UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                               -------------------
                                   FORM 10-QSB
                               -------------------


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

                  For the quarterly period ended June 30, 2004

              [X] 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 Charter)

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

                       303 Twin Dolphin Drive, Sixth Floor
                             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  Registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

     As of November 25, 2005, the Company had outstanding  16,613,486  shares of
common stock.

================================================================================

<PAGE>


                       First Virtual Communications, Inc.

                                   Form 10-QSB

                                      Index
                                                                            Page

               EXPLANATORY NOTE .............................................. 1

     PART 1.   FINANCIAL INFORMATION........................................ F-1

     Item 1.   Financial Statements (unaudited)............................. F-1

               Condensed  Consolidated  Balance  Sheets  at June 30,
               2004  and December 31, 2003.................................. F-1

               Condensed  Consolidated  Statements of  Operations for
               the three and six months ended June 30, 2004 and 2003 ....... F-2

               Condensed  Consolidated  Statements of Cash Flows for
               the six months ended June 30, 2004 and 2003 ................. F-3
..
               Notes to Unaudited Condensed  Consolidated Financial
               Statements .................................................. F-4

     Item 2.   Management's Discussion Analysis or Plan of Operations ........ 2

     Item 3.   Controls and Procedures ...................................... 17

     PART II.  OTHER INFORMATION ............................................ 17

     Item 1.   Legal Proceedings ............................................ 17

     Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds... 18

     Item 3.   Defaults Upon Senior Securities .............................. 19

     Item 4.   Submission of Matters to a Vote of Security Holders .......... 19

     Item 5.   Other Information ............................................ 19

     Item 6    Exhibits ..................................................... 20

<PAGE>

                                EXPLANATORY NOTE

     We are  filing  this  Form  10-QSB  for the  quarter  ended  June 30,  2004
simultaneously  with our filing of our Forms 10-QSB for the quarters ended March
31 and September 30, 2004.

     As previously noted in our Current Reports on Form 8-K as filed on November
19, 2004, in April 2004, the audit committee of our board of directors initiated
a special  investigation  as a result of the  identification  by  management  of
several  irregular  sales  transactions,  most of which had occurred in our Asia
operations. The audit committee retained a special independent legal counsel and
though them, independent forensic accountants, to review these transactions.  As
a result of the pendency of this  investigation,  we were unable to complete our
quarterly  financial  statements  for the quarters  ended March 31, June 30, and
September  30,  2004,  and thus we were unable to release our results and timely
file with the SEC this quarterly report on Form 10-QSB, or the quarterly reports
on Forms 10-QSB for the for the quarters ended March 31 and September 30, 2004.

     The  special  investigation  is  now  complete,  and  the  audit  committee
determined that it was necessary to restate our financial  results for the years
ended  December  31,  2001,  2002,  and  2003.  We are also now able to file our
quarterly  reports on Form 10-QSB for each of the quarters  ended March 31, June
30 and  September 30, 2004.  Due to the timing of our filing of these  quarterly
reports,   we  are  including  in  each  of  these  quarterly  reports  material
information with regard to our financial condition and our operations subsequent
to the periods covered by the respective quarterly reports.

                                        1
<PAGE>

                          PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


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

<TABLE>
<CAPTION>

                                                              June 30,        December 31,
                                                                2004              2003
                                                            ------------     -------------
<S>                                                         <C>              <C>
                                                                              As Restated)
ASSETS
Current assets:
     Cash and cash equivalents                               $    9,095       $    11,562
     Short-term investments                                          93               597
     Accounts receivable, net                                       592             2,266
     Prepaid and other current assets                             1,622               608
                                                            ------------     -------------
         Total current assets                                    11,402            15,033

Property and equipment, net                                       1,044               974
Other assets                                                        731               751
Intangible assets, net                                            2,930             3,233
                                                            ------------     -------------
                                                             $   16,107       $    19,991
                                                            ============     =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                        $    1,394       $       900
     Current portion of long-term debt                            3,000             1,000
     Accrued liabilities                                          5,754             4,268
     Deferred revenue                                             2,896             4,066
                                                            ------------     -------------
         Total current liabilities                               13,044            10,234

Long-term debt, net of current portion                               --             1,500

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;
       16,613,486 and 14,523,185 shares
       issued and outstanding, respectively                          49                47
     Additional paid-in capital                                 133,983           130,280
     Accumulated other comprehensive loss                          (336)             (263)
     Accumulated deficit                                       (130,633)         (121,807)
                                                            ------------     -------------
         Total stockholders' equity                               3,063             8,257
                                                            ============     =============
                                                             $   16,107       $    19,991
                                                            ============     =============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       F-1
<PAGE>

<TABLE>
<CAPTION>

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

                                             Three months ended                Six months ended
                                       -------------------------------  -------------------------------
                                                   June 30,                         June 30,
                                       -------------------------------  -------------------------------
                                            2004             2003             2004            2003
                                       --------------   --------------  ---------------  --------------
<S>                                    <C>              <C>             <C>              <C>
                                                         (As Restated)                    (As Restated)
Revenue
       Software                         $      2,776     $      3,001    $       4,797    $      6,358
       Product                                   109              639              193           1,284
       Support service                         1,450            1,890            3,015           3,226
                                       --------------   --------------  ---------------  --------------
           Total revenue                       4,335            5,530            8,005          10,868

Cost of revenue
       Software                                   86              277              150             443
       Product                                    --               30               --             248
       Support service                           521              516            1,109             962
                                       --------------   --------------  ---------------  --------------
           Total cost of revenue                 607              823            1,259           1,653
                                       --------------   --------------  ---------------  --------------
Gross profit                                   3,728            4,707            6,746           9,215
                                       --------------   --------------  ---------------  --------------

Operating expense:
       Research and development                1,800            2,395            3,819           4,882
       Sales and marketing                     2,673            2,778            5,748           5,371
       General and administrative              1,513            1,740            3,017           3,365
       Restructuring and other                   109              838              809             838
       Special investigation                   2,126               --            2,126              --
                                       --------------   --------------  ---------------  --------------
           Total operating expense             8,221            7,751           15,519          14,456
                                       --------------   --------------  ---------------  --------------

Operating loss                                (4,493)          (3,044)          (8,773)         (5,241)

Other income (expense), net                      (35)             (34)             (53)             (7)
                                       --------------   --------------  ---------------  --------------

Net loss                                $     (4,528)    $     (3,078)   $      (8,826)   $     (5,248)
                                       ==============   ==============  ===============  ==============

Basic and diluted net loss per share    $      (0.28)    $      (0.38)   $       (0.57)   $      (0.65)
                                       ==============   ==============  ===============  ==============
Shares used in computing basic and
  diluted net loss per share                  16,106            8,107           15,427           8,102
                                       ==============   ==============  ===============  ==============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       F-2
<PAGE>

<TABLE>
<CAPTION>

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

                                                             Six Months Ended June 30,
                                                          -----------------------------
                                                                 2004             2003
                                                          ------------    -------------
<S>                                                       <C>             <C>
                                                                          (As Restated)
Cash flows from operating activities:
   Net loss                                                $   (8,826)     $    (5,248)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
       Depreciation and amortization                              667            1,102
       Provision for returns and doubtful accounts               (130)              58
       Loss on disposal of fixed assets                            --              351
       Loss on closure of FVC India                                --                9
       Other                                                      (72)             (38)
       Changes in operating assets and liabilities
           Accounts receivable                                  1,804             (477)
           Inventory                                               --              535
           Prepaid expenses and other assets                   (1,023)            (353)
           Accounts payable                                       519             (147)
           Accrued liabilities                                  1,463             (681)
           Deferred revenue                                    (1,172)              17
                                                          ------------    -------------
Net cash used in operating activities                          (6,770)          (4,872)
                                                          ============    =============

Cash flows from investing activities:
   Acquisition of property and equipment                         (278)            (334)
   Acquisition of businesses                                       --             (132)
   Sale of short-term investments                                 504               --
                                                          ------------    -------------
Net cash provided by (used in) investing activities               226             (466)
                                                          ============    =============
Cash flows from financing activities:
   Proceeds from issuance of common stock, net                  3,705               62
   Payment related to issuance of common stock                   (128)              --
   Proceeds from drawdown of term loan                            917            3,000
   Payment on long term debt                                     (417)              --

                                                          ------------    -------------
Net cash provided by financing activities                       4,077            3,062
                                                          ============    =============

Net increase (decrease) in cash and cash equivalents           (2,467)          (2,276)

Cash and cash equivalents at beginning of period               11,562            8,352
                                                          ------------    -------------
Cash and cash equivalents at end of period                 $    9,095      $     6,076
                                                          ============    =============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       F-3
<PAGE>

                       First Virtual Communications, Inc.
         Notes to Unaudited Condensed Consolidated Financial Statements
                                  June 30, 2004

NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     First  Virtual  Communications,  Inc.  (the  "Company")  has  prepared  the
accompanying  financial  data for the  quarterly  period  ended  June  30,  2004
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,
2004, consolidated results of operations for the three and six months ended June
30, 2004 and 2003,  and  consolidated  cash flow  activities  for the six months
ended June 30, 2004 and 2003.

     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, 2004
are not necessarily  indicative of the results to be expected for the full year.
The information  included in this Quarterly Report on Form 10-QSB 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  2003 Annual Report on Form 10-K with special
attention  as to the  restated  financial  results  for  2003,  2002 and 2001 as
reported in Form 8-K recently filed with the SEC.

     The  unaudited  condensed  consolidated  balance sheet at December 31, 2003
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 were 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.

Bankruptcy
----------

     On January 20, 2005,  First Virtual  Communications,  Inc. filed Chapter 11
reorganization cases for itself and its domestic  subsidiary,  CUseeMe Networks,
Inc.  (collectively,  the "Company"),  in the United States Bankruptcy Court for
the Northern District of California,  San Francisco  Division.  The Company will
continue  to  operate  its  business  as  "debtors  in  possession"   under  the
jurisdiction  of  the  Bankruptcy   Court  in  accordance  with  the  applicable
provisions  of the  Bankruptcy  Code and  orders of the  Bankruptcy  Court.  The
Company  expects to utilize the bankruptcy  process to implement a restructuring
transaction  that included a sale of certain  assets.  In addition,  the Company
announced an  agreement  in  principle  with its bank lender to continue to have
access to working capital during this process.  At the present time, the Company
does not anticipate that any  distributions  will be available to holders of the
Company's equity securities. Accordingly, the Company urges that the appropriate
caution be exercised  with respect to existing and future  investments in any of
the Company's securities as the value and prospects are highly speculative.

                                       F-4
<PAGE>

     On August 25,  2005,  the Company and the  Official  Committee of Unsecured
Creditors (the "Committee")  jointly filed a plan of reorganization (the "Plan")
and a related  disclosure  statement with the United Stated Bankruptcy Court for
the Northern  District of California,  San Francisco  Division (the  "Bankruptcy
Court").  Copies of the Plan and the Disclosure Statement are attached hereto as
Exhibits 2.1 and 2.2, respectively.  The deadline for filing with the Bankruptcy
Court any  objection to approval of the  Disclosure  Statement was September 19,
2005.

     On  November  14,  2005,  the   Bankruptcy   Court  approved  the  Plan  of
Reorganization, which likely will become effective in December 2005.

Disposition of Assets
---------------------

     On March 15,  2005,  the Company and its wholly owned  subsidiary,  CUseeMe
Networks,  Inc. ("CUseeMe"),  completed a sale of substantially all their assets
for $7.15 million in cash plus certain additional  consideration  under an asset
purchase   agreement   dated  as  of  February  28,  2005  with  RADvision  Ltd.
("RADvision").  On March 14, 2005,  the United States  Bankruptcy  Court for the
Northern  District of California (the  "Bankruptcy  Court") had entered an order
("Sale Order") approving the asset purchase agreement, which was the result of a
competitive  bidding  process  conducted  by the Company  and CUseeMe  under the
supervision of the Bankruptcy Court.

     Under  the  sale  transaction,  RADvision  acquired  substantially  all the
operating assets,  intellectual  property and customer  contracts of the Company
and CUseeMe for $7.15 million in cash and  assumption of certain  liabilities in
exchange  for the purchase of the assets,  free and clear of any liens,  claims,
and other interests.  In accordance with the Sale Order, the Company and CUseeMe
used a portion  of the sale  proceeds  to repay all  their  outstanding  secured
indebtedness  and to pay a $150,000  break-up  fee under a prior asset  purchase
agreement  dated as of February 12, 2005 between the  Company,  CUseeMe,  and an
investment partnership led by Millennium Technology Value Partners,  L.P., a New
York-based private equity fund, Silicon Valley Bank and Morrison & Foerster LLP.
Under the sale transaction,  RADvision committed for any employee of the Company
that RADvision hires, that it would provide the accrued vacation for such person
as part of the  compensation  package  for  such  person.  The Sale  Order  also
provides for certain  employee  protections and other  benefits,  subject to the
consent of the  Official  Committee of Unsecured  Creditors,  and certain  other
payments associated with the sale transaction.  The Company and CUseeMe will use
the remaining sale proceeds to prosecute and conclude their bankruptcy cases.

Appointment of Chief Restructuring Officer
------------------------------------------

     On June 8, 2005,  the  Bankruptcy  Court entered an order,  upon an amended
joint application  filed by the Debtors and the Official  Committee of Unsecured
Creditors, authorizing and approving the employment of Gregory Sterling as Chief
Restructuring  Officer  of the  Debtors  and  designating  Mr.  Sterling  as the
individual  responsible  for the duties of the Debtors as debtors in possession.
The Company  previously  reported  the terms and  conditions  of Mr.  Sterling's
employment in its Form 8-K filed on May 24, 2005.

                                       F-5
<PAGE>

Liquidity
---------

     The Company has operated at a loss since its inception and has financed its
operations primarily through private and public placements of equity securities,
revenue  from  the  sale  of  its  products  and  services  and  through  credit
facilities.  Cash and cash equivalents totaled $9.1 million at June 30, 2004. Of
the  Company's  cash and cash  equivalents  at June 30,  2004,  $3.0 million was
expected  to  support  its  outstanding  obligations  to  Silicon  Valley  Bank.
Accordingly,  the cash  resources  available for  operations as of June 30, 2004
were $6.1  million.  At December  31, 2003,  the cash  resources  available  for
operations totaled $9.1 million.

     During the three months ended June 30, 2004, the Company used an average of
approximately $3.1 million of cash to fund its operating  activities.  In August
2004, the Company announced an additional  restructuring  initiative,  which was
completed  during the fourth quarter of 2004 and it reduced  personnel and other
operating  costs  worldwide.  The  Company  incurred  approximately  $400,000 in
non-recurring  charges in the third and fourth  quarters of 2004  related to its
implementation.

