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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q

|  |  |                                                                                          
|- |  | -----------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 
|  |  |                                                                                          
|  |  | For the Quarterly Period Ended June 30, 2003                                             
|  |  |                                                                                          
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|  |  |                                                                                          
|  |  | For the Period from to.                                                                  

Commission File Number: 000-31045

RAINDANCE COMMUNICATIONS, INC.

(Exact Name of Registrant as
specified in its charter)


|                                                                  |  |                                                   
|----------------------------------------------------------------- |  | --------------------------------------------------
|Delaware
(State or jurisdiction of
incorporation or organization) |  | 84-1407805
(I.R.S. Employer Identification Number)

1157 Century Drive
Louisville, CO 80027(Address, including zip code, of principal executive offices)

(800) 878-7326(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 o

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

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practical date.

|                                |  |   |  |                                
|------------------------------- |  | - |  | -------------------------------
|Common Stock, $0.0015 Par Value |  |  |  | 53,343,905 as of July 31, 2003.



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TABLE OF CONTENTS



|                                                  |                                                                                               |                                                                                                        |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                    
|                                                  | Item 1. Financial Statements                                                                 
|                                                  |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                                                                 
|                                                  |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                                       
|                                                  |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                                       
|                                                  |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                                  
|                                                  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                  |                                                                                               | Additional Risk Factors That May Affect Our Operating Results and The Market Price Of Our Common Stock
|                                                  | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                                                  | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                       
|                                                  | Item 1. Legal Proceedings                                                                    
|                                                  | Item 2. Changes in Securities and Use of Proceeds                                            
|                                                  | Item 3. Defaults Upon Senior Securities                                                      
|                                                  | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                                  | Item 5. Other Information                                                                    
|                                                  | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                       
|EX-31.1 Certification-Principal Executive Officer
|EX-31.2 Certification-Principal Financial Officer
|EX-32.1 Section 1350 Certifications              



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RAINDANCE COMMUNICATIONS, INC.
INDEX

|           |  |                                                                                       |  |                                                                                                                       |    |      |    | 
|---------- |  | ------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                       |  |                                                                                                                       |    | Page
|           |  |                                                                                       |  |                                                                                                                       |    |     
|PART I.    |  | FINANCIAL INFORMATION                                                                 |  |                                                                                                                       |    |     
|Item 1.    |  | Financial Statements                                                                  |  |                                                                                                                       | 3  |     
|           |  |                                                                                       |  | Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002 (unaudited)                           |    |      | 3  | 
|           |  |                                                                                       |  | Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002
(unaudited) |    |      | 4  | 
|           |  |                                                                                       |  | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002
(unaudited)           |    |      | 5  | 
|           |  |                                                                                       |  | Notes to the Condensed Consolidated Financial Statements (unaudited)                                                  |    |      | 6  | 
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |                                                                                                                       | 15 |     
|           |  |                                                                                       |  | Additional Risk Factors that May Affect Our Operating Results and The Market Price of Our Common Stock                |    |      | 23 | 
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                                                                                       | 33 |     
|Item 4.    |  | Controls and Procedures                                                               |  |                                                                                                                       | 33 |     
|PART II.   |  | OTHER INFORMATION                                                                     |  |                                                                                                                       |    |     
|Item 1.    |  | Legal Proceedings                                                                     |  |                                                                                                                       | 34 |     
|Item 2.    |  | Changes in Securities and Use of Proceeds                                             |  |                                                                                                                       | 34 |     
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  |                                                                                                                       | 34 |     
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  |                                                                                                                       | 34 |     
|Item 5.    |  | Other Information                                                                     |  |                                                                                                                       | 34 |     
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                                       | 34 |     
|SIGNATURES |  |                                                                                       |  |                                                                                                                       | 35 |     

Our website address is www.raindance.com. Our registration statement on
Form S-1, annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K, as well as any amendments to those reports, are
available free of charge through our website as soon as reasonably practicable
after we file them with the SEC. Once at www.raindance.com, go to
Investors/SEC Filings and Financials.

2.



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PART I. FINANCIAL INFORMATION




Item 1. Financial
Statements




RAINDANCE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)

|                                            |                                                                                                                                                                             |   |               |          |                   |   |         |          |  
|------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | -------- | ----------------- | - | ------- | -------- | -
|                                            |                                                                                                                                                                             |   | June 30, 2003 |          | December 31, 2002
|                                            |                                                                                                                                                                             |   |               |          |                  
|Assets                                      |                                                                                                                                                                             |   |               |          |                   |   |         |         
|Current assets:                             |                                                                                                                                                                             |   |               |          |                   |   |         |         
|                                            | Cash and cash equivalents                                                                                                                                                   |   | $             | 35,038   |                   |   | $       | 31,699   |  
|                                            | Accounts receivable, net of allowance for doubtful accounts of $625 and $850 at
June 30, 2003 and December 31, 2002, respectively                                           |   |               | 9,750    |                   |   |         | 8,982    |  
|                                            | Due from affiliate                                                                                                                                                          |   |               | 50       |                   |   |         | 50       |  
|                                            | Prepaid expenses and other current assets                                                                                                                                   |   |               | 1,413    |                   |   |         | 983      |  
|                                            | Due from employees                                                                                                                                                          |   |               | 12       |                   |   |         | 12       |  
|                                            |                                                                                                                                                                             |   |               |          |                   |   |         |         
|                                            | Total current assets                                                                                                                                                        |   |               | 46,263   |                   |   |         | 41,726   |  
|Property and equipment, net                 |                                                                                                                                                                             |   | 23,401        |          |                   |   | 24,493  |         
|Goodwill, net                               |                                                                                                                                                                             |   | 45,587        |          |                   |   | 45,587  |         
|Due from employees                          |                                                                                                                                                                             |   | 1             |          |                   |   | 2       |         
|Other assets                                |                                                                                                                                                                             |   | 1,933         |          |                   |   | 1,197   |         
|                                            |                                                                                                                                                                             |   |               |          |                   |   |         |         
|Total Assets                                |                                                                                                                                                                             | $ | 117,185       |          |                   | $ | 113,005 |         
|                                            |                                                                                                                                                                             |   |               |          |                   |   |         |         
|Liabilities and Stockholders Equity        |                                                                                                                                                                             |   |               |          |                   |   |         |         
|Current liabilities:                        |                                                                                                                                                                             |   |               |          |                   |   |         |         
|                                            | Accounts payable                                                                                                                                                            |   | $             | 6,850    |                   |   | $       | 5,193    |  
|                                            | Current portion of long-term debt                                                                                                                                           |   |               | 1,312    |                   |   |         | 1,030    |  
|                                            | Accrued expenses                                                                                                                                                            |   |               | 410      |                   |   |         | 629      |  
|                                            | Accrued compensation                                                                                                                                                        |   |               | 2,425    |                   |   |         | 2,322    |  
|                                            | Restructuring reserve                                                                                                                                                       |   |               | 324      |                   |   |         | 507      |  
|                                            | Deferred revenue                                                                                                                                                            |   |               | 244      |                   |   |         | 423      |  
|                                            |                                                                                                                                                                             |   |               |          |                   |   |         |         
|                                            | Total current liabilities                                                                                                                                                   |   |               | 11,565   |                   |   |         | 10,104   |  
|Long-term debt, less current portion        |                                                                                                                                                                             |   | 1,885         |          |                   |   | 2,026   |         
|Restructuring reserve, less current portion |                                                                                                                                                                             |   | 328           |          |                   |   | 518     |         
|Other                                       |                                                                                                                                                                             |   | 48            |          |                   |   | 34      |         
|                                            |                                                                                                                                                                             |   |               |          |                   |   |         |         
|Total Liabilities                           |                                                                                                                                                                             |   | 13,826        |          |                   |   | 12,682  |         
|                                            |                                                                                                                                                                             |   |               |          |                   |   |         |         
|Stockholders Equity:                       |                                                                                                                                                                             |   |               |          |                   |   |         |         
|                                            | Common stock, par value $.0015; 130,000,000 shares authorized; 53,292,787 and 51,895,813
shares issued and outstanding at June 30, 2003 and December 31, 2002, respectively |   |               | 80       |                   |   |         | 78       |  
|                                            | Additional paid-in capital                                                                                                                                                  |   |               | 277,946  |                   |   |         | 276,211  |  
|                                            | Deferred stock-based compensation                                                                                                                                           |   |               | (3,721   | )                 |   |         | (4,067   | )
|                                            | Accumulated deficit                                                                                                                                                         |   |               | (170,946 | )                 |   |         | (171,899 | )
|                                            |                                                                                                                                                                             |   |               |          |                   |   |         |         
|                                            | Total Stockholders Equity                                                                                                                                                  |   |               | 103,359  |                   |   |         | 100,323  |  
|                                            |                                                                                                                                                                             |   |               |          |                   |   |         |         
|                                            | Commitments and contingencies                                                                                                                                               |   |               |          |                   |   |         |          |  
|                                            | Total Liabilities and Stockholders Equity                                                                                                                                  |   | $             | 117,185  |                   |   | $       | 113,005  |  
|                                            |                                                                                                                                                                             |   |               |          |                   |   |         |         

See accompanying notes to condensed consolidated financial statements.

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RAINDANCE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

|                                                      |                                                                                                                                    |                               |        |                    |       |                  |        |       |        |      |        |        |        |   |        |        |        |  
|----------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ------ | ------------------ | ----- | ---------------- | ------ | ----- | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                                                      |                                                                                                                                    |                               |        | Three Months Ended |       | Six Months Ended
|                                                      |                                                                                                                                    |                               |        | June 30,           |       | June 30,        
|                                                      |                                                                                                                                    |                               |        |                    |       |                 
|                                                      |                                                                                                                                    |                               |        | 2003               |       | 2002             |        | 2003  |        | 2002
|                                                      |                                                                                                                                    |                               |        |                    |       |                  |        |       |        |     
|Revenue                                               |                                                                                                                                    | $                             | 16,835 |                    |       | $                | 15,388 |       |        | $    | 32,274 |        |        | $ | 29,265 |       
|Cost of revenue:                                      |                                                                                                                                    |                               |        |                    |       |                  |        |       |        |      |        |        |        |   |        |       
|                                                      | (exclusive of stock-based compensation expense of
$28, $49, $58 and $98, respectively, shown below)                                |                               |        | 6,874              |       |                  |        | 7,302 |        |      |        | 13,351 |        |   |        | 14,231 |       
|                                                      |                                                                                                                                    |                               |        |                    |       |                  |        |       |        |      |        |        |        |   |        |       
|Gross profit                                          |                                                                                                                                    |                               | 9,961  |                    |       |                  | 8,086  |       |        |      | 18,923 |        |        |   | 15,034 |       
|                                                      |                                                                                                                                    |                               |        |                    |       |                  |        |       |        |      |        |        |        |   |        |       
|Operating expenses:                                   |                                                                                                                                    |                               |        |                    |       |                  |        |       |        |      |        |        |        |   |        |       
|                                                      | Sales and marketing (exclusive of stock-based
compensation expense of $69, $74, $138 and $151,
respectively, shown below)          |                               |        | 4,842              |       |                  |        | 4,808 |        |      |        | 9,305  |        |   |        | 9,010  |       
|                                                      | Research and development (exclusive of stock-based
compensation expense of $191, $156, $372 and
$314, respectively, shown below)   |                               |        | 2,020              |       |                  |        | 2,129 |        |      |        | 3,717  |        |   |        | 4,112  |       
|                                                      | General and administrative (exclusive of
stock-based compensation expense of $490, $508,
$991 and $873, respectively, shown below) |                               |        | 1,741              |       |                  |        | 1,897 |        |      |        | 3,418  |        |   |        | 3,707  |       
|                                                      | Stock-based compensation expense                                                                                                   |                               |        | 778                |       |                  |        | 787   |        |      |        | 1,559  |        |   |        | 1,436  |       
|                                                      | Restructuring charges                                                                                                              |                               |        |                   |       |                  |        | 412   |        |      |        |       |        |   |        | 584    |       
|                                                      |                                                                                                                                    |                               |        |                    |       |                  |        |       |        |      |        |        |        |   |        |       
|                                                      |                                                                                                                                    | Total operating expenses      |        |                    | 9,381 |                  |        |       | 10,033 |      |        |        | 17,999 |   |        |        | 18,849 |  
|                                                      |                                                                                                                                    |                               |        |                    |       |                  |        |       |        |      |        |        |        |   |        |       
|                                                      |                                                                                                                                    | Income (loss) from operations |        |                    | 580   |                  |        |       | (1,947 | )    |        |        | 924    |   |        |        | (3,815 | )
|Other income (expense), net                           |                                                                                                                                    |                               | 33     |                    |       |                  | 26     |       |        |      | 29     |        |        |   | 45     |       
|                                                      |                                                                                                                                    |                               |        |                    |       |                  |        |       |        |      |        |        |        |   |        |       
|Net income (loss)                                     |                                                                                                                                    | $                             | 613    |                    |       | $                | (1,921 | )     |        | $    | 953    |        |        | $ | (3,770 | )     
|                                                      |                                                                                                                                    |                               |        |                    |       |                  |        |       |        |      |        |        |        |   |        |       
|Net income (loss) per share:                          |                                                                                                                                    |                               |        |                    |       |                  |        |       |        |      |        |        |        |   |        |       
|Basic                                                 |                                                                                                                                    | $                             | 0.01   |                    |       | $                | (0.04  | )     |        | $    | 0.02   |        |        | $ | (0.08  | )     
|                                                      |                                                                                                                                    |                               |        |                    |       |                  |        |       |        |      |        |        |        |   |        |       
|Diluted                                               |                                                                                                                                    | $                             | 0.01   |                    |       | $                | (0.04  | )     |        | $    | 0.02   |        |        | $ | (0.08  | )     
|                                                      |                                                                                                                                    |                               |        |                    |       |                  |        |       |        |      |        |        |        |   |        |       
|Weighted average number of common shares outstanding: |                                                                                                                                    |                               |        |                    |       |                  |        |       |        |      |        |        |        |   |        |       
|Basic                                                 |                                                                                                                                    |                               | 53,273 |                    |       |                  | 50,304 |       |        |      | 52,917 |        |        |   | 49,369 |       
|                                                      |                                                                                                                                    |                               |        |                    |       |                  |        |       |        |      |        |        |        |   |        |       
|Diluted                                               |                                                                                                                                    |                               | 55,001 |                    |       |                  | 50,304 |       |        |      | 54,477 |        |        |   | 49,369 |       
|                                                      |                                                                                                                                    |                               |        |                    |       |                  |        |       |        |      |        |        |        |   |        |       

See accompanying notes to condensed consolidated financial statements.

