respectively, will expire from the year 2010 through 2024. The Company
has not provided for any taxes on undistributed foreign earnings as the Company intends to permanently reinvest these earnings in the future growth of the business and there are no unremitted, cumulative foreign earnings.



Under the Internal Revenue Code, the utilization of net operating losses are likely to be
limited if there is a significant ownership change.



8. Related Party
Transactions



On January 6, 2003, the company entered into a 120 day
promissory note agreement for $500,000 at 12% with one of its directors. This note was repaid with the proceeds from a $7.3 million subordinated debt financing of which $1.0 million was provided by a trust managed for the beneficiaries of the
Director.



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##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



9. Business Segment Analysis



The Company offers a broad range of audio, video, and other teleconferencing services to
corporate business clients and institutions, and these services are considered one line of business as they are integrated.



The Companys decisions on resource allocation and performance assessment are primarily based on the market potential of each regional operating location. Each of
the locations offers the same products and services, has similar customers and equipment, and is managed directly by the Companys executives, allowing all locations to be aggregated under the guidelines of FASB Statement No. 131 resulting in
one reportable line of business to the extent that services are separately identifiable



The following summary provides financial data for the Companys operating segments:



For the year ended December 31, 2004:



|                                      |  |                |        |   |       |   |         |          |  |   |           |   |  |       |        |   |  |   |         |  
|------------------------------------- |  | -------------- | ------ | - | ----- | - | ------- | -------- |  | - | --------- | - |  | ----- | ------ | - |  | - | ------- | -
|                                      |  | Audio          |        |   | Video |   |         | Subtotal |  |   | Corporate |   |  | Total |       
|                                      |  | (in thousands) |       
|Net Revenues                          |  | $              | 39,123 |   |       | $ | 14,417  |          |  | $ | 53,540    |   |  | $     |       |   |  | $ | 53,540  |  
|Loss before tax                       |  |                | (7,651 | ) |       |   | (10,553 | )        |  |   | (18,204   | ) |  |       | (2,872 | ) |  |   | (21,076 | )
|Depreciation and amortization         |  |                | 3,666  |   |       |   | 1,001   |          |  |   | 4,667     |   |  |       | 882    |   |  |   | 5,549   |  
|Total assets                          |  | $              | 23,007 |   |       | $ | 13,229  |          |  | $ | 36,236    |   |  | $     | 2,282  |   |  | $ | 38,518  |  
|                                      |  |                |        |   |      
|For the year ended December 31, 2003: |  |                |        |   |       |   |         |          |  |   |           |   |  |       |        |   |  |   |         |  
|                                      | 
|                                      |  | (in thousands) |       
|Net Revenues                          |  | $              | 37,189 |   |       | $ | 18,562  |          |  | $ | 55,751    |   |  | $     |       |   |  | $ | 55,751  |  
|Loss before tax                       |  |                | (993   | ) |       |   | (505    | )        |  |   | (1,498    | ) |  |       | (6,653 | ) |  |   | (8,151  | )
|Depreciation and amortization         |  |                | 3,397  |   |       |   | 1,052   |          |  |   | 4,449     |   |  |       | 972    |   |  |   | 5,421   |  
|Total assets                          |  | $              | 33,719 |   |       | $ | 18,001  |          |  | $ | 51,720    |   |  | $     | 2,903  |   |  | $ | 54,623  |  
|                                      |  |                |        |   |      
|For the year ended December 31, 2002: |  |                |        |   |       |   |         |          |  |   |           |   |  |       |        |   |  |   |         |  
|                                      | 
|                                      |  | (in thousands) |       
|Net Revenues                          |  | $              | 35,903 |   |       | $ | 17,969  |          |  | $ | 53,872    |   |  | $     |       |   |  | $ | 53,872  |  
|Loss before tax                       |  |                | (1,698 | ) |       |   | (3,123  | )        |  |   | (4,821    | ) |  |       | (2,702 | ) |  |   | (7,523  | )
|Depreciation and amortization         |  |                | 3,224  |   |       |   | 1,140   |          |  |   | 4,364     |   |  |       | 428    |   |  |   | 4,792   |  
|Total assets                          |  | $              | 36,790 |   |       | $ | 18,343  |          |  | $ | 55,133    |   |  | $     | 4,327  |   |  | $ | 59,460  |  



F-21



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##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



9. Business Segment Analysis (Continued)



The following summary provides financial data for significant geographic markets in which
the Company operates:



For the year ended December 31, 2004:



|                  |  |                |        |        |   |             |  |       |       |  |   |       
|----------------- |  | -------------- | ------ | ------ | - | ----------- |  | ----- | ----- |  | - | ------
|                  |  | NorthAmerica   |        | Europe |   | AsiaPacific |  | Total
|                  |  | (in thousands)
|Net Revenues      |  | $              | 32,165 |        | $ | 15,096      |  | $     | 6,279 |  | $ | 53,540
|Long-Lived Assets |  |                | 14,930 |        |   | 7,581       |  |       | 2,841 |  |   | 23,352