     In April  2004,  the Company  received  $3.5  million in proceeds  from the
exercise  of 2.0  million  warrants  held  by  investors  in the  November  2003
financing.  Also in April, the Company announced that the audit committee of its
board of directors had initiated a special investigation.  The investigation was
completed in November 2004. In connection  with the special  investigation,  the
Company has incurred  approximately  $3.5 million in legal and  accounting  fees
through its  completion in November  2004, of which $373,000 was paid during the
second quarter and $1.1 million was paid during the third quarter.  Repayment of
the  outstanding  balance is secured by  substantially  all of the assets of the
Company,  and this security interest is junior and subordinated in most respects
to the security  interest held by Silicon Valley Bank under the Company's credit
facility  with  them.  Additionally,  the  Company's  directors'  and  officers'
liability  insurance was renewed in April 2004 and the related premium increased
approximately  $650,000 above the prior year premium directly resulting from the
special  investigation.  The annual premium was due in May 2004 and accordingly,
the Company paid $1.2 million in related  insurance  premiums  during the second
quarter.

Stock-based compensation
------------------------

     As of June 30, 2004, the Company  maintained stock option plans under which
the Company could 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.

                                       F-6
<PAGE>

     The following table  illustrates the net loss and net loss per share during
the three and six months ended June 30, 2004 and 2003 if the Company had applied
the  fair  value  recognition  provisions  of SFAS 123 to  stock-based  employee
compensation (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                     Three Months Ended June 30,     Six Months Ended June 30,
                                                     ----------------------------   --------------------------
                                                         2,004          2,003           2,004           2,003
                                                     ----------   ---------------   ----------   -------------
<S>                                                     <C>            <C>             <C>             <C>
                                                                   (As Restated)                 (As Restated)

Net loss                                                (4,528)        (3,078)         (8,826)         (5,248)
                                                        -------        -------         -------         -------
Add: Stock-based employee compensation                       --             8              --               8
  expense included in reported net income
Deduct: Total stock based employee compensation            (90)          (589)           (267)           (893)
  expense determined pursuant to SFAS 123
Pro forma net loss                                      (4,618)        (3,659)         (9,093)         (6,133)
                                                        -------        -------         -------         -------
As reported net loss per share (basic and diluted)       (0.28)         (0.38)          (0.57)          (0.65)
                                                        -------        -------         -------         -------
Pro forma net loss per share (basic and diluted)         (0.29)         (0.45)          (0.59)          (0.76)
                                                        -------        -------         -------         -------
</TABLE>

     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
December 31, 2002.

     The  weighted-average  estimated  grant-date  fair value of options granted
under  the   Company's   various   stock  option  plans  was  $1.88  and  $1.85,
respectively,  during the three and six months ended June 30, 2004 and $2.95 and
$2.60, respectively,  for the three and six months ended June 30, 2003. 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                 Six Months
                                      Ended                       Ended
                                     June 30,                    June 30,
                             -------------------------   -----------------------
                                  2004          2003         2004        2003
                             ------------   ----------   ----------   ----------

    Risk-free interest rate       3.7%          2.5%       3.0-3.7%    2.5-3.0%
    Volatility                    176%          113%       138-176%      113%
    Option term (in years)          5             5           5           5
    Dividend yield                0.0%          0.0%         0.0%        0.0%

     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 had
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 were eligible  options.  The
replacement options represented an option to purchase one share of the Company's
common stock for each option to purchase  three shares of the  Company's  common
stock  exchanged;  provided,  however,  that under the exchange  offer,  options
granted in the six-month period  immediately  preceding the offer date that were
cancelled due to the participation in the offer were replaced by the same number
of replacement  options. The replacement options were granted on the replacement
grant date,  February 23, 2004 and had an exercise price per share of $1.83, the
fair market value of the  Company's  common stock at the close of trading on the
trading day preceding the replacement  grant date. The replacement  options vest

                                       F-7
<PAGE>

in equivalent  monthly  increments over a 24 month period  beginning on February
23, 2004.  Replacement  options granted to employees  located outside the United
States were subject to  different  vesting and other  material  terms than those
described above.

     On May 18, 2004, the Company held its 2004 Annual Meeting of  Stockholders,
during  which the  Company's  stockholders  approved the  Company's  1997 Equity
Incentive Plan, as amended, and the Company's 1997 Non-Employee  Directors Stock
Option Plan, as amended.

     The  amendments  to the  1997  Equity  Incentive  Plan  (i)  increased  the
aggregate  number of shares of common stock  authorized  for issuance  under the
plan by 1,900,000 shares,  and (ii) increased the maximum number of options that
may be granted under the plan to any person in any calendar year from 100,000 to
1,000,000 for newly hired  employees,  and from 100,000 to 500,000 for grants to
all other persons.

     The  amendments  to the  1997  Non-Employee  Directors  Stock  Option  Plan
increased  (i) the  aggregate  number of shares of common stock  authorized  for
issuance  under the plan by 100,000  shares,  (ii) amended the terms pursuant to
which options  granted under the plan become  exercisable,  (iii)  shortened the
post-termination  exercise  period for grants made under the plan from 24 months
to nine months,  (iv)  increased the initial  option  grants for directors  from
8,000 shares to 16,000  shares,  (v)  approved a one-time  grant of an option to
purchase  8,000  shares for each current  non-employee  director of the Company,
(vi)  approved a grant of an option to purchase  5,000 shares of common stock to
the Chairman of each of the Audit and  Compensation  Committees of the Board and
to the  Chairman of the Board and a grant of 3,000 shares of common stock to the
Chairman of the Nominating and Corporate Governance Committee of the Board, upon
the appointment of a non-employee  director as Chairman of the Board and each of
these committees and on each anniversary of such appointment,  and (vii) deleted
the  current  provisions  for annual  automatic  grants to members of the Audit,
Compensation and Nominating Committees of the Board.

     Due to the  Company's  bankruptcy  filing in  January  2005 and  subsequent
November  2005  reorganization  approval by the Court,  all stock  options  have
effectively been canceled.

Concentrations of credit risk
-----------------------------

     Revenue  during the three and six months  ended June 30,  2004 and 2003 and
accounts  receivable  as of June 30, 2004 and  December  31,  2003 of  customers
comprising more than 10% of revenue or receivable are summarized as follows:


                             Three Months                Six Months
                               Ended                       Ended
                              June 30,                    June 30,
                      -------------------------   -----------------------
                          2004          2003         2004        2003
                      ------------   ----------   ----------   ----------
      Revenue:
        Company A          16%           24%          17%         13%
        Company B          12%           --           11%         --
        Company C          --            --           --          --


                                June 30,              December 31,
                                 2004                    2003
                               ----------             -----------
      Accounts receivable:
        Company A                  --                     --
        Company C                  --                     12%
        Company D                  15%                    --
        Company E                  --                     10%


                                       F-8
<PAGE>

Recent Issued 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 impact of the effective  provisions of SFAS
No. 150 has not had a material impact on the Company's financial statements.

     In December 2003, the SEC issued Staff Accounting Bulletin ("SAB") No. 104,
"Revenue Recognition" which revises or rescinds certain sections of SAB No. 101,
Revenue Recognition in Financial Statements, in order to make this interpretive
guidance consistent with current authoritative accounting and auditing guidance
and SEC rules and regulations. The changes noted in SAB No. 104 did not have a
material effect on the Company's financial position, results of operations or
cash flows.

     In March 2004, the EITF reached a consensus on EITF No. 03-01, "The Meaning
of Other-Than-Temporary  Impairment and Its Application to Certain Investments",
to create a model that uses more detailed criteria to evaluate whether to record
a loss, and includes additional disclosure  information about unrealized losses.
The consensus  also expands the scope of EITF No. 03-1 to  investments in equity
securities  that are both  outside  the scope of SFAS No.  115,  Accounting  for
Certain Investments in Debt and Equity Securities,  and not accounted for by the
equity  method.  The impairment  accounting  guidance is effective for reporting
periods  beginning  after  June 15,  2004 and the  disclosure  requirements  are
effective for annual reporting  periods ending after June 15, 2004. The adoption
of EITF No.  03-01 did not have a material  impact on the  Company's  results of
operations and financial position.

     In April 2004,  the  Emerging  Issues Task Force  ("EITF")  issued EITF No.
03-06,  "Participating  Securities  and the  Two-Class  Method  Under  Financial
Accounting   Standards  Board's  Statement  of  Financial  Accounting  Standards
("SFAS")  No. 128,  Earnings Per Share".  EITF No.  03-06  addresses a number of
questions regarding the computation of earnings per share by companies that have
issued securities other than common stock that contractually  entitle the holder
to  participate  in  dividends  and  earnings  of the company  when,  and if, it
declares dividends on its common stock. The issue also provides further guidance
in applying the two-class method of calculating  earnings per share,  clarifying
what constitutes a participating  security and how to apply the two-class method
of  computing  earnings  per share  once it is  determined  that a  security  is
participating,  including  how to  allocate  undistributed  earnings  to  such a
security.  EITF No. 03-06 is effective for fiscal periods  beginning after March
15, 2004.  The adoption of EITF No. 03-06 did not have a material  impact on the
Company's results of operations and financial position.

NOTE 2 - RESTRUCTURING AND SEVERANCE EXPENSES

     The Company recently  completed the restructuring of its business announced
in February  2004,  which  reduced its  workforce  by  approximately  20% to 138
employees, primarily in its United States operations. The reduction in force was
substantially  completed  in March 2004 and the Company  incurred  restructuring
charges  totaling  $700,000  during  the three  months  ended  March  31,  2004.
Additionally,   the  Company  incurred   approximately  $100,000  in  additional
restructuring  charges  during the three months ended June 30, 2004 to bring the
initiative to completion.

                                       F-9
<PAGE>

     To further reduce the Company's  expenses,  on August 11, 2004, the Company
implemented an additional  restructuring of its business. In this restructuring,
the Company  closed  certain  offices in Asia and Europe,  reduced  personnel by
approximately  20% to 100  employees,  and reduced  professional  service  costs
worldwide.  The Company incurred non-recurring charges of approximately $400,000
as a result of this restructuring that has been recorded in the third and fourth
quarters of 2004.  During the three months ended September 30, 2004, the Company
recorded charges of approximately  $275,000 and incurred an additional  $125,000
during the three  months  ended  December  31, 2004 to bring the  initiative  to
completion.

     There were no  restructuring  charges  recorded during the six months ended
June 30, 2003.

NOTE 3 - SHORT TERM INVESTMENTS

     As of June 30, 2004, all of the Company's short-term  investments have been
classified as "available-for-sale securities" and have contractual maturities of
less than one year.  Available-for-sale securities were comprised as follows (in
thousands):

                           June 30,               December 31,
                         ------------             ------------
                             2004                     2003
                         ------------             ------------
Corporate notes           $       --              $       508
Equity securities                 13                       14
Debt securities                   80                       75
                         ------------             ------------
Total                     $       93              $       597
                         ============             ============


     Available-for-sale securities are comprised as follows at June 30, 2004 and
December 31, 2003 (in thousands):

                                    Unrealized      Unrealized
                      Cost             Gains          Losses        Fair Value
                   ------------    ------------    ------------    ------------
June 30, 2004
Corporate notes     $       --      $       --      $       --      $       --
Equity securities          164               7            (158)             13
Debt securities             80              --              --              80
                   ------------    ------------    ------------    ------------
Total               $      244      $        7      $     (158)     $       93
                   ============    ============    ============    ============

December 31, 2003
Corporate notes     $      508      $       --      $       --      $      508
Equity securities          164               4            (154)             14
Debt securities             75              --              --              75
                   ------------    ------------    ------------    ------------
Total               $      747      $        4      $     (154)     $      597
                   ============    ============    ============    ============

NOTE 4 - INVENTORY

     In May 2003 the Company notified its customers that it will no longer offer
legacy ATM hardware products.  All remaining hardware inventory has been written
off and the  Company  intends to dispose  of that  hardware  by the end of 2004.
There was no inventory recorded as of June 30, 2004 and December 31, 2003.

                                      F-10
<PAGE>

NOTE 5 - NET LOSS PER SHARE

     The  Company  incurred  losses for the three and six months  ended June 30,
2004 and 2003,  and as a result all  potential  common  share  equivalents  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, 2004 and 2003,  since their  inclusion would
be anti-dilutive (in thousands):

                                                  At June 30,
                                     ------------------------------------
                                           2004                2003
                                     ------------------------------------
                                                 (in thousands)

    Common stock options                  1,927               2,444
    Common stock warrants                 3,310               1,486
    Convertible preferred stock           1,449                 879

     The common stock  warrants are  exercisable  at prices of between $1.35 and
$32.65 per share and expire at various  times from June 2005  through  May 2009.
The stock options  outstanding at June 30, 2004 had a weighted  average exercise
price per share of $5.08 and expire at various  times  between  May 2006 and May
2014.

NOTE 6 - WARRANTIES

     The  Company  sold  software  products  and related  services.  The Company
provided 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
the Company had 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 were sold on
an   as-is   basis.   Longer   warranty   periods   could  be   provided   on  a
contract-by-contract basis and are limited. Our liability under these warranties
was 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 was unable to make the products conform to published specifications, the
Company would be obligated to refund the amount actually paid by customers.

     Factors that  affected 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 assessed  the  adequacy of the
recorded  warranty  liabilities  every  quarter  and  made  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,  subsequent to
the  acquisition  of CUseeMe  Networks on June 19,  2001,  and has  discontinued
offering  hardware to the  marketplace  other than  hardware  currently in fully
reserved inventory.

     Changes in the  warranty  liability,  which is included  as a component  of
"accrued  liabilities,"  during the six  months  ended  June 30,  2004,  were as
follows (in thousands):

   Beginning balance as of December 31, 2003..............  $    123
   Reduction to warranty reserve..........................      (115)
                                                            ---------
   Ending balance as of June 30, 2004.....................  $      8
                                                            =========

                                      F-11
<PAGE>

NOTE 7 - 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  consists  of  the
following (in thousands):


                                                June 30,    December 31,
                                                  2004           2003
                                              ------------  ------------

    Foreign currency translation.............. $     (185)   $     (113)
    Unrealized loss on marketable
      securities, net of income taxes.........       (151)         (150)
                                              ------------  ------------
    Accumulated other comprehensive loss, net  $     (336)   $     (263)
                                              ============  ============


     Comprehensive losses for the three and six months ended June 30, 2004 and
2003 were as follows (in thousands):

<TABLE>
<CAPTION>

                                     For the Three Months Ended      For the Six Months Ended
                                             June 30,                       June 30,
                                     ---------------------------   ----------------------------
                                          2004          2003           2004          2003
                                     ------------   ------------   -------------   ------------
<S>                                  <C>            <C>            <C>             <C>

Net Loss, as reported                 $   (4,528)    $   (3,078)    $    (8,826)    $   (5,248)
                                     ------------   ------------   -------------   ------------
Cumulative translation adjustment             (7)           (40)            (72)           (46)
Unrealized gain (loss) on
  marketable securities                       (4)            (5)             (1)            (7)
                                     ------------   ------------   -------------   ------------

          Comprehensive loss          $   (4,539)    $   (3,123)    $    (8,899)    $   (5,301)
                                     ============   ============   =============   ============
</TABLE>

     There were no tax effects allocated to any components of comprehensive loss
during the six months ended June 30, 2004 and 2003.