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RAINDANCE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

|                                                                                         |  |                  |        |      |  |   |        |  
|---------------------------------------------------------------------------------------- |  | ---------------- | ------ | ---- |  | - | ------ | -
|                                                                                         |  | Six Months Ended
|                                                                                         |  | June 30,        
|                                                                                         |  |                 
|                                                                                         |  | 2003             |        | 2002
|                                                                                         |  |                  |        |     
|Cash flows from operating activities:                                                    |  |                  |        |      |  |   |        |  
|Net income (loss)                                                                        |  | $                | 953    |      |  | $ | (3,770 | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                  |        |      |  |   |        |  
|Depreciation and amortization                                                            |  |                  | 5,175  |      |  |   | 5,132  |  
|Restructuring charges                                                                    |  |                  |       |      |  |   | 584    |  
|Stock-based compensation                                                                 |  |                  | 1,559  |      |  |   | 1,436  |  
|Other                                                                                    |  |                  | 13     |      |  |   | 28     |  
|Changes in operating assets and liabilities:                                             |  |                  |        |      |  |   |        |  
|Accounts receivable                                                                      |  |                  | (767   | )    |  |   | (2,777 | )
|Prepaid expenses and other current assets                                                |  |                  | (502   | )    |  |   | 323    |  
|Other assets                                                                             |  |                  | (1     | )    |  |   | 554    |  
|Accounts payable and accrued expenses                                                    |  |                  | 406    |      |  |   | 60     |  
|Deferred revenue                                                                         |  |                  | (179   | )    |  |   | (382   | )
|                                                                                         |  |                  |        |      |  |   |        |  
|Net cash provided by operating activities                                                |  |                  | 6,657  |      |  |   | 1,188  |  
|                                                                                         |  |                  |        |      |  |   |        |  
|Cash flows from investing activities:                                                    |  |                  |        |      |  |   |        |  
|Purchase of property and equipment                                                       |  |                  | (3,482 | )    |  |   | (4,414 | )
|Proceeds from disposition of equipment                                                   |  |                  | 20     |      |  |   | 3      |  
|Cash paid for acquisition of InterAct, net of cash received                              |  |                  |       |      |  |   | (2,772 | )
|Change in restricted cash                                                                |  |                  | 164    |      |  |   |       |  
|                                                                                         |  |                  |        |      |  |   |        |  
|Net cash used by investing activities                                                    |  |                  | (3,298 | )    |  |   | (7,183 | )
|                                                                                         |  |                  |        |      |  |   |        |  
|Cash flows from financing activities:                                                    |  |                  |        |      |  |   |        |  
|Proceeds from issuance of common stock                                                   |  |                  | 524    |      |  |   | 796    |  
|Payments on debt                                                                         |  |                  | (544   | )    |  |   | (1,065 | )
|                                                                                         |  |                  |        |      |  |   |        |  
|Net cash used by financing activities                                                    |  |                  | (20    | )    |  |   | (269   | )
|                                                                                         |  |                  |        |      |  |   |        |  
|Increase (decrease) in cash and cash equivalents                                         |  |                  | 3,339  |      |  |   | (6,264 | )
|Cash and cash equivalents at beginning of period                                         |  |                  | 31,699 |      |  |   | 34,222 |  
|                                                                                         |  |                  |        |      |  |   |        |  
|Cash and cash equivalents at end of period                                               |  | $                | 35,038 |      |  | $ | 27,958 |  
|                                                                                         |  |                  |        |      |  |   |        |  
|Supplemental cash flow information  interest paid in cash                               |  | $                | 88     |      |  | $ | 315    |  
|                                                                                         |  |                  |        |      |  |   |        |  
|Supplemental disclosure of non-cash investing and financing activities:                  |  |                  |        |      |  |   |        |  
|Accounts payable incurred for purchases of property and equipment                        |  | $                | 1,323  |      |  | $ | 386    |  
|                                                                                         |  |                  |        |      |  |   |        |  
|Debt incurred for the purchase of property and equipment                                 |  | $                | 686    |      |  | $ |       |  
|                                                                                         |  |                  |        |      |  |   |        |  

See accompanying notes to condensed consolidated financial statements.

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RAINDANCE COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation

Raindance Communications, Inc., (the Company), was incorporated under
the laws of the State of Delaware on April 17, 1997. The Company provides
business communication services for everyday business meetings and events. The
Companys Web and Phone Conferencing and Web Conferencing Pro communication
services are based on proprietary architecture that integrate traditional
telephony technology with real-time interactive web tools. The Companys
continuum of interactive services includes Web and Phone Conferencing for
reservationless automated audio conferencing with simple web controls and
presentation tools, Web Conferencing Pro, which allows users to integrate
reservationless automated audio conferencing with advanced web interactive
tools such as application sharing, web touring and online whiteboarding, and
Operator Assisted Conferencing. The Company operates in a single segment.

The condensed consolidated financial statements include the accounts of
Raindance Communications and its wholly-owned subsidiary. All significant
intercompany transactions and balances have been eliminated in consolidation.

The accompanying condensed consolidated financial statements as of June
30, 2003 and for the three and six months ended June 30, 2003 and 2002 are
unaudited and have been prepared in accordance with Generally Accepted
Accounting Principles on a basis consistent with the December 31, 2002 audited
financial statements and include normal recurring adjustments which are, in the
opinion of management, necessary for a fair statement of the results of these
periods. These consolidated statements should be read in conjunction with our
financial statements and notes related thereto included in our Form 10-K
(Commission File No. 000-31045), filed on March 26, 2003. Operating results for
the three and six months ended June 30, 2003 are not necessarily indicative of
the results that may be expected for the full year.

The preparation of the financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates are used in these financial statements to determine the allowance for
doubtful accounts, the useful lives of depreciable and intangible assets, the
valuation allowance for deferred tax assets and the restructuring charges and
reserves.

Certain prior period balances have been reclassified to conform to the
current period presentation.

(b) Cash and Cash Equivalents

Cash and cash equivalents consist of cash held in bank deposit accounts
and short-term, highly liquid investments purchased with maturities of three
months or less at the date of purchase. Cash equivalents at June 30, 2003
consist of money market accounts at four financial institutions.

(c) Restricted Cash

Included in other assets is $0.3 million in restricted cash. Restricted
cash consists of amounts supporting irrevocable letters of credit issued by the
Companys bank and is primarily used for security deposits associated with some
of the Companys long term operating leases. Funds are held in certificates of
deposit at a commercial bank, and have been established in favor of a third
party beneficiary. The funds would be released to the beneficiary in the event
that the Company fails to comply with certain specified contractual
obligations. Provided the Company meets these contractual obligations, the
letter of credit will be discharged and the Company would no longer be
restricted from the use of the cash.

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(d) Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation of equipment is computed using the straight-line
method over the estimated useful lives of the assets, which range from three to
seven years. Leasehold improvements are amortized over the shorter of related
lease terms or their estimated useful lives. Upon retirement or sale, the cost
of the assets disposed and the related accumulated depreciation is removed from
the accounts and any resulting gain or loss is included in operations in the
period realized.

(e) Goodwill

The Company follows the provisions of Statement of Financial Accounting
Standards No. 142 (SFAS 142), Goodwill and Other Intangible Assets. In
regards to the realizability of the Companys carrying amount of goodwill, SFAS
142 requires that goodwill not be amortized, but instead will be reviewed for
impairment on an on-going basis. The Company consists of one reporting unit.
In accordance with SFAS 142, the Company performed, as of March 31, 2003, the
annual reassessment and impairment test, which indicated that the fair value of
the reporting unit exceeded the goodwill carrying value; and therefore, at that
time, goodwill was not deemed to be impaired. There can be no assurances that
the Companys goodwill will not be impaired in the future.

(f) Fair Value of Financial Instruments and Concentrations of Credit Risk

The carrying amounts of certain of the Companys financial instruments,
including cash and cash equivalents, accounts receivable and accounts payable,
approximate fair value because of the short-term nature of these instruments.
Because the interest rates on the Companys note payable obligations reflect
market rates and terms, the fair values of these instruments approximate
carrying amounts. Financial instruments that potentially subject the Company to
concentration of credit risk consists of cash and cash equivalents and accounts
receivable. The Companys cash and cash equivalents are held with financial
institutions that the Company believes to be of high credit standing. The
Companys customer base consists of a large number of geographically dispersed
customers diversified across several industries. In the first and second
quarter of 2003, none of the Companys customers represented greater than 10%
of the Companys revenue, however, one customer represented greater than 10% of
the Companys accounts receivable. The receivable due from Qwest
Communications International, Inc. (Qwest) at June 30, 2003 was $2.0 million or
18.8% of the Companys total accounts receivable balance. The Companys
operating results and cash flows could be adversely affected in the event Qwest
experiences financial difficulties that affect its ability to pay us in a
timely fashion.

(g) Revenue Recognition

Revenue for the Companys Web and Phone Conferencing service is generally
based upon the actual time that each participant is on the phone or logged onto
the web. For example, a customer is charged a per-minute, per-user fee for each
participant listening and viewing a live or recorded simulcast. In addition,
the Company charges customers a one-time fee to upload visuals for a phone
conference or a recorded simulcast. The Company recognizes usage revenue from
our Web and Phone Conferencing service in the period the call or simulcast of
the call is completed. The Company recognizes revenue associated with any
initial set-up fees ratably over the term of the contract.

Revenue for the Companys Web Conferencing Pro service is derived from
subscription and usage fees in addition to event fees or, in more limited
cases, a software license fee. Revenue from subscriptions is recognized monthly
regardless of usage, while usage fees are based upon either connections or
minutes used. Event fees are generally hourly charges that are recognized as
the events take place. The Company recognizes revenue associated with any
initial set-up fees ratably over the term of the contract. Revenue from
software license agreements is recognized upon shipment of the software when
all the following criteria have been met: persuasive evidence of an arrangement
exists; delivery has occurred; the fee is fixed or determinable; collectibility
is probable; and vendor specific objective evidence is available for the fair
value of all undelivered elements.

Revenue for the Companys Operator Assisted Conferencing service is
generally based upon the actual time that each participant is on the phone. In
addition, the Company charges customers a fee for additional services such as
call taping, digital replay, participant lists and transcription services. The
Company recognizes usage revenue and related fees from our Operator Assisted
Conferencing service in the period the call is completed.

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(h) Net Income (Loss) Per Share

Net income (loss) per share is presented in accordance with Statement of
Financial Accounting Standards No. 128, Earnings Per Share(SFAS 128). Under
SFAS 128, basic earnings (loss) per share (EPS) exclude dilution for potential
common stock and is computed by dividing net income or loss by the weighted
average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Potential common shares are comprised of shares of common stock issuable upon
the exercise of stock options and warrants and are computed using the treasury
stock method.

The following table sets forth the calculation of net income (loss) per
share for the three and six months ended June 30, 2003 and 2002 (in thousands,
except per share amounts):

|                                      |                                                             |   |                    |        |                  |   |        |        |      |   |      |        |  |   |        |        | 
|------------------------------------- | ----------------------------------------------------------- | - | ------------------ | ------ | ---------------- | - | ------ | ------ | ---- | - | ---- | ------ |  | - | ------ | ------ | 
|                                      |                                                             |   | Three Months Ended |        | Six Months Ended
|                                      |                                                             |   | June 30,           |        | June 30,        
|                                      |                                                             |   |                    |        |                 
|                                      |                                                             |   | 2003               |        | 2002             |   | 2003   |        | 2002
|                                      |                                                             |   |                    |        |                  |   |        |        |     
|Net income (loss)                     |                                                             | $ | 613                |        |                  | $ | (1,921 | )      |      | $ | 953  |        |  | $ | (3,770 | )     
|                                      |                                                             |   |                    |        |                  |   |        |        |      |   |      |        |  |   |        |       
|Common shares outstanding:            |                                                             |   |                    |        |                  |   |        |        |      |   |      |        |  |   |        |       
|                                      | Historical common shares outstanding at beginning of period |   |                    | 53,249 |                  |   |        | 48,694 |      |   |      | 51,896 |  |   |        | 48,130 | 
|                                      | Weighted average common shares issued during period         |   |                    | 24     |                  |   |        | 1,610  |      |   |      | 1,021  |  |   |        | 1,239  | 
|                                      |                                                             |   |                    |        |                  |   |        |        |      |   |      |        |  |   |        |       
|                                      | Weighted average common shares at end of period  basic     |   |                    | 53,273 |                  |   |        | 50,304 |      |   |      | 52,917 |  |   |        | 49,369 | 
|                                      | Effect of dilutive common stock options and warrants        |   |                    | 1,728  |                  |   |        |       |      |   |      | 1,560  |  |   |        |       | 
|                                      |                                                             |   |                    |        |                  |   |        |        |      |   |      |        |  |   |        |       
|                                      | Weighted average common shares at end of period  diluted   |   |                    | 55,001 |                  |   |        | 50,304 |      |   |      | 54,477 |  |   |        | 49,369 | 
|                                      |                                                             |   |                    |        |                  |   |        |        |      |   |      |        |  |   |        |       
|Net income (loss) per share  basic   |                                                             | $ | 0.01               |        |                  | $ | (0.04  | )      |      | $ | 0.02 |        |  | $ | (0.08  | )     
|                                      |                                                             |   |                    |        |                  |   |        |        |      |   |      |        |  |   |        |       
|Net income (loss) per share  diluted |                                                             | $ | 0.01               |        |                  | $ | (0.04  | )      |      | $ | 0.02 |        |  | $ | (0.08  | )     
|                                      |                                                             |   |                    |        |                  |   |        |        |      |   |      |        |  |   |        |       

The following common stock options and warrants have been excluded from
the computation of diluted net income (loss) per share for the three and six
months ended June 30, 2003 and 2002 because their effect would have been
antidilutive:

|                                     |  |                             |           |                           |  |      |           |      |  |  |           |  |  |  |           | 
|------------------------------------ |  | --------------------------- | --------- | ------------------------- |  | ---- | --------- | ---- |  |  | --------- |  |  |  | --------- | 
|                                     |  | Three Months Ended June 30, |           | Six Months Ended June 30,
|                                     |  |                             |           |                          
|                                     |  | 2003                        |           | 2002                      |  | 2003 |           | 2002
|                                     |  |                             |           |                           |  |      |           |     
|Shares issuable under stock options  |  |                             | 5,251,623 |                           |  |      | 8,838,342 |      |  |  | 5,311,256 |  |  |  | 8,838,342 | 
|Shares issuable pursuant to warrants |  |                             | 20,017    |                           |  |      | 652,790   |      |  |  | 20,017    |  |  |  | 652,790   | 

(i) Stock-Based Compensation

The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board (APB) Opinion 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price of
the underlying stock exceeds the exercise price, the intrinsic value method.
Under SFAS 123, Accounting for Stock-Based
Compensation, entities are
permitted to recognize as expense, over the vesting period, the fair value of
all stock-based awards on the date of grant. Alternatively, SFAS 123 also
allows entities to continue to apply the provisions of APB Opinion 25 and
provide pro forma net income (loss) disclosures for employee stock option
grants as if the fair-value-based method defined in SFAS 123 had been applied.
The Company has elected to continue to apply the provisions of APB Opinion 25
and provide the pro forma disclosures required by SFAS 123. All stock-based
awards to non-employees are accounted for at their fair value in accordance
with SFAS 123 and related interpretations.

