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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

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

For The Quarterly Period Ended June 30, 2003

OR

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

For the transition period from          to

Commission file number 000-23305

FIRST VIRTUAL COMMUNICATIONS, INC.

(Exact name of registrant in its character)


|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 77-0357037                             
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. employer identification number)

3200 Bridge Parkway, Suite 202
Redwood City, CA 94065
(Address of principal executive offices)

(650) 801-6500
(Registrants telephone number, including area code)

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

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

The number of shares of Common Stock outstanding as of August 8, 2003 was
8,135,982.



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TABLE OF CONTENTS



|                              |                                                                                               |                                                                |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------- |  |  |  |  |  | 
|PART 1. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                 
|                              |                                                                                               | Condensed Consolidated Balance Sheets                         
|                              |                                                                                               | Condensed Consolidated Statements of Operations               
|                              |                                                                                               | Condensed Consolidated Statements of Cash Flows               
|                              |                                                                                               | Notes to Unaudited Condensed Consolidated Financial Statements
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                              | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 2. Changes in Securities                                                                
|                              | Item 4. Submission of Matters to Vote of Security Holders                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   
|EXHIBIT INDEX                
|EXHIBIT 3.7                  
|EXHIBIT 10.51                
|EXHIBIT 31.1                 
|EXHIBIT 31.2                 
|EXHIBIT 32.1                 
|EXHIBIT 32.2                 



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First Virtual Communications, Inc.
Form 10-Q

Index

|                             |  |                                                                                       |    |                                                                                                  |    |      |   | 
|---------------------------- |  | ------------------------------------------------------------------------------------- | -- | ------------------------------------------------------------------------------------------------ | -- | ---- | - | 
|                             |  |                                                                                       |    |                                                                                                  |    | Page
|                             |  |                                                                                       |    |                                                                                                  |    |     
|PART 1.FINANCIAL INFORMATION |  |                                                                                       |    |                                                                                                 
|Item 1.                      |  | Financial Statements                                                                  |    |                                                                                                  | 3  |     
|                             |  |                                                                                       |    | Condensed Consolidated Balance Sheets at June 30, 2003 and December 31, 2002                     |    |      | 3 | 
|                             |  |                                                                                       |    | Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2003 |    |      | 4 | 
|                             |  |                                                                                       |    | Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2003 |    |      | 5 | 
|                             |  |                                                                                       |    | Notes to Unaudited Condensed Consolidated Financial Statements                                   |    |      | 6 | 
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |    |                                                                                                  | 11 |     
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                            |    |                                                                                                  | 25 |     
|Item 4.                      |  | Controls and Procedures                                                               |    |                                                                                                  | 25 |     
|PART II.OTHER INFORMATION    |  |                                                                                       |    |                                                                                                 
|Item 1.                      |  | Legal Proceedings                                                                     |    |                                                                                                  | 26 |     
|Item 2.                      |  | Changes in Securities                                                                 |    |                                                                                                  | 26 |     
|Item 4.                      |  | Submission of Matters to a Vote of Security Holders                                   |    |                                                                                                  | 27 |     
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                      |    |                                                                                                  | 28 |     
|SIGNATURES                   |  |                                                                                       | 30 |                                                                                                 
|EXHIBIT INDEX                |  |                                                                                       | 31 |                                                                                                 

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PART 1. FINANCIAL INFORMATION




Item 1. Financial Statements




First Virtual Communications, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)

|                                       |                                                                                                                                   |                            |        |             |        |              |        |          |        | 
|-------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | ----------- | ------ | ------------ | ------ | -------- | ------ | 
|                                       |                                                                                                                                   |                            |        | June 30,    |        | December 31,
|                                       |                                                                                                                                   |                            |        | 2003        |        | 2002        
|                                       |                                                                                                                                   |                            |        | (unaudited) |        | (audited)   
|                                       |                                                                                                                                   |                            |        |             |        |             
|ASSETS                                 |                                                                                                                                   |                            |        |             |        |              |        |         
|Current assets:                        |                                                                                                                                   |                            |        |             |        |              |        |         
|                                       | Cash and cash equivalents                                                                                                         |                            | $      | 6,076       |        |              | $      | 8,352    |       
|                                       | Short-term investments                                                                                                            |                            |        | 76          |        |              |        | 83       |       
|                                       | Accounts receivable, net                                                                                                          |                            |        | 4,107       |        |              |        | 4,080    |       
|                                       | Inventory, net                                                                                                                    |                            |        | 78          |        |              |        | 613      |       
|                                       | Prepaids and other current assets                                                                                                 |                            |        | 962         |        |              |        | 406      |       
|                                       |                                                                                                                                   |                            |        |             |        |              |        |         
|                                       |                                                                                                                                   | Total current assets       |        |             | 11,299 |              |        |          | 13,534 | 
|Property and equipment, net            |                                                                                                                                   |                            | 1,311  |             |        |              | 2,197  |         
|Other assets                           |                                                                                                                                   |                            | 249    |             |        |              | 293    |         
|Intangible assets, net                 |                                                                                                                                   |                            | 3,529  |             |        |              | 3,736  |         
|                                       |                                                                                                                                   |                            |        |             |        |              |        |         
|                                       |                                                                                                                                   | $                          | 16,388 |             |        | $            | 19,760 |         
|                                       |                                                                                                                                   |                            |        |             |        |              |        |         
|LIABILITIES AND STOCKHOLDERS EQUITY   |                                                                                                                                   |                            |        |             |        |              |        |         
|Current liabilities:                   |                                                                                                                                   |                            |        |             |        |              |        |         
|                                       | Accounts payable                                                                                                                  |                            |        | 1,045       |        |              |        | 1,192    |       
|                                       | Current portion of long-term debt                                                                                                 |                            |        | 1,000       |        |              |        |         |       
|                                       | Accrued liabilities                                                                                                               |                            |        | 4,448       |        |              |        | 5,139    |       
|                                       | Deferred revenue                                                                                                                  |                            |        | 5,983       |        |              |        | 6,656    |       
|                                       |                                                                                                                                   |                            |        |             |        |              |        |         
|                                       |                                                                                                                                   | Total current liabilities  |        |             | 12,476 |              |        |          | 12,987 | 
|Long-term debt, net of current portion |                                                                                                                                   |                            | 2,000  |             |        |              |       |         
|Stockholders equity:                  |                                                                                                                                   |                            |        |             |        |              |        |         
|                                       | Convertible Preferred Stock, $.001 par value; 5,000,000 shares authorized;
27,437 shares issued and outstanding, respectively     |                            |        |            |        |              |        |         |       
|                                       | Common stock, $.001 par value; 100,000,000 shares authorized; 8,135,965
and 6,686,036 shares issued and outstanding, respectively |                            |        | 40          |        |              |        | 40       |       
|                                       | Additional paid-in capital                                                                                                        |                            |        | 118,742     |        |              |        | 118,531  |       
|                                       | Accumulated other comprehensive loss                                                                                              |                            |        | (263        | )      |              |        | (210     | )     
|                                       | Accumulated deficit                                                                                                               |                            |        | (116,607    | )      |              |        | (111,588 | )     
|                                       |                                                                                                                                   |                            |        |             |        |              |        |         
|                                       |                                                                                                                                   | Total stockholders equity |        |             | 1,912  |              |        |          | 6,773  | 
|                                       |                                                                                                                                   |                            |        |             |        |              |        |         
|                                       |                                                                                                                                   | $                          | 16,388 |             |        | $            | 19,760 |         
|                                       |                                                                                                                                   |                            |        |             |        |              |        |         

See accompanying notes to condensed consolidated financial statements.

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First Virtual Communications, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data; unaudited)

|                                                              |                             |                         |        |                    |       |                  |        |       |       |      |        |       |        |   |        |       |        | 
|------------------------------------------------------------- | --------------------------- | ----------------------- | ------ | ------------------ | ----- | ---------------- | ------ | ----- | ----- | ---- | ------ | ----- | ------ | - | ------ | ----- | ------ | 
|                                                              |                             |                         |        | Three months ended |       | Six months ended
|                                                              |                             |                         |        |                    |       |                 
|                                                              |                             |                         |        | June 30,           |       | June 30,        
|                                                              |                             |                         |        |                    |       |                 
|                                                              |                             |                         |        | 2003               |       | 2002             |        | 2003  |       | 2002
|                                                              |                             |                         |        |                    |       |                  |        |       |       |     
|Revenue                                                       |                             |                         |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|                                                              | Software                    |                         | $      | 3,265              |       |                  | $      | 1,916 |       |      | $      | 6,658 |        |   | $      | 5,998 |       
|                                                              | Product                     |                         |        | 739                |       |                  |        | 3,568 |       |      |        | 1,387 |        |   |        | 4,909 |       
|                                                              | Support service             |                         |        | 1,890              |       |                  |        | 1,160 |       |      |        | 3,226 |        |   |        | 2,338 |       
|                                                              |                             |                         |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|                                                              |                             | Total revenue           |        |                    | 5,894 |                  |        |       | 6,644 |      |        |       | 11,271 |   |        |       | 13,245 | 
|Cost of revenue                                               |                             |                         |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|                                                              | Software                    |                         |        | 277                |       |                  |        | 184   |       |      |        | 443   |        |   |        | 343   |       
|                                                              | Product                     |                         |        | 198                |       |                  |        | 3,027 |       |      |        | 417   |        |   |        | 3,780 |       
|                                                              | Support service             |                         |        | 516                |       |                  |        | 442   |       |      |        | 962   |        |   |        | 878   |       
|                                                              |                             |                         |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|                                                              |                             | Total cost of revenue   |        |                    | 991   |                  |        |       | 3,653 |      |        |       | 1,822  |   |        |       | 5,001  | 
|                                                              |                             |                         |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|Gross profit                                                  |                             |                         | 4,903  |                    |       |                  | 2,991  |       |       |      | 9,449  |       |        |   | 8,244  |      
|                                                              |                             |                         |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|Operating expense:                                            |                             |                         |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|                                                              | Research and development    |                         |        | 2,395              |       |                  |        | 2,431 |       |      |        | 4,882 |        |   |        | 5,188 |       
|                                                              | Sales and marketing         |                         |        | 2,778              |       |                  |        | 2,375 |       |      |        | 5,371 |        |   |        | 4,290 |       
|                                                              | General and administrative  |                         |        | 1,743              |       |                  |        | 2,777 |       |      |        | 3,370 |        |   |        | 5,061 |       
|                                                              | Other non-recurring charges |                         |        | 838                |       |                  |        |      |       |      |        | 838   |        |   |        |      |       
|                                                              |                             |                         |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|                                                              |                             | Total operating expense |        |                    | 7,754 |                  |        |       | 7,583 |      |        |       | 14,461 |   |        |       | 14,539 | 
|                                                              |                             |                         |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|Operating loss                                                |                             |                         | (2,851 | )                  |       |                  | (4,592 | )     |       |      | (5,012 | )     |        |   | (6,295 | )    
|Other income (expense), net                                   |                             |                         | (34    | )                  |       |                  | 48     |       |       |      | (7     | )     |        |   | 92     |      
|Minority interest in consolidated subsidiary                  |                             |                         |       |                    |       |                  | 32     |       |       |      |       |       |        |   | 17     |      
|                                                              |                             |                         |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|Net loss                                                      |                             | $                       | (2,885 | )                  |       | $                | (4,512 | )     |       | $    | (5,019 | )     |        | $ | (6,186 | )    
|                                                              |                             |                         |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|Basic and diluted net loss per share                          |                             | $                       | (0.36  | )                  |       | $                | (0.59  | )     |       | $    | (0.62  | )     |        | $ | (0.85  | )    
|Shares used in computing basic and diluted
net loss per share |                             |                         | 8,107  |                    |       |                  | 7,689  |       |       |      | 8,102  |       |        |   | 7,253  |      

See accompanying notes to condensed consolidated financial statements.

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First Virtual Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands; unaudited)