NOTE 8 - SUBSEQUENT EVENTS

     The  subsequent  events  listed  below  must be read in  context  with  the
Company's Chapter 11 filing and reorganization plan discussed in Note 1.

Special investigation of the Audit Committee
--------------------------------------------

     In April 2004, the Company  announced that the audit committee of its board
of  directors  had  initiated  a  special  investigation  as  a  result  of  the
identification  by management of several irregular sales  transactions,  most of
which had  occurred  in its Asia  operations.  The audit  committee  retained  a
special  independent  legal  counsel  and  through  them,  independent  forensic
accountants, to review these transactions.

     The special  investigation is now complete.  The audit committee determined
that there were sales transactions, mostly in its Asia operations, that included
irregular,  undisclosed terms and that this resulted in accounting  errors.  The
audit committee has determined that these errors, standing alone, would not have
required a restatement of previously  issued  financial  statements due to their
immateriality  for reporting  purposes.  In addition,  the audit  committee also
identified certain sales transactions unrelated to its Asia operations that were
not appropriately accounted for by the Company, including primarily transactions
with one U.S.  customer  where revenue was  recognized  prematurely  for certain
sales transactions. The audit committee determined on November 15, 2004 that, as
a result of the errors  involving  this one U.S.  customer,  it was necessary to
restate the Company's  financial  results for the years ended December 31, 2001,
2002 and 2003.  Furthermore,  the audit  committee has determined that while the
Company will not be issuing full restated  financial  results for the year ended
December 31, 2000, there are revisions to those financial  statements which will
impact the restatement for the year ended December 31, 2001.

                                      F-12
<PAGE>

     The audit committee  determined that revenues related to contracts with one
of its U.S.  customers were  prematurely  recognized in a quarter  preceding the
quarter in which the  transactions  should have been recognized under applicable
revenue  recognition rules,  American Institute of Certified Public Accountants'
Statement  of  Position  97-2 (SOP 97-2),  "Software  Revenue  Recognition"  and
Securities  and Exchange  Commission  Staff  Accounting  Bulletin 104 (SAB 104),
"Revenue  Recognition."  Under SOP 97-2 and SAB 104, a  requirement  for revenue
recognition  is the  occurrence of  acceptance  or expiration of the  acceptance
period  when   acceptance   criteria  are  specified.   The  audit   committee's
investigation  revealed  that  the  acceptance  requirement  was  not met in the
quarters in which revenue was  recognized for certain  transactions  relating to
purchases  of  products  by the U.S.  customer.  The  audit  committee  found no
evidence to suggest that the revenues  and cash flows  associated  with the U.S.
customer's contracts were not genuine. The U.S. customer's contracts were valid,
products were delivered, and the Company received cash. The Company performed an
analysis of the extent and quantification of the prematurely recognized revenue,
which forms the basis of the need to restate its financial results for the 2001,
2002 and 2003 fiscal years.  Included in the analysis are adjustments  made as a
result of the  irregularities and errors involving the Asia and other operations
and additional errors noted during the course of the investigation.  While these
additional  errors and the errors  involving the Asia and other  operations were
not individually  material for reporting  purposes and would not have required a
restatement of previously issued financial statements,  they are being corrected
as part  of the  restatement  resulting  from  the  adjustments  related  to the
acceptance provisions with this one U.S. customer.

     For purposes of the  restatement,  the revenue  improperly  recognized in a
particular  quarter is being  deferred  and  recognized  in the quarter in which
acceptance requirements were satisfied.  For example, if a product sale having a
value  of $100 was  prematurely  recognized  in one  quarter,  the $100  will be
deferred from the revenue in that quarter and then recognized in a later quarter
in which customer acceptance requirements were satisfied. In addition to revenue
shifting between periods,  there is a resultant impact on cost of goods sold and
operating  expenses.  The effects on income taxes, net loss,  earnings/loss  per
share, total assets, total liabilities, working capital and stockholders' equity
is also being taken into account in the restatement.

Management changes
------------------

     On November 18, 2004, the Company  announced  that  effective  November 14,
2004,  Truman Cole resigned as the Company's vice president and chief  financial
officer.  Mr.  Cole  was  the  Company's  principal  financial  officer  and its
principal  accounting  officer.  It also announced  that effective  November 13,
2004,  Andrew Morrison  resigned as the Company's  corporate  controller.  While
having resigned,  Messrs.  Cole and Morrison were retained to assist the Company
as consultants  through a transition  period. The Company named Gregory Sterling
as its Chief Restructuring Officer as of June 8, 2005.

Warrant exercises
-----------------

     On May 7, 2004,  the Company  announced the exercise of warrants by certain
institutional  investors and/or their affiliates to purchase an aggregate of 2.0
million  shares of the Company's  common stock,  resulting in the receipt by the
Company of aggregate  proceeds of $3.5 million,  and the exercise of warrants to
purchase  35,560  shares of its  common  stock by Silicon  Valley  Bank on a net
exercise basis, resulting in no proceeds to the Company.

Suspension of registration statements
-------------------------------------

     The Company is party to several registration rights agreements with certain
of its  investors  which  require  that the shares  sold to these  investors  be
resalable pursuant to registration  statements on file with the SEC. As a result
of the Company's  inability to file timely periodic  reports on May 17, 2004, it
was forced to suspend the availability of the S-3 registration statements which

                                      F-13
<PAGE>

the  Company  had on file  with  the  SEC,  as well as the  availability  of its
registration  statements  covering  the re-sale of stock issued under its equity
incentive plans. The Company continues to have an obligation (subject to certain
exceptions,  including suspension of use under specified circumstances and for a
limited  period of time) to keep these  registration  statements  effective with
respect to any shares  covered  thereby  until such  shares may be sold  without
volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act
of 1933,  as  amended.  The  Company  may be  subject to  litigation  from these
investors for any loss in value of their stock while the registration statements
are  suspended  and their  shares are  restricted  from  sale.  Certain of these
agreements  also provide for  liquidated  damages of  approximately  $85,000 per
month in the event that the shares in question are  restricted  from sale. As of
December 31,  2004,  the Company had accrued  $697,000 to cover such  liquidated
damages.

     On May 7, 2004, the Company notified participants under its employee and
consultant equity incentive plans (the "Plans") of the suspension of the
availability of its Form S-8 registration statements and the use of any
prospectus in connection therewith covering securities issued under the Plans.
During the suspension period, participants have not been able to exercise
options granted or purchase shares under the Plans, or purchase shares or have
payroll deductions made under the Company's 1997 Employee Stock Purchase Plan.

The Nasdaq SmallCap Market
--------------------------

     On August 25, 2004,  Nasdaq  notified the Company that its  securities  had
been de-listed for failure to file periodic reports with the SEC.

                                      F-14
<PAGE>

Amendment to Silicon Valley Bank Credit Facility and Related Forbearance
------------------------------------------------------------------------

     The Company  became  party to a $3 million  secured  credit  facility  with
Silicon Valley Bank pursuant to a Loan and Security  Agreement dated as of April
3, 2003, as amended by an Amendment to Loan  Documents  dated as of May 25, 2004
(as amended,  the "Loan  Agreement").  Upon the  effectiveness of this amendment
during the second  quarter,  it borrowed from Silicon  Valley Bank an additional
amount of approximately  $917,000,  bringing its outstanding  principal  balance
under the loan to $3.0  million.  As a result of the amendment the maturity date
was extended to May 24,  2005,  the  interest  rate was  increased to the bank's
prime  rate  plus  2.5%  with a floor  at 6.5%,  and the  minimum  cash  deposit
requirement  of $2.9 million was removed and replaced  with a minimum  quarterly
net sales revenue covenant and a minimum monthly liquidity covenant. The Company
is also required to keep its primary banking relationship at Silicon Valley Bank
and to keep all but $750,000 of its  unrestricted  cash and cash  equivalents on
deposit with Silicon Valley Bank. Silicon Valley Bank has a security interest in
the Company's deposits as well as in most of its material assets.

     As of March 31, 2004 and October 31, 2004, $3.0 million and $2.5 million of
its secured  obligations  were  subject to this credit  facility  with the bank,
respectively.   In  addition,   the  Loan  Agreement   contains   financial  and
non-financial  covenants,  including  a  monthly  liquidity  covenant  which the
Company had violated as of August 31, 2004.

     On September  13, 2004,  the Company  entered into a Temporary  Forbearance
Agreement  with Silicon Valley Bank pursuant to which the bank agreed to forbear
from exercising  (but not to waive) its rights and remedies  against the Company
as a result of its default under the Loan Agreement until September 21, 2004.

     On September 29, 2004, the Company entered into an Extension Agreement with
Silicon  Valley Bank,  effective as of September  13, 2004, in which the date of
expiration of the Temporary  Forbearance  Agreement was extended through October
4, 2004. Since that time, the Company has continued to have discussions with the
bank regarding its financial situation.

     On November 16, 2004, Silicon Valley Bank signed an Amendment and Extension
Agreement  with the Company,  in which the date of  expiration  of the Temporary
Forbearance Agreement was extended through November 15, 2004, the maximum amount
of the credit  facility  pursuant to the Loan  Agreement  was reduced  from $3.0
million to $2.5 million, and the Company agreed that the Loan Agreement would be
amended to require it to direct all of its customers to remit payments to a cash
collateral  account  controlled by the bank.  The Company also agreed to provide
additional weekly financial reporting to the bank.

     In consideration of this forbearance,  the Company agreed to pay a $100,000
fee to the bank on the earlier to occur of (i) the receipt by it of proceeds for
the issuance of equity securities, (ii) the acceleration of the credit facility,
or (iii) the maturity date of the loan. The Company also agreed to pay a success
fee to the bank of the  lesser  of an  additional  $100,000  or 1% of its  gross
valuation  on the  earlier  to occur of the  closing of any change in control or
equivalent  transaction  or the  maturity  date of the loan.  In  addition,  the
Company  agreed to  re-price an  existing  warrant  held by the bank to purchase
7,218 of its  shares of common  stock at $2.54 per share to a price of $0.01 per
share.

     On December  2004,  Silicon  Valley Bank signed an Amendment  and Extension
Agreement  with the Company,  in which the date of  expiration  of the Temporary
Forbearance  Agreement was extended  through  December 2004. In consideration of
this forbearance, the Company agreed to pay a $5,000 fee to the bank.

                                      F-15
<PAGE>

     As a secured creditor, Silicon Valley Bank was subsequently paid in full on
March 15, 2005 with the completion of the Disposition of Assets.

Services, Payment and Security Agreement Relating to Special Investigation
--------------------------------------------------------------------------

     On August 19,  2004,  the  Company  entered  into a  Services,  Payment and
Security  Agreement  with the  independent  legal  counsel  hired  by the  audit
committee  to  conduct  the  special   investigation,   including  the  forensic
accountants and data discovery  experts  retained by the independent  counsel to
assist them with the special  investigation.  Under the terms of the  agreement,
and in  consideration  of the continued  work by these service  providers on the
special  investigation,  the Company acknowledged that approximately  $1,548,000
was owed to these  service  providers  as of July 31,  2004 for work  previously
performed in the special  investigation,  agreed to pay $450,000 of this balance
upon entering into the agreement,  and agreed to pay the remaining  balance owed
on December 31, 2004,  which was the earlier of two alternative  dates specified
by the agreement. The Company did not pay the service providers on that date and
is in default of the agreement.  The Company also agreed to grant to the service
providers a security interest upon  substantially all of its assets with respect
to the  unpaid  balance  owed,  as well as any  fees and  costs  of the  service
providers  accruing  after July 31, 2004 in the course of finishing  the special
investigation.  The security  interest is  subordinated  in most respects to the
security  interest of Silicon Valley Bank under the Company's  credit  facility,
but will be pari passu among the service providers.  The Company and the service
providers also entered into a Subordination Agreement in favor of Silicon Valley
Bank to further  describe their respective  rights as to the competing  security
interests in the Company's assets.

                                      F-16
<PAGE>

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

     The  following  discussion  of  the  financial  condition  and  results  of
operations  of the  Company  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-QSB, and "Management's Discussion and
Analysis of  Financial  Condition  and Results of  Operations"  contained in the
Company's Annual Report for the fiscal year ended December 31, 2003 on Form 10-K
as filed with the SEC on March 29, 2004.

     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 Act of 1934, as amended,  that involve risks and
uncertainties.  These forward looking statements  include,  without  limitation,
statements containing the words "believes,"  "anticipates," "expects," "intends"
and words of similar import. Such forward-looking statements will have known and
unknown  risks,  uncertainties  and other  factors that may cause the  Company's
actual  results,  performance  or  achievements,  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: any adverse impact arising from the Company's  de-listing from The
Nasdaq SmallCap Market, including any adverse impact on the Company's commercial
relationships, the ability of the Company's stockholders to trade its securities
or the value of such securities;  the Company's need to raise additional capital
to fund its operating requirements; any adverse impact arising from the delay in
filing required periodic reports,  including the Company's inability to meet the
listing  requirements of the OTC Bulletin Board or The Nasdaq  SmallCap  Market;
any impact of the Company's  inability to raise  additional  operating  funds on
favorable  terms,  or at all; the  Company's  history of operating  losses;  the
volatility  of the Company's  stock price;  the risk that sales of the Company's
Click to Meet(TM) and Conference  Server(TM)  products will not increase or that
new  versions  will not be released on a timely  basis;  the risk of  undetected
defects or  surprisingly  costly  defects to address in the Company's  principal
software  products;  the  Company's  variability  of operating  results;  market
acceptance of the Company's web conferencing technology; the Company's potential
inability to maintain business relationships with our integrators,  distributors
and  suppliers;   rapid   technological   changes  in  the  Company's  industry;
competition and consolidation in the Web conferencing  industry;  the importance
of  attracting  and  retaining  personnel;  any  adverse  impact  on us from the
resignation of our Chief Financial Officer and Corporate Controller; our ability
to hire a new Chief  Financial  Officer and a new  Corporate  Controller;  risks
relating to the Company's  international  operations;  the Company's  long sales
cycle; the  concentration of the Company's  revenue at the end of each quarterly
accounting  period set forth below in this Quarterly Report on Form 10-QSB,  the
Company's Annual Report on Form 10-K for the year ended December 31, 2003 and in
the Company's  other public filings with the SEC.  First Virtual  Communications
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

     First  Virtual  Communications,  Inc. was  incorporated  in  California  in
October 1993 and  reincorporated  in Delaware in December  1997.  First  Virtual
Communications,  Inc.,  along with its  subsidiaries  (collectively  referred to
herein as "we", "us," "our," or the "Company"),  delivered integrated,  software
technologies  for rich media web conferencing and  collaboration  solutions.  We
combined  our  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.