Stock compensation expense is comprised of the following: (a) the
amortization of deferred compensation resulting from the grant of stock options
or shares of restricted stock to employees at exercise or sale prices deemed to
be less than fair value of the common stock at grant date, net of forfeitures
related to such employees who terminated service while possessing unvested
stock options, as these terminated employees have no further service
obligations; (b) the intrinsic value of modified stock options or restricted
stock awards, measured at the modification date, for the number of awards that,
absent the

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modification, would have expired unexercisable, and (c) deferred
stock-based compensation associated with the acquisition of InterAct
Conferencing, LLC.

The following table summarizes relevant information as to reported results
under the Companys intrinsic value method of accounting for stock awards, with
supplemental information as if the fair value recognition provisions of SFAS
123, Accounting for Stock Based Compensationhad been applied for the three and
six months ended June 30, 2003 and 2002 (in thousands, except per share
amounts):

|                                                                                                                                      |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                                      |  | Three Months Ended |        | Six Months Ended
|                                                                                                                                      |  | June 30,           |        | June 30,        
|                                                                                                                                      |  |                    |        |                 
|                                                                                                                                      |  | 2003               |        | 2002             |  | 2003 |        | 2002
|                                                                                                                                      |  |                    |        |                  |  |      |        |     
|Net income (loss), as reported                                                                                                        |  | $                  | 613    |                  |  | $    | (1,921 | )    |  | $ | 953    |   |  | $ | (3,770 | )
|Add: Stock-based employee compensation expense
attributable to common stock options                                                   |  |                    | 396    |                  |  |      | 583    |      |  |   | 829    |   |  |   | 1,232  |  
|Deduct: Total stock-based employee compensation
expense attributable to common stock options
determined under fair value based method |  |                    | (2,019 | )                |  |      | (3,502 | )    |  |   | (4,340 | ) |  |   | (6,674 | )
|                                                                                                                                      |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|Net (loss), as adjusted                                                                                                               |  | $                  | (1,010 | )                |  | $    | (4,840 | )    |  | $ | (2,558 | ) |  | $ | (9,212 | )
|                                                                                                                                      |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|Income (loss) per share  basic, as reported                                                                                          |  | $                  | 0.01   |                  |  | $    | (0.04  | )    |  | $ | 0.02   |   |  | $ | (0.08  | )
|                                                                                                                                      |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|Income (loss) per share  diluted, as reported                                                                                        |  | $                  | 0.01   |                  |  | $    | (0.04  | )    |  | $ | 0.02   |   |  | $ | (0.08  | )
|                                                                                                                                      |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|(Loss) per share  basic, as adjusted                                                                                                 |  | $                  | (0.02  | )                |  | $    | (0.10  | )    |  | $ | (0.05  | ) |  | $ | (0.19  | )
|                                                                                                                                      |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|(Loss) per share  diluted, as adjusted                                                                                               |  | $                  | (0.02  | )                |  | $    | (0.10  | )    |  | $ | (0.05  | ) |  | $ | (0.19  | )
|                                                                                                                                      |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  

The per share weighted-average fair value of stock options granted during
the three months ending June 30, 2003 and 2002 was $2.12 and $2.94,
respectively, and the per share weighted-average fair value of stock options
granted during the six months ended June 30, 2003 and 2002 was $1.72 and $3.00,
respectively, using the Black-Scholes option pricing model. The Company used
the following weighted average assumptions in determining the fair value of
options granted during the three and six months ended June 30, 2003 and 2002:

|                        |  |          |      |      |  |  |     |  
|----------------------- |  | -------- | ---- | ---- |  |  | --- | -
|                        |  | June 30,
|                        |  |         
|                        |  | 2003     |      | 2002
|                        |  |          |      |     
|Expected life (years)   |  |          | 4    |      |  |  | 6   |  
|Risk-free interest rate |  |          | 2.46 | %    |  |  | 5   | %
|Expected volatility     |  |          | 128  | %    |  |  | 106 | %
|Expected dividend yield |  | None     |      | None

(2) ACQUISITION

On April 17, 2002, the Company entered into a definitive agreement to
acquire substantially all of the assets of InterAct Conferencing, LLC
(InterAct), a nationwide reseller of audio and web conferencing services. On
April 30, 2002, the Company completed the acquisition. In connection with the
acquisition, the Company also assumed certain liabilities of InterAct as of
April 30, 2002, consisting primarily of accounts payable and a $125,000 line of
credit. The Company also assumed a facility lease obligation of approximately
$0.7 million associated with a building that is partially owned by the former
president and chief executive officer of InterAct who became an officer of the
Company upon the completion of the acquisition. Effective May 1, 2002, the
results of InterActs operations are included in the Companys consolidated
financial statements.

The aggregate purchase consideration paid to InterAct was $7.8 million,
which was comprised of $3.8 million in cash and 1,200,982 shares of the
Companys common stock valued at $4.0 million. In addition, the Company
incurred $0.1 million of acquisition related expenses. In addition, 997,599
shares of the Companys common stock were deemed to be compensation for future
services. Accordingly, the Company recorded $3.4 million in deferred
stock-based compensation,

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which is being expensed over three years. The value of the common stock
issued was determined based on the average market price of the Companys common
stock over the three-day period before and after the terms of the acquisition
were agreed upon and announced. The acquisition has been accounted for using
the purchase method. The purchase consideration allocation is as follows:

|                                        |  |               |     | 
|--------------------------------------- |  | ------------- | --- | 
|                                        |  | (In Millions)
|Tangible net assets                     |  | $             | 1.0 | 
|Goodwill                                |  |               | 6.9 | 
|                                        |  |               |     | 
|Total purchase consideration allocation |  | $             | 7.9 | 
|                                        |  |               |     | 

The summary table below, prepared on an unaudited pro forma basis,
combines the Companys consolidated results of operations with InterActs
results of operations as if the InterAct acquisition took place on January 1,
2002 (in thousands, except per share data).

|                                              |  |                           |        |      |  |   |        |  
|--------------------------------------------- |  | ------------------------- | ------ | ---- |  | - | ------ | -
|                                              |  | Six Months Ended June 30,
|                                              |  |                          
|                                              |  | 2003                      |        | 2002
|                                              |  |                           |        |     
|Revenue                                       |  | $                         | 32,274 |      |  | $ | 30,774 |  
|Net income (loss)                             |  |                           | 953    |      |  |   | (3,600 | )
|Basic and diluted net income (loss) per share |  |                           | 0.02   |      |  |   | (0.07  | )

The pro forma results for the six months ended June 30, 2002 combine the
Companys results for the six months ended June 30, 2002 with the results of
InterAct for the period from January 1, 2002 through April 30, 2002. The pro
forma results are not necessarily indicative of the results of operations that
would have occurred if the acquisition had been consummated on January 1, 2002.
In addition, they are not intended to be a projection of future results and do
not reflect any synergies that may have been achieved from the combined
operations.

(3) DEBT

On October 9, 2001, the Company entered into a loan and security agreement
with a bank that was subsequently amended effective December 31, 2002. On
October 12, 2001 the Company received $5.0 million pursuant to the term loan
component of the loan and security agreement. The term loan is scheduled to be
repaid with monthly principal payments of $81,000 plus interest at 5.25% with
the final payment due in January 2006. Advances under the revolving line of
credit component of the loan and security agreement are limited to $12.5
million or 90% of eligible accounts receivable as defined in the agreement.
The revolving line of credit is available through January 26, 2004. Advances
under the revolving line of credit may be repaid and re-borrowed at any time
prior to the maturity date. At June 30, 2003, the Company did not have an
outstanding balance under the revolving line of credit and the additional
liquidity available, based on eligible accounts receivable, was $9.2 million.
The loan and security agreement is collateralized by substantially all tangible
and intangible assets of the Company and is subject to compliance with
covenants, including minimum liquidity coverage, minimum quick ratio and
maximum quarterly operating losses adjusted for interest, taxes, depreciation,
amortization and other non-cash charges. The Company is also prohibited from
paying any dividends without the banks prior written consent. At June 30,
2003, the balance due under this agreement (exclusively related to the term
loan) is $2,512,000, of which $972,000 is current.

On May 29, 2003, the Company entered into a loan agreement with a vendor,
in the amount of $686,000, to finance certain fixed assets. The loan is
scheduled to be repaid with quarterly principal payments of $85,000 plus
interest at 2.5% with the final payment due in April 2005. At June 30, 2003,
the balance due under this agreement is $686,000, of which $340,000 is current.

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(4) COMMON STOCK PLANS

(a) Stock Options

In February 2000, the Company adopted the 2000 Equity Incentive Plan that
amended and restated the 1997 stock option/stock issuance plan. Under the plan,
up to an aggregate of 15,872,777 shares are reserved for issuance, including
shares reserved pursuant to the plans evergreen provisions. At June 30, 2003,
there were 3,050,850 shares available for future issuance under the plan.
Pursuant to the plan, the Companys Board of Directors may issue common stock
and grant incentive and non-statutory stock options to employees, directors and
consultants. Incentive and non-statutory stock options generally have ten-year
terms and vest over four years. Some of the Companys options entitle option
holders to early exercise their options, in which case shares issued upon
exercise are restricted and subject to repurchase at the exercise price if
those employees are terminated prior to the vesting of their shares. The
remaining options are only exercisable as the employee, director or consultant
vests in the underlying stock.

The Company utilizes APB Opinion 25 in accounting for its plans. In the
three and six months ended June 30, 2003, a total of 4,550 and 7,650 common
shares, respectively, were granted at less than fair value to members of the
Companys Board of Directors, resulting in total compensation of $11,330 and
$16,530, respectively. In February 2003, the Companys Board of Directors
approved an Executive Performance-Based Compensation Arrangement, pursuant to
which the Company granted 750,000 shares of restricted stock to certain
executives and key employees. The restricted stock grants cliff vest in six
years and include accelerated vesting if certain financial or product-based
performance milestones are achieved. The stock-based compensation charge
associated with these grants was $1.2 million and is being recorded as an
expense ratably over six years, with such charges being accelerated when it
becomes apparent that the financial or product-based performance milestones
will be achieved. In addition, pursuant to this arrangement, $4.7 million of
cash compensation was approved and will become payable upon the achievement of
such financial or product-based milestones.

Stock option activity in the Companys 2000 Equity Incentive Plan during
the six months ended June 30, 2003 and 2002 was as follows:

|                             |                       |  |           |           |                |   |                           |      |                |  |           |           |          |   |      |      | 
|---------------------------- | --------------------- |  | --------- | --------- | -------------- | - | ------------------------- | ---- | -------------- |  | --------- | --------- | -------- | - | ---- | ---- | 
|                             |                       |  |           |           |                |   | Six Months Ended June 30, |      |                |  |          
|                             |                       |  |           |           |                |   |                           |      |                |  |          
|                             |                       |  | 2003      |           | 2002          
|                             |                       |  |           |           |               
|                             |                       |  |           |           |                |   | Weighted                  |      |                |  |           |           | Weighted
|                             |                       |  | Number of |           | Average        |   | Number of                 |      | Average       
|                             |                       |  | Shares    |           | Exercise Price |   | Shares                    |      | Exercise Price
|                             |                       |  |           |           |                |   |                           |      |               
|Balance, beginning of period |                       |  | 8,229,267 |           |                | $ | 3.39                      |      |                |  | 7,593,578 |           |          | $ | 3.33 |     
|                             | Granted at fair value |  |           | 1,116,350 |                |   |                           | 2.02 |                |  |           | 1,996,986 |          |   |      | 3.60 | 
|                             | Exercised             |  |           | (49,919   | )              |   |                           | 1.29 |                |  |           | (268,772  | )        |   |      | 1.50 | 
|                             | Cancelled             |  |           | (531,463  | )              |   |                           | 3.87 |                |  |           | (772,229  | )        |   |      | 2.86 | 
|                             |                       |  |           |           |                |   |                           |      |                |  |           |           |          |   |     
|Balance, end of period       |                       |  | 8,764,235 |           |                |   | 3.20                      |      |                |  | 8,549,563 |           |          |   | 3.50 |     
|                             |                       |  |           |           |                |   |                           |      |                |  |           |           |          |  

Restricted shares issued for options exercised which are subject to
repurchase totaled 4,199 shares at June 30, 2003.

11.