|                                                     |                                                                             |                                             |                                   |                                                     |       |                           |        |        |       |        |        |  
|---------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------- | --------------------------------- | --------------------------------------------------- | ----- | ------------------------- | ------ | ------ | ----- | ------ | ------ | -
|                                                     |                                                                             |                                             |                                   |                                                     |       | Six Months Ended June 30,
|                                                     |                                                                             |                                             |                                   |                                                     |       |                          
|                                                     |                                                                             |                                             |                                   |                                                     |       | 2003                      |        | 2002  
|                                                     |                                                                             |                                             |                                   |                                                     |       |                           |        |       
|Cash flows from operating activities:                |                                                                             |                                             |                                   |                                                     |       |                           |        |       
|                                                     | Net loss                                                                    |                                             | $                                 | (5,019                                              | )     |                           | $      | (6,186 | )    
|                                                     | Adjustments to reconcile net loss to net cash used in operating activities: |                                             |                                   |                                                     |       |                           |        |        |      
|                                                     |                                                                             | Depreciation and amortization               |                                   |                                                     | 1,102 |                           |        |        | 1,587 |       
|                                                     |                                                                             | Provision for returns and doubtful accounts |                                   |                                                     | 58    |                           |        |        | 509   |       
|                                                     |                                                                             | Provision for inventory                     |                                   |                                                     |      |                           |        |        | 1,000 |       
|                                                     |                                                                             | Loss on disposal of fixed assets            |                                   |                                                     | 351   |                           |        |        |      |       
|                                                     |                                                                             | Loss on closure of FVC India                |                                   |                                                     | 9     |                           |        |        |      |       
|                                                     |                                                                             | Other                                       |                                   |                                                     | (38   | )                         |        |        | (98   | )     
|                                                     |                                                                             | Changes in assets and liabilities           |                                   |                                                     |       |                           |        |        |       |       
|                                                     |                                                                             |                                             | Accounts receivable               |                                                     |       | (477                      | )      |        |       | (441   | )     
|                                                     |                                                                             |                                             | Inventory                         |                                                     |       | 535                       |        |        |       | 549    |       
|                                                     |                                                                             |                                             | Prepaid expenses and other assets |                                                     |       | (353                      | )      |        |       | (121   | )     
|                                                     |                                                                             |                                             | Accounts payable                  |                                                     |       | (147                      | )      |        |       | 104    |       
|                                                     |                                                                             |                                             | Accrued liabilities               |                                                     |       | (681                      | )      |        |       | (1,185 | )     
|                                                     |                                                                             |                                             | Deferred revenue                  |                                                     |       | (217                      | )      |        |       | 1,201  |       
|                                                     |                                                                             |                                             |                                   |                                                     |       |                           |        |       
|                                                     |                                                                             |                                             |                                   | Net cash used in operating activities               |       |                           | (4,877 | )      |       |        | (3,081 | )
|                                                     |                                                                             |                                             |                                   |                                                     |       |                           |        |       
|Cash flows from investing activities:                |                                                                             |                                             |                                   |                                                     |       |                           |        |       
|                                                     | Acquisition of businesses                                                   |                                             |                                   | (132                                                | )     |                           |        |       |      
|                                                     | Acquisition of property and equipment                                       |                                             |                                   | (329                                                | )     |                           |        | (430   | )    
|                                                     | Proceeds from sales of short-term investments, net                          |                                             |                                   |                                                    |       |                           |        | 1,848  |      
|                                                     |                                                                             |                                             |                                   |                                                     |       |                           |        |       
|                                                     |                                                                             |                                             |                                   | Net cash (used in) provided by investing activities |       |                           | (461   | )      |       |        | 1,418  |  
|                                                     |                                                                             |                                             |                                   |                                                     |       |                           |        |       
|Cash flows from financing activities:                |                                                                             |                                             |                                   |                                                     |       |                           |        |       
|                                                     | Proceeds from issuance of common stock, net                                 |                                             |                                   | 62                                                  |       |                           |        | 5,022  |      
|                                                     | Proceeds from drawdown of term loan                                         |                                             |                                   | 3,000                                               |       |                           |        |       |      
|                                                     |                                                                             |                                             |                                   |                                                     |       |                           |        |       
|                                                     |                                                                             |                                             |                                   | Net cash provided by financing activities           |       |                           | 3,062  |        |       |        | 5,022  |  
|                                                     |                                                                             |                                             |                                   |                                                     |       |                           |        |       
|Net (decrease) increase in cash and cash equivalents |                                                                             |                                             | (2,276                            | )                                                   |       |                           | 3,359  |       
|Cash and cash equivalents at beginning of period     |                                                                             |                                             | 8,352                             |                                                     |       |                           | 6,946  |       
|                                                     |                                                                             |                                             |                                   |                                                     |       |                           |        |       
|Cash and cash equivalents at end of period           |                                                                             | $                                           | 6,076                             |                                                     |       | $                         | 10,305 |       
|                                                     |                                                                             |                                             |                                   |                                                     |       |                           |        |       

See accompanying notes to condensed consolidated financial statements.

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First Virtual Communications, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Basis of Presentation

First Virtual Communications, Inc. (the Company) has prepared the
accompanying financial data for the quarterly period ended June 30, 2003
pursuant to the rules and regulations of the Securities and Exchange Commission
(the SEC). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted pursuant to such rules and regulations.

In the opinion of management, the accompanying condensed consolidated
financial statements contain all normal and recurring adjustments necessary to
present fairly the Companys consolidated financial position as of June 30,
2003, consolidated results of operations for the three and six months ended
June 30, 2003 and 2002, and consolidated cash flow activities for the three and
six months ended June 30, 2003 and 2002.

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported
in the condensed consolidated financial statements and accompanying notes.
Actual results may differ from those estimates.

The results of operations for the three and six months ended June 30, 2003
are not necessarily indicative of the results to be expected for the full year.
The information included in this Quarterly Report on Form 10-Q should be read
in conjunction with Managements Discussion and Analysis of Financial Condition
and Results of Operations and the consolidated financial statements and notes
thereto included in the Companys 2002 Annual Report on Form 10-K.

The unaudited condensed consolidated balance sheet at December 31, 2002
that has been derived from the audited consolidated financial statements at
that date does not include all of the information and footnotes required by
generally accepted accounting principles in the United States of America for
complete financial statements.

On June 26, 2003 the Companys Board of Directors approved a 1-for-5
reverse split of the Companys common stock, effective at 5:00 pm EDT on June
27, 2003, with trading commencing on a post-reverse stock split basis on market
open on Monday June 30, 2003. The reverse split was previously approved by the
stockholders at the Companys June 13, 2003 Annual Stockholders Meeting. As of
5:00 pm EDT on June 27, 2003, each five shares of the Companys outstanding
common stock was automatically combined and converted into one share of common
stock. In addition, the Company made adjustments to its outstanding options and
warrants to reflect the reverse stock split. All outstanding common stock and
outstanding option and warrant numbers reflected in this Quarterly Report,
reflect the 1-for-5 reverse stock split.

Concentrations of credit risk

Revenue and accounts receivable of customers comprising more than 10% of
revenue or receivable are summarized as follows:

|         |           |  |                             |    |                           |  |      |    |      |  |  |    |   |  |  |    |  
|-------- | --------- |  | --------------------------- | -- | ------------------------- |  | ---- | -- | ---- |  |  | -- | - |  |  | -- | -
|         |           |  | Three Months Ended June 30, |    | Six Months Ended June 30,
|         |           |  |                             |    |                          
|         |           |  | 2003                        |    | 2002                      |  | 2003 |    | 2002
|         |           |  |                             |    |                           |  |      |    |     
|Revenue: |           |  |                             |    |                           |  |      |    |      |  |  |    |   |  |  |   
|         | Company A |  |                             | 22 | %                         |  |      |   |      |  |  | 13 | % |  |  |   |  
|         | Company B |  |                             |   |                           |  |      | 37 | %    |  |  |   |   |  |  | 19 | %
|         | Company C |  |                             |   |                           |  |      |   |      |  |  |   |   |  |  | 14 | %

|                     |           |  |          |    |              |  |  |   | 
|-------------------- | --------- |  | -------- | -- | ------------ |  |  | - | 
|                     |           |  | June 30, |    | December 31,
|                     |           |  | 2003     |    | 2002        
|                     |           |  |          |    |             
|Accounts receivable: |           |  |          |    |              |  |  |  
|                     | Company A |  |          | 35 | %            |  |  |  | 

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| |           |  |          |    |              |  |  |    |  
| | --------- |  | -------- | -- | ------------ |  |  | -- | -
| |           |  | June 30, |    | December 31,
| |           |  | 2003     |    | 2002        
| |           |  |          |    |             
| | Company C |  |          | 12 | %            |  |  |   |  
| | Company D |  |          |   |              |  |  | 20 | %

2. Stock Based Compensation

As of June 30, 2003, the Company maintained stock option plans under which
the Company may grant incentive stock options and non-qualified stock options
to employees, consultants and non-employee directors. The Company has chosen to
account for those plans under the recognition and measurement principles of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related Interpretations.

The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
123 to stock-based employee compensation (in thousands, except per share data):

|                                                                                        |  |                                     |        |                                   |  |      |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------------------- |  | ----------------------------------- | ------ | --------------------------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                        |  | For the Three Months Ended June 30, |        | For the Six Months Ended June 30,
|                                                                                        |  |                                     |        |                                  
|                                                                                        |  | 2003                                |        | 2002                              |  | 2003 |        | 2002
|                                                                                        |  |                                     |        |                                   |  |      |        |     
|Net Loss                                                                                |  | $                                   | (2,885 | )                                 |  | $    | (4,512 | )    |  | $ | (5,019 | ) |  | $ | (6,186 | )
|                                                                                        |  |                                     |        |                                   |  |      |        |      |  |   |        |   |  |   |        |  
|Add: Stock-based employee compensation
expense included in reported net income          |  |                                     | 8      |                                   |  |      | 22     |      |  |   | 8      |   |  |   | 35     |  
|Deduct: Total stock based employee compensation
expense determined pursuant to SFAS 123 |  |                                     | (589   | )                                 |  |      | (1,082 | )    |  |   | (893   | ) |  |   | (869   | )
|                                                                                        |  |                                     |        |                                   |  |      |        |      |  |   |        |   |  |   |        |  
|Pro forma net loss                                                                      |  | $                                   | (3,466 | )                                 |  | $    | (5,572 | )    |  | $ | (5,904 | ) |  | $ | (7,020 | )
|                                                                                        |  |                                     |        |                                   |  |      |        |      |  |   |        |   |  |   |        |  
|As reported net loss per share (basic and diluted)                                      |  | $                                   | (0.36  | )                                 |  | $    | (0.59  | )    |  | $ | (0.62  | ) |  | $ | (0.85  | )
|                                                                                        |  |                                     |        |                                   |  |      |        |      |  |   |        |   |  |   |        |  
|Pro forma net loss per share (basic and diluted)                                        |  | $                                   | (0.43  | )                                 |  | $    | (0.72  | )    |  | $ | (0.73  | ) |  | $ | (0.97  | )
|                                                                                        |  |                                     |        |                                   |  |      |        |      |  |   |        |   |  |   |        |  

In December 2002, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  an amendment of SFAS 123 (SFAS
148). This statement amends SFAS 123 to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS 123 to require disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
The Company has adopted the annual disclosure provisions of SFAS 148 and
adopted the interim disclosure provisions for financial reports beginning with
the quarter ended March 31, 2003.

The weighted-average estimated grant-date fair value of options granted
under the Companys various stock option plans during the three and six months
ended June 30, 2003 and 2002 was $2.95, $2.60, $2.90 and $3.54, respectively.
For the three and six months ended June 30, 2003 and 2002, the fair value of
each stock option on the date of grant was determined using the Black-Scholes
model with the following assumptions:

|                        |  |                             |     |                           |  |      |     |      |  |  |     |   |  |  |     |  
|----------------------- |  | --------------------------- | --- | ------------------------- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | -
|                        |  | Three Months Ended June 30, |     | Six Months Ended June 30,
|                        |  |                             |     |                          
|                        |  | 2003                        |     | 2002                      |  | 2003 |     | 2002
|                        |  |                             |     |                           |  |      |     |     
|Risk-free interest rate |  |                             | 2.5 | %                         |  |      | 3.0 | %    |  |  | 2.5 | % |  |  | 3.0 | %
|Volatility              |  |                             | 113 | %                         |  |      | 113 | %    |  |  | 113 | % |  |  | 113 | %
|Option term (in years)  |  |                             | 5   |                           |  |      | 5   |      |  |  | 5   |   |  |  | 5   |  
|Dividend yield          |  |                             | 0.0 | %                         |  |      | 0.0 | %    |  |  | 0.0 | % |  |  | 0.0 | %

3. Additional consideration for Acquisition of FVC.COM (UK) Ltd.

In May 1999, the Company acquired a controlling interest in FVC.COM (UK)
Ltd., a distributor of the Companys products in the United Kingdom and the
Middle East. The Company acquired 52% of the outstanding stock of a newly
incorporated holding company that owned 100% of the shares of this entity, in
exchange for a cash payment of $750,000. The transaction was accounted for

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as a purchase; accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based upon their estimated fair market values
at the date of acquisition.

In July 2002, the Company acquired the remaining 48% interest of FVC.COM
(UK) Ltd. in a transaction accounted for as a purchase business combination.
The purchase price was comprised of cash consideration of $437,000, including
direct acquisition costs of $178,000 for legal and consulting fees. Contingent
on certain events, the purchase price further increased by $35,000 based on (1)
a percentage of the gross profit of the United Kingdom sales territory for the
period from June 1, 2002 to December 31, 2002 and (2) the results of collection
of certain receivables outstanding as of the acquisition date. Subsequent to the year ended
December 31, 2002, the Company fully collected the residual
balance of the
receivables as of the acquisition date. In the quarter ended March 31, 2003,
the purchase price increased by $98,000, for a total final cash consideration
of $570,000. The purchase price was allocated to the assets acquired and
liabilities assumed based upon their estimated fair market values at the date
of acquisition. At the acquisition date, the book value of the assets and
liabilities acquired approximated fair value, accordingly, the purchase price
was allocated to goodwill. In the second quarter of 2003, the Company made the
aggregate additional consideration payment of $132,000.

4. Non-recurring Charges

During the three and six months ended June 30, 2003, the Company incurred
$838,000 of non-recurring charges related to the relocation of the Companys
California office from Santa Clara to Redwood City and the closure of the
Companys India operations.

The non-recurring charges for the three and six months ended 2003 and 2002
were as follows (in thousands):

|                            |  |   |                         |  |                            |     |                          |  |      |   |      |  |   |     |   |  |   |   | 
|--------------------------- |  | - | ----------------------- |  | -------------------------- | --- | ------------------------ |  | ---- | - | ---- |  | - | --- | - |  | - | - | 
|                            |  |   |                         |  | For the Three Months Ended |     | For the Six Months Ended
|                            |  |   |                         |  | June 30,                   |     | June 30,                
|                            |  |   |                         |  |                            |     |                         
|                            |  |   |                         |  | 2003                       |     | 2002                     |  | 2003 |   | 2002
|                            |  |   |                         |  |                            |     |                          |  |      |   |     
|Relocation costs            | 
|
|                            |  |   | Fixed assets retirement |  | $                          | 350 |                          |  | $    |  |      |  | $ | 350 |   |  | $ |  | 
|                            |  |   | Refurbishment cost      |  |                            | 259 |                          |  |      |  |      |  |   | 259 |   |  |   |  | 
|                            |  |   | Moving costs            |  |                            | 69  |                          |  |      |  |      |  |   | 69  |   |  |   |  | 
|                            |  |   | Total relocation costs  |  |                            | 678 |                          |  |      |  |      |  |   | 678 |   |  |   |  | 
|                            |  |   |                         |  |                            |     |                          |  |      |   |      |  |   |     |   | 
|Closure of India operations |  |   | 160                     |  |                            |     |                         |  |      |   | 160  |  |   |     |  | 
|                            |  |   |                         |  |                            |     |                          |  |      |   |      |  |   |     |   | 
|                            |  | $ | 838                     |  |                            | $   |                         |  |      | $ | 838  |  |   | $   |  | 
|                            |  |   |                         |  |                            |     |                          |  |      |   |      |  |   |     |   | 

5. Short Term Investments

Management determines the appropriate classification of short-term
investments in marketable securities at the time of purchase and re-evaluates
such designation as of each balance sheet date. Available-for-sale securities
are stated at fair value as determined by the most recently traded price of
each security at the balance sheet date. The net unrealized gains or losses on
available-for-sale securities are reported as a component of comprehensive
loss, net of tax. The specific identification method is used to compute the
realized gains and losses on debt and equity securities.