For the year ended December 31,
2003:



|                  |  |   |        |  |   |        |  |   |       |  |   |       
|----------------- |  | - | ------ |  | - | ------ |  | - | ----- |  | - | ------
|Net Revenues      |  | $ | 32,479 |  | $ | 17,880 |  | $ | 5,392 |  | $ | 55,751
|Long-Lived Assets |  |   | 20,501 |  |   | 15,120 |  |   | 4,705 |  |   | 40,326



For the year ended December 31,
2002:



|                  |  |   |        |  |   |        |  |   |       |  |   |       
|----------------- |  | - | ------ |  | - | ------ |  | - | ----- |  | - | ------
|Net Revenues      |  | $ | 33,080 |  | $ | 16,901 |  | $ | 3,891 |  | $ | 53,872
|Long-Lived Assets |  |   | 23,164 |  |   | 10,690 |  |   | 3,364 |  |   | 37,218



In 2004, the United States comprises
approximately 85% of the North American total revenue, the United Kingdom comprises approximately 86% of the European total revenue, and Australia comprises approximately 78% of the Asia Pacific total revenue.



10. Fair Value of Financial Instruments



The Companys financial instruments consist primarily of cash, temporary investments,
certificates of deposit maturing in more than one year, accounts receivable, accounts payable, long-term debt, and capitalized lease obligations.



Because accounts receivable and accounts payable are short-term instruments that are settled at face value, the Company considers the carrying amounts to approximate fair
value.



The fair value of long-term debt, consisting of notes and capitalized
lease obligations, is based on interest rates available to the Company and comparisons to market rates. The Company considers the carrying amounts to approximate fair value.



11. Defined Contribution Plan



The Company has a defined contribution 401(k) plan for its United States employees, which allows eligible employees to contribute a percentage of their compensation and
provides for certain discretionary employer matching contributions. In 2004 and 2002, the Company made no plan contributions. In 2003, the Company matched employee contributions with 56,266 shares of stock valued at $56 thousand.



F-22



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##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



12. Employee Stock Purchase Plan



The Companys employee stock purchase plan became effective July 1, 1998. The plan has
been structured within the meaning of Section 423(b) of the Internal Revenue Code of 1986. A maximum of 500,000 shares of common stock are available for sale to employees under the plan. The purchase price of each share of common stock is the lesser
of 85% of the fair market value of such share on the opening day of the six month purchase period, or 85% of the fair market value of such share on the closing day of the purchase period. Currently approximately 30 employees have elected to
participate in the plan. Through December 31, 2004, employees had purchased 312,387 shares of common stock under the plan.



13. Legal Proceedings



The Company is engaged from time to time in minor legal proceedings such as debt collection and employee dispute and arbitration. These are in the normal course of business and are not considered material to the
business.



F-23



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##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



14. Quarterly Results of Operations



The following is a summary of the quarterly results of operations for the years ended
December 31, 2004, 2003 and 2002:



|                                              |  |          |        |   |         |   |        |              |  |   |             |   |  |   |         |  
|--------------------------------------------- |  | -------- | ------ | - | ------- | - | ------ | ------------ |  | - | ----------- | - |  | - | ------- | -
|($ in 000s except per share amounts)         |  | March 31 |        |   | June 30 |   |        | September 30 |  |   | December 31 |  
|Year ended December 31, 2004                  |  |          |        |   |         |   |        |              |  |   |             |   |  |   |         |  
|Net revenues                                  |  | $        | 13,996 |   |         | $ | 13,601 |              |  | $ | 12,686      |   |  | $ | 13,257  |  
|Gross profit                                  |  |          | 5,514  |   |         |   | 4,959  |              |  |   | 4,867       |   |  |   | 4,887   |  
|Goodwill Impairment                           |  |          |       |   |         |   |       |              |  |   |            |   |  |   | 13,600  |  
|Impairment of long-lived tangible assets      |  |          |       |   |         |   |       |              |  |   |            |   |  |   | 1,761   |  
|Restructuring costs                           |  |          |       |   |         |   |       |              |  |   |            |   |  |   | 1,081   |  
|Operating income/(loss )                      |  |          | 87     |   |         |   | (1,045 | )            |  |   | (239        | ) |  |   | (17,237 | )
|Net loss                                      |  |          | (402   | ) |         |   | (1,929 | )            |  |   | (789        | ) |  |   | (18,044 | )
|Preferred Stock Dividend                      |  |          |       |   |         |   |       |              |  |   |            |   |  |   |        |  
|Net loss available to common shareholders     |  |          | (402   | ) |         |   | (1,929 | )            |  |   | (789        | ) |  |   | (18,044 | )
|Weighted average number of shares outstanding |  |          |        |   |         |   |        |              |  |   |             |   |  |   |         |  
|Basic and diluted                             |  |          | 13,440 |   |         |   | 14,835 |              |  |   | 15,256      |   |  |   | 16,639  |  
|Net loss per sharebasic and diluted          |  |          | (0.03  | ) |         |   | (0.13  | )            |  |   | (0.05       | ) |  |   | (1.08   | )
|Year ended December 31, 2003                  |  |          |        |   |         |   |        |              |  |   |             |   |  |   |         |  
|Net revenues                                  |  | $        | 14,908 |   |         | $ | 15,266 |              |  | $ | 12,120      |   |  | $ | 13,457  |  
|Gross profit                                  |  |          | 5,051  |   |         |   | 6,317  |              |  |   | 3,269       |   |  |   | 5,152   |  
|Operating income/(loss )                      |  |          | (476   | ) |         |   | 93     |              |  |   | (3,533      | ) |  |   | (662    | )
|Net loss                                      |  |          | (818   | ) |         |   | (558   | )            |  |   | (4,457      | ) |  |   | (2,660  | )
|Preferred Stock Dividend                      |  |          | 228    |   |         |   | 212    |              |  |   | 196         |   |  |   | 90      |  
|Net loss available to common shareholders     |  |          | (1,046 | ) |         |   | (770   | )            |  |   | (4,653      | ) |  |   | (2,750  | )
|Weighted average number of shares outstanding |  |          |        |   |         |   |        |              |  |   |             |   |  |   |         |  
|Basic and diluted                             |  |          | 9,480  |   |         |   | 10,202 |              |  |   | 10,339      |   |  |   | 10,840  |  
|Net loss per sharebasic and diluted          |  |          | (0.11  | ) |         |   | (0.08  | )            |  |   | (0.45       | ) |  |   | (0.26   | )
|Year ended December 31, 2002                  |  |          |        |   |         |   |        |              |  |   |             |   |  |   |         |  
|Net revenues                                  |  | $        | 12,770 |   |         | $ | 12,960 |              |  | $ | 13,445      |   |  | $ | 14,698  |  
|Gross profit                                  |  |          | 4,425  |   |         |   | 4,483  |              |  |   | 4,277       |   |  |   | 5,291   |  
|Operating loss                                |  |          | (1,075 | ) |         |   | (1,275 | )            |  |   | (1,345      | ) |  |   | (2,356  | )
|Net loss                                      |  |          | (1,541 | ) |         |   | (1,731 | )            |  |   | (1,589      | ) |  |   | (2,786  | )
|Preferred Stock Dividend                      |  |          |       |   |         |   | 130    |              |  |   | 261         |   |  |   | 246     |  
|Net loss available to common shareholders     |  |          | (1,541 | ) |         |   | (1,862 | )            |  |   | (1,850      | ) |  |   | (3,032  | )
|Weighted average number of shares outstanding |  |          |        |   |         |   |        |              |  |   |             |   |  |   |         |  
|Basic and diluted                             |  |          | 8,978  |   |         |   | 8,932  |              |  |   | 8,946       |   |  |   | 8,953   |  
|Net loss per sharebasic and diluted          |  |          | (0.17  | ) |         |   | (0.21  | )            |  |   | (0.21       | ) |  |   | (0.34   | )



F-24



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##### Table of Contents

ACT Teleconferencing, Inc.



Notes to Consolidated Financial Statements  (Continued)



15. Acquisitions



On January 2, 2002, the Company acquired Proximity, Inc., one of the worlds largest providers of room-based videoconferencing
services, for 350,000 restricted shares of the Companys common stock valued at $2,737,000 net of $74,000 of issuance fees, notes payable of $750,000, and cash of $500,000 for a total of approximately $3,987,000. In addition, the Company
acquired net assets of $350,000 including $93,000 of cash. The Company also paid $204,000 of closing costs. In addition, 150,000 shares of the Companys common stock were placed into escrow to be deliverable to certain of Proximitys
shareholders upon satisfaction of certain earnout provisions.



On January 17,
2003, the earnout agreement established with certain Proximity shareholders upon the acquisition of Proximity, Inc. on January 2, 2002 was revised. Under the original agreement, 150,000 shares of the Companys common stock were placed into
escrow and were deliverable to certain Proximity shareholders upon achieving certain earnout provisions. In exchange for modifications to the original provisions, 67,500 of the earnout shares held by the escrow agent were released to the eligible
Proximity shareholders and 10,000 options to purchase common stock for $1.19 a share and exercisable for a period of ten years were issued. An additional 71,250 shares were issued in 2003 under the terms of the agreement.



In association with this acquisition, the Company recorded approximately $3.9 million in
goodwill. Proximity was acquired to compliment the Companys video conferencing business.



Pro forma results of operations for the year ended December 31, 2002 have not been presented because the impact is immaterial.





F-25



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##### Table of Contents

Schedule I  Condensed Financial Information of Registrant



ACT Teleconferencing, Inc.