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The following table summarizes information about stock options outstanding
under the Companys 2000 Equity Incentive Plan at June 30, 2003:

|                 |  |             |                     |             |                     |                |           |           |                |         |      |  |  |  |           |  |  |   |      |  | 
|---------------- |  | ----------- | ------------------- | ----------- | ------------------- | -------------- | --------- | --------- | -------------- | ------- | ---- |  |  |  | --------- |  |  | - | ---- |  | 
|                 |  |             | Options Outstanding |             | Options Exercisable
|                 |  |             |                     |             |                    
|                 |  |             |                     |             |                     |                | Weighted  |           |                |         |      |  |  |  |           |  |  |   |     
|                 |  |             |                     |             |                     |                | Average   |           |                |         |      |  |  |  |           |  |  |   |     
|                 |  |             |                     |             |                     |                | Remaining |           | Weighted       |         |      |  |  |  | Weighted 
|Range of         |  | Number      |                     | Contractual |                     | Average        |           | Number of |                | Average
|Exercise Prices  |  | Outstanding |                     | Life        |                     | Exercise Price |           | Options   | Exercise Price
|                 |  |             |                     |             |                     |                |           |           |               
|$0.10      0.92 |  |             | 295,254             |             |                     |                | 5.2       |           |                | $       | 0.32 |  |  |  | 260,314   |  |  | $ | 0.25 | 
|0.93      1.17  |  |             | 1,027,795           |             |                     |                | 7.5       |           |                |         | 1.06 |  |  |  | 584,121   |  |  |   | 1.06 | 
|1.18      1.55  |  |             | 687,904             |             |                     |                | 6.6       |           |                |         | 1.40 |  |  |  | 440,461   |  |  |   | 1.37 | 
|1.56      2.22  |  |             | 1,364,619           |             |                     |                | 8.0       |           |                |         | 1.73 |  |  |  | 605,272   |  |  |   | 1.65 | 
|2.23      2.69  |  |             | 1,611,285           |             |                     |                | 7.6       |           |                |         | 2.59 |  |  |  | 1,031,303 |  |  |   | 2.59 | 
|2.70      3.75  |  |             | 2,019,509           |             |                     |                | 8.6       |           |                |         | 3.39 |  |  |  | 693,293   |  |  |   | 3.44 | 
|3.76    10.80   |  |             | 1,757,869           |             |                     |                | 6.5       |           |                |         | 7.11 |  |  |  | 1,332,969 |  |  |   | 7.56 | 
|                 |  |             |                     |             |                     |                |           |           |                |         |      |  |  |  |           |  |  |   |      | 
|                 |  |             | 8,764,235           |             |                     |                | 7.5       |           |                |         | 3.20 |  |  |  | 4,947,733 |  |  |   | 3.52 | 
|                 |  |             |                     |             |                     |                |           |           |                |         |      |  |  |  |           |  |  |   |      | 

In addition, the Company has sold or granted for services rendered to
employees, directors and consultants in the aggregate 1,337,399 shares of
common stock through stock grants under the plan at prices and values ranging
from $0.15 to $10.80 per share, which amount includes the 750,000 shares
granted pursuant to the Executive Performance-Based Compensation Arrangement.

Pursuant to the Companys acquisition of Contigo Software, Inc. in June
2000, the Company assumed certain stock option plans and the outstanding stock
options of Contigo (assumed plans). Stock options under the assumed plans
have been converted into the Companys stock options and adjusted to reflect
the conversion ratio as specified by the applicable acquisition agreement, but
are otherwise administered in accordance with the terms of the assumed plans.
Stock options under the assumed plans generally vest over three years and
expire ten years from date of grant. No additional stock options will be
granted under the assumed plans. There was no stock option activity in the
assumed plans during the three months ended June 30, 2003 and 179,797 options
remain outstanding.

The following table summarizes information about stock options outstanding
under the Companys assumed plans at June 30, 2003:

|                |             |             |                     |             |                     |                |           |           |                |         |      |      |  |  |          |         |  |   |      |      | 
|--------------- | ----------- | ----------- | ------------------- | ----------- | ------------------- | -------------- | --------- | --------- | -------------- | ------- | ---- | ---- |  |  | -------- | ------- |  | - | ---- | ---- | 
|                |             |             | Options Outstanding |             | Options Exercisable
|                |             |             |                     |             |                    
|                |             |             |                     |             |                     |                | Weighted  |           |                |         |      |      |  |  |          |         |  |   |     
|                |             |             |                     |             |                     |                | Average   |           |                |         |      |      |  |  |          |         |  |   |     
|                |             |             |                     |             |                     |                | Remaining |           | Weighted       |         |      |      |  |  | Weighted
|Range of        |             | Number      |                     | Contractual |                     | Average        |           | Number of |                | Average
|Exercise Prices |             | Outstanding |                     | Life        |                     | Exercise Price |           | Options   | Exercise Price
|                |             |             |                     |             |                     |                |           |           |               
|$0.45  2.72    |             |             | 59,483              |             |                     |                | 5.6       |           |                | $       | 1.05 |      |  |  | 59,483   |         |  | $ | 1.05 |     
|                | 2.73  3.92 |             |                     | 100,563     |                     |                |           | 6.6       |                |         |      | 3.92 |  |  |          | 100,563 |  |   |      | 3.92 | 
|                | 3.93  6.08 |             |                     | 19,751      |                     |                |           | 6.7       |                |         |      | 6.08 |  |  |          | 19,751  |  |   |      | 6.08 | 
|                |             |             |                     |             |                     |                |           |           |                |         |      |      |  |  |          |         |  |   |      |     
|                |             |             | 179,797             |             |                     |                | 6.3       |           |                |         | 3.21 |      |  |  | 179,797  |         |  |   | 3.21 |     
|                |             |             |                     |             |                     |                |           |           |                |         |      |      |  |  |          |         |  |   |      |     

(b) Employee Stock Purchase Plan

In February 2000, the Board of Directors adopted the 2000 Employee Stock
Purchase Plan (ESPP). The ESPP allows participating employees to purchase
shares of common stock at a 15% discount from the market value of the stock as
determined on specific dates at six-month intervals. The total common shares
available for issuance pursuant to the ESPP are 4,606,111, including shares
reserved pursuant to the plans evergreen provisions. In February 2003, 561,479
shares were purchased by employees at an average price of $0.82 per share. At
June 30, 2003, 3,007,788 shares were reserved for future issuance. At June 30,
2003 approximately $246,992 in payroll deductions have been withheld from
employees for future purchases under the plan, which will be at an approximate
average price of $0.82 per share. The ESPP is a qualified plan under the
applicable section of the Internal Revenue Code and accordingly, no
compensation expense has been recognized for purchases under the plan.

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(5) RESTRUCTURING

The Companys restructuring activities included workforce reductions, the
sale or disposition of assets, contract cancellations and the closure of
several remote sales offices.

Restructuring reserves and activity for the first six months of 2003 are
detailed below (in thousands):

|                                                    |  |                   |       |  |             |  |               |          |  |               |  |                 |  |   |      |   |  |   |     | 
|--------------------------------------------------- |  | ----------------- | ----- |  | ----------- |  | ------------- | -------- |  | ------------- |  | --------------- |  | - | ---- | - |  | - | --- | 
|                                                    |  |                   |       |  |             |  | Restructuring |          |  |               |  |                 |  |   |      |  
|                                                    |  | Reserve Balance   |       |  | Reserve     |  |               |          |  |               |  | Reserve Balance
|                                                    |  | December 31, 2002 |       |  | Adjustments |  |               | Payments |  | June 30, 2003
|                                                    |  |                   |       |  |             |  |               |          |  |              
|Lease obligations, net of estimated sublease income |  | $                 | 1,025 |  |             |  |               | $        |  |              |  |                 |  | $ | (373 | ) |  | $ | 652 | 
|                                                    |  |                   |       |  |             |  |               |          |  |              

At June 30, 2003, the Companys restructuring reserves totaled $0.7
million, of which $0.3 million is current and solely relates to lease costs,
which will be relieved as payments are made. The Company adjusts its
restructuring reserves based on what it believes will be the most probable
outcome. As a result, facility reserves may increase or decrease based on the
ability to sublease vacant spaces, which are under non-cancelable operating
leases expiring at various dates through 2005. Through June 30, 2003, the
Company has been successful in subleasing seven facilities and terminating five
facility leases. Future minimum sublease receivables for the seven subleased
facilities, as of June 30, 2003, approximate $1.7 million that are scheduled to
be received through August 2005. As of June 30, 2003, the facility reserve was
comprised of commitments associated with two offices. The minimum lease
payments for the two offices total approximately $17,000 per month and total
future minimum lease payments approximate $0.4 million at June 30, 2003. The
Company has fully reserved one of the remaining offices because the office will
remain vacant and the lease expires in July 2003. As a result, barring a
default by a subtenant on an existing sublease, only one office can subject the
Company to future adjustments. The actual cost savings the Company anticipated
as a result of this restructuring effort have been realized with the exception
of the restructuring costs associated with the closure of remote sales
facilities. Due to the current real estate market, it has taken the Company
longer than expected to sublease or otherwise terminate its lease obligations
in certain cities. However, the Company continually monitors and adjusts, as
warranted, its restructuring reserve associated with remote sales facilities
based on current facts and circumstances. A failure to reduce or eliminate the
commitment on the one remaining office, that is not fully reserved, in a timely
fashion will cause the Company to make unfavorable adjustments to the
restructuring reserve in subsequent quarters. Additionally, the Company will
continue to expend cash on its monthly commitment on this facility, as well as
the facility that has been reserved in full.

(6) COMMITMENTS AND CONTINGENCIES

(a) Operating Leases

The Company leases office facilities under various operating leases that
expire through 2009. Two of the office facilities are leased from entities that
are controlled by executive officers of the Company. Most of the remaining
facilities are satellite sales offices. As indicated in Note 5, the Company is
attempting to sublease or otherwise minimize its net commitment with respect to
one office. Total future minimum lease payments, not including any reductions
for subleases and other potential reductions, under all operating leases,
approximate $9.0 million at June 30, 2003. Future minimum sublease receivables
for all subleased facilities, as of June 30, 2003, approximate $1.9 million to
be received by the Company through August 2005.

(b) Purchase Commitments

The Company has commitments for bandwidth usage and telephony services
with various service providers. The total commitment as of June 30, 2003 was
approximately $20.3 million to be expended through 2005. Some of these
agreements may be amended to either increase or decrease the minimum
commitments during the life of the contract.

(c) Employment Contracts

The Company has an employment agreement with one of its executive
officers. The agreement continues until

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terminated by the executive or the Company, and provides for a termination
payment under certain circumstances. As of June 30, 2003, the Companys
liability would be approximately $348,750 if the officer was terminated under
certain conditions set forth in the agreement.

In addition, the Company has a letter agreement with one of its executive
officers, which would require the Company to pay $107,500 if the executive
officer was terminated under certain conditions set forth in the agreement.

(d) Litigation

From time to time, the Company has been subject to legal proceedings and
claims in the ordinary course of business. Although the Company is not
currently involved in any material legal proceedings, it may in the future be
subject to legal disputes. Any claims, even if not meritorious, could result in
the expenditure of significant financial and managerial resources. The Company
is not aware of any legal proceedings or claims that it believes will have,
individually or in the aggregate, a material adverse effect on its business.

(7) CUSTOMER CONCENTRATION

In the first and second quarters of 2003, none of the Companys customers
represented greater than 10% of the Companys revenue, however, one customer
represented greater than 10% of the Companys accounts receivable. The
receivable due from Qwest Communications International, Inc. (Qwest) at June
30, 2003 was $2.0 million or 18.8% of the Companys total accounts receivable
balance.

(8) RECENT ACCOUNTING PRONOUNCEMENTS

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
requires that certain financial instruments, which under previous guidance were
accounted for as equity, must now be accounted for as liabilities. The
financial instruments affected include mandatory redeemable stock, certain
financial instruments that require or may require the issuer to buy back some
of its shares in exchange for cash or other assets and certain obligations that
can be settled with shares of stock. SFAS 150 is effective for all 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. Accordingly, the Company will adopt SFAS 150 on July 1, 2003 and
management does not believe the adoption of this statement will have any impact
on the Companys financial position, results of operations or cash flows.

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

This Report on Form 10-Q contains forward-looking statements, including
without limitation, statements containing the words believes, anticipates,
expects, and words of similar import and statements regarding our strategy,
financial performance, and our operations that involve risks and uncertainties.
Our actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in the subsection entitled Additional
Risk Factors that May Affect Our Operating Results and The Market Price of Our
Common Stock. Readers are urged to carefully review and consider the various
disclosures made in this report and in our other reports filed with the SEC
that attempt to advise interested parties of certain risks and factors that may
affect our business. This analysis should be read in conjunction with our
consolidated financial statements and related notes and Managements Discussion
and Analysis of Financial Condition and Results of Operations included in our
Form 10-K (Commission File No. 000-31045), filed on March 26, 2003. You should
also read this analysis in conjunction with our condensed consolidated
financial statements and related notes that begin on page 3 of this Form 10-Q.

Our reports are available free of charge through our website as soon as
reasonably practicable after we file them with, or furnish them to, the SEC.
Our website address is www.raindance.com. Once at www.raindance.com, go to
Investors/SEC Filings and Financials.

Overview

We provide business communication services for everyday business meetings
and events. Our Web and Phone Conferencing and Web Conferencing Pro
communication services are based on proprietary architecture that integrate
traditional telephony technology with real-time interactive web tools. Our
continuum of interactive services includes Web and Phone Conferencing for
reservationless automated audio conferencing with simple web controls and
presentation tools, Web Conferencing Pro, which allows users to integrate
reservationless automated audio conferencing with advanced web interactive
tools such as application sharing, web touring and online whiteboarding and
Operator Assisted Conferencing, which provides customers with operator
assistance during a conference and additional services such as call taping,
digital replay and transcription. We sell these services to large and
medium-sized businesses in various markets as well as to resellers of
conferencing and communications services, through our direct and indirect sales
channels.

In 2003, we expect to launch our next-generation services and network.
Built on multimedia architecture that integrates audio, web and video
technologies, our next-generation service is expected to be generally available
at the end of the year. In addition, we intend to continue leveraging the
infrastructure, technologies, and proprietary systems that we have developed
for our existing services to facilitate the rapid deployment of service
enhancements and future business communication services.

As of June 30, 2003, we had an accumulated deficit of $170.9 million. Our
net income was $0.6 million and our net loss was $1.9 million for the three
months ended June 30, 2003 and 2002, respectively. Our net income was $1.0
million and our net loss was $3.8 million for the six months ended June 30,
2003 and 2002, respectively. Although we have achieved quarterly net income
for three consecutive quarters, we may incur losses in subsequent quarters,
particularly due to uncertainty surrounding a potential increase in stock-based
compensation expense in connection with proposed changes in accounting rules
and regulations and an anticipated increase in sales and marketing expenditures
in connection with the release of our next-generation service near the end of
2003. Despite the progress we have made in managing and controlling expenses,
we will need to increase revenue to support expected expenses and to sustain
profitability.