     We derived our revenue  primarily  through sales to distributors,  original
equipment  manufacturers,  or OEMs,  value-added  resellers,  or  VARS,  federal
government  agencies,   enterprise  customers  and  telecommunications   service
providers.

                                        2
<PAGE>

     Our internal sales and marketing  force  qualified and stimulated  end-user
demand, and managed our strategic  relationships with our distribution partners,
including  OEMs,  VARs and systems  integrators.  At June 30,  2004,  NEC System
Technologies,  Inc. accounted for 15% of total accounts receivable.  At December
31,  2003,  Beijing  Thumb  Access  Communications,  Ltd.  and AT&T  Corporation
accounted for 12% and 10% of total accounts  receivable,  respectively.  For the
three and six months ended June 30, 2004, Comp View, Inc.  accounted for 16% and
17%  and  Net One  Systems  Company,  Ltd.  accounted  for 12% and 12% of  total
revenue, respectively.

     We  maintained  sales  offices  in the United  States,  Europe and Asia and
distributed  our products  through  resellers and  distributors  in more than 25
countries.  Our  revenue  from  international  sales  represented  46% and  33%,
respectively,  of our total  revenue in the three months ended June 30, 2004 and
2003, and 41%, 44% and 37%, respectively, of our total revenue in the six months
ended June 30, 2004 and 2003 and the year ended December 31, 2003.

     We discontinued  selling and supporting our legacy hardware products in May
2003.  Revenues in 2004 were derived primarily from our sales and service of two
software products,  Click to Meet(TM) and Conference  Server(TM).  Both of these
products are based on real-time,  rich media  communications,  a new  technology
that had not yet achieved widespread industry  acceptance.  Additionally,  major
upgrades to our Click to Meet product were  introduced in the second  quarter of
2004.

     In addition to sales and  overhead  concerns,  we have had  unusually  high
general and  administrative  expenses.  As noted above and  discussed  in detail
below, in April 2004 we initiated a special investigation into certain irregular
sales  transactions  we  discovered  in  Asia.  This  investigation  led  to our
inability to file our  periodic  reports  with the SEC in a timely  manner,  the
de-listing  of our  common  stock  from  The  Nasdaq  SmallCap  Market  and  the
restatement  of our  financial  results for the fiscal years ended  December 31,
2001,  2002, and 2003.  Although the irregular  transactions  did not affect our
results of  operations  for this  quarter,  the  special  investigation  and its
aftermath led to substantial general and administrative costs in 2004, including
legal and accounting  expenses related to the investigation and any U.S. federal
securities  class-action  litigation brought against us and/or our directors and
officers,  legal expenses  relating to the  registration of our securities,  and
premium increases on our directors' and officers' liability insurance policy, as
well as  significant  liquidity  concerns.  We took steps to further  reduce our
expenses through an additional restructuring  initiative,  which we announced in
August  2004,  as discussed  below.  Nevertheless,  on January 20,  2005,  First
Virtual  Communications,  Inc. filed Chapter 11 reorganization  cases for itself
and  its  domestic  subsidiary,   CUseeMe  Networks,  Inc.  (collectively,   the
"Company"),  in the United States  Bankruptcy Court for the Northern District of
California,  San  Francisco  Division.  The Company will continue to operate its
business as "debtors in  possession"  under the  jurisdiction  of the Bankruptcy
Court in accordance  with the applicable  provisions of the Bankruptcy  Code and
orders of the Bankruptcy Court.

                                        3
<PAGE>

CRITICAL ACCOUNTING POLICIES

     There have been no material changes to our critical accounting policies and
estimates  as  disclosed  in our  Annual  Report on Form 10-K for the year ended
December 31, 2003.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>

                                            Three months ended                   Six months ended
                                       -----------------------------      ------------------------------
                                                 June 30,                            June 30,
                                       -----------------------------      ------------------------------
                                            2004             2003               2004            2003
                                       ------------    -------------      -------------    -------------
<S>                                    <C>             <C>                <C>               <C>
                                                       (As Restated)                        As Restated)

Revenue                                   100.0%            100.0%            100.0%           100.0%
Cost of revenue                            14.0%             14.9%             15.7%            15.2%
                                       ------------    -------------      -------------    -------------
       Gross profit                        86.0%             85.1%             84.3%            84.8%
                                       ============    =============      =============    =============

Operating expense:
       Research and development            41.5%             43.3%             47.7%            44.9%
       Sales and marketing                 61.7%             50.2%             71.8%            49.4%
       General and administrative          34.9%             31.5%             37.7%            31.0%
       Other non-recurring charges          2.5%             15.2%             10.1%             7.7%
       Special investigation               49.0%              0.0%             26.6%             0.0%
                                       ------------    -------------      -------------    -------------
            Total operating expense       189.6%            140.2%            193.9%           133.0%
                                       ============    =============      =============    =============

Operating loss                           -103.7%            -55.1%           -109.6%           -48.2%
Other income (expense), net                -0.8%             -0.6%             -0.7%            -0.1%
                                       ------------    -------------      -------------    -------------
Net loss                                 -104.4%            -55.7%           -110.3%           -48.3%
                                       ============    =============      =============    =============
</TABLE>

THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003

Revenue
-------

     Revenue  was $4.3  million  for the three  months  ended June 30,  2004;  a
decrease of 22% from the $5.5  million  recorded in the three  months ended June
30, 2003. The following table summarizes the total revenue by software, hardware
and services for the three months ended June 30, 2004 and 2003 (in thousands):

                                             Three Months Ended June 30,
                                      ---------------------------------------
                                           2004                   2003
                                      ----------------      -----------------

      Software                         $        2,776        $         3,001
      Hardware                                    109                    639
      Service                                   1,450                  1,890
                                      ----------------      -----------------
      Total revenue                    $        4,335        $         5,530
                                      ================      =================

     Software revenue consisted of revenue from the sale of software licenses to
use our Click to Meet(TM) and  Conference  Server  software  products.  Software
revenue  decreased  $0.2  million to $2.8 million in the three months ended June
30,  2004,  a decrease of 7% from $3.0  million in the same period of last year.

                                        4
<PAGE>

The decrease was  primarily  due to reduced  sales in North  America and intense
competition, offset by an increase in sales in Asia. Software revenue during the
three months ended June 30, 2004 in North America,  Europe and Asia totaled $1.3
million,  $0.4  million  and $1.1  million,  respectively,  compared to software
revenue  during the three  months  ended  June 30,  2003 of $1.8  million,  $0.5
million and $0.7 million in North America, Europe and Asia, respectively.

     Hardware revenue  consisted of revenue from the sale of legacy ATM hardware
products,  which includes  hardware products sourced from third parties and sold
by us. Hardware revenue decreased $530,000 to $109,000 in the three months ended
June 30, 2004, a decrease of 83% from  $639,000 in the same period of last year.
These  hardware  products are no longer part of our core strategy  going forward
and  accordingly,  the decrease was the result of lower demand and lower average
selling prices for hardware-based ATM legacy products. We notified our customers
that, as of May 1, 2003,  we no longer offer ATM legacy  hardware for sale other
than hardware currently in our fully reserved inventory.

     Service  revenue  consisted  primarily of software  license  subscriptions,
under  which our  customers  receive  agreements  in which they are  entitled to
updates during the term of the  subscription,  as well as hardware  maintenance,
training,  installation  and  consulting  revenue.  Service  revenue  related to
hardware  maintenance  declined to less than 38% of our overall  revenue for the
first six months of 2004 and we expect  this  number to  continue  to decline to
zero as we eliminate this business.  Service  revenue  decreased $0.4 million to
$1.5  million in the three  months  ended June 30,  2004, a decrease of 23% from
$1.9  million in the three  months  ended  June 30,  2003,  primarily  due to an
increase  in the  sale of  software  subscriptions  for our  Click  to Meet  and
Conference  Server  software  products,  partially  offset by a  reduction  from
service revenues related to hardware products. Service revenue in North America,
Europe and Asia totaled $1.0 million,  $0.2 million and $0.2 million  during the
three  months  ended June 30,  2004,  respectively.  This is compared to service
revenue  during the three  months  ended  June 30,  2003 of $1.3  million,  $0.2
million and $0.4 million in North America, Europe and Asia, respectively.

Cost of Revenue
---------------

     Cost of revenue  consisted  primarily of costs associated with the purchase
of  components  from  outside  manufacturers  or the  manufacture  of our legacy
products  by outside  manufacturers  and  related  costs of  freight,  inventory
obsolescence,  warranties,  product  media  duplication,  manuals and  packaging
materials,  personnel and facility costs and third-party  royalties,  which were
charged against income in the period incurred.  Total costs of revenue decreased
by $216,000 to $607,000  for the three months ended June 30, 2004, a decrease of
26% from  $823,000 for the three months ended June 30, 2003.  As a percentage of
total  revenues,  cost of sales decreased to 14% for the three months ended June
30,  2004,  from 15% for the three months  ended June 30,  2003.  Overall  gross
margin in the three months  ended June 30, 2004 was 86%,  compared to 85% in the
comparable period of 2003.

     Cost of  software  revenue  decreased  by $191,000 to $86,000 for the three
months ended June 30, 2004, a decrease of 69% from $277,000 for the three months
ended June 30,  2003.  The  decrease  of cost of  software  revenue in the first
quarter of 2004 was  primarily due to lower sales volume and reduced third party
royalty expense. Gross margin on software revenue increased to 97% for the three
months ended June 30, 2004,  compared to 91% for the three months ended June 30,
2003.

     Cost of hardware revenue  decreased by $30,000 to zero for the three months
ended June 30,  2004, a decrease of 100% from $30,000 for the three months ended
June 30, 2003. The decrease was primarily due to the drop in sales volume of our
hardware  products and a reduction of warranty  liability after we substantially
completed our transition out of the sales of our legacy hardware-based products.
We have  discontinued  offering  hardware to our customers and, as of the end of
2004, we had disposed of the hardware that had previously been held in our fully
reserved  inventory.  Consistent  with the reduction in cost of hardware,  gross
margin on hardware revenue increased to 100% for the three months ended June 30,
2004, from 95% for the three months ended June 30, 2003.

                                        5
<PAGE>

     Cost of service  revenue  increased  slightly by $5,000 to $521,000 for the
three months ended June 30, 2004,  an increase of 1% from $516,000 for the three
months ended June 30, 2003.  This  increase was  primarily due to an increase in
personnel related expenses as a result of increased employee headcount needed to
support an increased  number of customer  subscribers to our service.  The gross
margin on service  revenue  decreased to 64% for the three months ended June 30,
2004,  from 73% for the three months ended June 30, 2003,  primarily  due to the
decline in service revenue and cost of service revenue remaining fairly constant
period over period.

Research and Development
------------------------

     Research and development  expense  consisted  primarily of personnel costs,
costs of contractors and outside  consultants,  supplies and materials expenses,
equipment  depreciation  and overhead costs.  Research and  development  expense
decreased  $595,000 to $1.8  million in the three  months ended June 30, 2004, a
decrease of 25% from $2.4 million for the three months ended June 30, 2003.  The
decrease  was  primarily  due to a reduction  of $360,000 in  personnel  related
expense after the Company  implemented a reduction in force in February  2004, a
reduction of $194,000 in allocated  facility costs resulting from the relocation
of our  headquarters  office from Santa Clara to Redwood  City during the second
quarter of 2003, and a decrease in  depreciation  and  amortization  expenses of
$124,000  resulting from certain research and development  related assets having
been  fully  depreciated,   partially  offset  by  an  increase  of  $47,000  in
professional  fees. As a percentage of total revenue,  research and  development
expense  increased to 42% for the three months ended June 30, 2004, from 43% for
the  three  months  ended  June 30,  2003,  primarily  as a result  of the lower
revenues  during the three months ended June 30,  2004.  We expect  research and
development  expenses,  as expressed in absolute  dollars,  to decrease from the
levels  reported in this Form 10-QSB and the Form 10-QSB for the first and third
quarters of 2004, as a result of continued reductions in personnel expenses.

Sales and Marketing
-------------------

     Sales and marketing  expense included  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  decreased  $105,000 to $2.7 million for the three months ended June 30,
2004,  a decrease of 4% from $2.8  million for the three  months  ended June 30,
2003.  The  decrease was  primarily  due to a reduction of $363,000 in personnel
related  expense after the Company  implemented a reduction in force in February
2004,  partially  offset by an increase in  marketing  and  advertising  program
expenses and  professional  service fees to third  parties.  As a percentage  of
total revenue, sales and marketing expense increased to 62% for the three months
ended  June 30,  2004,  from  50% for the  three  months  ended  June 30,  2003,
primarily due to lower revenue during the three months ended June 30, 2004.

General and Administrative
--------------------------

     General and administrative  expense included personnel and related overhead
costs for finance, human resources,  product operations,  general management and
the  amortization  of  intangible  assets.  General and  administrative  expense
decreased  $227,000 to $1.5  million for the three months ended June 30, 2004, a
13% decrease  from $1.8  million in the three  months  ended June 30, 2003.  The
decrease  was  primarily  due to a savings of $166,000  from  personnel  related
expenses after we implemented a reduction in force in February 2004, a reduction
of $51,000 in allocated  facility  costs  resulting  from the  relocation of our
headquarters  office from Santa Clara to Redwood City during the second  quarter
of 2003 and a  $120,000  credit to bad debt  expense  following  a  reversal  of
related  reserves,  partially  offset by an  increase in legal  expense  accrual
relating to the special investigation. As a percentage of total revenue, general
and  administrative  expense increased to 35% in the three months ended June 30,
2004, compared to 31% for the three months ended June 30, 2003, primarily due to
lower revenues during the three months ended June 30, 2004.