The Company regularly monitors and evaluates the realizable value of its
marketable securities. If events and circumstances indicate that a decline in
the value of these assets has occurred and is other than temporary, the Company
records a charge to investment income (expense). At June 30, 2003, all
short-term investments have been classified as available-for-sale securities.

Marketable securities are comprised as follows (in thousands):

|                       |  |          |    |              |  |   |    | 
|---------------------- |  | -------- | -- | ------------ |  | - | -- | 
|                       |  | June 30, |    | December 31,
|                       |  | 2003     |    | 2002        
|                       |  |          |    |             
|Certificate of deposit |  | $        | 69 |              |  | $ | 69 | 
|Equity securities      |  |          | 7  |              |  |   | 14 | 
|                       |  |          |    |              |  |   |    | 
|                       |  | $        | 76 |              |  | $ | 83 | 
|                       |  |          |    |              |  |   |    | 

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As of June 30, 2003, the Companys available for sale securities had
contractual maturities of less than one year. Available for sale securities are
comprised as follows at June 30, 2003 and December 31, 2002 (in thousands):

|                  |  |      |     |       |  |            |   |            |  |   |      |   |  |   |    | 
|----------------- |  | ---- | --- | ----- |  | ---------- | - | ---------- |  | - | ---- | - |  | - | -- | 
|                  |  |      |     |       |  | Unrealized |   | Unrealized |  |   |      |  
|                  |  | Cost |     | Gains |  | Losses     |   | Fair Value
|                  |  |      |     |       |  |            |   |           
|June 30, 2003     |  |      |     |       |  |            |   |            |  |   |      |   |  |   |    | 
|Equity securities |  | $    | 114 |       |  | $          | 3 |            |  | $ | (110 | ) |  | $ | 7  | 
|Debt securities   |  |      | 120 |       |  |            |  |            |  |   | (51  | ) |  |   | 69 | 
|                  |  |      |     |       |  |            |   |            |  |   |      |   |  |   |    | 
|Total             |  | $    | 234 |       |  | $          | 3 |            |  | $ | (161 | ) |  | $ | 76 | 
|                  |  |      |     |       |  |            |   |            |  |   |      |   |  |   |    | 
|December 31, 2002 |  |      |     |       |  |            |   |            |  |   |      |   |  |   |    | 
|Equity securities |  | $    | 114 |       |  | $          | 3 |            |  | $ | (103 | ) |  | $ | 14 | 
|Debt securities   |  |      | 120 |       |  |            |  |            |  |   | (51  | ) |  |   | 69 | 
|                  |  |      |     |       |  |            |   |            |  |   |      |   |  |   |    | 
|Total             |  | $    | 234 |       |  | $          | 3 |            |  | $ | (154 | ) |  | $ | 83 | 
|                  |  |      |     |       |  |            |   |            |  |   |      |   |  |   |    | 

6. Inventory

Inventories as of June 30, 2003 and December 31, 2002 were (in thousands):

|                |  |          |    |              |  |   |     | 
|--------------- |  | -------- | -- | ------------ |  | - | --- | 
|                |  | June 30, |    | December 31,
|                |  | 2003     |    | 2002        
|                |  |          |    |             
|Raw materials   |  | $        |   |              |  | $ | 266 | 
|Finished goods  |  |          | 78 |              |  |   | 347 | 
|                |  |          |    |              |  |   |     | 
|Total inventory |  | $        | 78 |              |  | $ | 613 | 
|                |  |          |    |              |  |   |     | 

7. Net Loss Per Share

Basic loss per share is based on the weighted-average number of common
shares outstanding excluding contingently issuable or returnable shares, such
as shares of unvested restricted common stock. Diluted loss per share is based
on the weighted-average number of common shares outstanding and dilutive
potential common shares outstanding.

As a result of the losses incurred by the Company for the three and six
months ended June 30, 2003 and 2002, all potential common shares were
anti-dilutive and were excluded from the diluted net loss per share
calculations for such periods.

The following table summarizes securities outstanding that were not
included in the calculations of diluted net loss per share for the three and
six months ended June 30, 2003 and 2002, since their inclusion would be
anti-dilutive:

|                            |  |                            |       |      |  |  |       | 
|--------------------------- |  | -------------------------- | ----- | ---- |  |  | ----- | 
|                            |  | Three and Six Months Ended
|                            |  | June 30,                  
|                            |  |                           
|                            |  | 2003                       |       | 2002
|                            |  |                            |       |     
|                            |  | (in thousands)            
|Common stock options        |  |                            | 2,444 |      |  |  | 2,300 | 
|Common stock warrants       |  |                            | 1,486 |      |  |  | 1,383 | 
|Convertible preferred stock |  |                            | 879   |      |  |  | 723   | 

The common stock warrants are exercisable at $1.55 to $32.65 per share and
expire at various times from June 3, 2000 through April 12, 2008. The stock
options outstanding at June 30, 2003 had a weighted average exercise price per
share of $11.26 and expire beginning in June 2004 through June 2013.

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8. Warranties

The Company sells software products. We provide for future warranty costs
upon product delivery or from the purchase date. The specific terms and
conditions of those warranties vary depending upon the product sold, the
country in which the customers are located and agreements we have with various
customers.

Software products generally carry a 90 day warranty on the software media
from the date of delivery or purchase. Otherwise, software products are sold on
an as-is basis. Longer warranty periods may be provided on a
contract-by-contract basis and are limited. Our liability under these
warranties is to replace defective media and in some cases to provide a
corrected copy of any portion of the software found not to be in substantial
compliance with the published specifications in the product documentation. In
such cases, if the Company is unable to make the products conform with
published specifications, the Company may be obligated to refund the amount
actually paid by customers.

Factors that affect our warranty liability include the number of units
sold, historical experience and managements judgment regarding anticipated
rates of warranty claims and cost per claim. We assess the adequacy of our
recorded warranty liabilities every quarter and make adjustments to the
liability if necessary. The Company has gone through the transition from being
primarily a hardware-based company to a software-based company since the
acquisition of CUseeMe Networks on June 19, 2001, and has discontinued offering
hardware products to the marketplace other than products currently in
inventory.

Changes in our warranty liability, which is included as a component of
Accrued liabilities on the Consolidated Balance Sheet, during the second
quarter ended June 30, 2003 were as follows:

|                                          |  |                |      |  
|----------------------------------------- |  | -------------- | ---- | -
|                                          |  | (in thousands)
|Beginning balance as of December 31, 2002 |  | $              | 428  |  
|Provision for warranty liability          |  |                | 123  |  
|Settlement made under warranty            |  |                | (179 | )
|                                          |  |                |      |  
|Ending balance as of June 30, 2003        |  | $              | 372  |  
|                                          |  |                |      |  

9. Comprehensive Loss

Comprehensive loss is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources, including foreign currency translation adjustments and
unrealized gains and losses on marketable securities.

Components of accumulated other comprehensive loss consist of the
following (in thousands):

|                                                              |  |          |      |              |  |   |      |  
|------------------------------------------------------------- |  | -------- | ---- | ------------ |  | - | ---- | -
|                                                              |  | June 30, |      | December 31,
|                                                              |  | 2003     |      | 2002        
|                                                              |  |          |      |             
|Foreign currency translation                                  |  | $        | (105 | )            |  | $ | (59  | )
|Unrealized loss on marketable securities, net of income taxes |  |          | (158 | )            |  |   | (151 | )
|                                                              |  |          |      |              |  |   |      |  
|                                                              |  | $        | (263 | )            |  | $ | (210 | )
|                                                              |  |          |      |              |  |   |      |  

Comprehensive losses for the three and six-month periods ended June 30,
2003 and 2002 were as follows (in thousands):

|                                                              |  |                            |        |                          |  |      |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------- |  | -------------------------- | ------ | ------------------------ |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                              |  | For the Three Months Ended |        | For the Six Months Ended
|                                                              |  | June 30,                   |        | June 30,                
|                                                              |  |                            |        |                         
|                                                              |  | 2003                       |        | 2002                     |  | 2003 |        | 2002
|                                                              |  |                            |        |                          |  |      |        |     
|Net Loss, as reported                                         |  | $                          | (2,885 | )                        |  | $    | (4,512 | )    |  | $ | (5,019 | ) |  | $ | (6,186 | )
|Cumulative translation adjustment                             |  |                            | (40    | )                        |  |      | (54    | )    |  |   | (46    | ) |  |   | (21    | )
|Unrealized loss on marketable securities, net of
income taxes |  |                            | (5     | )                        |  |      | (44    | )    |  |   | (7     | ) |  |   | (95    | )
|                                                              |  |                            |        |                          |  |      |        |      |  |   |        |   |  |   |        |  

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|                   |  |                            |        |                          |  |      |        |      |  |   |        |   |  |   |        |  
|------------------ |  | -------------------------- | ------ | ------------------------ |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                   |  | For the Three Months Ended |        | For the Six Months Ended
|                   |  | June 30,                   |        | June 30,                
|                   |  |                            |        |                         
|                   |  | 2003                       |        | 2002                     |  | 2003 |        | 2002
|                   |  |                            |        |                          |  |      |        |     
|Comprehensive loss |  | $                          | (2,930 | )                        |  | $    | (4,610 | )    |  | $ | (5,072 | ) |  | $ | (6,302 | )
|                   |  |                            |        |                          |  |      |        |      |  |   |        |   |  |   |        |  

10. Litigation

On February 11, 2003, the Company received an adversarial complaint filed
by Visitalk.com in connection with Visitalk.coms reorganization proceedings in
the United States Bankruptcy Court District of Arizona, alleging that CUseeMe
Networks, which was acquired by the Company on June 19, 2001, breached a 1999
Strategic Partnership Agreement and sought damages of $435,000. In April, the
Company responded to the complaint with a Motion to Stay Proceedings and to
compel Matter to Proceed to Arbitration. In June 2003, the parties reached a
mutual agreement to dismiss the adversarial action with prejudice, exchange a
mutual general release of all claims and waive attorneys fees and costs. The
parties have not yet executed a formal settlement agreement and the settlement
will not become effective until approved by the Bankruptcy Court.

11. New Accounting Pronouncements

In May 2003, the Financial Accounting Standard Board issued SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This Statement establishes standards for how an
issuer classifies and measures in its statement of financial position certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances) because that financial
instrument embodies an obligation of the issuer. This Statement is effective
for financial instruments entered into or modified after May 31, 2003 and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003, except for mandatorily redeemable financial instruments of
nonpublic entities. For nonpublic entities, mandatorily redeemable financial
instruments are subject to the provisions of this Statement for the first
period beginning after December 15, 2003. It is to be implemented by reporting
the cumulative effect of a change in an accounting principle for financial
instruments created before the issuance date of the statement and still
existing at the beginning of the interim period of adoption. The Company has
not determined the impact that the adoption of SFAS No. 150 will have on its
financial position or results of operations.

12. Subsequent Events

On July 25, 2003, the Company offered a voluntary employee stock option
exchange program to its employees and members of its board of directors. Under
the exchange offer, eligible employees and members of the board of directors
have the opportunity to exchange their outstanding stock options for new
options to be granted under the Companys 1999 Equity Incentive Plan and 1997
Equity Incentive Plan, pursuant to the terms of the replacement option
agreements between the Company and its employees and members of the board of
directors. Under the exchange offer, all outstanding options are eligible
options. The exchange offer period will expire on August 22, 2003, unless
extended. Options accepted for exchange will be cancelled and exchanged for
replacement options covering one share for each three shares covered by the
exchanged options; provided, however, that under the exchange offer, options
granted in the six-month period immediately preceding the offer date that are
cancelled due to the participation in the offer will be replaced by the same
number of replacement options. The replacement options will be granted on the
replacement grant date, February 23, 2004, unless the offer is extended, in
which case the replacement grant date will be extended by a corresponding
number of days, and will have an exercise price at least equal to the closing
price of First Virtual Communications common stock on that date. The new options
will vest in equivalent monthly increments over a 24 month period
commencing with the replacement grant date. Replacement options granted to
employees located outside the United States may be subject to different vesting
terms than those described above.




Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of
operations of First Virtual Communications, Inc. should be read in conjunction
with the Unaudited Condensed Consolidated Financial Statements and the Notes
thereto included in Item 1 of this Quarterly Report on Form 10-Q, and
Managements Discussion and Analysis of Financial condition and Results of
Operations contained in our Annual Report on Form 10-K as filed with the
Securities and Exchange Commission, or SEC, on April 15, 2003.

In addition to the historical information contained in this Quarterly
Report, this Quarterly Report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange

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Act of 1934, as amended, that involve risks and uncertainties. These
forward looking statements include, without limitation, statements containing
the words believes, anticipates, expects, and words of similar import.
Such forward-looking statements will have known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others: the
Companys variability of operating results, market acceptance of
rich media web
conferencing technology, rich media web conferencing and collaboration technology
dependence on IP-based networks and other technologies, the Companys potential
inability to maintain business relationships with telecommunications carriers,
distributors and suppliers, rapid technological changes, competition and
consolidation in the web conferencing industry, the importance of attracting
and retaining personnel, management of the Companys growth, cost pressures in
the web conferencing industry, dependence on key employees, and other risk
factors set forth below and described in this Quarterly Report on Form 10-Q and
in other documents the Company files with the SEC. The Company assumes no
obligation to update any forward-looking statements contained herein. The
Companys expectations and the events, conditions and circumstances on which
these forward-looking statements are based, may change.

Overview

The Company delivers integrated, software technologies for rich media web
conferencing and collaboration solutions. The Company combines its expertise in
networking systems, real-time audio and video technology, and web-based
collaboration to provide integrated voice, video, data, text and streaming
media solutions for a wide range of rich media enterprise applications,
including web conferences, broadcasts, video-on-demand, videoconferences and
video calls over converged multi-service networks. The Company was incorporated
in California in October 1993 and reincorporated in Delaware in December 1997.
The Company first shipped its products in 1995.

On June 19, 2001, the Company and CUseeMe Networks completed a merger,
pursuant to which CUseeMe Networks became a wholly owned subsidiary of the
Company. The Company is now able to provide a broad range of integrated rich
media web conferencing solutions that run seamlessly across multiple network
types to enterprise customers and service providers worldwide.