On April 17, 2002, we entered into a definitive agreement to acquire
substantially all of the assets of InterAct Conferencing, LLC (InterAct), a
nationwide reseller of audio and web conferencing services. On April 30, 2002,
we completed the acquisition. In connection with the acquisition, we assumed
certain liabilities of InterAct as of April 30, 2002, consisting primarily of
accounts payable and a $125,000 line of credit. We also assumed a facility
lease obligation of approximately $0.7 million associated with a building that
is partially owned by the former president and chief executive officer of
InterAct who became an officer of our company upon the completion of the
acquisition. Effective May 1, 2002, the results of InterActs operations are
included in our consolidated financial statements. The aggregate purchase
consideration paid to InterAct was approximately $7.8 million, which was
comprised of $3.8 million in cash and 1,200,982 shares of our common stock
valued at $4.0 million. In addition, we incurred $0.1 million in acquisition
related expenses. 997,599 shares of our common stock were deemed to represent
contingent purchase consideration and accordingly, we recorded $3.4 million

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in deferred stock-based compensation, which is being expensed over three
years, which began in May 2002. The value of the common stock issued was
determined based on the average market price of our common stock over the
three-day period before and after the terms of the acquisition were agreed upon
and announced. The purchase price of $7.9 million was allocated as follows:
$1.0 million was allocated to the net assets acquired and $6.9 million was
allocated to goodwill.

While our business model is largely usage-based, which generally means
that our customers only pay for the services they use, our non-usage revenue,
such as from subscriptions, may fluctuate based on the timing of new
subscription agreements and the expiration and renewal of existing agreements.
In the quarter ended June 30, 2003, 8.7% of our revenue was non-usage based as
compared to 14.6% in the quarter ended June 30, 2002. We expect our non-usage
based revenue to approximate 8% to 10% of our total revenue in upcoming
quarters.

The following describes how we recognize revenue for the services we offer:



| |  | Web and Phone Conferencing Revenue. Revenue for our Web and Phone Conferencing service is generally based upon the actual
time that each participant is on the phone or logged onto the web. For example, a customer is charged a per-minute,
per-user fee for each participant listening and viewing a live or recorded simulcast. In addition, we charge customers a
one-time fee to upload visuals for a phone conference or a recorded simulcast. We recognize usage revenue from our Web and
Phone Conferencing services in the period the call or simulcast of the call is completed. We recognize revenue associated
with any initial set-up fees ratably over the term of the contract.                                                                                                                                                                                                                   
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Web Conferencing Pro Revenue. Revenue for our Web Conferencing Pro service is derived from subscription and usage fees in
addition to event fees or, in more limited cases, a software license fee. Revenue from subscriptions is recognized monthly
regardless of usage, while usage fees are based upon either connections or minutes used. Event fees are generally hourly
charges that are recognized as the events take place. We recognize revenue associated with any initial set-up fees ratably
over the term of the contract. Revenue from software license agreements is recognized upon shipment of the software when
all the following criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred; the fee is
fixed or determinable; collectibility is probable; and vendor specific objective evidence is available for the fair value
of all undelivered elements.
| 
| |  | Operator Assisted Revenue. Revenue for our Operator Assisted Conferencing service is generally based upon the actual time
that each participant is on the phone. In addition, we charge customers a fee for additional services such as call taping,
digital replay, participant lists and transcription services. We recognize usage revenue and related fees from our Operator
Assisted Conferencing service in the period the call is completed.                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Our cost of revenue consists primarily of telecommunication expenses,
depreciation of network and data center equipment, Internet access fees and
fees paid to network providers for bandwidth, equipment maintenance contract
expenses, compensation and benefits for operations personnel and allocated
overhead. Our telecommunication expenses are variable and directly correlate to
the use of our services and primarily are incurred when our customers use our
Web and Phone Conferencing service. A change in our mix of usage and non-usage
based revenue will affect our gross profit as our cost of revenue is typically
higher on our usage-based Web and Phone Conferencing service. Our depreciation,
Internet access and bandwidth expenses, equipment maintenance expenses and
compensation expenses generally increase as we increase our capacity and build
our infrastructure. We will continue to make investments in our
infrastructure. As a result, we expect expenses for capital expenditures,
depreciation, Internet access and bandwidth to increase in absolute dollars. We
expect that our current capacity and infrastructure, coupled with the capital
expenditures we have made and we expect to make, will accommodate our revenue
projections through the end of 2003. We have a limited number of sources for
our telephony services. One of our suppliers is WorldCom, which currently
conducts business under the MCI brand name, and which filed for Chapter 11
bankruptcy protection in July 2002. If MCI was to terminate or interrupt its
services, we may experience difficulties in obtaining alternative sources on
commercially reasonable terms and may experience an increase in our variable
telephony cost.

We incur sales and marketing expenses that consist primarily of the
salaries, commissions and benefits for our sales and marketing personnel,
remote sales offices expenses, market research, sales lead generation and
telemarketing expenses and allocated overhead. We expect sales and marketing
expenses to increase in absolute dollars and as a percentage of revenue as we
expand our sales force and increase our marketing initiatives in the second
half of 2003.

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We incur research and development expenses that consist primarily of
salaries and benefits for research and development personnel, equipment
maintenance contract expenses and allocated overhead. We expense research and
development costs as they are incurred, except for certain capitalized costs
associated with internally developed software. We capitalized $430,000 and
$249,000 of internally developed software in the first and second quarters of
2003, respectively. We expect to continue to capitalize costs associated with
internally developed software in 2003, particularly as we develop our
next-generation service and other new products, if any, in the near term. We
also expect to continue to make investments in research and development and
anticipate that these expenditures will increase in terms of absolute dollars
in 2003; however, we expect such expenditures to decrease as a percentage of
revenue in 2003.

We incur general and administrative expenses that consist primarily of
expenses related to finance, human resources, administrative and general
management activities, including legal, accounting and other professional fees,
in addition to other general corporate expenses. We expect general and
administrative expenses to remain relatively flat in terms of absolute dollars;
however, we expect them to decrease as a percentage of revenue in 2003.

Since our inception, we have used stock-based compensation for employees,
consultants and members of our Board of Directors to attract and retain strong
business and technical personnel. During the three months ended June 30, 2003
we did not record any deferred stock-based compensation; however, during the
six months ended June 30, 2003, we recorded $1.2 million of deferred
stock-based compensation. We also expensed $0.8 million and $1.6 million
related to stock-based compensation in the three and six months ended June 30,
2003, respectively. The $1.2 million of the deferred stock-based compensation
relates to 750,000 shares of restricted stock issued to certain executives and
key employees under our Executive Performance-Based Compensation Arrangement,
as approved by the Board of Directors in February 2003. The restricted stock
grants cliff vest in six years and include accelerated vesting if certain
financial or product-based performance milestones are achieved. Accordingly,
the $1.2 million deferred stock-based compensation charge is being expensed
ratably over six years, with such charges being accelerated when it becomes
apparent that the financial or product-based milestones will be achieved.
Stock-based compensation amounts are based on the excess of the fair value of
our common stock on the date of grant or sale over the option exercise price or
stock purchase price. Compensation expense related to stock options is
amortized over the vesting period of the options, which generally is four
years. In connection with the acquisition of InterAct , we recorded $3.4
million of deferred stock-based compensation related to 997,599 shares of
common stock we issued simultaneously with the closing of the InterAct
acquisition, which are being held in escrow and will be released annually in
equal one-third increments, which began in May 2003. The deferred stock-based
compensation related to the 997,599 shares is being expensed over three years,
which began in May 2002. The release of the stock held in escrow is contingent
upon certain employment obligations of Carolyn Bradfield, the former president
and chief executive officer of InterAct. The value of these escrowed shares was
determined based on the average market price of our common stock over the
three-day period before and after the terms of the acquisition were agreed upon
and announced. Assuming no forfeitures, we expect to incur stock-based
compensation expense of approximately $1.2 million in the remainder of 2003,
$1.4 million in 2004, $0.5 million in 2005, and $0.2 million in 2006, 2007 and
2008, respectively, for common stock issued or stock options awarded to our
employees or members of our Board of Directors, through June 30, 2003, under
our equity plans.

Other Data  Non-GAAP Financial Measure

We evaluate operating performance based on several factors, including our
primary internal financial measure of earnings before interest, taxes,
depreciation, amortization and stock-based compensation expense (adjusted
EBITDA). This analysis eliminates the effects of considerable amounts of
depreciation and stock-based compensation. Since our initial public offering,
we have reported adjusted EBITDA, a financial measure that is not defined by
Generally Accepted Accounting Principles (GAAP). Certain restructuring charges
historically presented in this non-GAAP financial performance measure have been
removed from adjusted EBITDA for such prior periods to conform to the
presentation of adjusted EBITDA for the second quarter and year to date 2003.

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The calculation of adjusted EBITDA is as follows (in thousands):

|                                                                |  |                             |       |                           |  |      |        |      |  |   |       |  |  |   |        |  
|--------------------------------------------------------------- |  | --------------------------- | ----- | ------------------------- |  | ---- | ------ | ---- |  | - | ----- |  |  | - | ------ | -
|                                                                |  | Three Months Ended June 30, |       | Six Months Ended June 30,
|                                                                |  |                             |       |                          
|                                                                |  | 2003                        |       | 2002                      |  | 2003 |        | 2002
|                                                                |  |                             |       |                           |  |      |        |     
|Net income (loss)                                               |  | $                           | 613   |                           |  | $    | (1,921 | )    |  | $ | 953   |  |  | $ | (3,770 | )
|Add: depreciation, amortization and other
income (expense), net |  |                             | 2,509 |                           |  |      | 2,757  |      |  |   | 5,146 |  |  |   | 5,087  |  
|Add: stock-based compensation expense                           |  |                             | 778   |                           |  |      | 787    |      |  |   | 1,559 |  |  |   | 1,436  |  
|                                                                |  |                             |       |                           |  |      |        |      |  |   |       |  |  |   |        |  
|Adjusted EBITDA                                                 |  | $                           | 3,900 |                           |  | $    | 1,623  |      |  | $ | 7,658 |  |  | $ | 2,753  |  
|                                                                |  |                             |       |                           |  |      |        |      |  |   |       |  |  |   |        |  

The trends depicted by this calculation indicate that we have been
successful in reducing our net loss and generating net income as well as
increasing adjusted EBITDA, primarily as a result of our efforts to control
operating costs while simultaneously increasing revenue. For the three months
ended June 30, 2003, as compared with the three months ended June 30, 2002, our
net loss decreased by $2.5 million, resulting in $0.6 million in net income for
the current quarter. For the six months ended June 30, 2003, as compared with
the six months ended June 30, 2002, our net loss decreased by $4.7 million,
resulting in $1.0 million in net income for the six months ended June 30, 2003.
For the three months ended June 30, 2003, as compared with the three months
ended June 30, 2002, adjusted EBITDA increased by $2.3 million. For the six
months ended June 30, 2003, as compared with the six months ended June 30,
2002, adjusted EBITDA increased by $4.9 million.

Adjusted EBITDA should be considered in addition to, not as a substitute
for, net income (loss) and other measures of financial performance reported in
accordance with GAAP. We believe that adjusted EBITDA is a useful performance
metric for our investors and is a measure of operating performance and
liquidity that is commonly reported and widely used by financial and industry
analysts, investors and other interested parties because it eliminates
significant non-cash charges to earnings. In addition, sophisticated financial
institutions and banks use adjusted EBITDA as a performance metric in their
lending practices. For example, adjusted EBITDA is used by our bank to
determine our compliance with a financial covenant articulated in our loan and
security agreement. However, adjusted EBITDA as used by us may not be
comparable to similarly titled measures reported by other companies.

The funds depicted by adjusted EBITDA are not available for our
discretionary use due to debt service, debt maturities and other commitments
that we have made. Cash flow calculated in accordance with GAAP is as follows:
net cash provided by operations was $4.2 million and $0.8 million for the three
months ended June 30, 2003 and 2002, respectively, and $6.7 million and $1.2
million for the six months ended June 30, 2003 and 2002, respectively; net cash
used by investing activities was $1.8 million and $5.1 million for the three
months ended June 30, 2003 and 2002, respectively, and $3.3 million and $7.2
million for the six months ended June 30, 2003 and 2002, respectively; net cash
used by financing activities was $0.2 million for both the three months ended
June 30, 2003 and 2002, respectively, and negligible and $0.3 million for the
six months ended June 30, 2003 and 2002, respectively.

Results of Operations

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

Revenue.Total revenue increased by $1.4 million to $16.8 million for the
three months ended June 30, 2003 from $15.4 million for the three months ended
June 30, 2002. Total revenue increased by $3.0 million to $32.3 million for the
six months ended June 30, 2003 from $29.3 million for the six months ended June
30, 2002. The increase was primarily due to the addition of new customers,
including the customers we acquired as a result of the acquisition of InterAct
in the second quarter of 2002 and an increase in usage from our existing
customer base, which is partially offset by pricing pressure we are
experiencing for some of our services. In addition, we first recognized
significant revenue from our Operator Assisted Conferencing service in the
first quarter of 2003. Total minutes attributable to our usage-based services
was 157.6 million and 113.3 million for the three months ended June 30, 2003
and 2002, respectively, and 296.7 million and 225.5 million for the six months
ended June 30, 2003 and 2002, respectively.

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Cost of Revenue.Cost of revenue decreased $0.4 million to $6.9 million
for the three months ended June 30, 2003
from $7.3 million for the three months ended June 30, 2002. Cost of
revenue decreased $0.8 million to $13.4 million for the six months ended June
30, 2003 from $14.2 million for the six months ended June 30, 2002.
Telecommunication costs decreased $0.6 million for the quarter ended June 30,
2003 over the quarter ended June 30, 2002 due to volume discounts received from
our long distance telephony provider. Depreciation and salaries expense each
decreased $0.1 million due to a decrease in headcount in the quarter ended June
30, 2003 from the quarter ended June 30, 2002. Offsetting these decreases,
expenses associated with our Operator Assisted Conferencing service increased
$0.3 million in the current quarter, which coincides with our growth in revenue
from this service. Additionally, maintenance and repairs expense increased
$0.1 million for the three months ended June 30, 2003 from the three months
ended June 30, 2002. Telecommunication cost decreased $1.3 million for the
six months ended June 30, 2003 over the six months ended June 30, 2002 due to
volume discounts received from one of our long distance telephony providers, as
well as an overall improvement in the utilization of our infrastructure. The
allocated component of depreciation expense decreased $0.1 million for the six
months ended June 30, 2003 due to decreased headcount over the same period in
the previous year. Salaries expense decreased $0.2 million due to decreased
headcount in the six months ended June 30, 2003 from the six months ended June
30, 2002. Conversely, expense associated with our Operator Assisted
Conferencing service increased $0.6 million in the current year, which
coincides with our growth in revenue from this service. Maintenance and repairs
expense increased $0.1 million for the six months ended June 30, 2003 from the
six months ended June 30, 2002. The primary reasons for our gross profit
improvement are reductions in our long distance rates and a general improvement
in our infrastructure utilization.