                                        6
<PAGE>

Restructuring and Other
-----------------------

     We completed the restructuring of our business  announced in February 2004,
which reduced our workforce by approximately 20% to 138 employees,  primarily in
our United States operations. The reduction in force was substantially completed
in March 2004 and we incurred restructuring charges totaling $700,000 during the
three  months  ended March 31,  2004.  Additionally,  we incurred  approximately
$100,000 in additional  restructuring charges during the second quarter to bring
the initiative to completion.

     To further  reduce our  expenses,  on August 11, 2004,  we  implemented  an
additional  restructuring  of our business.  This  restructuring  focused on the
closure  of  certain  offices  in Asia and  Europe,  the  further  reduction  of
personnel  by  approximately  20%  to  100  employees,   and  the  reduction  of
professional service costs worldwide. The restructuring was completed during the
fourth quarter of 2004 and resulted in  non-recurring  charges of  approximately
$400,000 that were recorded in the third and fourth quarters of 2004. During the
three months ended  September  30, 2004,  we recorded  charges of  approximately
$275,000  and we incurred an  additional  $125,000  during  three  months  ended
December 31, 2004 to bring the initiative to completion.

Special Investigation
---------------------

     In April 2004, we announced that the audit  committee of board of directors
had  initiated  a special  investigation  as a result of the  identification  by
management of several irregular sales  transactions,  most of which had occurred
in our Asia operations.  The audit committee retained special  independent legal
counsel and through  them,  independent  forensic  accountants,  to review these
transactions.  In connection  with the special  investigation,  we have incurred
approximately  $3.5 million in legal and accounting  fees through its completion
in November  2004,  of which $2.1 million was recorded in the three month period
ended June 30,  2004 and the  balance  will be  recorded in the third and fourth
quarters  of 2004.  Of the fees  incurred,  $373,000  was paid during the second
quarter and $1.1 million was paid during the second quarter of 2004.

     There were no other  non-recurring  charges for the three months ended June
30, 2004.  In the three months  ended June 30, 2003,  we incurred  non-recurring
charges of $678,000 related to our office relocation and an additional  $160,000
related to the shut down of our operation in India.

Other Income (Expense), Net
---------------------------

     Other income (expense),  net, consisted primarily of interest income earned
on short-term investments and cash balances, offset by interest expense relating
to our credit  facilities and long-term  debt.  Other  (expense),  net increased
$1,000 to $35,000 for the three months  ended June 30,  2004,  an increase of 3%
from  $34,000  for the three  months  ended  June 30,  2003.  The  increase  was
primarily due to the financing costs related to the credit facility 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.

                                        7
<PAGE>

Income Taxes
------------

     We have incurred  losses since our  inception.  No tax benefit was recorded
for any period  presented,  as we  believe  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 we 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, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003

Revenue
-------

     Revenue was $8.0 million for the six months ended June 30, 2004; a decrease
of 26% from the $10.9  million  recorded in the six months  ended June 30, 2003.
The  following  table  summarizes  the total  revenue by software,  hardware and
services for the six months ended June 30, 2004 and 2003 (in thousands):


                                             Six Months Ended June 30,
                                      ---------------------------------------
                                           2004                   2003
                                      ----------------      -----------------
                                                                (As Restated)

      Software                         $        4,797        $         6,358
      Hardware                                    193                  1,284
      Service                                   3,015                  3,226
                                      ----------------      -----------------
      Total revenue                    $        8,005        $        10,868
                                      ================      =================

     Software revenue consisted of revenue from the sale of software licenses to
use our Click to Meet(TM) and  Conference  Server  software  products.  Software
revenue  decreased $1.6 million to $4.8 million in the six months ended June 30,
2004, a decrease of 25% from $6.4  million in the same period of last year.  The
decrease  was  primarily  due to  reduced  sales  in  all  regions  and  intense
competition. Software revenue during the six months ended June 30, 2004 in North
America,  Europe and Asia totaled $2.3  million,  $0.7 million and $1.8 million,
respectively,  compared to software revenue during the six months ended June 30,
2003 of $3.1 million, $1.2 million and $2.1 million in North America, Europe and
Asia, respectively.

     Hardware revenue  consisted of revenue from the sale of legacy ATM hardware
products,  which includes  hardware products sourced from third parties and sold
by us.  Hardware  revenue  decreased  $1.1 million to $193,000 in the six months
ended June 30,  2004,  a decrease of 85% from $1.3 million in the same period of
last year. These hardware products are no longer part of our core strategy going
forward and  accordingly,  the decrease was the result of lower demand and lower
average selling prices for hardware-based  ATM legacy products.  We notified our
customers  that, as of May 1, 2003,  we no longer offer ATM legacy  hardware for
sale other than hardware currently in our fully reserved inventory.

     Service  revenue  consisted  primarily of software  license  subscriptions,
under  which our  customers  receive  agreements  in which they are  entitled to
updates during the term of the  subscription,  as well as hardware  maintenance,
training,  installation  and  consulting  revenue.  Service  revenue  related to
hardware  maintenance  declined to less than 38% of our overall  revenue for the
first six months of 2004 and we expect  this  number to  continue  to decline to
zero as we eliminate this business.  Service  revenue  decreased $0.2 million to
$3.0  million in the six months  ended June 30, 2004, a decrease of 7% from $3.2
million in the six months ended June 30, 2003,  primarily  due to an increase in
the sale of software  subscriptions  for our Click to Meet and Conference Server
software products, partially offset by a reduction from service revenues related
to hardware products.  Service revenue in North America, Europe and Asia totaled
$2.1 million, $0.5 million and $0.4 million during the six months ended June 30,
2004,  respectively.  This is compared to service  revenue during the six months
ended June 30, 2003 of $2.3  million,  $0.4  million  and $0.5  million in North
America, Europe and Asia, respectively.

                                        8
<PAGE>

Cost of Revenue
---------------

     Cost of revenue  consisted  primarily of costs associated with the purchase
of  components  from  outside  manufacturers  or the  manufacture  of our legacy
products  by outside  manufacturers  and  related  costs of  freight,  inventory
obsolescence,  warranties,  product  media  duplication,  manuals and  packaging
materials,  personnel and facility costs and third-party  royalties,  which were
charged against income in the period incurred.  Total costs of revenue decreased
by $0.4  million to $1.3  million  for the six months  ended  June 30,  2004,  a
decrease of 24% from $1.7 million for the six months  ended June 30, 2003.  As a
percentage of total  revenues,  cost of sales remained stable at 16% for the six
months  ended June 30,  2004,  compared to 15% for the six months ended June 30,
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, 2004 remained  stable at 84%,  compared to 85% in the  comparable  period of
2003.

     Cost of software  revenue  decreased  by  $293,000 to $150,000  for the six
months ended June 30,  2004, a decrease of 66% from  $443,000 for the six months
ended June 30, 2003. The decrease in cost of software  revenue was primarily due
to lower sales volume and reduced third party royalty  expense.  Gross margin on
software  revenue  increased  to 97% for the six  months  ended  June 30,  2004,
compared to 93% for the six months ended June 30, 2003.

     Cost of hardware  revenue  decreased by $248,000 to zero for the six months
ended June 30, 2004,  a decrease of 100% from  $248,000 for the six months ended
June 30, 2003. The decrease was primarily due to the  significant  drop in sales
volume of our hardware  products and a reduction of warranty  liability after we
substantially   completed  our  transition  out  of  the  sales  of  our  legacy
hardware-based products. We have discontinued offering hardware to our customers
and, as of the end of 2004, we had disposed of the hardware that had  previously
been held in our fully reserved inventory. Consistent with the reduction in cost
of  hardware,  gross  margin on hardware  revenue  increased to 100% for the six
months ended June 30, 2004, from 96% for the six months ended June 30, 2003.

     Cost of service  revenue  increased by $147,000 to $1.1 million for the six
months  ended June 30,  2004,  an increase of 15% from $1.0  million for the six
months ended June 30, 2003.  This  increase was  primarily due to an increase in
personnel related expenses as a result of increased employee headcount needed to
support an increased  number of customer  subscribers to our service.  The gross
margin on service  revenue  decreased  to 63% for the six months  ended June 30,
2004,  from 70% for the six months  ended June 30,  2003,  primarily  due to the
decline in service revenue and cost of service revenue remaining fairly constant
period over period.

Research and Development
------------------------

     Research and development  expense  consisted  primarily of personnel costs,
costs of contractors and outside  consultants,  supplies and materials expenses,
equipment  depreciation  and overhead costs.  Research and  development  expense
decreased  $1.1 million to $3.8 million in the six months ended June 30, 2004, a
decrease of 22% from $4.9 million for the six months  ended June 30,  2003.  The
decrease was primarily due to a savings of $616,000 in personnel related expense
after the Company implemented a reduction in force in February 2004, a reduction
of $321,000 in allocated  facility  costs  resulting  from the relocation of our
headquarters  office from Santa Clara to Redwood City during the second  quarter
of 2003, and a decrease in depreciation  and  amortization  expenses of $239,000
resulting from certain research and development related assets having been fully
depreciated, partially offset by an increase of $77,000 in professional fees. As
a percentage of total revenue, research and development expense increased to 48%
for the six months ended June 30,  2004,  from 45% for the six months ended June
30,  2003,  primarily  as a result of the lower  revenues  during the six months
ended June 30, 2004. We expect research and development  expenses,  as expressed
in absolute  dollars,  to decrease from the levels  reported in this Form 10-QSB
and the Form  10-QSB for the third  quarters of 2004,  as a result of  continued
reductions in personnel expenses.

                                        9
<PAGE>

Sales and Marketing
-------------------

     Sales and marketing  expense included  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 $0.3 million to $5.7 million for the six months ended June 30,
2004,  an  increase of 7% from $5.4  million  for the six months  ended June 30,
2003. The increase was primarily due to an increase of $474,000 in marketing and
advertising  program expenses and $92,000 in professional  service fees to third
parties,  partially  offset by a  reduction  of $311,000  in  personnel  related
expense after the Company  implemented a reduction in force in February 2004. As
a percentage of total revenue,  sales and marketing expense increased to 72% for
the six months ended June 30,  2004,  from 49% for the six months ended June 30,
2003, primarily due to lower revenue during the six months ended June 30, 2004.

General and Administrative
--------------------------

     General and administrative  expense included personnel and related overhead
costs for finance, human resources,  product operations,  general management and
the  amortization  of  intangible  assets.  General and  administrative  expense
decreased $0.4 million to $3.0 million for the six months ended June 30, 2004, a
10%  decrease  from $3.4  million in the six months  ended  June 30,  2003.  The
decrease  was  primarily  due to a savings of $268,000  from  personnel  related
expenses after we implemented a reduction in force in February 2004, a reduction
of $166,000 in allocated  facility  costs  resulting  from the relocation of our
headquarters  office from Santa Clara to Redwood City during the second  quarter
of 2003,  a decrease  in  depreciation  and  amortization  expenses  of $154,000
resulting from certain research and development related assets having been fully
depreciated  partially  offset by an  increase in legal and  accounting  accrual
relating to the special investigation and the an increase in our premium for our
directors'  and  officers'  liability  insurance.  As a  percentage  of revenue,
general and administrative expense increased to 38% in the six months ended June
30, 2004, compared to 31% for the six months ended June 30, 2003,  primarily due
to lower revenues during the six months ended June 30, 2004.

Restructuring and Other
-----------------------

     Restructuring   and  other  expense   includes   expenses  related  to  our
restructuring  activities.  Restructuring and other expense decreased $29,000 to
$809,000 for the six months ended June 30, 2004, a 3% decrease  from $838,000 in
the six months ended June 30, 2003.  As a percentage  of revenue,  restructuring
and other  expense  increased  to 10% in the six  months  ended  June 30,  2004,
compared to 8% for the six months  ended June 30, 2003,  primarily  due to lower
revenues during the six months ended June 30, 2004.

     We recently  completed  the  restructuring  of our  business  announced  in
February  2004,  which  reduced  our  workforce  by  approximately  20%  to  138
employees, primarily in our United States operations. The reduction in force was
substantially  completed  in March 2004 and we  incurred  restructuring  charges
totaling $700,000 during the three months ended March 31, 2004. Additionally, we
incurred approximately  $100,000 in additional  restructuring charges during the
second quarter to bring the initiative to completion.

                                       10
<PAGE>

     To further  reduce our  expenses,  on August 11, 2004,  we  implemented  an
additional  restructuring  of our business.  This  restructuring  focused on the
closure  of  certain  offices  in Asia and  Europe,  the  further  reduction  of
personnel  by  approximately  20%  to  100  employees,   and  the  reduction  of
professional service costs worldwide. The restructuring was completed during the
fourth quarter of 2004 and resulted in  non-recurring  charges of  approximately
$400,000 that were recorded in the third and fourth quarters of 2004. During the
three months ended  September  30, 2004,  we recorded  charges of  approximately
$275,000  and we incurred an  additional  $125,000  during  three  months  ended
December 31, 2004 to bring the initiative to completion.

     In the six months ended June 30, 2003, we incurred non-recurring charges of
$678,000 related to our office relocation and an additional $160,000 related to
the shut down of our operation in India.

Special Investigation
---------------------

     In April 2004, we announced that the audit  committee of board of directors
had  initiated  a special  investigation  as a result of the  identification  by
management of several irregular sales  transactions,  most of which had occurred
in our Asia operations.  The audit committee retained special  independent legal
counsel and through  them,  independent  forensic  accountants,  to review these
transactions.  In connection  with the special  investigation,  we have incurred
approximately  $3.7 million in legal and accounting  fees through its completion
in November  2004,  of which $2.1  million was  recorded in the six month period
ended June 30,  2004 and the  balance  will be  recorded in the third and fourth
quarters of 2004. Of the fees  incurred,  $373,000 was paid during the first six
months of 2004 and $1.1 million was paid during the third quarter.

Other Income (Expense), Net
---------------------------

     Other  (expense),  net,  consists  primarily of interest  income  earned on
short-term investments and cash balances, offset by interest expense relating to
our credit facilities and long-term debt. Other (expense), net increased $46,000
to $(53,000)  for the six months ended June 30, 2004,  an  significant  increase
from $(7,000) for the six months ended June 30, 2003. The increase was primarily
due to the financing  costs related to the credit  facility 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.

Income Taxes
------------

     We have incurred  losses since our  inception.  No tax benefit was recorded
for any period  presented,  as we  believe  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 we will not be able to realize  the benefit of these
net operating losses, and thus a full valuation reserve has been recorded.