In the three and six months ended June 30, 2003, the Company recorded $5.9
million and $11.3 million in revenue, respectively, a decrease of 11% and 15%
compared to the same periods of the previous year. The Company derived its
revenue in the three and six months ended June 30, 2003 and fiscal 2002 from
sales to distributors, original equipment manufacturers, or OEMs, value-added
resellers, or VARS, federal government agencies, enterprise customers and
telecommunications service providers.

The following table summarizes the percentage of total revenue by
enterprise customers and service providers:

|                     |  |                            |     |                          |  |      |     |      |  |  |     |   |  |  |     |  
|-------------------- |  | -------------------------- | --- | ------------------------ |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | -
|                     |  | For the Three Months Ended |     | For the Six Months Ended
|                     |  | June 30,                   |     | June 30,                
|                     |  |                            |     |                         
|                     |  | 2003                       |     | 2002                     |  | 2003 |     | 2002
|                     |  |                            |     |                          |  |      |     |     
|Enterprise customers |  |                            | 84  | %                        |  |      | 54  | %    |  |  | 87  | % |  |  | 71  | %
|Service providers    |  |                            | 16  | %                        |  |      | 46  | %    |  |  | 13  | % |  |  | 29  | %
|                     |  |                            |     |                          |  |      |     |      |  |  |     |   |  |  |     |  
|Total                |  |                            | 100 | %                        |  |      | 100 | %    |  |  | 100 | % |  |  | 100 | %

The Companys internal sales force qualifies and stimulates end-user
demand, and manages the Companys strategic relationships with its distribution
partners, including OEMs, VARs and systems integrators. At June 30, 2003, Comp
View, Inc. and General Services Administration, or GSA, accounted for 35% and
12%, respectively, of total accounts receivable. At June 30, 2002, both Net One
Systems Co. Ltd. and AT&T Corporation accounted for 20% of total accounts
receivable.

The Company maintains sales offices in the United Kingdom, France,
Germany, Italy, China and Japan, and distributes its products in both Europe
and Asia through resellers and distributors in more than 25 countries. For the
three and six months ended June 30, 2003 and 2002, approximately 30%, 28%, 39%
and 30%, respectively, of the Companys sales were generated from customers
outside of the United States. The Company expects that revenue from shipments
to customers outside of the United States will continue to represent a
significant portion of its future revenue. In addition, the Company believes
that a small portion of its sales through OEMs, resellers and integrators are
ultimately sold to international end-users. Revenue from the Companys
international operations are subject to various risks, including seasonality,
longer payment cycles, changes in regulatory requirements and tariffs,

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reduced protection of intellectual property rights, political and economic
restraints, and currency risks, among others. To date, the Company has not
engaged in any foreign currency hedging activity.

Critical Accounting Policies

There have been no material changes to our critical accounting policies
and estimates as disclosed in the Companys Annual Report on Form 10-K for
the year ended December 31, 2002.

Results of Operations

The following table sets forth certain items from the Companys condensed
consolidated statements of operations as a percentage of total revenue for the
periods indicated:

|                                             |                             |                         |     |                    |     |                  |     |      |     |      |     |    |     |   |     |    |     |  
|-------------------------------------------- | --------------------------- | ----------------------- | --- | ------------------ | --- | ---------------- | --- | ---- | --- | ---- | --- | -- | --- | - | --- | -- | --- | -
|                                             |                             |                         |     | Three months ended |     | Six months ended
|                                             |                             |                         |     |                    |     |                 
|                                             |                             |                         |     | June 30,           |     | June 30,        
|                                             |                             |                         |     |                    |     |                 
|                                             |                             |                         |     | 2003               |     | 2002             |     | 2003 |     | 2002
|                                             |                             |                         |     |                    |     |                  |     |      |     |     
|Revenue                                      |                             |                         | 100 | %                  |     |                  | 100 | %    |     |      | 100 | %  |     |   | 100 | % 
|Cost of revenue                              |                             |                         | 17  | %                  |     |                  | 55  | %    |     |      | 16  | %  |     |   | 38  | % 
|                                             |                             |                         |     |                    |     |                  |     |      |     |      |     |    |     |   |     |   
|                                             | Gross profit                |                         |     | 83                 | %   |                  |     | 45   | %   |      |     | 84 | %   |   |     | 62 | %  
|                                             |                             |                         |     |                    |     |                  |     |      |     |      |     |    |     |   |     |   
|Operating expense:                           |                             |                         |     |                    |     |                  |     |      |     |      |     |    |     |   |     |   
|                                             | Research and development    |                         |     | 40                 | %   |                  |     | 36   | %   |      |     | 43 | %   |   |     | 39 | %  
|                                             | Sales and marketing         |                         |     | 47                 | %   |                  |     | 36   | %   |      |     | 48 | %   |   |     | 33 | %  
|                                             | General and administrative  |                         |     | 30                 | %   |                  |     | 42   | %   |      |     | 30 | %   |   |     | 38 | %  
|                                             | Other non-recurring charges |                         |     | 14                 | %   |                  |     | 0    | %   |      |     | 7  | %   |   |     | 0  | %  
|                                             |                             |                         |     |                    |     |                  |     |      |     |      |     |    |     |   |     |   
|                                             |                             | Total operating expense |     |                    | 131 | %                |     |      | 114 | %    |     |    | 128 | % |     |    | 110 | %
|                                             |                             |                         |     |                    |     |                  |     |      |     |      |     |    |     |   |     |   
|Operating loss                               |                             |                         | -48 | %                  |     |                  | -69 | %    |     |      | -44 | %  |     |   | -48 | % 
|Other income (expense), net                  |                             |                         | -1  | %                  |     |                  | 1   | %    |     |      | 0   | %  |     |   | 1   | % 
|Minority interest in consolidated subsidiary |                             |                         | 0   | %                  |     |                  | 0   | %    |     |      | 0   | %  |     |   | 0   | % 
|                                             |                             |                         |     |                    |     |                  |     |      |     |      |     |    |     |   |     |   
|Net loss                                     |                             |                         | -49 | %                  |     |                  | -68 | %    |     |      | -44 | %  |     |   | -47 | % 
|                                             |                             |                         |     |                    |     |                  |     |      |     |      |     |    |     |   |     |   

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002

Revenue.Revenue was $5.9 million for the three months ended June 30,
2003, a decrease of 11% from the $6.6 million recorded in the three months
ended June 30, 2002. The following table summarizes the total revenue by
software, products and support services (in thousands):

|                |  |                             |       |      |  |   |       | 
|--------------- |  | --------------------------- | ----- | ---- |  | - | ----- | 
|                |  | Three Months Ended June 30,
|                |  |                            
|                |  | 2003                        |       | 2002
|                |  |                             |       |     
|Software        |  | $                           | 3,265 |      |  | $ | 1,916 | 
|Product         |  |                             | 739   |      |  |   | 3,568 | 
|Support service |  |                             | 1,890 |      |  |   | 1,160 | 
|                |  |                             |       |      |  |   |       | 
|Total revenue   |  | $                           | 5,894 |      |  | $ | 6,644 | 
|                |  |                             |       |      |  |   |       | 

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Software revenue consists of revenue from the sale of the Click to Meet,
or CTM, family of software products. Software revenue increased $1.3 million to
$3.3 million in the three months ended June 30, 2003, an increase of 70% from
$1.9 million in the same period of last year. The increase resulted from the
Companys transition from sales of hardware-based ATM legacy products to
software-based products and the expansion of its customer base worldwide. The
Company is uncertain of future software revenue.

Product revenue consists of revenue from the sale of ATM legacy hardware
products, including hardware products sourced from third parties and sold by
the Company. Product revenue decreased $2.8 million to $739,000 in the three
months ended June 30, 2003, a decrease of 79% from $3.6 million in the same
period of last year. The decrease was primarily a result of the lower demand
and lower average selling prices for hardware-based ATM legacy products.
Additionally, the Company provided only limited marketing and promotional
support to these products in 2002. The Company has notified its customers that
it will not be offering ATM legacy products for sale subsequent to May
1, 2003 other than products currently in inventory.

Support service revenue consists of software license subscriptions,
hardware maintenance, training, installation and consulting revenue. Support
service revenue increased $730,000 to $1.9 million in the three months ended
June 30, 2003, an increase of 63% from $1.2 million in the three months ended
June 30, 2002, primarily due to an increase in the sale of software
subscriptions for the Companys Click to Meet product family.

Cost of Revenue. Cost of revenue consists primarily of costs associated
with the purchase of components from outside manufacturers or the manufacture
of the Companys products by outside manufacturers and related costs of
freight, inventory obsolescence, royalties, warranties and customer support
costs, which were charged against income in the period incurred. Total costs of
revenue decreased by 73%, or $2.7 million, to $991,000 for the three months
ended June 30, 2003, from $3.7 million for the three months ended June 30,
2002. As a percentage of total revenues, cost of sales declined to 17% for the
three months ended June 30, 2003, from 55% for the three months ended June 30,
2002. The Company expects costs of revenue as a percent of revenue to remain in
a range of 15% to 20% for the balance of 2003. Gross margin represents the
difference between revenue and cost of revenue as a percentage of revenue.
Overall gross margin in the three months ended June 30, 2003 was 83%, compared
to 45% in the comparable period of 2002.

Cost of software revenue was $277,000 for the three months ended June 30,
2003, compared to $184,000 for the three months ended June 30, 2002. The gross
margin on software revenue increased to 92% for the three months ended June 30,
2003, from 90% for the three months ended June 30, 2002.

Cost of product revenue decreased by 93%, or $2.8 million, to $198,000 for
the three months ended June 30, 2003, from $3.0 million for the three months
ended June 30, 2002. The decrease was primarily due to the lower sales volume
of product revenue and the sales of fully reserved legacy ATM inventory of
$195,000, which had no associated cost of revenue during the three months ended
June 30, 2003, due to inventory writedowns in prior periods and a provision for
excess and obsolete inventory of $1.0 million related to legacy ATM products in
the three months ended June 30, 2002. The gross margin on product revenue
increased to 73% for the three months ended June 30, 2003 from 15% for the
three months ended June 30, 2002, also primarily due to sales of fully reserved
inventory of $195,000 during the three months ended June 30, 2003 and the
provision for excess and obsolete inventory of $1.0 in the three months ended
June 30, 2002.

Cost of support service revenue was $516,000 for the three months ended
June 30, 2003, compared to $442,000 for the three months ended June 30, 2002.
The gross margin on support service revenues increased to 73% for the three
months ended June 30, 2003, from 61% for the three months ended June 30, 2002,
primarily due to the increase in the revenue from support services with
relatively fixed support costs.

Research and Development.Research and development expense consists
primarily of personnel costs, costs of contractors and outside consultants,
supplies and materials expenses, equipment depreciation and overhead costs.
Research and development expense remained flat at $2.4 million in the three
months ended June 30, 2003 and 2002. As a percentage of total revenue,
research and development expense increased to 41% for the three months ended
June 30, 2003, from 37% for the three months ended June 30, 2002, primarily as
a result of the lower sales during the three months ended June 30, 2003
compared to relatively fixed research and development expenses. The Company
expects research and development expenses, as expressed in absolute dollars, to
remain approximately at current levels for the balance of 2003.

Sales and Marketing.Sales and marketing expense includes personnel and
related overhead costs for sales and marketing, costs of outside contractors,
advertising, trade shows and other related marketing and promotional expenses.
Sales and marketing expense increased $403,000 to $2.8 million for the three
months ended June 30, 2003, an increase of 17% compared to the $2.4 million for
the

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three months ended June 30, 2002. The increase of expenses in the second
quarter of 2003 was primarily due to expansion of our Asia sales office with
higher personnel and other expenses. The increase as a percentage of revenue in
the three months ended June 30, 2003 compared to the three months ended June
30, 2002, was primarily due to lower revenue and higher sales and marketing
expense during the three months ended June 30, 2003. The Company expects sales
and marketing expense, as expressed in absolute dollars, to increase
incrementally each quarter during the balance of 2003. The increases will be
primarily related to increased staffing in both the sales and the marketing
functions, and, to the extent that revenues may increase in future quarters,
due to higher sales commissions.

General and Administrative.General and administrative expense includes
personnel and related overhead costs for finance, human resources, product
operations and general management and the amortization of intangible assets.
General and administrative expense decreased $1.0 million to $1.7 million for
the three months ended June 30, 2003, a 37% decrease from the $2.8 million in
the three months ended June 30, 2002. The decrease in the second quarter of
2003 primarily was due to a reduction of $671,000 in bad debt expense after the
Company enhanced credit policies and $363,000 in amortization expense resulting
from the writedown of intangibles at December 31, 2002 and reductions of costs
in other areas. As a percentage of revenue, general and administrative expense
decreased to 30% in the three months ended June 30, 2003, compared to 42% for
the three months ended June 30, 2002. The decrease in general and
administrative expense as a percentage of revenues for the three months ended
June 30, 2003, primarily reflects the lower expense from the comparable period
of 2002 offset in part by the impact of lower revenues in the quarter ended
June 30, 2003. The Company expects general and administrative expenses, as
expressed in absolute dollars, to remain approximately at current levels for
the balance of 2003.

Other non-recurring costs.The $838,000 of one-time charges in the second
quarter of 2003 includes $678,000 due to the relocation of the Companys
California office from Santa Clara to Redwood City and $160,000 costs related
to the discontinuation of the Companys India operations. The costs of the
office relocation include $350,000 of loss from retirement of fixed assets,
$259,000 of refurbishment cost and $69,000 of moving cost. The Company incurred
no non-recurring costs in the three months ended June 30, 2002.

Other Income (expense), Net.Other income (expense), net, consists
primarily of interest income earned on short-term investments and cash
balances, offset by interest expense relating to the Companys credit
facilities and long-term debt, if any. Other income (expense) totaled $(34,000)
for the three months ended June 30, 2003, compared to $48,000 for the three
months ended June 30, 2002. The decline was primarily due to the financing
costs related to the term loan with Silicon Valley Bank during the quarter and
a decline in interest income as a result of lower market interest rates and
lower cash balances.

Minority Interest in Consolidated Subsidiary.Minority interest reflects
the interest of minority stockholders in the operating results of the Companys
consolidated subsidiary in the United Kingdom. In July 2002, the Company
acquired the remaining 48% minority interest in this subsidiary for $570,000.
For the three months ended June 30, 2002, the amount reflects the portion of
losses in this subsidiary that were attributable to minority stockholders.
There was no minority interest in the three months ended June 30, 2003.