Sales and Marketing.Sales and marketing expense remained consistent at
$4.8 million for the three months ended June 30, 2003 and 2002, respectively.
However, there was a slight shift in expenses in the current quarter, namely a
decrease in bad debt expense due to fewer bankruptcy filings within our
customer base, as well as a general improvement in our accounts receivable
aging which resulted in a reduction of our bad debt reserve, offset by an
increase in compensation expense due to increased headcount as compared to the
quarter ended June 30, 2002. Sales and marketing expense increased $0.3
million to $9.3 million for the six months ended June 30, 2003 from $9.0
million for the six months ended June 30, 2002. Personnel and payroll related
expenses increased $0.6 million for the six months ended June 30, 2003 as
compared to the six months ended June 30, 2002, due to increased headcount
associated with our acquisition of InterAct in April 2002. Likewise, allocated
depreciation expense increased $0.4 million for the six months ended June 30,
2003 from the six months ended June 30, 2002, also on account of increased
sales and marketing headcount. Offsetting these increases, bad debt expense
decreased $0.5 million for the six months ended June 30, 2003 as compared with
the six months ended June 30, 2002 due to fewer bankruptcy filings within our
customer base, as well as a general improvement in our accounts receivable
aging, which resulted in a reduction of our bad debt reserve. Additionally,
various telemarketing and market research expenses decreased slightly for the
six months ended June 30, 2003 as compared to the six months ended June 30,
2002.

Research and Development.Research and development expense decreased $0.1
million to $2.0 million for the three months ended June 30, 2003 from $2.1
million for the three months ended June 30, 2002. Research and development
expense decreased $0.4 million to $3.7 million for the six months ended June
30, 2003 from $4.1 million for the six months ended June 30, 2002. Allocated
depreciation decreased $0.1 million in the current quarter due to an overall
reduction in depreciation expense. Personnel and payroll related expenses
decreased $0.4 million for the six months ended June 30, 2003 over the six
months ended June 30, 2002, due to additional capitalized costs associated with
internally developed software in the first half of 2003 as compared to the
first half of 2002, primarily due to the development of our next-generation
service that has taken place during the first half of 2003.

General and Administrative.General and administrative expense decreased
$0.2 million to $1.7 million for the three months ended June 30, 2003 as
compared to $1.9 million for the three months ended June 30, 2002. General and
administrative expense decreased $0.3 million to $3.4 million for the six
months ended June 30, 2003 as compared to $3.7 million for the six months ended
June 30, 2002. Personnel and payroll related expenses decreased $0.1 million
and $0.2 million for the three and six months ended June 30, 2003,
respectively, over the three and six months ended June 30, 2002 due to
decreased headcount. Additionally, allocated depreciation decreased $0.1
million for both the three and six months ended June 30, 2003 over the same
periods in 2002, respectively, due to decreased headcount.

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Stock-Based Compensation Expense.Stock-based compensation expense
remained consistent at $0.8 million for the three months ended June 30, 2003
and 2002, respectively. Stock-based compensation expense increased $0.2 million
to $1.6 million for the six months ended June 30, 2003 from $1.4 million for
the six months ended June 30, 2002. Prior to our initial public offering,
options and stock purchase rights were granted at less than the estimated
initial public offering price resulting in deferred compensation charges, which
are being recognized over vesting periods, which generally are four years.
During the first quarter of 2003 we recorded $1.2 million of deferred
stock-based compensation that relates to 750,000 shares of restricted stock
issued to certain executives and key employees under our Executive
Performance-Based Compensation Arrangement. The restricted stock grants cliff
vest in six years and include accelerated vesting if certain financial or
product-based performance milestones are achieved. Accordingly, the $1.2
million deferred stock-based compensation charge is being expensed ratably over
six years, with such charges being accelerated when it becomes apparent that
the financial or product-based milestones will be achieved. In connection with
the acquisition of InterAct, we recorded $3.4 million of deferred stock-based
compensation related to 997,599 shares of common stock we issued simultaneously
with the closing of the InterAct acquisition, which are being held in escrow
and will be released annually in equal one-third increments, which began in May
2003. The deferred stock-based compensation related to the 997,599 shares is
being expensed over three years, which began in May 2002. The release of the
stock held in escrow is contingent upon certain employment obligations of
Carolyn Bradfield, the former president and chief executive officer of
InterAct. The value of these escrowed shares was determined based on the
average market price of our common stock over the three-day period before and
after the terms of the acquisition were agreed upon and announced.

Restructuring Charges.In the fourth quarter of 2000, we began an
assessment of our cost structure and in December 2000, our board of directors
approved a plan of restructuring, which was announced in January 2001. In
connection with this restructuring, we streamlined our operations to focus on
our core web conferencing service offerings. Additionally, in connection with
streamlining operations, we refocused our marketing strategy, reduced our
workforce and closed several leased office facilities. In connection with this
restructuring we recorded restructuring charges of $0.2 and $0.4 million in the
first and second quarter of 2002, respectively. At June 30, 2003, the
restructuring reserves totaled $0.7 million, of which $0.3 million is current
and solely relates to lease costs, which will be relieved as payments are made.
In addition, facility reserves may increase or decrease based on the ability to
sublease vacant spaces, which are under non-cancelable operating leases
expiring at various dates through 2005. As of June 30, 2003, the facility
reserve was comprised of two offices. Currently, the minimum lease payments for
these two offices total approximately $17,000 per month. We have fully reserved
one of the remaining offices because the office will remain vacant and the
lease expires in July 2003. As a result, barring a default by a subtenant on an
existing sublease, only one office can subject us to future adjustments. The
actual cost savings we anticipated as a result of this restructuring effort
have been realized with the exception of the restructuring costs associated
with the closure of remote sales facilities. Due to the current real estate
market, it has taken us longer than expected to sublease or otherwise terminate
our lease obligations in certain cities. However, we continually monitor and
adjust, as warranted, the restructuring reserve associated with remote sales
facilities based on current facts and circumstances. A failure to reduce or
eliminate in a timely fashion the commitment on the one remaining office that
is not fully reserved will cause us to make unfavorable adjustments to the
restructuring reserve in subsequent periods.

Other Income (Expense).Interest income remained flat at $0.1 million for
the three months ended June 30, 2003 and 2002, respectively. Interest expense
also remained flat at $0.1 million for the three months ended June 30, 2003 and
2002, respectively. Interest income decreased $0.1 million to $0.1 million for
the six months ended June 30, 2003 from $0.2 million for the six months ended
June 30, 2002. The decrease was related to lower interest rates in 2003
compared to 2002. Interest expense decreased $0.1 million to $0.1 million for
the six months ended June 30, 2003 from $0.2 million for the six months ended
June 30, 2002. The decrease was due to refinancing our outstanding term loan
with a lower interest rate and a decreasing principal balance on which interest
is calculated.

Liquidity and Capital Resources

As of June 30, 2003, cash and cash equivalents were $35.0 million, an
increase of $3.3 million compared with cash and cash equivalents held as of
December 31, 2002.

Net cash provided by operations was $6.7 million and $1.2 million for the
six months ended June 30, 2003 and 2002, respectively. Cash provided by
operations increased significantly in the first six months of 2003 as compared
to the first six months of 2002 as we achieved net income of $1.0 million for
the current six-month period compared to a net loss of $3.8

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million for the prior six-month period. The improvement is also due to an
increase in accounts payable and accrued expenses, partially offset by an
increase in accounts receivable, increase in prepaid expenses and decrease in
deferred revenue.

Net cash used by investing activities was $3.3 million and $7.2 million
for the six months ended June 30, 2003 and 2002, respectively. Net cash used
by investing activities in the first six months of 2003 and 2002 primarily
related to capital expenditures for equipment purchases. Additionally, we paid
cash, net of cash received, of $2.8 million for the acquisition of InterAct in
the second quarter of 2002. We expect capital expenditures to increase in 2003
over 2002 due to planned capital expenditures for equipment upgrades,
additional capacity and future service offerings.

Net cash used by financing activities was negligible and $0.3 million for
the six months ended June 30, 2003 and 2002, respectively. Cash used by
financing activities in the first six months of 2003 and 2002 related to debt
service payments offset by cash proceeds from the exercise of common stock
options.

As of June 30, 2003, we had approximately $3.2 million in total debt
obligations outstanding, of which approximately $1.3 million was current.

Effective December 31, 2002, we amended the terms of a loan and security
agreement that we originally entered into on October 9, 2001. We renewed and
increased the revolving line of credit and refinanced the term loan. In
connection with refinancing the term loan, the current outstanding balance will
be repaid with monthly principal payments of $81,000 plus interest at 5.25%
over 36 months, with the final payment due in January 2006. Advances under the
revolving line of credit are limited to $12.5 million or 90% of eligible
accounts receivable as defined and adjusted in the agreement. The revolving
line of credit is available through January 26, 2004. Advances under the
revolving line of credit may be repaid and re-borrowed at any time prior to the
maturity date. At June 30, 2003, we did not have an outstanding balance under
the revolving line of credit and the additional liquidity available, based on
eligible accounts receivable, was $9.2 million. The loan and security agreement
is collateralized by substantially all of our tangible and intangible assets
and is subject to compliance with covenants, including minimum liquidity
coverage, minimum quick ratio and maximum quarterly operating losses adjusted
for interest, taxes, depreciation, amortization and other non-cash charges. We
are also prohibited from paying any dividends without the banks prior written
consent. At June 30, 2003, the balance due under this agreement was
approximately $2.5 million, of which approximately $1.0 million was current.
In addition, in May 2003, we entered into a loan agreement with a vendor, in
the amount of $0.7 million, to finance certain fixed assets. The loan is
scheduled to be repaid with quarterly principal payments of $85,000 plus
interest at 2.5% with the final payment due in April 2005. At June 30, 2003,
the balance due under this agreement is $0.7 million, of which $0.3 million is
current.

We also receive funds from time to time from the exercise of options or
similar rights to purchase shares of our common stock. We have no other
material external sources of liquidity.

We have generated positive cash flows from operations for seven
consecutive quarters and we expect to continue to generate positive cash flows
from operations in the near term. However, such cash flows may be less than the
amounts recorded in prior quarters due to an anticipated increase in sales and
marketing expenditures in connection with the release of our next-generation
service near the end of 2003. Looking ahead, we expect our debt service
payments to decrease in 2003 over 2002 and we expect capital expenditures to
increase in 2003 over 2002 due to planned capital expenditures for equipment
upgrades, additional capacity and future service offerings. We also expect
proceeds from the exercise of common stock options; however, it is not possible
to estimate what impact this will have during 2003.

We obtain a significant portion of our liquidity from operating cash
flows. Our customer base consists of a large number of geographically dispersed
customers diversified across several industries. During the first and second
quarters of 2003, no single customer accounted for greater than 10% of our
total revenue. At June 30, 2003, we had a receivable due from Qwest
Communications International, Inc. of $2.0 million or 18.8% of our total
accounts receivable balance. Our operating cash flows could be adversely
affected in the event Qwest experiences financial difficulties that affect its
ability to pay us in a timely fashion.

As of June 30, 2003, our purchase commitments for bandwidth usage and
telephony services were approximately $20.3 million and will be expended over
the next three years. Some of these agreements may be amended to either
increase or decrease the minimum commitments during the lives of the contract.

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We lease office facilities under various operating leases that expire
through 2009. A large number of these facilities are satellite sales offices
that typically average 3,000 square feet. Total future minimum lease payments,
under all operating leases, as of June 30, 2003, are approximately $9.0
million. We are in the process of attempting to sublease or otherwise minimize
our lease commitment with respect to one office, and to the extent we are
successful in subleasing or otherwise relieving ourselves of the lease
obligation, these facility lease commitments, net of any subleases, will
decrease. Through June 30, 2003, we have been successful in terminating five
facility leases, thereby relieving ourselves of any future obligation, and we
have been successful in subleasing seven facilities. Additionally, in the
second quarter of 2003 we subleased a remote sales office that was not part of
our restructuring reserve. Future minimum sublease receivables for all
subleased facilities, as of June 30, 2003, approximate $1.9 million that we
expect to receive through August 2005.