SUBSEQUENT EVENTS

     The  subsequent  events listed below must be read in  conjunction  with the
Company's Chapter 11 filing and  reorganization  plan discussed in Note 1 of the
financial statements.

Special investigation of the Audit Committee
--------------------------------------------

     In April  2004,  we  announced  that the  audit  committee  of our board of
directors   had   initiated  a  special   investigation   as  a  result  of  the
identification  by management of several irregular sales  transactions,  most of
which had  occurred  in our Asia  operations.  The audit  committee  retained  a
special  independent  legal  counsel  and  through  them,  independent  forensic
accountants,  to review these transactions.  As a result of the pendency of this
investigation, we were unable to complete our quarterly financial statements for
the  quarter  covered by this Form 10-QSB and for the  quarters  ended March 31,
2004 and September 30, 2004,  and thus we were unable to release our results and
timely  file with the SEC this  Form  10-QSB or our  quarterly  reports  for the
second and third quarters of 2004.

                                       11
<PAGE>

     The special  investigation is now complete.  The audit committee determined
that there were sales transactions, mostly in our Asia operations, that included
irregular,  undisclosed terms and that this resulted in accounting  errors.  The
audit committee has determined that these errors, standing alone, would not have
required a restatement of previously  issued  financial  statements due to their
immateriality  for reporting  purposes.  In addition,  the audit  committee also
identified certain sales transactions unrelated to our Asia operations that were
not appropriately accounted for by us, including primarily transactions with one
U.S.  customer  where  revenue was  recognized  prematurely  for  certain  sales
transactions.  The audit  committee  determined  on November 15, 2004 that, as a
result of the errors involving this one U.S.  customer,  it will be necessary to
restate our financial  results for the years ended  December 31, 2001,  2002 and
2003. In connection  with the  restatement of our financial  results for each of
these years, the interim financial results for the quarters ended March 31, June
30,  September 30 and  December 31 of each of these years will be restated.  The
financial  statements  for  these  periods  previously  filed  for each of these
periods and our Annual Report for the fiscal year ended December 31, 2003 should
no longer be relied upon.  Furthermore,  the audit committee has determined that
while we will not be issuing full restated  financial results for the year ended
December 31, 2000,  there will be revisions to those financial  statements which
will impact the  restatement  for the year ended  December  31, 2001 and related
interim periods.

     The audit committee  determined that revenues related to contracts with one
of our U.S.  customers were  prematurely  recognized in a quarter  preceding the
quarter in which the  transactions  should have been recognized under applicable
revenue  recognition rules,  American Institute of Certified Public Accountants'
Statement  of  Position  97-2 (SOP 97-2),  "Software  Revenue  Recognition"  and
Securities  and Exchange  Commission  Staff  Accounting  Bulletin 104 (SAB 104),
"Revenue  Recognition."  Under SOP 97-2 and SAB 104, a  requirement  for revenue
recognition  is the  occurrence of  acceptance  or expiration of the  acceptance
period  when   acceptance   criteria  are  specified.   The  audit   committee's
investigation  revealed  that  the  acceptance  requirement  was  not met in the
quarters in which revenue was  recognized for certain  transactions  relating to
purchases  of  products  by the U.S.  customer.  The  audit  committee  found no
evidence to suggest that the revenues  and cash flows  associated  with the U.S.
customer's contracts were not genuine. The U.S. customer's contracts were valid,
products were  delivered,  and we received cash. We performed an analysis of the
extent and quantification of the prematurely recognized revenue, which forms the
basis of the need to restate our financial  results for the 2001,  2002 and 2003
fiscal years.  Included in the analysis are adjustments  made as a result of the
irregularities and errors involving the Asia and other operations and additional
errors  noted  during the course of the  investigation.  While these  additional
errors  and the  errors  involving  the  Asia  and  other  operations  were  not
individually  material  for  reporting  purposes  and would not have  required a
restatement of previously issued financial statements,  they are being corrected
as part  of the  restatement  resulting  from  the  adjustments  related  to the
acceptance provisions with this one U.S. customer.

     For purposes of the  restatement,  the revenue  improperly  recognized in a
particular  quarter is being  deferred  and  recognized  in the quarter in which
acceptance requirements were satisfied.  For example, if a product sale having a
value  of $100 was  prematurely  recognized  in one  quarter,  the $100  will be
deferred from the revenue in that quarter and then recognized in a later quarter
in which customer acceptance requirements were satisfied. In addition to revenue
shifting between periods,  there is a resultant impact on cost of goods sold and
operating  expenses.  The effects on income taxes, net loss,  earnings/loss  per
share, total assets, total liabilities, working capital and stockholders' equity
is also being taken into account in the restatement.

     On November 18, 2004, we announced that effective November 14, 2004, Truman
Cole resigned as the Company's vice president and chief financial  officer.  Mr.
Cole was our principal  financial officer and our principal  accounting officer.
We also announced that effective  November 13, 2004, Andrew Morrison resigned as
the our corporate controller.  While having resigned,  Messrs. Cole and Morrison
have been retained to assist us as consultants  through a transition  period. We
have not yet named any individuals to permanently fill the roles previously held
by Messrs.  Cole and  Morrison.  The Company has named  Gregory  Sterling as its
Chief Restructuring Officer.

                                       12
<PAGE>

Management changes
------------------

     On November 18, 2004, we announced that effective November 14, 2004, Truman
Cole resigned as the Company's vice president and chief financial  officer.  Mr.
Cole was our principal  financial officer and our principal  accounting officer.
We also announced that effective  November 13, 2004, Andrew Morrison resigned as
our corporate controller.  While having resigned, Messrs. Cole and Morrison were
retained to assist us as consultants  through a transition  period.  We have not
yet named any  individuals  to  permanently  fill the roles  previously  held by
Messrs.  Cole and  Morrison.  The Company  named  Gregory  Sterling as its Chief
Restructuring Officer as of June 8, 2005.

Warrant exercises
-----------------

     On  May  7,  2004,  we  announced  the  exercise  of  warrants  by  certain
institutional  investors and/or their affiliates to purchase an aggregate of 2.0
million shares of our common stock,  resulting in the receipt by us of aggregate
proceeds of $3.5 million, and the exercise of warrants to purchase 35,560 shares
of our common stock by Silicon Valley Bank on a net exercise basis, resulting in
no proceeds to us.

Suspension of registration statements
-------------------------------------

     The Company is party to several registration rights agreements with certain
of its  investors  which  require  that the shares  sold to these  investors  be
resalable pursuant to registration  statements on file with the SEC. As a result
of the Company's  inability to file timely periodic  reports on May 17, 2004, it
was forced to suspend the availability of these registration statements, as well
as the availability of its registration statements covering the re-sale of stock
issued  under its equity  incentive  plans.  The  Company  continues  to have an
obligation  (subject to certain  exceptions,  including  suspension of use under
specified  circumstances  and for a  limited  period  of  time)  to  keep  these
registration  statements  effective with respect to any shares  covered  thereby
until such  shares may be sold  without  volume  restrictions  pursuant  to Rule
144(k) promulgated under the Securities Act of 1933, as amended. The Company may
be subject to  litigation  from these  investors  for any loss in value of their
stock while the  registration  statements  are  suspended  and their  shares are
restricted  from sale.  Certain of these  agreements also provide for liquidated
damages  of  approximately  $85,000  per month in the event  that the  shares in
question are  restricted  from sale.  As of December  31, 2004,  the Company had
accrued $697,000 to cover such liquidated damages.

                                       13
<PAGE>

Amendment to Silicon Valley Bank Credit Facility and Related Forbearance
------------------------------------------------------------------------

     The Company  became  party to a $3 million  secured  credit  facility  with
Silicon Valley Bank pursuant to a Loan and Security  Agreement dated as of April
3, 2003, as amended by an Amendment to Loan  Documents  dated as of May 25, 2004
(as amended,  the "Loan  Agreement").  Upon the  effectiveness of this amendment
during the second  quarter,  it borrowed from Silicon  Valley Bank an additional
amount of approximately  $917,000,  bringing its outstanding  principal  balance
under the loan to $3.0  million.  As a result of the amendment the maturity date
was extended to May 24,  2005,  the  interest  rate was  increased to the bank's
prime  rate  plus  2.5%  with a floor  at 6.5%,  and the  minimum  cash  deposit
requirement  of $2.9 million was removed and replaced  with a minimum  quarterly
net sales revenue covenant and a minimum monthly liquidity covenant. The Company
is also required to keep its primary banking relationship at Silicon Valley Bank
and to keep all but $750,000 of its  unrestricted  cash and cash  equivalents on
deposit with Silicon Valley Bank. Silicon Valley Bank has a security interest in
the Company's deposits as well as in most of its material assets.

     As of March 31, 2004 and October 31, 2004, $3.0 million and $2.5 million of
its secured  obligations  were  subject to this credit  facility  with the bank,
respectively.   In  addition,   the  Loan  Agreement   contains   financial  and
non-financial  covenants,  including  a  monthly  liquidity  covenant  which the
Company had violated as of August 31, 2004.

     On September  13, 2004,  the Company  entered into a Temporary  Forbearance
Agreement  with Silicon Valley Bank pursuant to which the bank agreed to forbear
from exercising  (but not to waive) its rights and remedies  against the Company
as a result of its default under the Loan Agreement until September 21, 2004.

     On September 29, 2004, the Company entered into an Extension Agreement with
Silicon  Valley Bank,  effective as of September  13, 2004, in which the date of
expiration of the Temporary  Forbearance  Agreement was extended through October
4, 2004.

     On November 16, 2004, Silicon Valley Bank signed an Amendment and Extension
Agreement  with the Company,  in which the date of  expiration  of the Temporary
Forbearance Agreement was extended through November 15, 2004, the maximum amount
of the credit  facility  pursuant to the Loan  Agreement  was reduced  from $3.0
million to $2.5 million, and the Company agreed that the Loan Agreement would be
amended to require it to direct all of its customers to remit payments to a cash
collateral  account  controlled by the bank.  The Company also agreed to provide
additional weekly financial reporting to the bank.

     In consideration of this forbearance,  the Company agreed to pay a $100,000
fee to the bank on the earlier to occur of (i) the receipt by it of proceeds for
the issuance of equity securities, (ii) the acceleration of the credit facility,
or (iii) the maturity date of the loan. The Company also agreed to pay a success
fee to the bank of the  lesser  of an  additional  $100,000  or 1% of its  gross
valuation  on the  earlier  to occur of the  closing of any change in control or
equivalent  transaction  or the  maturity  date of the loan.  In  addition,  the
Company  agreed to  re-price an  existing  warrant  held by the bank to purchase
7,218 of its  shares of common  stock at $2.54 per share to a price of $0.01 per
share.

     On December  2004,  Silicon  Valley Bank signed an Amendment  and Extension
Agreement  with the Company,  in which the date of  expiration  of the Temporary
Forbearance  Agreement was extended  through  December 2004. In consideration of
this forbearance, the Company agreed to pay a $5,000 fee to the bank.

     As a secured creditor, Silicon Valley Bank was subsequently paid in full on
March 15, 2005 with the completion of the Disposition of Assets.

Services, Payment and Security Agreement Relating to Special Investigation
--------------------------------------------------------------------------

     On August 19,  2004,  the  Company  entered  into a  Services,  Payment and
Security  Agreement  with the  independent  legal  counsel  hired  by the  audit
committee  to  conduct  the  special   investigation,   including  the  forensic
accountants and data discovery  experts  retained by the independent  counsel to
assist them with the special  investigation.  Under the terms of the  agreement,
and in  consideration  of the continued  work by these service  providers on the
special  investigation,  the Company acknowledged that approximately  $1,548,000
was owed to these  service  providers  as of July 31,  2004 for work  previously
performed in the special  investigation,  agreed to pay $450,000 of this balance
upon entering into the agreement,  and agreed to pay the remaining  balance owed
on December 31, 2004,  which was the earlier of two alternative  dates specified
by the agreement. The Company did not pay the service providers on that date and
is in default of the agreement.  The Company also agreed to grant to the service
providers a security interest upon  substantially all of its assets with respect
to the  unpaid  balance  owed,  as well as any  fees and  costs  of the  service
providers  accruing  after July 31, 2004 in the course of finishing  the special
investigation.  The security  interest is  subordinated  in most respects to the
security  interest of Silicon Valley Bank under the Company's  credit  facility,
but will be pari passu among the service providers.  The Company and the service
providers also entered into a Subordination Agreement in favor of Silicon Valley
Bank to further  describe their respective  rights as to the competing  security
interests in the Company's assets.

LIQUIDITY AND CAPITAL RESOURCES

     We have  operated  at a loss  since our  inception  and have  financed  our
operations  primary through private and public placements of equity  securities,
revenue  from  the  sale  of  our  products  and  services  and  through  credit
facilities.  We expect continued operating losses for the fourth quarter of 2004
and for 2005. Cash and cash  equivalents  totaled $9.1 million at June 30, 2004.
Of our cash and cash  equivalents at June 30, 2004, $3.0 million was expected to
support our  outstanding  obligations to Silicon Valley Bank.  Accordingly,  our
cash  resources  available for operations as of June 30, 2004 were $6.1 million.
At December 31, 2003, our cash resources  available for operations  totaled $9.1
million.

     Additionally, as a result of the special investigation,  our customers have
questioned our financial  viability,  resulting,  we believe, in reduced product
sales. In addition, as a result of the restatement of our financial results, our
customers may continue to question our financial  viability and to also question
our integrity,  which could materially adversely affect our business,  financial
condition and results of operations. We cannot determine the extent to which our
revenue may be  adversely  impacted by the results of the special  investigation
and the restatement of our financial results.

                                       14
<PAGE>

     We became  subject to an  arbitration  proceeding as a result of actions we
took after our discovery of the irregular  transactions which are the subject of
the special investigation discussed elsewhere herein. On September 27, 2004, the
International  Court of  Arbitration  of the  International  Chamber of Commerce
received a Request for Arbitration from Inter Open International Limited and Ms.
Ratna Widjati  Widjaja.  We received notice of this Request for Arbitration from
the Secretariat of the International Court of Arbitration on or about October 1,
2004. We acquired  FVC.COM (Asia) Limited,  a Hong Kong entity,  in January 2002
from its shareholders,  Inter Open  International  Limited and Ms. Widjaja.  The
principal  affiliate  of  FVC.COM  (Asia)  Limited,  who is the  husband  of Ms.
Widjaja, became an employee of the Company. In the purchase agreement, we agreed
to pay certain  revenue-based  consideration to the  shareholders  following the
acquisition of FVC.COM (Asia) Limited based on our future revenue. Following our
discovery of the irregular  transactions,  we terminated  the  employment of the
affiliate and ceased paying  consideration  in accordance  with the terms of the
agreement.  The  selling  shareholders  have  alleged  that  termination  of the
affiliate  deprived  them  of  up  to  approximately  $1  million  of  potential
revenue-based  consideration  and are seeking to recover this sum plus interest.
Although we believe that this allegation is without merit,  an arbitrator  could
determine  otherwise.  In such case, it is conceivable  that an arbitrator could
award  significant  damages  against  us  for  breach  of  contract,  and/or  an
employment claim by the affiliate, and we might incur substantial legal costs in
defending the matter(s).  We are currently  considering whether to pursue claims
against the affiliate.