Income Taxes.The Company has incurred losses since its inception. No tax
benefit was recorded for any period presented, as the Company believes that,
based on the history of such losses and other factors, the weight of available
evidence indicates that it is more likely than not that the Company will not be
able to realize the benefit of these net operating losses, and thus a full
valuation reserve has been recorded.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

Revenue.Revenue was $11.3 million for the six months ended June 30, 2003,
a decrease of 15% from the $13.2 million recorded in the six months ended June
30, 2002. The following table summarizes the total revenue by software,
products and support services (in thousands):

|                |  |                           |        |      |  |   |        | 
|--------------- |  | ------------------------- | ------ | ---- |  | - | ------ | 
|                |  | Six Months Ended June 30,
|                |  |                          
|                |  | 2003                      |        | 2002
|                |  |                           |        |     
|Software        |  | $                         | 6,658  |      |  | $ | 5,998  | 
|Product         |  |                           | 1,387  |      |  |   | 4,909  | 
|Support service |  |                           | 3,226  |      |  |   | 2,338  | 
|                |  |                           |        |      |  |   |        | 
|Total revenue   |  | $                         | 11,271 |      |  | $ | 13,245 | 
|                |  |                           |        |      |  |   |        | 

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Software revenue primarily consists of revenue from the sale of the Click
to Meet (family of software products, which include Click to Meet Express,
Click to Meet Select, Click to Meet Premier and Click to Meet Conference
Server. Software revenue increased $660,000 to $6.7 million in the six months
ended June 30, 2003, an increase of 11% from $6.0 million in the same period in
2002. The increase in software revenue resulted from the Companys transition
from sales of hardware-based ATM legacy products to software-based products and
the expansion of its customer base worldwide, offset in part by a decrease in
licensing fees from a reseller in Japan pursuant to a licensing agreement which
expired in September 2002. The Company is uncertain of future software
revenue.

Product revenue includes sales of ATM legacy hardware products, including
hardware products sourced from third parties and sold by the Company. Product
revenue decreased $3.5 million to $1.4 million in the six months ended June 30,
2003, a decrease of 72% from $4.9 million in the same period in 2002. The
decrease was primarily a result of lower demand and lower average selling
prices for hardware-based ATM legacy products. Additionally, the Company
provided only limited marketing and promotional support for these products in
2003. The Company has notified its customers that it will not be
offering ATM legacy products for sale subsequent to May 1, 2003
other than products currently in inventory.

Support service revenue consists of software license subscriptions,
hardware maintenance, training, installation and consulting revenue. Support
service revenue increased $888,000 to $3.2 million in the six months ended June
30, 2003, an increase of 38% from $2.3 million in the six months ended June 30,
2002, primarily due to an increase in the sale of software subscriptions for
the Companys Click to Meet product family.

Costs of Revenue. Cost of revenue consists primarily of costs associated
with the purchase of components from outside manufacturers or the manufacture
of the Companys products by outside manufacturers and related costs of
freight, inventory obsolescence, royalties, warranties and customer support
costs, which were charged against income in the period incurred. Total costs of
revenue decreased by $3.1 million, or 64%, to $1.8 million for the six months
ended June 30, 2003, from $5.0 million for the six months ended June 30, 2002.
As a percentage of total revenues, cost of sales declined to 16% for the six
months ended June 30, 2003 from 38% for the six months ended June 30, 2002. The
Company expects costs of revenue as a percent of revenue to remain in a range
of 15% to 20% for the balance of 2003. Gross margin represents the difference
between revenue and cost of revenue as a percentage of revenue. Overall gross
margin in the six months ended June 30, 2003 was 84%, compared to 62% in the
comparable period of 2002.

Cost of software revenue was $443,000 for the six months ended June 30,
2003, compared to $343,000 for the six months ended June 30, 2002. The gross
margin on software revenue decreased to 93% for the six months ended June 30,
2003, from 94% for the six months ended June 30, 2002.

Cost of product revenue decreased by 89%, or $3.4 million, to $417,000 for
the six months ended June 30, 2003, from $3.8 million for the six months ended
June 30, 2002. The decrease was primarily due to the lower sales volume of
product revenue and the sales of fully reserved legacy ATM inventory of
$351,000, which had no associated cost of revenue during the six months ended
June 30, 2003, due to inventory writedowns in prior periods, and a provision
for excess and obsolete inventory of $1.0 million related to legacy ATM
products in the six months ended June 30, 2002. The gross margin on product
revenue increased to 70% for the six months ended June 30, 2003 from 23% for
the six months ended June 30, 2002, also primarily due to sales of fully
reserved inventory of $351,000 during the six months ended June 30, 2003 and
the provision for excess and obsolete inventory of $1.0 million in the six
months ended June 30, 2002.

Cost of support service revenue was $962,000 for the six months ended June
30, 2003, compared to $877,000 for the six months ended June 30, 2002. The
gross margin on support service revenues increased to 70% for the six months
ended June 30, 2003, from 62% for the six months ended June 30, 2002, primarily
due to the increase in the revenue from support services with relatively fixed
support costs.

Research and Development.Research and development expense consists
primarily of personnel costs, costs of contractors and outside consultants,
supplies and materials expenses, equipment depreciation and overhead costs.
Research and development expense decreased $306,000 to $4.9 million for the six
months ended June 30, 2003, a decrease of 6% compared to the $5.2 million
during the six months ended June 30, 2002. The decrease in absolute dollars was
principally due to the lower spending in professional fees and other expenses
in the six months ended June 30, 2003. As a percentage of total revenue,
research and development expense increased to 43% for the six months ended June
30, 2003, from 39% for the six months ended June 30, 2002, primarily as a
result of the lower sales during the six months ended June 30, 2003 compared to
relatively fixed research and development expenses. The Company

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expects research and development expenses, as expressed in absolute
dollars, to remain approximately at current levels for the balance of 2003.

Sales and Marketing.Sales and marketing expense includes personnel and related
overhead costs for sales and marketing, costs of outside contractors,
advertising, trade shows and other related marketing and promotional expenses.
Sales and marketing expense increased $1.1 million to $5.4 million for the six
months ended June 30, 2003, an increase of 25% compared to the $4.3 million for
the six months ended June 30, 2002. Expenses in the six months ended June 30,
2003 increased $535,000, primarily due to expansion of our Asia sales office
with higher personnel and other expenses and higher compensation expense
resulting from our acquisition of our FVC.Com (Asia) distributor). In the same
period of 2002, the Company recorded a reduction in sales and marketing expense
of $359,000, reflecting collection of a customer receivable that had previously
been deemed uncollectible. The increase as a percentage of revenue in the six
months ended June 30, 2003 compared to the six months ended June 30, 2002, was
primarily due to lower revenue and higher sales and marketing expense during
the current period. The Company expects sales and marketing expense, as
expressed in absolute dollars, to increase incrementally each quarter during
the balance of 2003. The increases are expected to be primarily related to
increased staffing in both the sales and the marketing functions, and, to the
extent that revenues may increase in future quarters, due to higher sales
commissions.

General and Administrative.General and administrative expense includes
personnel and related overhead costs for finance, human resources, information
technology, product operations and general management and the amortization of
intangible assets. General and administrative expense decreased $1.7 million to
$3.4 million for the six months ended June 30, 2003, a 33% decrease from the
$5.1 million in the six months ended June 30, 2002. The decrease in the six
months ended June 30, 2003 primarily was due to a reduction of $610,000 in bad
debt expense after the Company enhanced credit policies and $1.1 million in
amortization expense resulting from the writedown of intangibles at December
31, 2002 and reductions of costs in other areas. As a percentage of revenue,
general and administrative expense decreased to 30% in the six months ended
June 30, 2003, compared to 38% for the six months ended June 30, 2002. The
decrease in general and administrative expense as a percentage of revenues for
the six months ended June 30, 2003, primarily reflects the lower expense from
the comparable period of 2002 offset in part by the impact of lower revenues in
the quarter ended June 30, 2003. The Company expects general and administrative
expenses, as expressed in absolute dollars, to remain approximately at current
levels for the balance of 2003.

Other non-recurring costs.The $838,000 of one-time charges in the six
months ended June 30, 2003 includes $678,000 due to the relocation of the
Companys California office from Santa Clara to Redwood City and $160,000 for
costs related to the discontinuation of the Companys India operations. The
cost of the office relocation includes $350,000 of loss from retirement of
fixed assets, $259,000 of refurbishment cost and $69,000 of moving cost. The
Company incurred no non-recurring costs in the six months ended June 30, 2002.

Other Income (expense), Net.Other income, net, consists primarily of
interest income earned on short-term investments and cash balances, offset by
interest expense relating to the Companys credit facilities and long-term
debt, if any. Other income (expense) totaled $(7,000) for the six months ended
June 30, 2003, compared to $92,000 for the six months ended June 30, 2002. The
decline was primarily due to the financing costs related to the term loan with
Silicon Valley Bank during the six months ended June 30, 2003 and a decline in
interest income as a result of lower market interest rates and lower cash
balances.

Minority Interest in Consolidated Subsidiary.Minority interest reflects
the interest of minority stockholders in the operating results of the Companys
consolidated subsidiary in the United Kingdom. In July 2002, the Company
acquired the remaining 48% minority interest in this subsidiary for $570,000.
For the six months ended June 30, 2002, the amount reflects the portion of
losses in this subsidiary that were attributable to minority stockholders.
There was no minority interest in the six months ended June 30, 2003.

Income Taxes.The Company has incurred losses since its inception. No tax
benefit was recorded for any period presented, as the Company believes that,
based on the history of such losses and other factors, the weight of available
evidence indicates that it is more likely than not that the Company will not be
able to realize the benefit of these net operating losses or other deferred tax
assets, and thus a full valuation reserve has been recorded.

Liquidity and Capital Resources

Since inception, the Company has financed its operations primarily through
private and public placements of equity securities, revenue from sales of the
Companys products and services and to a lesser extent through certain credit
facilities and long-term debt, including the $3.0 million of
term loan drawn down on June 23, 2003. As of June 30, 2003, the Company had cash and cash
equivalents and short-term investments of $6.2 million.

17



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In order to improve liquidity and reduce costs, the Company completed the
following actions in April 2003. The Company reached agreement with its bank for a $3 million credit
facility that may be used by the Company at any time prior to December 31,
2003. The interest rate is equal to the banks prime rate plus 2.25% with a
floor at 6.5%. The Company paid a $22,500 commitment fee at the closing and is
subject to a commitment fee of 0.25% per annum on any unused borrowings, with
this fee paid quarterly. Funds drawn under the facility will be recorded as a
secured term loan, fully amortized and repaid over a three-year period. The
term loan facility is secured by all of the Companys assets, including
intellectual property rights, and contains certain financial covenants,
including the maintenance of cash deposits at the bank of not less
than $2.9 million, as well as a liquidity covenant. The liquidity covenant requires that
the sum of (i) the amount of the Companys unrestricted cash on deposit in the
bank, plus (ii) the Companys eligible accounts receivable, divided by (iii)
the amount outstanding under the loan agreement be at all times equal to 2.0 or
higher. The liquidity covenant is only applicable if the loan is drawn down. On
June 23, 2003, $3.0 million of term loan was drawn down and outstanding.

The Company also entered into a private equity line financing agreement
with Ralph Ungermann, Executive Chairman of the Companys Board of Directors,
under which the Company may require Mr. Ungermann to purchase up to $1 million
of its common stock at a purchase price of $1.55 per share during the period
from April 14, 2003 through April 13, 2004. The Company may draw down funds
under the private equity line financing agreement up to four times during the
12-month term of the agreement, with each draw for a minimum of $250,000.

In April 2003, the Company also signed an agreement with its landlord to
terminate the Companys lease for its Santa Clara, California headquarters and
executed a new lease that will reduce annual rental expense and cash payments
by approximately $900,000 for each of the next five years.

The Company has experienced significant net operating losses since
inception. In the six months ended June 30, 2003, the Company incurred losses
of $5.0 million and used $4.9 million of cash in its operating activities. In
the comparable period of 2002, the Company incurred net losses of $6.2 million
and used $3.1 million of cash in its operating activities. Management currently
expects that operating losses and negative cash flows will continue for the
foreseeable future and that the Companys existing cash and investments,
together with the funds provided pursuant to its credit facility with its bank
and the financing agreement with Mr. Ungermann are adequate to fund the
Companys operations through the first quarter of 2004. However, the Companys
cash requirements depend on several factors, including the rate of market
acceptance of its products and services, the ability to expand and retain its
customer base and other factors. If the Company fails to achieve its planned
revenue or expense targets, management believes that it has the plans, intent
and ability to curtail capital and operating spending to ensure that cash and
investments will be sufficient to meet the Companys cash requirements through
March 31, 2004.

In order
to pursue business opportunities, the Company will be required to
seek equity investments from existing or potential strategic partners in the
future. Should the Company sell additional equity, the sale may result in
dilution to the Companys current stockholders. The Company also
plans to raise equity from the public and/or private equity markets that will
likely result in dilution of the Companys current stockholders. There can be
no assurance that any financing will be available at acceptable terms or at
all.

In the six months ended June 30, 2003, cash used in operating activities
totaled $4.9 million, compared to $3.1 million in the six months ended June 30,
2002. The change in cash provided or used by operating activities reflects our
operating performance and the timing of receipts and disbursements. During the
six months ended June 30, 2003, net cash used in operating activities of $4.9
million was comprised of the net loss of $5.0 million and a $1.3 million
increase in current net assets, partially offset by $1.5 million of adjustments
for non-cash items such as depreciation, amortization and a loss on disposal of
fixed assets. The increase in current net assets consisted of increases in
receivables of $477,000 and prepaid expenses and other assets of $353,000,
reductions in accounts payable of $147,000, accrued liabilities of $681,000 and
deferred revenue of $217,000, offset in part by a $535,000 reduction in
inventory. During the six months ended June 30, 2002, net cash used in
operating activities was $3.1 million. This was comprised of the net loss of
$6.2 million and a $107,000 increase in current net assets, partially offset by
$3.1 million of adjustments for non-cash items such as depreciation,
amortization and increases in the provisions for doubtful accounts and
inventory. The increase in current net assets consisted of increases in
receivables of $441,000 and prepaid expenses and other assets of $121,000 and a
reduction in accrued liabilities of $1.2 million, offset in part by a $549,000
reduction in inventory and increases in accounts payable of $104,000 and
deferred revenue of $1.2 million.