Condensed Balance Sheets

December 31, 2004 and 2003



|                                                                                                                                                                           |  |      |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|($ in 000s)                                                                                                                                                                |  | 2004 |         |   | 2003 |  
|Assets                                                                                                                                                                     |  |      |         |   |      |   |         |  
|Current assets                                                                                                                                                             |  | $    | 654     |   |      | $ | 296     |  
|Equipment and software (net of accumulated depreciation of $3,589 and $2,874)                                                                                              |  |      | 1,126   |   |      |   | 1,791   |  
|Other long term assets                                                                                                                                                     |  |      | 502     |   |      |   | 815     |  
|Investment in and advances to subsidiaries                                                                                                                                 |  |      | 23,973  |   |      |   | 37,078  |  
|                                                                                                                                                                           |  |      |         |   |      |   |         |  
|Total assets                                                                                                                                                               |  |      | 26,255  |   |      |   | 39,980  |  
|                                                                                                                                                                           |  |      |         |   |      |   |         |  
|Liabilities and shareholders equity                                                                                                                                       |  |      |         |   |      |   |         |  
|Current liabilities:                                                                                                                                                       |  |      |         |   |      |   |         |  
|Accounts payable and accrued liabilities                                                                                                                                   |  | $    | 1,327   |   |      | $ | 1,023   |  
|Current portion of debt                                                                                                                                                    |  |      | 12,049  |   |      |   | 5,882   |  
|                                                                                                                                                                           |  |      |         |   |      |   |         |  
|Total current liabilities                                                                                                                                                  |  |      | 13,376  |   |      |   | 6,905   |  
|Long-term debt                                                                                                                                                             |  |      | 62      |   |      |   | 10,965  |  
|Convertible preferred stock                                                                                                                                                |  |      |        |   |      |   |        |  
|Shareholders equity:                                                                                                                                                      |  |      |         |   |      |   |         |  
|Common stock, no par value; 50,000,000 shares authorized, 16,661,562 and 11,022,043 shares issued and 16,572,162 and 10,932,643 outstanding in
2004 and 2003, respectively |  |      | 51,049  |   |      |   | 43,310  |  
|Treasury stock at cost (89,400 shares)                                                                                                                                     |  |      | (241    | ) |      |   | (241    | )
|Accumulated deficit                                                                                                                                                        |  |      | (42,836 | ) |      |   | (21,671 | )
|Accumulated other comprehensive income                                                                                                                                     |  |      | 4,845   |   |      |   | 712     |  
|                                                                                                                                                                           |  |      |         |   |      |   |         |  
|Total shareholders equity                                                                                                                                                 |  |      | 12,817  |   |      |   | 22,110  |  
|                                                                                                                                                                           |  |      |         |   |      |   |         |  
|Total liabilities and shareholders equity                                                                                                                                 |  | $    | 26,255  |   |      | $ | 39,980  |  
|                                                                                                                                                                           |  |      |         |   |      |   |         |  



See accompanying notes to condensed
financial statements.



F-26



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##### Table of Contents

Schedule I  Condensed Financial Information of Registrant



ACT Teleconferencing, Inc.

Condensed Statement of Operations



For the years ended December 31, 2004, 2003, and 2002



|                                                          |  |      |         |   |      |   |        |      |  |   |        |  
|--------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|($ In 000s)                                              |  | 2004 |         |   | 2003 |   |        | 2002 | 
|Equity in undistributed (losses) earnings of subsidiaries |  | $    | (12,935 | ) |      | $ | 677    |      |  | $ | (2,820 | )
|Selling, general and administration expense               |  |      | (5,234  | ) |      |   | (6,081 | )    |  |   | (3,900 | )
|Interest expense, net                                     |  |      | (2,524  | ) |      |   | (2,629 | )    |  |   | (928   | )
|Foreign currency loss                                     |  |      | (471    | ) |      |   | (460   | )    |  |   |       |  
|                                                          |  |      |         |   |      |   |        |      |  |   |        |  
|Net (loss)                                                |  |      | (21,164 | ) |      |   | (8,493 | )    |  |   | (7,648 | )
|Preferred stock dividends                                 |  |      |        |   |      |   | (726   | )    |  |   | (637   | )
|                                                          |  |      |         |   |      |   |        |      |  |   |        |  
|Net (loss) available to common shareholders               |  | $    | (21,164 | ) |      | $ | (9,219 | )    |  | $ | (8,285 | )
|                                                          |  |      |         |   |      |   |        |      |  |   |        |  



See accompanying notes to condensed
financial statements.



F-27



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##### Table of Contents

Schedule I  Condensed Financial Information of Registrant



ACT Teleconferencing, Inc.