     We became  subject to a U.S.  federal  class-action  securities  litigation
related to the decline in the value of our common  stock.  On August 25, 2004, a
complaint  was  filed  in U.S.  District  Court  for the  Northern  District  of
California  (Case No.  C-04-3585)  on behalf of  stockholders  who purchased our
securities  between March 29, 2004 and August 23, 2004. On September 1, 2004, we
were  served with the  complaint.  The  complaint  alleged  that we,  along with
certain of our executive  officers,  violated  Section  10(b) of the  Securities
Exchange Act of 1934, as amended ("Exchange Act") by artificially  inflating our
stock price through materially misleading statements and omissions to the public
and by otherwise  engaging in fraud against the  plaintiffs.  The complaint also
alleged that certain of our executive officers,  as controlling persons of First
Virtual Communications,  breached Section 20(b) of the Exchange Act by assisting
in the inflation of our stock price through their respective acts and omissions.
Each of the executive officers are party to an indemnification  agreement which,
subject to certain  exclusions  and  limitations,  we have agreed to advance all
expenses  necessary for the defense of such a lawsuit and to reimburse  them for
any  damages  they  are  required  to  pay.  The  complaint  seeks   unspecified
compensatory  damages, as well as costs and expenses of plaintiffs' attorneys in
bringing the action against us. Although our directors' and officers'  liability
insurance  provides  coverage for legal costs as well as any damages incurred in
this  litigation,  the coverage would be subject to a deductible of $500,000 per
claim,  which would be our  obligation.  This  class-action  case was dropped in
early 2005 against the Company, but the officers are still defendants.

LIQUIDITY DISCUSSION

Operating Activities
--------------------

     Cash and cash  equivalents  decreased by $2.5 million  during the first six
months of 2004,  from $11.6 million at December 31, 2003 to $9.1 million at June
30, 2004. By  comparison,  cash and cash  equivalents  decreased by $2.3 million
during the first six months of 2003,  from $8.4  million at December 31, 2002 to
$6.1 million at June 30, 2003. We used cash to fund operating activities of $6.8
million during the first six months of 2004 as compared with $4.9 million during
the first  six  months of 2003.  This use of cash was  primarily  due to our net
losses during those quarters, adjusted for non-cash charges, as operating costs,
primarily  employee and employee  related costs,  exceeded the related  revenues
from the sale of our products and services.  Additionally, we made cash payments
related to our February 2004  restructuring  initiatives  of $0.3 million during
the first six months of 2004. These cash outflows for operating  activities were
partially offset by proceeds from the collection of accounts  receivable of $8.4
million  during the first six months of 2004 and $10.0 million  during the first
six months of 2003.

     Revenue  generated  from the sale of our  products  and  services  will not
increase to a level that exceeds our expenses and cash flow from operations will
continue to be negatively impacted.

     Our primary  source of operating  cash flow is the  collection  of accounts
receivable  from our  customers  and the timing of  payments  to our vendors and
service providers. We measure the effectiveness of our collections efforts by an
analysis of the average number of days our accounts  receivable are outstanding.
At June 30, 2004, our average days sales  outstanding were 15 days, down from 63
days at June 30 2003.  Collections  of  accounts  receivable  and  related  days
outstanding  will fluctuate in future  periods due to the timing,  amount of our
future revenues,  payment terms on customer  contracts and the  effectiveness of
our collection efforts.

     Our operating cash flows will be impacted in the future based on the timing
of payments to our vendors for accounts payable.  The timing of cash payments in
future periods may be impacted by the nature of accounts payable arrangements.

                                       15
<PAGE>

Investing Activities
--------------------

     We received  cash  proceeds  from  investing  activities  of  $226,000  and
$(466,000)  during the first six months of 2004 and 2003,  respectively.  During
the first six months of 2003,  cash used in  investing  activities  consisted of
$334,000  for  the  purchase  of  property  and  equipment,  primarily  for  the
acquisition  of desktop  and network  infrastructure  equipment  and  short-term
investments in high-grade, low risk instruments, and $132,000 in acquisitions of
businesses. During the first six months of 2004, cash proceeds were comprised of
$278,000  used  for the  purchase  of  property  and  equipment  and  short-term
investments,  offset by $504,000 in proceeds  from the sale of these  short-term
investments.

Financing Activities
--------------------

     We received net cash in  financing  activities  of $4.1 million  during the
first six  months of 2004 as  compared  with $3.1  million  during the first six
months of 2003.  During the first six months of 2004,  we paid cash of  $128,000
related to the issuance of common stock in connection with previous  financings,
offset by $3.7 million in proceeds from warrant exercises. Additionally, we paid
$417,000 in principal on the credit  facility with Silicon  Valley Bank and drew
down an additional $917,000 in principal on this facility.  During the first six
months of 2003,  we received  $3.0 million in proceeds  from  financings  and an
additional $62,000 in proceeds from the issuance of common stock.

     We  have no  present  understandings,  commitments  or  agreements  for any
material  acquisitions  of, or investments in, other  complementary  businesses,
products or technologies.

Contractual Obligations
-----------------------

     As of June 30, 2004, our contractual obligations and other commitments were
as follows (in thousands):

<TABLE>
<CAPTION>

-----------------------------------  --------------- -------------- --------------- --------------- -----------------
Contractual obligation                   Total       Less Than        1 -3 Years      3-5 Years     More Than 5 years
                                                     One Year
-----------------------------------  --------------- -------------- --------------- --------------- -----------------
<S>                                  <C>             <C>            <C>             <C>             <C>

Principal of short-term debt          $   2,500,000   $  2,500,000   $          --   $          --   $            --
Operating leases                          3,479,342      1,041,216         832,976         837,581           767,568
Other Contracts                                  --             --              --              --                --
                                     --------------- -------------- --------------- --------------- -----------------
  Total contractual cash obligation   $   5,979,342   $  3,541,216   $     832,976   $     837,581   $       767,568
                                     --------------- -------------- --------------- --------------- -----------------
</TABLE>

     Excluded  from the  table  above  are  liquidated  damages  which we may be
subject to in connection  with  registration  rights  agreements we entered into
with certain of our investors  that require that shares sold to these  investors
be resalable  pursuant to registration  statements on file with the SEC. We were
forced to suspend the availability of these  registration  statements on May 17,
2004 when we became delinquent in the filing of our periodic reports as a result
of the special  investigation  described  elsewhere  in this  Quarterly  Report.
Certain of these  registration  rights agreements provide for liquidated damages
in the event that the shares in question are  restricted  from being resold.  We
estimate  the  amount  of  liquidated  damages  we  could  be  liable  for to be
approximately  $85,000  per month.  As of  December  31,  2004,  we had  accrued
$697,000 to cover such liquidated  damages.  The total obligation is unknown, as
it is  based  on when our  delinquent  periodic  reports  are  brought  current.
Additionally,  it is possible we will able to satisfy these obligations  without
using our cash resources.

                                       16
<PAGE>

ITEM 3. CONTROLS AND PROCEDURES

     An  evaluation  was not  performed  under  the  supervision  and  with  the
participation of our management,  including the Chief Restructuring  Officer, of
the  effectiveness  of the design and operation of our  disclosure  controls and
procedures as of the end of the period covered by this Quarterly  Report on Form
10-QSB.  Officers  and  management  of the Company who may have  performed  such
evaluation  are no longer  present or in a capacity  to certify.  The  Company's
Chief Restructuring Officer was not hired until June 8, 2005.

     There were no changes in internal  control over financial  reporting during
the  quarter  ended March 31, 2004 that  affected or were  reasonably  likely to
affect our internal control over financial reporting.

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     We became  subject to an  arbitration  proceeding as a result of actions we
took after our discovery of the irregular  transactions which are the subject of
the special investigation discussed elsewhere herein. On September 27, 2004, the
International  Court of  Arbitration  of the  International  Chamber of Commerce
received a Request for Arbitration from Inter Open International Limited and Ms.
Ratna Widjati  Widjaja.  We received notice of this Request for Arbitration from
the Secretariat of the International Court of Arbitration on or about October 1,
2004. We acquired  FVC.COM (Asia) Limited,  a Hong Kong entity,  in January 2002
from its shareholders,  Inter Open  International  Limited and Ms. Widjaja.  The
principal  affiliate  of  FVC.COM  (Asia)  Limited,  who is the  husband  of Ms.
Widjaja, became an employee of the Company. In the purchase agreement, we agreed
to pay certain  revenue-based  consideration to the  shareholders  following the
acquisition of FVC.COM (Asia) Limited based on our future revenue. Following our
discovery of the irregular  transactions,  we terminated  the  employment of the
affiliate and ceased paying  consideration  in accordance  with the terms of the
agreement.  The  selling  shareholders  have  alleged  that  termination  of the
affiliate  deprived  them  of  up  to  approximately  $1  million  of  potential
revenue-based  consideration  and are seeking to recover this sum plus interest.
Although we believe that this allegation is without merit,  an arbitrator  could
determine  otherwise.  In such case, it is conceivable  that an arbitrator could
award  significant  damages  against  us  for  breach  of  contract,  and/or  an
employment claim by the affiliate, and we might incur substantial legal costs in
defending the matter(s).  We are currently  considering whether to pursue claims
against the affiliate.

     We became  subject to a U.S.  federal  class-action  securities  litigation
related to the decline in the value of our common  stock.  On August 25, 2004, a
complaint  was  filed  in U.S.  District  Court  for the  Northern  District  of
California  (Case No.  C-04-3585)  on behalf of  stockholders  who purchased our
securities  between March 29, 2004 and August 23, 2004. On September 1, 2004, we
were  served with the  complaint.  The  complaint  alleged  that we,  along with
certain of our executive  officers,  violated  Section  10(b) of the  Securities
Exchange Act of 1934, as amended ("Exchange Act") by artificially  inflating our
stock price through materially misleading statements and omissions to the public
and by otherwise  engaging in fraud against the  plaintiffs.  The complaint also
alleged that certain of our executive officers,  as controlling persons of First
Virtual Communications,  breached Section 20(b) of the Exchange Act by assisting
in the inflation of our stock price through their respective acts and omissions.
Each of the executive officers are party to an indemnification  agreement which,
subject to certain  exclusions  and  limitations,  we have agreed to advance all
expenses  necessary for the defense of such a lawsuit and to reimburse  them for
any  damages  they  are  required  to  pay.  The  complaint  seeks   unspecified
compensatory  damages, as well as costs and expenses of plaintiffs' attorneys in
bringing the action against us. Although our directors' and officers'  liability
insurance  provides  coverage for legal costs as well as any damages incurred in
this  litigation,  the coverage would be subject to a deductible of $500,000 per
claim,  which would be our  obligation.  This  class-action  case was dropped in
early 2005 against the Company, but the officers are still defendants.

                                       17
<PAGE>

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     On November 7, 2003,  we entered into  definitive  agreements in connection
with a  private  placement  of our  shares of common  stock  with  institutional
investors and their affiliates ("Financing") who were accredited investors under
the securities laws. The investors  participating in the Financing also received
warrants to purchase up to an aggregate of  approximately  2.9 million shares of
our  common  stock  at an  exercise  price  of $1.79  per  share  (collectively,
"Financing  Warrants").  Each of the  Financing  Warrants  has a five year life.
During  April 2004,  Financing  Warrants to purchase an aggregate of 2.0 million
shares of common stock were  exercised,  resulting in aggregate cash proceeds to
us of approximately $3.5 million.

     On April 3,  2003,  we entered  into a term loan  facility  agreement  with
Silicon  Valley Bank. In  connection  with the term loan  facility,  on April 3,
2003, we issued a five-year  warrant to the Bank to purchase up to 56,250 shares
of our common stock at an exercise price of $1.60 per share ("Bank Warrant"). On
April 13, 2004,  the Bank  exercised  the Bank Warrant on a net exercise  basis,
resulting  in the  issuance by of 35,560  shares of our common stock to the Bank
and no cash proceeds to us.

     On April 30, 2004, we notified  holders of  securities  covered by our Form
S-3   registration   statement  filed  in  December  2003  ("2003   Registration
Statement")  and our Form S-3  registration  statement  filed in May 2002 ("2002
Registration  Statement")  of  the  suspension  of  the  availability  of  these
registration  statements and the use of any prospectuses in connection therewith
for  the  purpose  of  selling  shares  or  otherwise.  We  continue  to have an
obligation  (subject to certain  exceptions,  including  suspension of use under
specified  circumstances and for a limited period of time) to keep both the 2003
Registration Statement and 2002 Registration Statement effective with respect to
the shares  covered  thereby,  until  such  shares  may be sold  without  volume
restrictions  pursuant to Rule 144(k)  promulgated  under the  Securities Act of
1933, as amended. In general, a person who is not an affiliate of us and who has
beneficially  owned  shares for two years is entitled to sell such shares  under
Rule 144(k) without any volume  limitations or other  restrictions,  and without
the use of a registration  statement and related prospectus.  Shares held by our
affiliates may be sold under Rule 144, subject to volume limitations and subject
to other  restrictions,  including  availability  of current public  information
concerning us.

     In  addition,  because  of  the  Company's  past  delinquent  filings,  its
suspended existing resale S-3 registration  statements will have to be converted
into S-1 registration  statements.  An S-1  registration  statement is much more
expensive and  time-consuming  to prepare and can be subject to greater scrutiny
by the SEC before any related  prospectus can become effective.  The requirement
that the Company use an S-1 for resale's of securities  will impose  substantial
new  general  and  administrative  expenses  on it and divert  resources  needed
elsewhere in its business.

     On May 7, 2004, we notified  participants under our employee and consultant
equity  incentive  plans (the "Plans") of the suspension of the  availability of
our Form S-8 registration statements and the use of any prospectus in connection
therewith  covering  securities  issued under the Plans.  During the  suspension
period,  participants have not been able to exercise options granted or purchase
shares under the Plans, or purchase shares or have payroll deductions made under
the Company s 1997 Employee Stock Purchase Plan.