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Cash used in investment activities totaled $461,000 for the six months
ended June 30, 2003, primarily for the acquisition of property and equipment.
Cash provided by investment activities totaled $1.4 million for the six months
ended June 30, 2002, primarily resulting from $1.8 million of net sales and
maturities of short-term investments, partially offset by the acquisition of
property and equipment.

Cash provided by financing activities was $3.1 million for the six months
ended June 30, 2003, principally consisting of proceeds from a term loan
facility with our bank. Cash provided by financing activities was $5.0 million
for the six months ended June 30, 2002, primarily from the issuance of stock.

As of June 30, 2003, our contractual obligation and other commitments were
as follows :

|                            |                                   |       |           |            |  |      |                   |         |              |      |           |           |  |            |           |           |  |   |         |           |  |   |         |         |  |   |           |           | 
|--------------------------- | --------------------------------- | ----- | --------- | ---------- |  | ---- | ----------------- | ------- | ------------ | ---- | --------- | --------- |  | ---------- | --------- | --------- |  | - | ------- | --------- |  | - | ------- | ------- |  | - | --------- | --------- | 
|                            |                                   |       |           |            |  |      | Six Months Ending |         | Years Ending
|                            |                                   |       |           |            |  |      | December 31,      |         | December 31,
|                            |                                   |       |           |            |  |      |                   |         |             
|Contractual obligation      |                                   | Total |           | 2003       |  | 2004 |                   | 2005    |              | 2006 |           | 2007      |  | After 2007
|                            |                                   |       |           |            |  |      |                   |         |              |      |           |           |  |           
|Principal of long-term debt |                                   | $     | 3,000,000 |            |  | $    | 500,000           |         |              | $    | 1,000,000 |           |  | $          | 1,000,000 |           |  | $ | 500,000 |           |  | $ |        |         |  | $ |          |          
|Operating leases            |                                   |       | 7,576,183 |            |  |      | 357,464           |         |              |      | 711,947   |           |  |            | 710,976   |           |  |   | 729,135 |           |  |   | 748,554 |         |  |   | 4,318,107 |          
|                            |                                   |       |           |            |  |      |                   |         |              |      |           |           |  |            |           |           |  |   |         |           |  |   |         |         |  |   |           |          
|                            | Total contractual cash
obligation |       | $         | 10,576,183 |  |      | $                 | 857,464 |              |      | $         | 1,711,947 |  |            | $         | 1,710,976 |  |   | $       | 1,229,135 |  |   | $       | 748,554 |  |   | $         | 4,318,107 | 
|                            |                                   |       |           |            |  |      |                   |         |              |      |           |           |  |            |           |           |  |   |         |           |  |   |         |         |  |   |           |          

New Accounting Pronouncements.

In May 2003, the Financial Accounting Standard Board issued SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This Statement establishes standards for how an
issuer classifies and measures in its statement of financial position certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances) because that financial
instrument embodies an obligation of the issuer. This Statement is effective
for financial instruments entered into or modified after May 31, 2003 and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003, except for mandatorily redeemable financial instruments of
nonpublic entities. For nonpublic entities, mandatorily redeemable financial
instruments are subject to the provisions of this Statement for the first
period beginning after December 15, 2003. It is to be implemented by reporting
the cumulative effect of a change in an accounting principle for financial
instruments created before the issuance date of the statement and still
existing at the beginning of the interim period of adoption. The Company has
not determined the impact that the adoption of SFAS No. 150 will have on its
financial position or results of operations.

Risk Factors

In addition to the other information provided in this Quarterly Report,
the following risk factors should be considered in evaluating the Company and
its business.

The Company has a history of operating losses and will incur losses in the
future. The Company may never generate sufficient revenue to achieve
profitability.

The Company has incurred operating losses in each quarter since it
commenced operations in 1993. The Company expects to continue to devote
substantial resources to its research and development and sales and marketing
activities. As a result, the Company expects that it will continue to incur
operating losses for the foreseeable future. At June 30, 2003, the Company had
an accumulated deficit of $116.6 million.

The Companys quarterly financial results are expected to fluctuate and may
cause the price of the Companys common stock to fall.

The Company has experienced in the past, and is likely to experience in
the future, fluctuations in revenue, gross margin and operating results.
Various factors could contribute to the fluctuations in revenue, gross margin
and operating results in the future, including the Companys:

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| |  |  | success in developing our rich media Web conferencing business and in
developing, introducing and shipping new products and product
enhancements, particularly for Click to Meet) product family, including
the Click to Meet Conference Server;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | success in accurately forecasting demand for new orders that may have
short lead-times before required shipment, product mix, percentage of
revenue derived from original equipment manufacturers, or OEMs, versus
distributors or resellers;   
|
| |  |  | new product introductions and price reductions by competitors;                                                                                                                                                                                  
|
| |  |  | results from strategic collaborations;                                                                                                                                                                                                          
|
| |  |  | use of OEMs, distributors, resellers, and other third parties;                                                                                                                                                                                  
|
| |  |  | ability to attract, retain and motivate qualified personnel;                                                                                                                                                                                    
|
| |  |  | research and development efforts and success; and                                                                                                                                                                                               
|
| |  |  | selling, general and administrative expenditures.                                                                                                                                                                                               

Additionally, the Companys operating results may vary significantly
depending on a number of factors that are outside of its control. Further, a
significant portion of the Companys expenses are fixed. The Company has made
significant progress in reducing its operating expenses in the last fiscal year
and during the first six months of 2003 and expects that operating expenses will
decrease in the future due to continued expense reduction measures. However, to
the extent that operating expenses are not reduced and to the extent that
revenue or gross margin cannot be increased, the Companys business, financial
condition and results of operations would be materially adversely affected. Due
to all the foregoing factors, it is likely that in some future quarter, as at
times in past quarters, the Companys results of operations will be below the
expectations of public market analysts and investors, resulting in a negative
impact on the Companys common stock price.

If the carrying value of the Companys long lived assets is not recoverable, an
impairment loss must be recognized which could adversely affect the Companys
financial results.

Certain events or changes in circumstances would require the Company to
assess the recoverability of the carrying amount of long-lived assets. In the
year ended December 31, 2002, the Company recorded impairment charges of $3.3
million relating to technology acquired in a prior acquisition and $6.6 million
relating to goodwill. In addition, the Financial Accounting Standards Board, or
FASB, issued Statement of Financial Accounting Standards, or SFAS No. 142, in
July 2001, whereby goodwill must be evaluated annually and whenever events or
circumstances occur which indicate goodwill might be impaired. The Company
adopted SFAS No. 142 on January 1, 2002. The Company will continue to evaluate
the recoverability of the carrying amount of our long-lived assets, and may
incur substantial impairment charges that could adversely affect the Companys
financial results in the future.

The Companys success depends
on the markets acceptance of rich media web
conferencing services and the Companys products, including Click to Meet and
the Multi Conferencing Unit.

The Companys success depends in part on the markets acceptance of rich
media web conferencing services and the Companys products, including Click to
Meet and the Multi Conferencing Unit, or MCU. Potential end-users must accept
video applications as a viable alternative to face-to-face meetings and
conventional classroom-based learning. New applications, such as the use of
video conferencing in marketing, selling and manufacturing, are still in the
development stage. The Companys contracts with telecommunications service
providers to provide video and web conferencing solutions are in the early
stage and only recently has the Company received significant revenue from this
market segment. If rich media, web conferencing and broadband video services
fail to achieve broad commercial acceptance or if such acceptance is delayed,
the Companys business, financial condition and results of operations will be
materially adversely affected. The Company anticipates that growth in the
foreseeable future will come from the sale of its Click to Meet and MCU
products and services. Broad market acceptance of these products and services
is therefore critical to the Companys operating success.

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The Company faces potential delisting from The Nasdaq SmallCap Market.
If delisting occurs, the market price and market liquidity of the
Companys common stock would be materially adversely affected.

The Companys common stock currently is listed on The Nasdaq SmallCap
Market. Pursuant to its rules, The Nasdaq National Market delisted the
Companys shares from the Nasdaq National Market based on the shares trading
below $1.00 per share on The Nasdaq National Market for a period of 30
consecutive trading days. On September 9, 2002, the Companys shares began
trading on The Nasdaq SmallCap Market. In October 2002, the Company received a
letter from Nasdaq advising it that the Companys common stock must have a
closing bid price of at least $1.00 per share for a minimum of ten consecutive
trading days by March 26, 2003 in order to continue trading on the Nasdaq
SmallCap Market, subject to appeal by the Company. On April 1, 2003, the
Company received an additional letter from Nasdaq advising that, based on
recent Nasdaq modifications to the bid price rules, it would be granted an
additional 90 calendar day period within which to remedy the bid price
deficiency. To demonstrate compliance with the minimum bid price requirement,
the Company implemented a 1-for-5 reverse stock split on June 27, 2003. After
demonstrating a closing bid price of at least $1.00 per share for a minimum of
ten consecutive trading days, the Company regained compliance with the Nasdaq
Small Cap Market. However, on July 31, 2003, the Company received an
additional letter from Nasdaq indicating that as of July 30, 2003, the Company failed to
comply with Nasdaq rules that require that the Company have a minimum of
$2,500,000 in stockholders equity or $35 million market value of listed
securities or $500,000 of net income from continuing operations for the most
recently completed fiscal year. The Company has to respond to Nasdaq by August
14, 2003 and advise Nasdaq of its plans to regain compliance with the Nasdaq
Small Cap listing requirements.

If delisting from Nasdaq occurs, the trading of the Companys common stock
is likely to be conducted on the Over-the-Counter Bulletin Board, which will
have a materially adverse affect on the market price of the Companys common
stock and on the ability of stockholders and investors to buy and sell the
common stock. If delisting occurs, you may lose some or all of your investment.

The Companys inability to secure additional funding could adversely effect it business.

We believe the Company has adequate cash and access to cash to meet its
anticipated working capital and capital expenditure requirements through the
first quarter of 2004. However, the Company plans to raise additional funds
through debt sources and/or the issuance of equity securities. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of existing stockholders of the Company will be reduced, stockholders
may experience additional dilution, and the new equity securities may have
rights, preferences or privileges senior to those of the holders of the
Companys common stock. Additional financing may not be available when needed
or on terms favorable to the Company, or at all. Additionally, if
delisting from Nasdaq occurs, it will
be more difficult to raise additional funds. If adequate funds are not
available or are not available on acceptable terms, it could have a material
adverse effect on the Companys business, financial condition and operating
results. The Company may be required to delay, scale back or eliminate some or
all of its development programs for its products and may be unable to take
advantage of future opportunities or respond to competitive pressures.

The Companys software products may contain undetected defects.

Software developed by the Company or developed by others and incorporated
by the Company into its products may contain significant undetected errors,
especially when first released or as new versions are released. Although the
Companys software products are tested before commercial release, errors in the
products may be found after customers begin to use the software. Any defects in
the Companys current or future products may result in significant decreases in
revenue or increases in expenses because of adverse publicity, reduced orders,
product returns, uncollectible accounts receivable, delays in collecting
accounts receivable, and additional and unexpected costs of further product
development to correct the defects.

The Companys common stock price is volatile.

The market price of the Companys common stock has been extremely volatile
in the past and, like that of other technology companies, is likely to be
volatile in the future, depending upon many factors, including:



| |  |  | fluctuations in the Companys financial results;                                                        
| | - |  | --------------------------------------------------------------------------------------------------------
|
| |  |  | technological innovations or new commercial products developed by the Company or its competitors;       
|
| |  |  | establishment of and success of corporate partnerships or licensing arrangements;                       
|
| |  |  | announcements by the Company or others regarding the acquisition of technologies, products or companies;
|
| |  |  | regulatory changes and developments that affect the Companys business;                                 

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| |  |  | developments or disputes concerning patent and proprietary rights and other legal matters;
| | - |  | ------------------------------------------------------------------------------------------
|
| |  |  | an adverse outcome from pending or any future legal matters;                              
|
| |  |  | issuance of new or changed stock market analyst reports and/or recommendations; and       
|
| |  |  | economic and other external factors; and                                                  
|
| |  |  | failure to satisfy the Nasdaq listing requirements.                                       

One or more of these factors could significantly harm the Companys
business and decrease the price of our common stock in the public market.
Severe price fluctuations in a companys stock, including the Companys stock,
have frequently been followed by securities litigation. Litigation can result
in substantial costs and a diversion of managements attention and resources
and therefore could have a material adverse effect on the Companys business,
financial condition and results of operations. Past financial performance of
the Company should not be considered a reliable indicator of future
performance, and investors should not use historical trends to anticipate
results or trends in future periods.

The Company has a history of generating a large percentage of its revenue at the end of each quarterly accounting period.

Due to the way that many customers in the Companys target markets
allocate and spend their budgeted funds for acquisition of the Companys
products and other products, a large percentage of the Companys business is
booked at the end of each quarterly accounting period. Because of this, the
Company may not be able to reliably predict order volumes. If the Company is
unable to ship its customer orders on time, there could be a material adverse
effect on the Companys results of operations.

The Companys success depends on the performance of participants in the Companys distribution channels.

The Company currently sells its products through OEMs, distributors and
resellers. The Companys future performance will depend in large part on sales
of its products through these distribution relationships, such as those with
Comp View, Inc., GSA, Net One, NEC, AT&T and other key partners. Agreements
with distribution partners generally provide for discounts based on the
Companys list prices, and do not require minimum purchases or restrict
development or distribution of competitive products. Therefore, entities that
distribute the Companys products may compete with the Company. In addition,
OEMs, distributors and resellers may not dedicate sufficient resources or give
sufficient priority to selling the Companys products. The Company additionally
depends on its distribution relationships for most customer support, and
expends significant resources to train its OEMs, distributors and resellers to
support these customers. These entities can generally terminate the
distribution relationship upon 30 days notice. The loss of a distribution
relationship or a decline in the efforts of a material distributor, or loss in
business or cancellation of orders from, significant changes in scheduled
deliveries to, or decreases in the prices of products sold to, any of these
distribution relationships could have a material adverse effect on the
Companys results of operations.