Our contractual obligations and commitments to make future payments as of
June 30, 2003 are as follows (in thousands):

|                                              |  |                        |        |      |  |             |        |           |  |              |        |  |  |   |       |  |  |   |       | 
|--------------------------------------------- |  | ---------------------- | ------ | ---- |  | ----------- | ------ | --------- |  | ------------ | ------ |  |  | - | ----- |  |  | - | ----- | 
|                                              |  | Payments Due by Period
|                                              |  |                       
|                                              |  |                        |        |      |  | Less than 1 |        |           |  |              |        |  |  |   |       |  |  |  
|                                              |  | Total                  |        | year |  | 2-3 years   |        | 4-5 years |  | Over 5 years
|                                              |  |                        |        |      |  |             |        |           |  |             
|Long-term debt                                |  | $                      | 3,197  |      |  | $           | 1,312  |           |  | $            | 1,885  |  |  | $ |      |  |  | $ |      | 
|Operating leases                              |  |                        | 9,025  |      |  |             | 2,416  |           |  |              | 3,756  |  |  |   | 1,833 |  |  |   | 1,020 | 
|Purchase obligations                          |  |                        | 20,340 |      |  |             | 13,938 |           |  |              | 6,402  |  |  |   |     |  |  |   |     | 
|                                              |  |                        |        |      |  |             |        |           |  |              |        |  |  |   |       |  |  |   |       | 
|Total contractual obligations and commitments |  | $                      | 32,562 |      |  | $           | 17,666 |           |  | $            | 12,043 |  |  | $ | 1,833 |  |  | $ | 1,020 | 
|                                              |  |                        |        |      |  |             |        |           |  |              |        |  |  |   |       |  |  |   |       | 

We expect that existing cash resources and our credit facility will be
sufficient to fund our anticipated working capital and capital expenditure
needs for at least the next twelve months. We expect our cash flows will
continue to improve and will eventually enable us to consistently maintain both
positive cash flows from operations and free cash flow (defined as cash
provided from operations minus cash basis capital expenditures), and that
existing cash reserves will therefore be sufficient to meet our capital
requirements during this period. We base our expenses and expenditures in part
on our expectations of future revenue levels. If our revenue for a particular
period is lower than expected, we may take steps to reduce our operating
expenses accordingly. If cash generated from operations is insufficient to
satisfy our liquidity requirements, we may seek to sell additional public or
private equity securities or obtain additional debt financing. Additional
financing may not be available at all or, if available, may not be obtainable
on terms favorable to us. If we are unable to obtain additional financing, we
may be required to reduce the scope of our planned technology and product
development and sales and marketing efforts, which could harm our business,
financial condition and operating results. Additional financing may also be
dilutive to our existing stockholders.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America. As
such, we are required to make certain estimates, judgments and assumptions that
we believe are reasonable based upon the information available. These estimates
and assumptions affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the periods presented. Actual results could differ from those
estimates. Significant estimates are used in these financial statements to
determine the allowance for doubtful accounts, the useful lives of depreciable
and intangible assets, the valuation allowance for deferred tax assets, and the
restructuring charges and reserves.

Our critical accounting policies and estimates are included in our Form
10-K, filed on March 26, 2003. Our critical accounting policy and estimate
with respect to our income tax valuation allowance is being updated as follows:

Currently, we have recorded a valuation allowance equal to our deferred
tax asset. We review our deferred tax assets on an ongoing basis for
realizability. While we have generated net income for three consecutive
quarters, we believe there currently is not enough positive evidence to support
a conclusion that it is more likely than not that we will utilize some or all
of our deferred tax assets. When we determine there is enough positive
evidence to support a conclusion that it is more likely than not that we will
realize some or all of our deferred tax asset, we will reduce the valuation
allowance on our deferred tax assets which will increase net income in the
period in which such determination is made. Positive evidence to support a
conclusion that our deferred tax asset is realizable includes, but is not
limited to, generating net income in consecutive
quarters and projections for taxable income sufficient to utilize our
deferred tax assets. Our deferred tax assets at December 31, 2002 was $48.2
million.

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Additional Risk Factors That May Affect Our Operating Results and The Market Price Of Our Common Stock

You should carefully consider the risks described below. The risks and
uncertainties described below are not the only ones we face. If any of the
following risks actually occur, our business, financial condition or results of
operations could be materially and adversely affected. In that case, the
trading price of our common stock could decline, and you may lose all or part
of your investment.

You should not rely on forward-looking statements because they are inherently uncertain.

This document contains certain forward-looking statements that involve
risks and uncertainties. We use words such as anticipate, believe,
expect, future, intend, plan and similar expressions to identify
forward-looking statements. These statements are only predictions. Although we
believe that the expectations reflected in these forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this document. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by us and described on
the following pages and elsewhere in this document. We assume no obligation to
update the forward-looking statements included in this document.

We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. The risk factors listed
below, as well as any cautionary language in this document, provide examples of
risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of the events described in these risk factors and elsewhere in this document
could have a material adverse effect on our business, operating results,
financial condition and stock price.

We have a history of losses and we may not sustain profitability.

Our operating costs have exceeded our revenue in each quarter since our
inception in April 1997, except for the quarters ended December 31, 2002, March
31, 2003 and June 30, 2003. We realized net income of $553,000, $340,000 and
$613,000 in the quarters ended December 31, 2002, March 31, 2003, and June 30,
2003, respectively. We may incur net losses in the near term as we expend
resources in connection with the launch of our next-generation service. In
addition, we may incur net losses in the future if the web conferencing market
does not rapidly grow, if existing or future competitors decrease our market
share, or if price pressure increases significantly we may incur net losses in
the future. If we incur net losses in the future, we may not be able to
maintain or increase our sales and marketing, research and development, or
other operating expenses, and as a result, we may be unable to continue our
current planned operations. Accordingly, we must significantly increase our
revenue to maintain profitability. We have incurred cumulative net losses of
approximately $170.9 million from our inception through June 30, 2003 and we
may have additional net losses in 2003.

We have a limited operating history, which makes it difficult to evaluate our business.

We have a limited operating history and you should not rely on our recent
results as an indication of our future performance. We were incorporated in
April 1997 and first recorded revenue in January 1998. We began commercially
offering our Web and Phone Conferencing service in April 1999, our Web
Conferencing Pro service in June 2000 and our Operator Assisted Conferencing
service in the first quarter of 2003. In January 2001, we restructured our
company to focus solely on our web conferencing services. In connection with
this restructuring, we made significant changes to our services and growth
strategies, our sales and marketing plans, and other operational matters,
including a significant reduction in our employee base. As a result, we have a
limited relevant operating history and it may be difficult to evaluate an
investment in our company, and we cannot be certain that our business model and
future operating performance will yield the results that we intend. In
addition, the rapidly changing nature of the web conferencing market makes it
difficult or impossible for us to predict future results, and you should not
expect our future revenue growth to equal or exceed our recent growth rates.
There are a number of factors described in this section that could cause
fluctuations in our operating results in any particular period. If any of these
risks are not within our control or we are otherwise unable to address these
risks in a cost-effective manner or at all, our operating results will be
harmed.

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We may fail to meet market expectations because of fluctuations in our quarterly operating results, which would cause our stock price to decline.

As a result of our limited operating history, increased competition, the
rapidly changing market for our services, price pressure and the other risks
described in this section, our quarterly operating results have varied
significantly from period to period in the past and are likely to continue to
vary significantly in future periods. For example, our quarterly net income
(loss) ranged between $0.1 million net loss and $0.6 million net income in the
four quarters ended June 30, 2003. Our quarterly revenue ranged between $15.4
million and $16.8 million in the four quarters ended June 30, 2003. Many of the
factors that may cause fluctuations in our quarterly operating results are
beyond our control, such as increased competition and market demand for our
services. Additionally, we expect our results will fluctuate based on seasonal
sales patterns. Our operating results have shown decreases in our usage-based
services around the summer, Thanksgiving, December and New Year holidays. We
expect that our revenue during these seasons will not grow at the same rates as
compared to other periods of the year because of decreased use of our services
by business customers. As a result of these factors and other risks described
in this section, our quarterly operating results are difficult to predict and
may not meet the expectations of securities analysts or investors. If this
occurs, the price of our common stock would decline.

A high percentage of our revenue is attributable to repeat customers, none of
whom are obligated to continue to use our services. The failure of continued
use of our services by existing customers could harm our operating results and
cause our stock price to decline.

A high percentage of our revenue is attributable to repeat customer usage
of our services. Our customers are not obligated to continue to use our
services as we provide our services largely on a usage-based pricing model. For
example, in the quarter ended June 30, 2003, 91% of our revenue was
usage-based. In addition, customers have no obligation to renew subscription
contracts with us. As a result, our inability to retain existing customers and
sustain or increase their usage of our services could result in lower than
expected revenue, and therefore, harm our ability to sustain profitability on a
consistent basis or at all, and cause our stock price to decline. In addition,
because many of our customers have no continuing obligations with us, we may
face increased downward pricing pressure that could cause a decrease in our
gross margins. Our customers depend on the reliability of our services and we
may lose a customer if we fail to provide reliable services for even a single
communication event.

A significant portion of our revenue is attributable to large customers that have no obligation to continue to use our services.

We target our services to large companies, including large
telecommunications carriers, and as a result, we may experience an increase in
customer concentration. For example, our top five customers accounted for 22.4%
of our revenue in the quarter ended June 30, 2003. These large customers have
no obligation to continue to use our services. If any of these large customers
stop using our services or are unable to pay their debts as they become due,
our operating results will be harmed, our revenue will be negatively impacted,
and our ability to sustain profitability on a consistent basis or at all could
be harmed. In particular, we have a significant receivable due from Qwest
Communications International, Inc. at June 30, 2003, which was approximately
$2.0 million or 18.8% of the Companys total accounts receivable balance.

We anticipate that our operating expenses will increase, and if our revenue does not increase, our operating results will be negatively impacted.

We anticipate incurring significant sales and marketing, research and
development and other operating expenses, particularly as we continue
developing our next-generation service and architecture and introduce this new
service into the marketplace. We project expenses in part on our estimates of
future revenue. If our revenue for a particular period is lower than we
expect, we may be unable to reduce our operating expenses for that period or at
all, in which case our operating results would be negatively impacted, and our
ability to sustain profitability on a consistent basis or at all could be
harmed.

If we fail to offer competitive pricing, we may not be able to attract and retain customers.

The prices for our services are subject to rapid and frequent changes. In
many cases, competitors provide their services at significantly reduced rates,
for free or on a trial basis in order to win customers. In addition,
telecommunications providers enjoy lower telephony costs as a result of their
ownership of the underlying telecommunications network. As a result, these
carriers can offer services similar to ours at substantially reduced prices.
Due to competitive factors and the rapidly changing

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marketplace, we have reduced our pricing in certain circumstances and may
be required to further reduce our pricing structure in the future, which would
negatively affect our revenue, margins and our ability to sustain profitability
on a consistent basis or at all.

The growth of our business substantially depends on our ability to successfully develop and introduce new services and features in a timely manner.

Our growth depends on our ability to develop leading-edge web conferencing
services and features. For example, in 2003, we intend to commercially release
our next-generation web conferencing service and technology. We may not
successfully identify, develop and market this next-generation service and
features in a timely and cost-effective manner. If the services and features we
develop fail to achieve widespread market acceptance or fail to generate
significant revenue to offset development costs, we may not be able to sustain
profitability on a consistent basis or at all. In addition, our ability to
introduce new services and features may depend on us acquiring technologies or
forming relationships with third parties and we may be unable to identify
suitable candidates or come to terms acceptable to us for any such acquisition
or relationship. We also may not be able to successfully alter the design of
our systems to quickly integrate new technologies.

In addition, we have experienced development delays and cost overruns in
our development efforts in the past and we may encounter these problems in the
future. Delays and cost overruns could affect our ability to respond to
technological changes, evolving industry standards, competitive developments or
customer requirements.

Competition in the web conferencing services market is intense and we may be
unable to compete successfully, particularly as a result of recent
announcements from large software companies.

The market for web conferencing services is relatively new, rapidly
evolving and intensely competitive. Competition in our market will continue to
intensify and may force us to reduce our prices, or cause us to experience
reduced sales and margins, loss of market share and reduced acceptance of our
services. Recently, Microsoft acquired Placeware, a competitor of ours. As a
result of this acquisition, Microsoft may expend significantly greater
resources developing and enhancing web conferencing services and/or software
that directly competes with our offerings, and because Microsoft may leverage
widespread use of their operating system by business customers to capture
market share in the web conferencing market, our market share may significantly
decline. In addition, some large software companies, such as Oracle, are also
providing web conferencing products in addition to their software offerings.
Oracle may expend significantly greater resources developing, enhancing and
marketing its web conferencing product, and as a result, our market share may
significantly decline.

Many of our current and potential competitors have larger and more
established customer bases, longer operating histories, greater name
recognition, broader service offerings, more employees and significantly
greater financial, technical, marketing, public relations and distribution
resources than we do. As a result, these competitors may be able to spread
costs across diversified lines of business, and therefore, adopt aggressive
strategies, such as reduced pricing structures and large-scale marketing
campaigns, that reduce our ability to compete effectively. Telecommunication
providers, for example, enjoy lower telephony costs as a result of their
ownership of the underlying telecommunication network. We expect that many more
companies will enter this market and invest significant resources to develop
web conferencing services. These current and future competitors may also offer
or develop products or services that perform better than ours.

In addition, acquisitions or strategic partnerships involving our current
and potential competitors could harm us in a number of ways. For example:



| |  |  | competitors could acquire or partner with companies with which we have
distribution relationships and discontinue our partnership, resulting
in the loss of distribution opportunities for our services;                                                                  
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a competitor could be acquired by or enter into a strategic
relationship with a party that has greater resources and experience
than we do, such as the Microsoft/Placeware acquisition, thereby
increasing the ability of the competitor to compete with our services;
or
|
| |  |  | a competitor could acquire or partner with one of our key suppliers.                                                                                                                                                                                                      

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Our sales cycle makes it difficult to predict our quarterly operating results.

Our sales cycle varies from several weeks to several months depending on
the type and size of customer approached. Oftentimes, potential customers
require approvals from multiple decision makers within their organizations. In
addition, since most of our services are provided on a usage-based pricing
model, it generally takes several weeks or months before our services are
ramped for use within an organization. These variables make it difficult for
us to predict if and when our services will be adopted and used by our
customers. As a result, our quarterly operating results are difficult to
predict.

Our business and operating results may suffer if we fail to establish
distribution relationships or if our distribution partners do not successfully
market and sell our services.

For the quarter ended June 30, 2003, 17% of our revenue was attributable
to our indirect customers. These customers may not be obligated to distribute
our services through their sales channels. In addition, these customers may
not be obligated to continue to use our services or renew any subscription
agreements with us. As a result, we cannot anticipate the amount of revenue we
will derive from these relationships in the future. Our inability to retain
these customers and sustain or increase their distribution of our services
could result in significant reductions in our revenue, and therefore, harm our
ability to sustain profitability on a consistent basis or at all.

If we fail to establish new distribution relationships in a timely manner
or if our distribution partners do not successfully distribute our services,
our ability to achieve widespread adoption for our services will suffer and our
business and operating results will be harmed. Establishing these distribution
relationships can take several months or more. Additionally, it typically
takes several months or longer before our distribution arrangements generate
revenue. Our distribution partners are not prohibited from offering and
reselling the products and services of our competitors and may choose to devote
greater resources to marketing and supporting the products and services of our
competitors.

We depend on single source suppliers for key components of our infrastructure
and a limited number of sources for telephony services, the loss of which could
cause significant delays and increased costs in providing services to our
existing and prospective customers.