Condensed Statements of Cash Flows

For the years ended December 31, 2004, 2003, and 2002



|                                                                                      |  |      |         |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|($ In 000s)                                                                           |  | 2004 |         |   | 2003 |   |        | 2002 | 
|Operating activities                                                                  |  |      |         |   |      |   |        |      |  |   |        |  
|Net income (loss)                                                                     |  | $    | (21,164 | ) |      | $ | (8,493 | )    |  | $ | (7,648 | )
|Adjustments to reconcile net income (loss) to net cash used for operating activities: |  |      |         |   |      |   |        |      |  |   |        |  
|Equity in undistributed loss (earnings) of subsidiaries                               |  |      | 12,935  |   |      |   | 677    |      |  |   | (2,820 | )
|Dividends received from subsidiary                                                    |  |      | 1,125   |   |      |   | 943    |      |  |   |       |  
|Depreciation & equipment transfers                                                    |  |      | 887     |   |      |   | 1,960  |      |  |   | 1,423  |  
|Shares issued for services                                                            |  |      | 560     |   |      |   | 659    |      |  |   | 111    |  
|Amortization of debt costs                                                            |  |      | 1,047   |   |      |   | 447    |      |  |   | 204    |  
|Foreign exchange loss                                                                 |  |      | 471     |   |      |   | 460    |      |  |   |        |  
|Changes in operating assets and liabilities, net of effects of business combinations: |  |      |         |   |      |   |        |      |  |   |        |  
|Current assets                                                                        |  |      | (290    | ) |      |   | 244    |      |  |   | (315   | )
|Other assets                                                                          |  |      | 20      |   |      |   | (744   | )    |  |   | 224    |  
|Accounts payable and accrued liabilities                                              |  |      | 305     |   |      |   | 1,371  |      |  |   | (231   | )
|                                                                                      |  |      |         |   |      |   |        |      |  |   |        |  
|Net cash used for operating activities                                                |  |      | (4,104  | ) |      |   | (2,476 | )    |  |   | (9,052 | )
|Investing activities                                                                  |  |      |         |   |      |   |        |      |  |   |        |  
|Equipment purchases                                                                   |  |      | (222    | ) |      |   | (151   | )    |  |   | (3,430 | )
|Cash held in escrow                                                                   |  |      |        |   |      |   |       |      |  |   | 1,356  |  
|Investment in and advances from (to) subsidiaries                                     |  |      | 2,947   |   |      |   | (770   | )    |  |   | 5,196  |  
|Cash paid for acquisitions net of cash acquired                                       |  |      |        |   |      |   |       |      |  |   | (611   | )
|                                                                                      |  |      |         |   |      |   |        |      |  |   |        |  
|Net cash provided by (used for) investing activities                                  |  |      | 2,725   |   |      |   | (921   | )    |  |   | 2,511  |  
|Financing activities                                                                  |  |      |         |   |      |   |        |      |  |   |        |  
|Net proceeds from issuance of debt                                                    |  |      | 245     |   |      |   | 6,307  |      |  |   | 5,556  |  
|Net repayments of debt                                                                |  |      | (5,977  | ) |      |   | (3,779 | )    |  |   | (4,253 | )
|Net proceeds from the issuance of common stock                                        |  |      | 7,042   |   |      |   | 466    |      |  |   | 223    |  
|Purchase of treasury stock                                                            |  |      |        |   |      |   | (5     | )    |  |   | (199   | )
|Net proceeds from issuance of preferred stock                                         |  |      |        |   |      |   |       |      |  |   | 4,600  |  
|Repayment of preferred stock dividend and principal                                   |  |      |        |   |      |   | (1,708 | )    |  |   | (1,850 | )
|Net proceeds from the issuance of warrants in association with debt                   |  |      | 137     |   |      |   | 2,098  |      |  |   |       |  
|                                                                                      |  |      |         |   |      |   |        |      |  |   |        |  
|Net cash provided by financing activities                                             |  |      | 1,447   |   |      |   | 3,379  |      |  |   | 4,077  |  
|                                                                                      |  |      |         |   |      |   |        |      |  |   |        |  
|Net increase (decrease) in cash and cash equivalents                                  |  |      | 68      |   |      |   | (18    | )    |  |   | (2,464 | )
|Cash and cash equivalents beginning of year                                           |  |      | 187     |   |      |   | 205    |      |  |   | 2,669  |  
|                                                                                      |  |      |         |   |      |   |        |      |  |   |        |  
|Cash and cash equivalents end of year                                                 |  | $    | 255     |   |      | $ | 187    |      |  | $ | 205    |  
|                                                                                      |  |      |         |   |      |   |        |      |  |   |        |  



See accompanying notes to condensed
financial statements



F-28



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##### Table of Contents

Schedule I  Condensed Financial Information of Registrant



ACT Teleconferencing, Inc.

Notes to Condensed Financial Statements



December 31, 2004 and 2003



1. Summary of Significant Accounting Policies



Principles of Consolidation



The financial statements of ACT Teleconferencing, Inc., (the Company) reflect the investments in their wholly owned subsidiaries under the equity method.



Consolidated Financial Statements



Reference is made to the Consolidated Financial Statements and related Notes of ACT
Teleconferencing, Inc. included elsewhere herein for additional information.



Debt and Guarantees



Information on the debt of the Company is
disclosed in Note 2 of the Notes to Consolidated Financial Statements of ACT Teleconferencing, Inc. included elsewhere herein. A United Kingdom subsidiary of the Company has guaranteed debt of $4.0 million that is due in December, 2005. The
Companys ability to transfer assets, in the form of a dividend, loan, or advance, from this subsidiary is restricted under the loan agreement. Approximately $13 million of the consolidated subsidiary net assets, at December 31, 2004, are
restricted



F-29



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##### Table of Contents

Schedule IIValuation Of Qualifying Accounts



ACT Teleconferencing, Inc.