The Company expects to rely on a limited number of large customers for its
revenue in the future. Losing one or more of these customers may adversely
affect the Companys future revenue.

The Company depends on a limited number of large end-user customers for a
significant portion of its revenue which has resulted in, and may in the future
result in, significant fluctuations in quarterly revenue. The Company expects
that revenue from the sale of products to large resellers and
telecommunications service providers will continue to account for a significant
percentage of its revenue in any particular quarter for the foreseeable future.
Additionally, a significant portion of the Companys sales of video
conferencing products has historically been to government agencies, such as
military and educational institutions, or to third parties using the Companys
products on behalf of government agencies. Government customers are often
subject to budgetary pressures and may from time to time reduce their
expenditures and/or cancel orders. The loss of any major customer, or any
reduction or delay in orders by a customer, or the failure of the Company or
its distribution partners to market the Companys products successfully to new
customers could have a material adverse effect on the Companys business,
financial condition and results of operations.

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Because sales of some of the Companys products require a lengthy sales effort and implementation cycle, revenue may be unpredictable, and the Companys
business may be harmed.

Sales of some of the Companys products have required and will continue to
require an extended sales effort. For some projects, the period from an initial
sales call to an end-user agreement can range from six to twelve months and can
be longer. Therefore, the timing of revenue recognition, as well as related
cash receipts, may be unpredictable. A lengthy delay in booking orders,
obtaining payment and recognizing revenue could have a material adverse effect
on the Companys business, financial condition and results of operations.

Rapid technological change and evolving industry standards and regulations may
impair the Companys ability to develop and market its products and services.

Rapid technological change and evolving industry standards characterize
the market for the Companys products and services. The Companys success
depends, in part, on its ability to maintain technological leadership and
enhance and expand its existing product and services offerings. The Companys
success also depends in part upon its ability and the ability of its strategic
partners to comply with evolving industry standards. The Companys products
must meet a significant number of domestic and international video, voice and
data communications regulations and standards, some of which are evolving as
new technologies are deployed. The Companys products are currently in
compliance with applicable regulatory requirements. However, as standards
evolve, the Company will be required to modify its products, or develop and
support new versions of its products. In addition, telecommunications service
providers require that equipment connected to their networks comply with their
own environment and standards, which may vary from industry standards.

The Companys ability to compete successfully is also dependent upon the
continued compatibility and interoperability of its products with products and
architectures offered by other vendors. The Companys business, financial
condition and results of operations and cash flows would be materially
adversely affected if it were unable in a timely manner to comply with evolving
industry standards or to address compatibility issues. In addition, from time
to time, the Company may announce new products, capabilities or technologies
that have the potential to replace or shorten the life cycle of the Companys
existing product offerings. The announcement of product enhancements or new
product or service offerings could cause customers to defer purchasing the
Companys products. In addition, the Company has experienced delays in the
introduction of new products in the past and may experience additional delays
in the introduction of products currently under development or products
developed in the future. The failure of the Company to successfully introduce
new products, product enhancements or services on schedule or in time to meet
market opportunities, or customer delays in purchasing products in anticipation
of new product introductions or because of changes in industry standards, could
have a material adverse effect on the Companys business, financial condition
and results of operations.

The Company faces intense competition from other industry participants and may not be able to compete effectively.

The market for Web conferencing and networking products and services is
extremely competitive. Because the barriers to entry in the market are
relatively low and the potential market is large, the Company expects continued
growth in existing competitors and the entrance of new competitors in the
future. Many of the Companys current and potential competitors have
significantly longer operating histories and significantly greater managerial,
financial, marketing, technical and other competitive resources, as well as
greater name recognition, than that of the Company. As a result, these
companies may be able to adapt more quickly to new or emerging technologies and
changes in customer requirements and may be able to devote greater resources to
the promotion and sale of their competing products and services. As a result,
the Company may not be able to compete successfully with existing or new
competitors in the rich media Web conferencing and collaboration solutions
market. The Company believes that its ability to compete successfully in this
market depends on a number of factors both within and outside its control,
including:



| |  |  | the timing of the introduction of new products, product upgrades and services by the Company and its competitors;
| | - |  | -----------------------------------------------------------------------------------------------------------------
|
| |  |  | the pricing policies of the Companys competitors and suppliers;                                                 
|
| |  |  | the Companys ability to hire and retain highly qualified employees;                                             
|
| |  |  | continued investment in research and development;                                                                
|
| |  |  | continued investment in sales and marketing; and                                                                 
|
| |  |  | the adoption and evolution of industry standards.                                                                

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The Companys business may be harmed if it is unable to protect its proprietary rights.

The Companys success and ability to compete in the rich media Web
conferencing and collaboration solutions market depends, in part, upon its
ability to protect its proprietary technology. The Company may be unable to
deter misappropriation of its proprietary technology, detect unauthorized use,
and take appropriate steps to enforce its intellectual property rights.

The Company does not rely on patent protection for its products, and does
not hold any patents, although it has filed patent applications relating to
tunneling technology and the initiation and support of video conferencing using
instant messaging. This patent application may not be approved, however, and
even if issued by the United States Patent and Trademark Office, it may not
give the Company an advantage over competitors. The Companys adherence to
industry-wide technical standards and specifications may limit its
opportunities to provide proprietary product features. The Company currently
licenses certain technology from third parties and plans to continue to do so
in the future. The commercial success of the Company will depend, in part, on
its ability to continue to obtain licenses to use third-party technology in its
products.

The Company relies upon a combination of trade secret, copyright and
trademark laws and contractual restrictions to establish and protect
proprietary rights in its technology. The Company also enters into
confidentiality and invention assignment agreements with its employees and
enters into non-disclosure agreements with its consultants, suppliers,
distributors and customers to limit access to and disclosure of its proprietary
information. However, these statutory and contractual arrangements may not be
sufficient to deter misappropriation of the Companys proprietary technologies.
In addition, independent third parties may develop similar or superior
technologies to those of the Company. Furthermore, the laws of some foreign
countries do not provide the same degree of protection of the Companys
proprietary information as do the laws of the United States.

Claims by third parties that the Company infringes their proprietary technology
could prevent the Company from offering its products or otherwise materially
harm the Companys business.

The commercial success of the Company also will depend, in part, on the
Company not breaching third-party intellectual property rights. The Company
licenses certain third-party technology for use in its products, but is subject
to claims and the risk of litigation alleging infringement of other third-party
intellectual property rights. A number of companies have developed technologies
or received patents on technologies that may be related to or be competitive
with the Companys technologies. The Company has not conducted a patent search
relating to the technology used in its products. In addition, since patent
applications in the United States are not publicly disclosed until the patent
issues, applications may have been filed, which, if issued as patents, would
relate to the Companys products. The Companys lack of patents may inhibit the
Companys ability to negotiate or obtain licenses from or oppose patents of
third parties, if necessary.

The Company may incur substantial costs in defending itself and its
customers against intellectual property litigation, including pending and
potential future litigation, regardless of the merits of such claims. The
Company may also be required by contract or by statutory implied warranties to
indemnify its distribution partners and end-users against third-party
infringement claims. Parties making infringement claims against the Company may
be able to obtain injunctive or other equitable relief which could effectively
block the Companys ability to sell its products in the United States and
abroad, and could result in an award of substantial damages. In the event of a
successful claim of infringement against the Company, the Company, its
customers and end-users may be required to obtain one or more licenses from
third parties. The Company, or its customers, may not be able to obtain
necessary licenses from third parties at a reasonable cost, or at all. The
defense of any lawsuit could result in time-consuming and expensive litigation,
damages, license fees, royalty payments and restrictions on the Companys
ability to sell its products, any of which could have a material adverse effect
on the Companys business, financial condition, and results of operations.

The Company faces additional risks from its international operations.

The Companys international business involves a number of risks that could
adversely affect its operating results or contribute to fluctuations in those
results. The Companys revenue from international sales represented 30% and
28%, respectively, of its total revenue in the three months ended June 30, 2003
and 2002 and 39% and 30%, respectively, of its total revenue in the six months
ended June 30, 2003 and 2002, respectively. The Company intends to seek
opportunities to expand its product and service offerings into additional
international markets, although the Company may not succeed in developing
localized versions of its products for new international markets or in
marketing or distributing products and services in those markets.

The majority of the Companys international sales are currently
denominated in United States dollars. However, it is possible that a
significantly higher level of future sales of the Companys products may be
denominated in foreign currencies. To the extent that the Companys sales are
denominated in currencies other than United States dollars, fluctuations in
exchange rates may result in foreign

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exchange losses. The Company does not have experience in implementing
hedging techniques that might minimize the Companys risks from exchange rate
fluctuations.

The Companys international business also involves a number of other
difficulties and risks, including risks associated with:



| |  |  | changing economic conditions and political instability in foreign countries;                                         
| | - |  | ---------------------------------------------------------------------------------------------------------------------
|
| |  |  | export restrictions and export controls relating to the Companys technology;                                        
|
| |  |  | compliance with existing and changing regulatory requirements;                                                       
|
| |  |  | tariffs and other trade barriers;                                                                                    
|
| |  |  | difficulties in staffing and managing international operations ;                                                     
|
| |  |  | longer payment cycles and problems in collecting accounts receivable;                                                
|
| |  |  | software piracy;                                                                                                     
|
| |  |  | seasonal reductions in business activity in Europe and certain other parts of the world during the summer months; and
|
| |  |  | potentially adverse tax consequences.                                                                                

Control by Insiders

As of June 30, 2003, the Companys executive officers, directors and their
affiliates beneficially owned approximately 1.3 million shares, or
approximately 15%, of the outstanding shares of the Companys common stock. As a
result, these persons may have the ability to effectively control the Company
and direct its affairs and business, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also have the effect of delaying, deferring or preventing a change in
control of the Company, and making certain transactions more difficult or
impossible absent the support of these stockholders, including proxy contests,
mergers involving the Company, tender offers, open-market purchase programs or
other purchases of common stock that could give stockholders of the Company the
opportunity to realize a premium over the then prevailing market price for
shares of common stock.




Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Companys market risk exposures as set forth in its Annual Report on
Form 10-K for the year ended December 31, 2002 have not materially changed.




Item 4. Controls and Procedures

(a)  An evaluation was performed under the supervision and with the
participation of the Companys management, including the Chief Executive
Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of
the design and operation of the Companys disclosure controls and procedures as
of the end of the period covered by this quarterly report. Based on that
evaluation, the Companys management, including the CEO and CFO, concluded that
the Companys disclosure controls and procedures (as defined in Rules 13a-14(c)
and 15d-14(c) promulgated under the Exchange Act) were effective as of the end
of the quarter ended June 30, 2003.

Limitations on the Effectiveness of Controls.The Companys management,
including the CEO and CFO, does not expect that its disclosure controls will
prevent all error or potential fraud. A control system, no matter how well
conceived and operated, can provide only reasonable not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their cost. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be

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circumvented by the individual acts of some persons or by collusion of two
or more people. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, control may become inadequate because
of changes in conditions, or the degree of compliance with policies or
procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur
and not be detected.




PART II. OTHER INFORMATION




Item 1. Legal Proceedings

On February 11, 2003, the Company received an adversarial complaint filed
by Visitalk.com in connection with Visitalk.coms reorganization proceedings in
the United States Bankruptcy Court District of Arizona, alleging that CUseeMe
Networks, which was acquired by the Company on June 19, 2001, breached a 1999
Strategic Partnership Agreement and sought damages of $435,000. In April, the
Company responded to the complaint with a Motion to Stay Proceedings and to
compel Matter to Proceed to Arbitration. In June 2003, the parties reached a
mutual agreement to dismiss the adversarial action with prejudice, exchange a
mutual general release of all claims and waive attorneys fees and costs. The
parties have not yet executed a formal settlement agreement and the settlement
will not become effective until approved by the Bankruptcy Court.




Item 2. Changes in Securities

On April 3, 2003, the Company entered into a term loan facility agreement
with its bank that allows the Company to borrow up to $3.0 million at any time
prior to December 31, 2003. Funds drawn under the facility will be recorded as
a term loan fully amortized over a three-year period with an interest rate
equal to the banks prime rate plus 2.25%, with a floor at 6.5%. The Company
paid a $22,500 commitment fee at the closing and is subject to a commitment fee
of 0.25% per annum on any unused borrowings. In connection with the term loan
facility, the Company issued on April 3, 2003 a five-year warrant to the bank
to purchase up to 56,250 shares of the Companys common stock at an exercise
price of $1.60 per share.

On April 14, 2003, the Company entered into a private equity line of financing
agreement with Ralph Ungermann, Executive Chairman of the Board of Directors of
the Company. Under this agreement, the Company may sell up to $1 million of the
Companys common stock to Mr. Ungermann at a purchase price of $1.55 per share
(up to 645,161 shares) during the period from April 14, 2003 through April 13,
2004. The Company may draw down funds under the private equity line financing
agreement up to four times during the 12-month term of the agreement, with each
draw for a minimum of $250,000. As compensation for the agreement, the Company
issued to Mr. Ungermann a warrant with a five-year term exercisable for up to
60,000 shares of the Companys stock at an exercise price equal to $1.90 per
share, 125% of the fair market value of the Companys common stock as measured
on the date of issuance of the warrant.

The parties intended the above private placements to be exempt from
registration and prospectus delivery requirements under the Securities Act of
1933, as amended (the Act), pursuant to Section 4(2) of the Act and
Regulation D promulgated there under. Each of the investors represented that
they were an accredited investor and that the investors intention was to
acquire the securities for investment only and not with a view to distribution
thereof. An appropriate legend was affixed to each warrant issued in the above
private placements and will be placed on any common stock certificates issued
under the private equity line of financing agreement. Each investor was
knowledgeable, sophisticated and experienced in making investment decisions of
this kind and received adequate information about the Company or had adequate
access, through the investors business relationship with the Company, to
information about the Company.

On June 26, 2003 the Companys Board of Directors approved a 1-for-5
reverse split of the Companys common stock, effective at 5:00 pm EDT on June
27, 2003, with trading commencing on a post-reverse split basis on market open
on Monday June 30, 2003. The reverse split was previously approved by the
stockholders at the Companys June 13, 2003 Annual
Stockholders Meeting. As of
5:00 pm EDT on June 27, 2003, each five shares of the Companys outstanding
common stock was automatically combined and converted into one share of common
stock. In addition, the Company made adjustments to its outstanding options and
warrants to reflect the reverse split and as reflected above in this item 2.