     The suspensions of our S-3 and S-8 registration  statements described above
occurred as a result of the special  investigation by the audit committee of our
board  of  directors  into  irregular  transactions  we  discovered  in our Asia
operations, as described elsewhere in this Quarterly Report.

     On May 25, 2004,  we issued  five-year  warrants to Silicon  Valley Bank to
purchase  7,218  shares of our  common  stock at a price per share of $2.54.  We
intend these warrants to be exempt from registration under the Securities Act of
1933, as amended,  pursuant to Section 4(2) of the Act. On November 16, 2004, we
agreed to re-price these warrants to a price of $0.01 per share.

     On August 25, 2004, prior to the commencement of trading,  our common stock
was  de-listed  from The Nasdaq  SmallCap  Market as a result of our  failure to
comply with Nasdaq  Marketplace Rule 4310(c)(14) due to our delinquent filing of
our periodic  reports as a result of the ongoing  special  investigation  by our
audit committee.  On August 25, 2004, our common stock began to be quoted on the
over-the-counter market through the Pink Sheets under the symbol "FVCC."

                                       18
<PAGE>

     On July 26, 2004, we granted a stock option under our 1997 Equity Incentive
Plan, as amended,  to Jonathan  Morgan,  our Chief  Executive  Officer,  for the
purchase of 300,000 shares of our common stock.  The vesting  provisions of this
option were  subsequently  approved on September  2004. The option vests 100% on
the fourth anniversary of the grant date, but is subject to accelerated  vesting
if we meet certain  milestones  in the next 16 months  relating to our operating
profit.

     Due to the  Company's  bankruptcy  filing in  January  2005 and  subsequent
November  2005  reorganization  approval by the Court,  all stock  options  have
effectively been canceled.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

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

     We held our Annual Meeting of  Stockholders  on May 18, 2004 at 11:00 am at
our  headquarters in Redwood City,  California  ("Annual  Meeting").  During the
Annual Meeting of Stockholders, the matters that were voted upon by shareholders
of (i) our common stock, and (ii) our Series A Preferred Stock, were as follows,
of which all were approved:

1.   The election of two director  nominees,  Norman E. Gaut,  Ph.D.  and George
     Sollman,   to  serve  as  directors   until  the  2007  Annual  Meeting  of
     Stockholders.

2.   The approval of the Company's 1997 Equity  Incentive  Plan, as amended,  to
     (i) increase the aggregate  number of shares of common stock authorized for
     issuance under the plan by l,900,000 shares,  and (ii) increase the maximum
     number of options  that may be granted  under the plan to any person in any
     calendar year from 100,000 to 1,000,000 for newly hired employees, and from
     100,000 to 500,000 for grants to all other persons.

3.   The approval of the Company's  1997  Non-Employee  Directors'  Stock Option
     Plan, as amended,  to (i) increase the aggregate number of shares of common
     stock authorized for issuance under the plan by 100,000 shares,  (ii) amend
     the  terms  pursuant  to  which  options  granted  under  the  plan  become
     exercisable,  (iii) shorten the post-termination exercise period for grants
     made  under  the plan  from 24 months to nine  months,  (iv)  increase  the
     initial option grants for directors from 8,000 shares to 16,000 shares, (v)
     approve a one-time  grant of an option to  purchase  8,000  shares for each
     current  non-employee  director of the Company,  (vi) approve a grant of an
     option to purchase  5,000 shares of common stock to the Chairman of each of
     the Audit and  Compensation  Committees of the Board and to the Chairman of
     the Board and a grant of 3,000  shares of common  stock to the  Chairman of
     the Nominating and Corporate  Governance  Committee of the Board,  upon the
     appointment of a non-employee director as Chairman of the Board and each of
     these  committees and on each  anniversary of such  appointment,  and (vii)
     delete the current provisions for annual automatic grants to members of the
     Audit, Compensation and Nominating Committees of the Board.

4.   The approval of the potential issuance and sale by the Company of shares of
     its common stock and warrants exercisable for shares of its common stock to
     entities affiliated with Special Situations Fund.

5.   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.

6.   The  ratification  of the selection by the Audit  Committee of the Board of
     Directors  of  PricewaterhouseCoopers  LLP as  independent  auditors of the
     Company for its fiscal year ending December 31, 2004.

ITEM 5. OTHER INFORMATION

None.

                                       19
<PAGE>

ITEM 6. EXHIBITS

Exhibit
  No.                           Description of Document
-------    ---------------------------------------------------------------------

4.1        Warrant to purchase 7,218 shares of the Company's Common Stock, dated
           May 25, 2004, issued by the Company to Silicon Valley Bancshares

4.2        First Amendment  Agreement  Regarding Warrant between the Company and
           Silicon Valley Bancshares, dated as of November 8, 2004

10.1*      Settlement  Agreement  between the Company  and Frank  Kaplan,  dated
           January 21, 2004

10.2*      Mutual Release between the Company and Ralph Ungermann, dated January
           __ 2004  10.3(1) * Executive  Officers'  Change of Control  Plan,  as
           amended

10.4(2)*   1997 Equity Incentive Plan, as amended

10.5(2)*   Form of  Incentive  Stock Option  Agreement of the Company  under the
           1997 Equity Incentive Plan, as amended

10.6(2)*   Form of  Non-Statutory  Stock Option  Agreement under the 1997 Equity
           Incentive Plan, as amended

10.7(2)*   Form of  Addendum  to Stock  Option  Agreement  under the 1997 Equity
           Incentive Plan, as amended

10.8(2)*   Incentive  Stock Option  Agreement and related  addendum  between the
           Company and Jonathan Morgan, dated September 13, 2004

10.9(3)*   Form  of  Indemnification  Agreements  between  the  Company  and its
           executive officers and directors

10.10(4)   Loan and Security  Agreement  between the Company and Silicon  Valley
           Bank, dated as of April 3, 2003

10.11(5)   Amendment to Loan  Documents  between the Company and Silicon  Valley
           Bank, dated as of May 25, 2004

10.12(2)   Temporary  Forbearance  Agreement  between  the  Company  and Silicon
           Valley Bank, dated as of September 13, 2004

10.13(6)   Extension  Agreement  between the Company  and Silicon  Valley  Bank,
           dated as of September 13, 2004

10.14      Amendment  and  Extension  Agreement  between the Company and Silicon
           Valley Bank, dated as of November 9, 2004

10.15(6)   Services,  Payment and Security Agreement among the Company, Morrison
           & Foerster LLP, Huron Consulting Group and Applied  Discovery,  Inc.,
           dated as of August 19, 2004

10.15(6)   Subordination  Agreement  in favor of Silicon  Valley  Bank among the
           Company,  Morrison & Foerster LLP, Huron Consulting Group and Applied
           Discovery, Inc., dated as of August 19, 2004

10.13(7)   Software and Services  Engagement  Agreement  between the Company and
           IBM, dated as of August 11, 2004

10.14(8)** Statement of Work between the Company and IBM, dated August 17, 2004

                                       20
<PAGE>

20.1       Letter  sent  to  holders  of  securities  covered  by the  2003  S-3
           registration  statement  regarding the suspension of  availability of
           the registration statement and any related prospectus

20.2       Letter sent to holders of securities covered by 2002 S-3 registration
           statement   regarding   the   suspension  of   availability   of  the
           registration statement and any related prospectus

20.3       Letter sent to  participants  in stock  plans  covered by various S-8
           registration  statements  regarding the suspension of availability of
           these registration statements and any related prospectuses

22.1(9)    Published Report of Results of 2004 Annual Meeting of Stockholders

31.1       Certification  Pursuant to Rule 15d-14 of the Securities and Exchange
           Act as amended,  as Pursuant to Section 302 of the Sarbanes-Oxley Act
           of 2002

32.1       Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
           to Section 906 of the Sarbanes-Oxley Act of 2002

-----------------
Notes to Exhibits

    *   Management contract or compensatory plan or arrangement

    **  Confidential  Treatment has been requested from the U.S.  Securities and
        Exchange  Commission  ("Commission")  for portions of these exhibits.  A
        separate filing of omitted text has been made with the Commission.

    (1) Filed as an  exhibit to the  Company's  Annual  Report on Form 10-K,  as
        filed on March 29, 2004 (File No. 000-23305).

    (2) Filed as an exhibit to the Company's  Current  Report on Form 8-K/A,  as
        filed on September 15, 2004 (File No. 000-23305).

    (3) Filed as an exhibit to the Company's Registration Statement on Form S-1,
        as amended (File No. 333-38755).

    (4) Filed as an exhibit to the Company's  Quarterly  Report on Form 10-Q, as
        filed on May 15, 2003 (File No. 000-23305).

    (5) Filed as an  exhibit to the  Company's  Current  Report on Form 8-K,  as
        filed on August 17, 2004 (File No. 000-23305).

    (6) Filed as an  exhibit to the  Company's  Current  Report on Form 8-K,  as
        filed on October 1, 2004 (File No. 000-23305).

    (7) Filed as an exhibit to the Company's  Current  Report on Form 8-K/A,  as
        filed on August 23, 2004 (File No. 000-23305).

    (8) Filed as an exhibit to the Company's  Current  Report on Form 8-K/A,  as
        filed on August 23, 2004 (File No. 000-23305).

    (9) Filed as part of the Company's  Current  Report on Form 8-K, as filed on
        May 26, 2004 (File No. 000-23305).

                                       21
<PAGE>

                                   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: November 28, 2005                  FIRST VIRTUAL COMMUNICATIONS, INC.

                                         By: /s/ Gregory Sterling
                                             ----------------------------
                                             Gregory Sterling
                                             Chief Restructuring Officer
                                             (Duly Authorized Officer and
                                             Principal Financial Officer)



<PAGE>

                                  EXHIBIT INDEX

Exhibit
  No.                            Description of Document
-------    ---------------------------------------------------------------------

4.1        Warrant to purchase 7,218 shares of the Company's Common Stock, dated
           May 25, 2004, issued by the Company to Silicon Valley Bancshares

4.2        First Amendment  Agreement  Regarding Warrant between the Company and
           Silicon Valley Bancshares, dated as of November 8, 2004

10.1*      Settlement  Agreement  between the Company  and Frank  Kaplan,  dated
           January 21, 2004

10.2*      Mutual Release between the Company and Ralph Ungermann, dated January
           __ 2004

10.3(1)*   Executive Officers' Change of Control Plan, as amended

10.4(2)*   1997 Equity Incentive Plan, as amended

10.5(2)*   Form of  Incentive  Stock Option  Agreement of the Company  under the
           1997 Equity Incentive Plan, as amended

10.6(2)*   Form of  Non-Statutory  Stock Option  Agreement under the 1997 Equity
           Incentive Plan, as amended

10.7(2)*   Form of  Addendum  to Stock  Option  Agreement  under the 1997 Equity
           Incentive Plan, as amended

10.8(2)*   Incentive  Stock Option  Agreement and related  addendum  between the
           Company and Jonathan Morgan, dated September 13, 2004

10.9(3)*   Form  of  Indemnification  Agreements  between  the  Company  and its
           executive officers and directors

10.10(4)   Loan and Security  Agreement  between the Company and Silicon  Valley
           Bank, dated as of April 3, 2003

10.11(5)   Amendment to Loan  Documents  between the Company and Silicon  Valley
           Bank, dated as of May 25, 2004

10.12(2)   Temporary  Forbearance  Agreement  between  the  Company  and Silicon
           Valley Bank, dated as of September 13, 2004

10.13(6)   Extension  Agreement  between the Company  and Silicon  Valley  Bank,
           dated as of September 13, 2004

10.14      Amendment  and  Extension  Agreement  between the Company and Silicon
           Valley Bank, dated as of November 9, 2004

10.15(6)   Services,  Payment and Security Agreement among the Company, Morrison
           & Foerster LLP, Huron Consulting Group and Applied  Discovery,  Inc.,
           dated as of August 19, 2004

10.15(6)   Subordination  Agreement  in favor of Silicon  Valley  Bank among the
           Company,  Morrison & Foerster LLP, Huron Consulting Group and Applied
           Discovery, Inc., dated as of August 19, 2004

10.13(7)   Software and Services  Engagement  Agreement  between the Company and
           IBM, dated as of August 11, 2004

10.14(8)** Statement of Work between the Company and IBM, dated August 17, 2004


<PAGE>

20.1       Letter  sent  to  holders  of  securities  covered  by the  2003  S-3
           registration  statement  regarding the suspension of  availability of
           the registration statement and any related prospectus

20.2       Letter sent to holders of securities covered by 2002 S-3 registration
           statement   regarding   the   suspension  of   availability   of  the
           registration statement and any related prospectus

20.3       Letter sent to  participants  in stock  plans  covered by various S-8
           registration  statements  regarding the suspension of availability of
           these registration statements and any related prospectuses

22.1(9)    Published Report of Results of 2004 Annual Meeting of Stockholders

31.1       Certification  Pursuant to Rule 15d-14 of the Securities and Exchange
           Act as amended,  as Pursuant to Section 302 of the Sarbanes-Oxley Act
           of 2002

32.1       Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
           to Section 906 of the Sarbanes-Oxley Act of 2002

-----------------
Notes to Exhibits

    *   Management contract or compensatory plan or arrangement

    **  Confidential  Treatment has been requested from the U.S.  Securities and
        Exchange  Commission  ("Commission")  for portions of these exhibits.  A
        separate filing of omitted text has been made with the Commission.

    (1) Filed as an  exhibit to the  Company's  Annual  Report on Form 10-K,  as
        filed on March 29, 2004 (File No. 000-23305).

    (2) Filed as an exhibit to the Company's  Current  Report on Form 8-K/A,  as
        filed on September 15, 2004 (File No. 000-23305).

    (3) Filed as an exhibit to the Company's Registration Statement on Form S-1,
        as amended (File No. 333-38755).

    (4) Filed as an exhibit to the Company's  Quarterly  Report on Form 10-Q, as
        filed on May 15, 2003 (File No. 000-23305).

    (5) Filed as an  exhibit to the  Company's  Current  Report on Form 8-K,  as
        filed on August 17, 2004 (File No. 000-23305).

    (6) Filed as an  exhibit to the  Company's  Current  Report on Form 8-K,  as
        filed on October 1, 2004 (File No. 000-23305).

    (7) Filed as an exhibit to the Company's  Current  Report on Form 8-K/A,  as
        filed on August 23, 2004 (File No. 000-23305).

    (8) Filed as an exhibit to the Company's  Current  Report on Form 8-K/A,  as
        filed on August 23, 2004 (File No. 000-23305).

    (9) Filed as part of the Company's  Current  Report on Form 8-K, as filed on
        May 26, 2004 (File No. 000-23305).