Allowance for Doubtful Accounts Receivable



|                                           |  |                                |       |                                        |   |            |  |   |                        |   |  |   |      
|------------------------------------------ |  | ------------------------------ | ----- | -------------------------------------- | - | ---------- |  | - | ---------------------- | - |  | - | -----
|                                           |  | Balance at Beginning Of Period |       | Additions/Charges to Costsand Expenses |   | Deductions |  |   | Balance atEnd ofPeriod
|For the year ended December 31, 2004:      |  |                                |       |                                        |   |            |  |   |                        |   |  |   |      
|Allowance for doubtful accounts receivable |  | $                              | 652   |                                        |   | 21         |  |   | (260                   | ) |  |   | 413  
|                                           |  |                                |       |                                        |   |            |  |   |                        |   |  |   |      
|For the year ended December 31, 2003:      |  |                                |       |                                        |   |            |  |   |                        |   |  |   |      
|Allowance for doubtful accounts receivable |  | $                              | 1,029 |                                        |   | 368        |  |   | (745                   | ) |  |   | 652  
|                                           |  |                                |       |                                        |   |            |  |   |                        |   |  |   |      
|For the year ended December 31, 2002:      |  |                                |       |                                        |   |            |  |   |                        |   |  |   |      
|Allowance for doubtful accounts receivable |  | $                              | 591   |                                        | $ | 853        |  | $ | (415                   | ) |  | $ | 1,029
|                                           |  |                                |       |                                        |   |            |  |   |                        |   |  |   |      



F-30



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##### Table of Contents

Index to Exhibits



All exhibits are filed electronically or incorporated by reference.



|          |  |    |  |                                                                                                                                                                                                                       
|--------- |  | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number    |  |    |  | Description                                                                                                                                                                                                           
|2.1(1)    |  |    |  | Share purchase agreement dated January 17, 2001 by and between ACT Teleconferencing, Inc. and David L. Holden & others.                                                                                               
|          |  |   
|2.2(2)    |  |    |  | Asset Purchase Agreement by and between ACT Teleconferencing, Inc., ACT Videoconferencing, Inc. and PictureTel Corporation dated as of October 4, 2001.                                                               
|          |  |   
|2.3(3)    |  |    |  | Agreement and Plan of Merger dated as of December 21, 2001, by and among ACT Teleconferencing, Inc., ACT Proximity, Inc., Proximity, Inc., Robert C. Kaphan, Richard Parlato, and North
Atlantic Venture Fund II, L.P.
|          |  |   
|3.1(4)    |  |    |  | Restated articles of incorporation of ACT Teleconferencing, Inc., dated April 15, 1996, as amended October 18, 1999, and November 26, 2001                                                                            
|          |  |   
|3.1.1(5)  |  |    |  | Certificate of Designations, Preferences and Rights of Series B Junior Participating Preferred Shares, filed December 2, 1999                                                                                         
|          |  |   
|3.1.2(6)  |  |    |  | Certificates of Designations, Preferences, and rights of Series C Preferred Stock, filed May 17, 2002                                                                                                                 
|          |  |   
|3.1.3(22) |  |    |  | Articles of Amendment to Certificate of Designations, Preferences and Rights of Series B Junior Participating Preferred Shares, filed February 6, 2004 (previously filed)                                             
|          |  |   
|3.2(7)    |  |    |  | Bylaws of ACT, amended and restated as of May 22, 2001                                                                                                                                                                
|          |  |   
|4.1(8)    |  |    |  | Form of specimen certificate for common stock of ACT                                                                                                                                                                  
|          |  |   
|10.1(8)   |  | ** |  | Stock option plan of 1991, as amended, authorizing 400,000 shares of common stock for issuance under the plan                                                                                                         
|          |  |   
|10.2(8)   |  | ** |  | Form of stock option agreement                                                                                                                                                                                        
|          |  |   
|10.3(9)   |  |    |  | Form of representatives warrant dated June 9, 2000                                                                                                                                                                   
|          |  |   
|10.10(8)  |  | ** |  | Split dollar insurance agreement dated March 1, 1990, between ACT and Gerald D. Van Eeckhout                                                                                                                          
|          |  |   
|10.11(1)  |  | ** |  | Variation of D Holdens Service Agreement, dated January 17, 2001 by and between ACT Teleconferencing Limited and David Holden                                                                                        
|          |  |   
|10.13(1)  |  |    |  | Instrument constituting £1,172,000 convertible secured A loan notes and £2,980,000 convertible secured B loan notes by and between ACT Teleconferencing, Inc. and David L. Holden
& others                            
|          |  |   
|10.19(10) |  | ** |  | Stock option plan of 1996, as amended                                                                                                                                                                                 
|          |  |   
|10.20(4)  |  | ** |  | Employee stock purchase plan of 1998, as amended                                                                                                                                                                      
|          |  |   
|10.22(11) |  |    |  | Loan and security agreement dated March 31, 1998 and form of stock purchase warrant with Sirrom Capital Corporation and Equitas L.P.                                                                                  
|          |  |   
|10.27(12) |  |    |  | Agreement for Videoconferencing Equipment and Services among ACT Videoconferencing, Inc. and the GTE Telephone Operating Companies named therein, dated October 1, 1998                                               
|          |  |   
|10.28(4)  |  | ** |  | Stock option plan of 2000, as amended                                                                                                                                                                                 
|          |  |   
|10.29(4)  |  |    |  | Service order attachment signed March 15, 2001, between ACT Teleconferencing Services, Inc. and AT&T Corporation for the supply of domestic voice/data services                                                       
|          |  |   
|10.31(2)  |  |    |  | Note in the original principal amount of $2.25 Million with ACT Teleconferencing, Inc. as maker and PictureTel Corporation as holder                                                                                  
|          |  |   
|10.33(2)  |  |    |  | Amended and Restated Warrant dated October 11, 2001 between ACT Teleconferencing, Inc. and GMN Investors II, L.P.                                                                                                     
|          |  |   
|10.36(13) |  |    |  | Promissory Note from Gerald Van Eeckhout in favor of ACT Teleconferencing, Inc. dated July 25, 2001                                                                                                                   
|          |  |   
|10.37(13) |  |    |  | Security Agreement between Gerald Van Eeckhout and ACT Teleconferencing, Inc. dated July 25, 2001                                                                                                                     
|          |  |   
|10.42(14) |  |    |  | Videoconference Services Agreement between ACT Videoconferencing and Bristol Meyers Squibb Company*                                                                                                                   
|          |  |   
|10.46(15) |  | ** |  | 2002 Performance Incentive Plan                                                                                                                                                                                       
|          |  |   
|10.51(17) |  |    |  | Note Agreement for Senior Secured Subordinated Notes and Warrant to Purchase Common Stock among ACT Teleconferencing, Inc. and certain of its subsidiaries, and the investors named therein,
dated May 12, 2003       
|          |  |   
|10.52(18) |  |    |  | First Amendment, Consent and Waiver among ACT Teleconferencing, Inc. and certain of its subsidiaries, and the investors named therein, effective as of May 12, 2003                                                   