26



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##### Table of Contents






Item 4. Submission of Matters to Vote of Security Holders

The Companys Annual Meeting of Stockholders was held on June 13, 2003
(the Annual Meeting). The following matters were considered and voted upon
at the Annual Meeting:



| | (1) |  | the election of two director nominees, Edward Harris and
Jonathan G. Morgan, to serve as directors until the 2006 Annual
Meeting of Stockholders. The votes cast for and against such
nominees were as follows:
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |            |  |           |  | 
|------------------ |  | ---------- |  | --------- |  | 
|Name:              |  | For        |  | Withheld  |  | 
|Edward Harris      |  | 29,438,551 |  | 1,016,352 |  | 
|Jonathan G. Morgan |  | 29,442,751 |  | 1,012,152 |  | 



| | (2) |  | the approval of a series of
amendments to the Companys Amended and Restated Certificate of Incorporation, as amended, to effect a
reverse stock split of the Companys Common Stock whereby each
outstanding three, four, five, six, seven, eight, nine or ten shares
would be combined, converted and changed into one share of Common
Stock, with the effectiveness of one of such amendments, or the
abandonment of the other amendments, or the abandonment of all of the
amendments, as permitted under Section 242(c) of the Delaware General
Corporation Law, to be determined by the Board of Directors. There
were 29,205,502 votes cast for approval and 1,141,423 votes cast
against approval. There were 107,978 abstentions.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (3) |  | the approval of the Company 1997 Employee Stock Purchase Plan,
as amended, to increase the aggregate number of shares of Common
Stock authorized for issuance under the plan by 1,500,000 shares.
There were 28,948,922 votes cast for approval and 1,163,083 votes
cast against approval. There were 342,898 abstentions.                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (4) |  | the approval of the potential issuance by the Company of
additional shares of its Common Stock upon conversion of outstanding
shares of its Series A Preferred Stock and upon exercise of an
outstanding warrant issued to Vulcan, Inc. in June 2000, as a result of
anti-dilution adjustment provisions contained in the Companys
Certificate of Designation of Series A Preferred Stock and the Vulcan
warrant. There were 6,006,270 votes cast for approval and 4,397,888
votes cast against approval. There were 438,555 abstentions and
19,612,190 broker non-votes.                                                                                                                                                                
|
| | (5) |  | The ratification of the appointment of PricewaterhouseCoopers
LLP as independent accountants of the Company for its fiscal year
ending December 31, 2003. There were 30,163,435 votes cast for
ratification and 196,628 votes cast against ratification. There were
94,840 abstentions.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |     |  | Based on the voting results, the stockholders of the Company elected
each of the directors nominated, approved the second, third and
fourth matters and ratified the appointment of Pricewaterhouse
Coopers LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     |  | All vote and share numbers on this
page are reflected on a pre-reverse stock split basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

27



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##### Table of Contents






Item 6. Exhibits and Reports on Form 8-K.



|(a) |  | Exhibits
|--- |  | --------

|        |  |                                                                                                                                                                                                                                
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                
|No.     |  | Description of Document                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                
|3.1     |  | Amended and Restated Certificate of Incorporation of the Company (1)                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                
|3.2     |  | Certificate of Ownership and Merger, effective August 3, 1998(2)                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                
|3.3     |  | Certificate of Designation of Series A Convertible Preferred Stock (3)                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                
|3.4     |  | Amended Bylaws of the Registrant(1)                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                
|3.5     |  | Certificate of Ownership and Merger, effective February 5, 2001(4)                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                
|3.6     |  | Certificate of Amendment of Restated Certificate of Incorporation filed on June 19, 2001(4)                                                                                                                                    
|        |  |                                                                                                                                                                                                                                
|3.7     |  | Certificate of Amendment of Amended and Restated Certificate of Incorporation filed on June 26, 2003                                                                                                                           
|        |  |                                                                                                                                                                                                                                
|4.1     |  | Specimen Common Stock Certificate (2)                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                
|4.2     |  | Specimen Series A Convertible Preferred Stock Certificate (3)                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                
|4.3     |  | Warrant to purchase 522,875 shares, after giving effect to the 1-for-5 reverse stock split, of the
Companys Common Stock, dated May 7, 2001, issued by the Company to PictureTel Corporation (5)                              
|        |  |                                                                                                                                                                                                                                
|4.4     |  | Warrant to purchase 170,000 shares, after giving effect to the 1-for-5 reverse stock split, subject to
adjustment, of the Companys Common Stock, dated June 8, 2000, issued by the Company to Vulcan Ventures
Incorporated (3)
|        |  |                                                                                                                                                                                                                                
|4.6     |  | Warrant to purchase the Companys Common Stock, dated April 12, 2002, issued by the Company to the
purchasers and in the amounts as set forth on Schedule A attached thereto (6)                                               
|        |  |                                                                                                                                                                                                                                
|4.7     |  | Registration Rights Agreement, dated April 12, 2002, by and among the Company and each of the purchasers
listed therein (6)                                                                                                    
|        |  |                                                                                                                                                                                                                                
|4.8     |  | Registration Rights Agreement, dated June 8, 2000, between the Company and Vulcan Ventures Incorporated (3)                                                                                                                    
|        |  |                                                                                                                                                                                                                                
|4.9     |  | Warrant to purchase 60,000 shares, after giving effect to the 1-for-5 reverse stock split, of the
Companys Common Stock, dated April 14, 2003, issued by the Company to Ralph Ungermann (7)                                   
|        |  |                                                                                                                                                                                                                                
|4.10    |  | Warrant to purchase 56,250 shares, after giving effect to the 1-for-5 reverse stock split, of the
Companys Common Stock, dated April 3, 2003, issued by the Company to Silicon Valley Bank (7)                                
|        |  |                                                                                                                                                                                                                                
|10.1    |  | 1997 Equity Incentive Plan, as amended (8)                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                
|10.2    |  | 1997 Employee Stock Purchase Plan, as amended (8)                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                
|10.3    |  | 1997 Non-Employee Directors Plan, as amended (8)                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                
|10.4    |  | 1999 Equity Incentive Plan (9)                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                
|10.51   |  | Form of Employee Stock Purchase Plan Offering                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                
|24.1    |  | Power of Attorney (included on signature page)                                                                                                                                                                                 

28



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##### Table of Contents



|        |  |                                                                                                                                                                                                       
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                       
|No.     |  | Description of Document                                                                                                                                                                               
|        |  |                                                                                                                                                                                                       
|31.1    |  | Certificate of Principal Executive Officer, dated August 14, 2003, required by Section 302 of the Public
Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted)  
|        |  |                                                                                                                                                                                                       
|31.2    |  | Certificate of Principal Financial Officer, dated August 14, 2003, required by Section 302 of the Public
Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted)  
|        |  |                                                                                                                                                                                                       
|32.1    |  | Certification of Principal Executive Officer, dated August 14, 2003, required by Section 906 of the Public
Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted)
|        |  |                                                                                                                                                                                                       
|32.2    |  | Certificate of Principal Financial Officer, dated August 14, 2003, required by Section 906 of the Public
Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted)  

Notes to Exhibits



|(1) |  | Filed as an exhibit to the Companys Registration Statement on Form S-1,
as amended (File No. 333-38755).              
|--- |  | -----------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q, filed
on August 11, 1998 (File No. 000-23305).     
|   
|(3) |  | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q, filed
on August 14, 2000 (File No. 000-23305).     
|   
|(4) |  | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q, filed
on August 15, 2001 (File No. 000-23305).     
|   
|(5) |  | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q, filed
on November 14, 2001 (File No. 000- 23305).  
|   
|(6) |  | Filed as an exhibit to the Companys Registration Statement on Form S-3
(File No. 333-88058), as filed on May 10, 2002.
|   
|(7) |  | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q, filed
on March 31, 2003 (File No. 000-23305).      
|   
|(8) |  | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q, filed
November 14, 2002 (File No. 000-23305).      
|   
|(9) |  | Filed as an exhibit to the
Companys Schedule TO, filed
July 25, 2003 (File No. 5-55273).                              



| | (b) |  | Reports on Form 8-K.
| | --- |  | --------------------

On April 29, 2003, the Company filed a Form 8-K that furnished a press
release announcing the Companys financial results for the quarter ended March
31, 2003.

On June 30, 2003, the Company filed a Form 8-K that filed a press release
announcing the 1-for-5 reverse stock split of the Companys Common Stock.

29



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.

|                      |  |                                    |  |                                       
|--------------------- |  | ---------------------------------- |  | --------------------------------------
|Date: August 14, 2003 |  | FIRST VIRTUAL COMMUNICATIONS, INC.
|                      |  |                                    |  |                                       
|                      |  | By:                                |  | /s/ Truman Cole                       
|                      |  |                                    |  |                                       
|                      |  |                                    |  | Truman Cole                           
|                      |  |                                    |  | Chief Financial Officer               
|                      |  |                                    |  | (Duly Authorized Officer and Principal
|                      |  |                                    |  | Financial and Accounting Officer)     

30



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##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                
|No.     |  | Description of Document                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                
|3.1     |  | Amended and Restated Certificate of Incorporation of the Company (1)                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                
|3.2     |  | Certificate of Ownership and Merger, effective August 3, 1998(2)                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                
|3.3     |  | Certificate of Designation of Series A Convertible Preferred Stock (3)                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                
|3.4     |  | Amended Bylaws of the Registrant(1)                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                
|3.5     |  | Certificate of Ownership and Merger, effective February 5, 2001(4)                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                
|3.6     |  | Certificate of Amendment of Restated Certificate of Incorporation filed on June 19, 2001(4)                                                                                                                                    
|        |  |                                                                                                                                                                                                                                
|3.7     |  | Certificate of Amendment of Amended and Restated Certificate of Incorporation filed on June 26, 2003                                                                                                                           
|        |  |                                                                                                                                                                                                                                
|4.1     |  | Specimen Common Stock Certificate (2)                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                
|4.2     |  | Specimen Series A Convertible Preferred Stock Certificate (3)                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                
|4.3     |  | Warrant to purchase 522,875 shares, after giving effect to the 1-for-5 reverse stock split, of the
Companys Common Stock, dated May 7, 2001, issued by the Company to PictureTel Corporation (5)                              
|        |  |                                                                                                                                                                                                                                
|4.4     |  | Warrant to purchase 170,000 shares, after giving effect to the 1-for-5 reverse stock split, subject to
adjustment, of the Companys Common Stock, dated June 8, 2000, issued by the Company to Vulcan Ventures
Incorporated (3)
|        |  |                                                                                                                                                                                                                                
|4.6     |  | Warrant to purchase the Companys Common Stock, dated April 12, 2002, issued by the Company to the
purchasers and in the amounts as set forth on Schedule A attached thereto (6)                                               
|        |  |                                                                                                                                                                                                                                
|4.7     |  | Registration Rights Agreement, dated April 12, 2002, by and among the Company and each of the purchasers
listed therein (6)                                                                                                    
|        |  |                                                                                                                                                                                                                                
|4.8     |  | Registration Rights Agreement, dated June 8, 2000, between the Company and Vulcan Ventures Incorporated (3)                                                                                                                    
|        |  |                                                                                                                                                                                                                                
|4.9     |  | Warrant to purchase 60,000 shares, after giving effect to the 1-for-5 reverse stock split, of the
Companys Common Stock, dated April 14, 2003, issued by the Company to Ralph Ungermann (7)                                   
|        |  |                                                                                                                                                                                                                                
|4.10    |  | Warrant to purchase 56,250 shares, after giving effect to the 1-for-5 reverse stock split, of the
Companys Common Stock, dated April 3, 2003, issued by the Company to Silicon Valley Bank (7)                                
|        |  |                                                                                                                                                                                                                                
|10.1    |  | 1997 Equity Incentive Plan, as amended (8)                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                
|10.2    |  | 1997 Employee Stock Purchase Plan, as amended (8)                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                
|10.3    |  | 1997 Non-Employee Directors Plan, as amended (8)                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                
|10.4    |  | 1999 Equity Incentive Plan (9)                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                
|10.51   |  | Form of Employee Stock Purchase Plan Offering                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                
|24.1    |  | Power of Attorney (included on signature page)                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                
|31.1    |  | Certificate of Principal Executive Officer, dated August 14, 2003, required by Section 302 of the Public
Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted)                           
|        |  |                                                                                                                                                                                                                                
|31.2    |  | Certificate of Principal Financial Officer, dated August 14, 2003, required by Section 302 of the Public
Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted)                           
|        |  |                                                                                                                                                                                                                                
|32.1    |  | Certification of Principal Executive Officer, dated August 14, 2003, required by Section 906 of the Public
Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted)                         
|        |  |                                                                                                                                                                                                                                
|32.2    |  | Certificate of Principal Financial Officer, dated August 14, 2003, required by Section 906 of the Public
Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted)                           

31



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##### Table of Contents



Notes to Exhibits



|(1) |  | Filed as an exhibit to the Companys Registration Statement on Form S-1,
as amended (File No. 333-38755).              
|--- |  | -----------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q filed
on August 11, 1998 (File No. 000-23305).      
|   
|(3) |  | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q filed
on August 14, 2000 (File No. 000-23305).      
|   
|(4) |  | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q filed
on August 15, 2001 (File No. 000-23305).      
|   
|(5) |  | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q filed
on November 14, 2001 (File No. 000-23305).    
|   
|(6) |  | Filed as an exhibit to the Companys Registration Statement on Form S-3
(File No. 333-88058), as filed on May 10, 2002.
|   
|(7) |  | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q, filed
on March 31, 2003 (File No. 000-23305).      
|   
|(8) |  | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q, filed
November 14, 2002 (File No. 000-23305).      
|   
|(9) |  | Filed as an exhibit to the
Companys Schedule TO, filed
July 25, 2003 (File No. 5-55273).                              

(b)  Reports on Form 8-K.

On April 29, 2003, the Company filed a Form 8-K that furnished a press
release announcing the Companys financial results for the quarter ended March
31, 2003.

On June 30, 2003, the Company filed a Form 8-K that filed a press release
announcing the 1-for-5 reverse stock split of the Companys Common Stock.

32