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##### Table of Contents

|          |  |    |  |                                                                                                                                                                                             
|--------- |  | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|          |  |   
|10.53(18) |  |    |  | Second Amendment, Consent and Waiver among ACT Teleconferencing, Inc. and certain of its subsidiaries, and the investors named therein, effective as of August 14, 2003                     
|          |  |   
|10.54(18) |  |    |  | Third Amendment among ACT Teleconferencing, Inc. and certain of its subsidiaries, and the investors named therein, dated October 23, 2003                                                   
|          |  |   
|10.55(18) |  |    |  | Fourth Amendment, Consent, Waiver and Forbearance Agreement among ACT Teleconferencing, Inc., certain subsidiaries thereof, and the investors named therein, effective as of January 8,
2004
|          |  |   
|10.56(19) |  |    |  | Form of Warrant Agreement by and between ACT Teleconferencing, Inc. and CapEx, L.P. dated October 15, 2003                                                                                  
|          |  |   
|10.58(20) |  |    |  | Securities Purchase Agreement by and among ACT Teleconferencing, Inc. and certain preferred stock purchasers, dated May 17, 2002                                                            
|          |  |   
|10.59(20) |  |    |  | Registration Rights Agreement by and among ACT Teleconferencing, Inc. and certain preferred stock purchasers, dated May 17, 2002                                                            
|          |  |   
|10.60(18) |  |    |  | Form of Stock Purchase Agreement of January 8, 2004 with Barron Partners, L.P.                                                                                                              
|          |  |   
|10.61(18) |  |    |  | Form of Registration Rights Agreement of January 8, 2004 with Barron Partners, L.P.                                                                                                         
|          |  |   
|10.62(21) |  |    |  | Stock Purchase Agreement dated February 18, 2004 with Fuller and Thaler Behavioral Finance Fund, Ltd.                                                                                       
|          |  |   
|10.63(21) |  |    |  | Stock Purchase Warrant dated February 18, 2004 with Fuller and Thaler Behavioral Finance Fund, Ltd.                                                                                         
|          |  |   
|10.66(23) |  | ** |  | Amended and Restated Employment Agreement between Gene Warren and ACT Teleconferencing, Inc., dated May 1, 2003 (previously filed)                                                          
|          |  |   
|10.67(24) |  |    |  | Loan and Security Agreement with Silicon Valley Bank of November 19, 2004.                                                                                                                  
|          |  |   
|10.68(25) |  |    |  | Stock and Warrant Purchase Agreement among ACT Teleconferencing, Inc., Casimir Capital, and investors as of September 2004                                                                  
|          |  |   
|10.69(26) |  |    |  | Terms and Conditions for Purchase of Shares and Warrants between ACT Teleconferencing, Inc. as of September 2004                                                                            
|          |  |   
|10.70(27) |  |    |  | Form of Stock Purchase Warrant between ACT Teleconferencing and Investors as of September 2004.                                                                                             
|          |  |   
|10.71(28) |  |    |  | Ninth Waiver, Amendment and forebearance Agreement among ACT Teleconferencing, Inc. certain subsidiaries, and the investors named in the document as of November 19, 2004.                  
|          |  |   
|10.72     |  |    |  | Forebearance agreement among ACT Teleconferencing Inc., certain subsidiaries, and Silicon Valley Bank as of April 12, 2005 (filed herewith)                                                 
|          |  |   
|23.1      |  |    |  | Consent of Hein & Associates LLP (filed herewith)                                                                                                                                           
|          |  |   
|23.2      |  |    |  | Consent of Ernst & Young LLP (filed herewith)                                                                                                                                               
|          |  |   
|31.1      |  |    |  | Rule 13a-14(a) certification of Chief Executive Officer (filed herewith)                                                                                                                    
|          |  |   
|31.2      |  |    |  | Rule 13a-14(a) certification of Chief Financial Officer/principal financial officer (filed herewith)                                                                                        
|          |  |   
|32.1      |  |    |  | Section 1350 certification of Chief Executive Officer (filed herewith)                                                                                                                      
|          |  |   
|32.2      |  |    |  | Section 1350 certification of Chief Financial Officer/principal financial officer (filed herewith)                                                                                          

---

|** | Management contract or compensatory arrangement.
|-- | ------------------------------------------------

|(1) | Incorporated by reference, attached as an exhibit to our report on Form 8-K filed with the Securities and Exchange Commission on January 31, 2001, File No. 0-27560.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference, attached as an exhibit to our report on Form 8-K filed with the Securities and Exchange Commission on October 18, 2001, File No. 0-27560.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference, attached as exhibit 10.1 to our report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2002, File No. 0-27560.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference, attached as an exhibit to our registration statement on Form S-1, filed with the Securities and Exchange Commission on December 3, 2001, File No.
333-744138.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference, attached as Exhibit A to Exhibit 1 to our registration statement on Form 8A, filed with the Securities and Exchange Commission on December 7, 1999, File
No. 0-27560.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference, attached as an exhibit to our report on Form 8-K filed with the Securities and Exchange Commission on May 23, 2002, File No. 0-27560.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference, attached as an exhibit to our Form 10-Q for the quarter ended June 30, 2001, filed with the Securities and Exchange Commission on August 21, 2001, File
No. 0-27560.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference, attached as an exhibit to our registration statement on Form SB-2, filed with the Securities and Exchange Commission on October 10, 1995, and amendments
to our Form SB-2, File No. 33-97908-D.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Incorporated by reference, attached as Exhibit 1.3 to our registration statement on Form S-1, filed with the Securities and Exchange Commission on March 10, 2000, File No. 33-32156.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference, attached as an exhibit to our schedule 14A Information filed with the Securities and Exchange Commission on April 30, 1997, File No. 0-27560, and amended
and attached as exhibit 4.6 to our Form S-8, filed on July 2, 1998, File 333-58403.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | Incorporated by reference, attached as Exhibit 10.22 to our Amendment No. 1 to Form 10-QSB for the quarter ended June 30, 1998, filed with the Securities and Exchange Commission on
August 24, 1998 (originally filed under cover of Form SE on August 14, 1998) File 0-27560.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference, attached as an exhibit to our Form 10-QSB for the quarter ending September 30, 1998, filed with the Securities and Exchange Commission on November 16,
1998, File 0-27560.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference, attached as an exhibit to our annual report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2002, File No. 0-27560.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|(14) | Incorporated by reference, attached as an exhibit to our report on Form 10-Q filed with the Securities and Exchange Commission on May 15, 2002, File No. 0-27560. Certain portions of
the exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the Securities and Exchange Commission.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) | Incorporated by reference, attached as an exhibit to our annual report on Form 10-K filed with the Securities and Exchange Commission on April 15, 2003, File No. 0-27560.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(16) | Incorporated by reference, attached as an exhibit to our amendment to annual report on Form 10-K/A filed with the Securities and Exchange Commission on April 30, 2003, File No.
0-27560.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(17) | Incorporated by reference, attached as an exhibit to our report on Form 8-K filed with the Securities and Exchange Commission on June 9, 2003, File No. 0-27560.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(18) | Incorporated by reference, attached as an exhibit to our registration statement on Form S-3 filed with the Securities and Exchange Commission on February 13, 2004, File No.
333-112822.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(19) | Incorporated by reference, attached as an exhibit to our registration statement on Form S-3 filed with the Securities and Exchange Commission on December 31, 2003, File No.
333-111657.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(20) | Incorporated by reference, attached as an exhibit to our report on Form 8-K filed with the Securities and Exchange Commission on May 23, 2002, File No. 0-27560.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(21) | Incorporated by reference, attached as an exhibit to amendment no. 1 to our registration statement on Form S-3/A filed with the Securities and Exchange Commission on March 15, 2004,
File No. 333-112822.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(22) | Incorporated by reference, attached as an exhibit to our report on Form 10-K filed with the Securities and Exchange Commission on April 14, 2004, File No. 000-27560
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(23) | Same as above
|---- | -------------

|(24) | Incorporated by reference, attached as exhibit 10.1 to our report on Form 8-K filed with the Securities and Exchange Commission on November 19, 2004, File No. 000-27560
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(25) | Incorporated by reference, attached as exhibit 99.1 to our report on Form 8K filed with the Securities and Exchange Commission on August 31, 2004, File No. 000-27560
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(26) | Same as above but reference Exhibit 99.2
|---- | ----------------------------------------

|(27) | Same as above but reference Exhibit 99.3
|---- | ----------------------------------------

|(28) | Incorporated by reference, attached as Exhibit 10.2 to our report on Form 8-K filed with the Securities and Exchange Commission on November 19, 2004, File No. 000-27560
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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