We purchase substantially all of our key components of our telephony
hardware infrastructure from a single supplier. Any extended reduction,
interruption or discontinuation in the supply of these components would cause
significant delays and increased costs in providing services to our existing
and prospective customers. These components form the basis of our audio
conferencing infrastructure, upon which the majority of our services rely. In
order to continue to expand our infrastructure capacity, we must purchase
additional components from this supplier. Because we do not have any guaranteed
supply arrangements with this supplier, it may unilaterally increase its prices
for these components, and as a result, we could face higher than expected
operating costs and impaired operating results. In addition, this supplier
could cease supplying us with these components. If we were required to find
alternative sources for these components, we may experience difficulty in
integrating them into our infrastructure and we could be required to expend
significant money and resources, which may harm our operating results. We also
have a limited number of sources for our telephony services, which constitute
the transport for our audio conferencing infrastructure, upon which the
majority of our services rely. One of these suppliers on which we are
substantially dependent for telephony services is WorldCom, which currently
conducts business under the MCI brand name and which filed for Chapter 11
bankruptcy protection in July 2002. If this supplier was to terminate or
interrupt its services, we may experience difficulties in obtaining alternative
sources on commercially reasonable terms or in integrating alternative sources
into our technology platform. In addition, if we were required to obtain these
services from alternative sources, our cost of sales may substantially
increase. We also rely on a single supplier for the majority of our storage
hardware, which store critical operations data and maintain the reliability of
our services. If we are required to find alternative sources for such
equipment, we may experience difficulty in integrating them into our
infrastructure and we could be required to expend significant money and
resources.

Our business will suffer if our systems fail or become unavailable.

A reduction in the performance, reliability or availability of our systems
will harm our ability to provide our services to our users, as well as harm our
reputation. Some of our customers have experienced interruptions in our
services in the past due to service or network outages, periodic system
upgrades and internal system failures. Similar interruptions may occur from
time to

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time in the future. Because our revenue depends largely on the number of
users and the amount of minutes consumed by users, our business will suffer if
we experience frequent or extended system interruptions.

We maintain our primary data facility and hosting servers at our
headquarters in Louisville, Colorado, and a secondary data facility in Denver,
Colorado. Our operations depend on our ability to protect these facilities and
our systems against damage or interruption from fire, power loss, water,
telecommunications failure, vandalism, sabotage and similar unexpected events.
In addition, a sudden and significant increase in traffic on our systems or
infrastructure could strain the capacity of the software, hardware and systems
that we use. This could lead to slower response times or system failures. The
occurrence of any of the foregoing risks could cause service interruptions and,
as a result, materially harm our reputation, negatively affect our revenue, and
our ability to sustain profitability on a consistent basis or at all.

Our services are often used to share confidential and sensitive information
and, as a result, if our security system is breached, our business and
reputation could suffer.

We must securely receive and transmit confidential information for our
customers over public networks and maintain that information on internal
systems. Our failure to prevent security breaches could damage our reputation,
and expose us to risk of loss or liability. If we fail to provide adequate
security measures to protect the confidential information of our customers, our
customers may refrain from using our services or potential customers may not
choose to use our services, and as a result, our operating results would be
harmed. Our servers are vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions, which could lead to interruptions, delays or
loss of data. We may be required to expend significant capital and other
resources to protect against security breaches or to alleviate problems caused
by any breach. In addition, our internal systems are accessible to a number of
our employees. Although each of these employees is subject to a confidentiality
agreement, we may be unable to prevent the misappropriation of this
information.

If we do not increase the capacity of our infrastructure in excess of customer
demand, customers may experience service problems and choose not to use our
services.

The amount of conferencing events we host has increased significantly. We
must continually increase our capacity consistent with our growth in usage. We
generally maintain between 50% and 60% capacity based on average usage. To
accommodate increased customer usage and rapidly expand our operations requires
a significant increase in the capacity of our infrastructure. To increase
capacity, we may need to order equipment with substantial development and
manufacturing lead times, which can sometimes be several months or longer. If
we fail to increase our capacity in a timely and efficient manner, customers
may experience service problems, such as busy signals, improperly routed
conferences, and interruptions in service. Service problems such as these would
harm our reputation, cause us to lose customers and decrease our revenue, and
therefore our ability to sustain profitability on a consistent basis or at all.
Conversely, if we overestimate our capacity needs, we will pay for more
capacity than we actually use, resulting in increased costs without a
corresponding increase in revenue, which would harm our operating results.

Our failure to manage growth could cause substantial increases in our operating
costs and harm our ability to sustain profitability on a consistent basis or at
all and, therefore, decrease the value of our stock.

Despite our restructuring in January 2001, which resulted in, among other
things, a significant reduction in the size of our workforce, we have rapidly
expanded since inception, and will continue to expand our operations and
infrastructure. This expansion has placed, and will continue to place, a
significant strain on our managerial, operational and financial resources and
we may not effectively manage this growth. Rapidly expanding our business would
require us to invest significant amounts of capital in our operations and
resources, which would substantially increase our operating costs. As a result,
our failure to manage our growth effectively could cause substantial increases
in our operating costs without corresponding increases in our revenue, thereby
harming our ability to sustain profitability on a consistent basis or at all.
Also, our management may have to divert a disproportionate amount of its
attention away from our day-to-day activities and devote a substantial amount
of time to managing growth. In order to rapidly expand our business we may need
to raise additional funds. Any future financing we require may not be available
on a timely basis, in sufficient amounts or on terms acceptable to us. If we
cannot obtain adequate funds, we may not be able to compete effectively.

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Our joint venture with @viso Limited was not successful and any future plans
for international expansion may not be successful, which could harm our ability
to attract multi-national customers and adversely affect our operating results.

We have attempted to expand into international markets and spent
significant financial and managerial resources to do so. In particular, we
formed a joint venture with @viso Limited, a European-based venture capital
firm, to expand our operations to continental Europe and the United Kingdom.
Currently, this joint venture is in the process of being liquidated and will be
dissolved. This decision may harm our strategy to expand internationally and
attract multi-national customers. Further, we will not realize the value from
the costs associated with starting up this venture. In addition, we have
expended, and may continue to expend, significant costs, resources and time to
execute this dissolution and liquidation. As a result, our operating results
may be harmed and we may not sustain profitability on a consistent basis or at
all, thereby causing our stock price to decline.

If we expand internationally, either alone or with a partner, we would be
required to spend additional financial and managerial resources that may be
significant. We have limited experience in international operations and may not
be able to compete effectively in international markets. We face certain risks
inherent in conducting business internationally, such as:



| |  |  | difficulties in establishing and maintaining distribution channels and partners for our services;
| | - |  | -------------------------------------------------------------------------------------------------
|
| |  |  | varying technology standards from country to country;                                            
|
| |  |  | uncertain protection of intellectual property rights;                                            
|
| |  |  | inconsistent regulations and unexpected changes in regulatory requirements;                      
|
| |  |  | difficulties and costs of staffing and managing international operations;                        
|
| |  |  | linguistic and cultural differences;                                                             
|
| |  |  | fluctuations in currency exchange rates;                                                         
|
| |  |  | difficulties in collecting accounts receivable and longer collection periods;                    
|
| |  |  | imposition of currency exchange controls; and                                                    
|
| |  |  | potentially adverse tax consequences.                                                            

In addition, our expansion into international markets may require us to
develop specific technology that will allow our current systems to work with
international telephony systems. We may not develop this technology in a timely
manner, in a way to prevent service disruptions or at all.

We are not experienced in managing facilities, people and operations in
geographically diverse areas, which we now are required to do as a result of
the acquisition of InterAct Conferencing, LLC.

As a result of our acquisition of substantially all of the assets of
InterAct, we have operations in multiple facilities in geographically diverse
areas. In particular, we have transitioned the management of the sales force
to the former chief executive officer of InterAct, located in our Georgia
facility. We are not experienced in managing facilities, people and operations
in geographically diverse areas, and as a result, this may negatively impact
our operating results.

We may acquire other businesses, form joint ventures and make investments in
other companies that could negatively affect our operations and financial
results and dilute existing stockholders.

The pursuit of additional business relationships through acquisitions,
joint ventures, or other investment prospects may not be successful, and we may
not realize the benefits of any acquisition, joint venture, or other
investment.

We have limited experience in acquisition activities and may have to
devote substantial time and resources in order to complete acquisitions. There
may also be risks of entering markets in which we have no or limited prior
experience. Further, these

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potential acquisitions, joint ventures and investments entail risks,
uncertainties and potential disruptions to our business. For example, we may
not be able to successfully integrate a companys operations, technologies,
products and services, information systems and personnel into our business. An
acquisition may further strain our existing financial and managerial controls,
and divert managements attention away from our other business concerns. There
may also be unanticipated costs associated with an acquisition that may harm
our operating results and key personnel may decide not to work for us. These
risks could harm our operating results and cause our stock price to decline.

In addition, if we were to make any acquisitions, we could, for example:



| |  |  | issue equity securities that would dilute our stockholders;
| | - |  | -----------------------------------------------------------
|
| |  |  | expend cash;                                               
|
| |  |  | incur debt;                                                
|
| |  |  | assume unknown or contingent liabilities; and              
|
| |  |  | experience negative effects on our results of operations.  

Our Web and Phone Conferencing service may become subject to traditional
telecommunications carrier regulation by federal and state authorities, which
would increase the cost of providing our services and may subject us to
penalties.

We believe our Web and Phone Conferencing service is not subject to
regulation by the Federal Communications Commission (FCC) or any state public
service commission because the services integrate traditional voice
teleconferencing and added value Internet services. The FCC and state public
service commissions, however, may require us to submit to traditional
telecommunications carrier regulations for our Web and Phone Conferencing
service under the Communications Act of 1934, as amended, and various state
laws or regulations as a provider of telecommunications services. If the FCC or
any state public service commission seeks to enforce any of these laws or
regulations against us, we could be prohibited from providing the voice aspect
of our Web and Phone Conferencing service until we have obtained various
federal and state licenses and filed tariffs. We believe we would be able to
obtain those licenses, although in some states, doing so could significantly
delay our ability to provide services. We also would be required to comply with
other aspects of federal and state laws and regulations. Subjecting our Web and
Phone Conferencing service to these laws and regulations would increase our
operating costs, could require restructuring of those services to charge
separately for the voice and Internet components, and would involve on-going
reporting and other compliance obligations. We also might be subject to fines
or forfeitures and civil or criminal penalties for non-compliance.

Our competitors may be able to create systems with similar functionality to
ours and third-parties may obtain unauthorized use of our intellectual
property.

The success of our business is substantially dependent on the proprietary
systems that we have developed. To protect our intellectual property rights, we
currently rely on a combination of trademarks, service marks, trade secrets,
copyrights, and confidentiality agreements with our employees and third
parties, and protective contractual provisions. We also own three patents
relating to features of our Web Conferencing Pro service. These measures may
not be adequate to safeguard the technology underlying our web conferencing
services and other intellectual property. Unauthorized third parties may copy
or infringe upon aspects of our technology, services or other intellectual
property. Other than the patents that we own, our proprietary systems are not
currently protected by any patents and we may not be successful in our efforts
to secure patents for our proprietary systems. Regardless of our efforts to
protect our intellectual property, our competitors and others may be able to
develop similar systems and services without infringing on any of our
intellectual property rights. In addition, employees, consultants and others
who participate in the development of our proprietary systems and services may
breach their agreements with us regarding our intellectual property and we may
not have any adequate remedies. Furthermore, the validity, enforceability and
scope of protection for intellectual property such as ours in Internet-related
industries are uncertain and still evolving. We also may not be able to
effectively protect our intellectual property rights in certain countries. In
addition, our trade secrets may become known through other means not currently
foreseen by us. If we resort to legal proceedings to enforce our intellectual
property rights, the

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proceedings could be burdensome and expensive, and as a result, harm our
ability to sustain profitability on a consistent basis or at all. Additionally,
in any litigation the outcome is uncertain.

We may be subject to claims alleging intellectual property infringement.

We may be subject to claims alleging that we have infringed upon third
party intellectual property rights. Claims of this nature could require us to
spend significant amounts of time and money to defend ourselves, regardless of
their merit. If any of these claims were to prevail, we could be forced to pay
damages, comply with injunctions, divert management attention and resources, or
halt or delay distribution of our services while we reengineer them or seek
licenses to necessary intellectual property, which might not be available on
commercially reasonable terms or at all. As the number of competitors in our
market grows, there is an increased risk that the proprietary systems and
software upon which our services rely may be increasingly subject to
third-party infringement claims.

If any of the third party services that we use become unavailable to us, our
services would be subject to significant delays and increased costs.

We rely on third party services, such as Internet access, transport and
long distance providers. These companies may not continue to provide services
to us without disruptions, at the current cost, or at all. The costs associated
with a transition to a new service provider would be substantial. We may be
required to reengineer our systems and infrastructure to accommodate a new
service provider, which would be both expensive and time-consuming. In
addition, in the past, we have experienced disruptions and delays in our
services due to service disruptions from these providers. Any interruption in
the delivery of our services would likely cause a loss of revenue and a loss of
customers.

Our business may be harmed if our services do not work with the various
hardware and software systems, including corporate security measures, used by
our customers.

We currently provide services to customers with various hardware and
software systems, ranging from legacy to next-generation applications and
networking equipment. If our services are unable to support these diverse
platforms, and if we fail to modify our services to support new versions of
these applications and equipment, our services may fail to gain broad market
acceptance, which would cause our operating results to suffer. Furthermore,
because of bandwidth constraints on corporate intranets and concerns about
security, our customers and potential customers may block reception of web
services like ours within their corporate environments. In order for customers
to use our services, customers and users may need to reconfigure their
corporate intranets, security measures and firewalls. Widespread adoption of
our technology and services depends on overcoming these obstacles.

Our web conferencing services will not generate significant revenue if
businesses do not switch from traditional teleconferencing and communication
services to web conferencing.

If businesses do not switch from traditional teleconferencing and
communication services, our services will not generate significant revenue.
Businesses that have already invested substantial resources in traditional or
other methods of communication may be reluctant to adopt new web conferencing
services. If sufficient demand for our services does not develop, we will have
difficulty selling our services and generating significant increases in
revenue. As a result, we would not sustain profitability on a consistent basis
or at all and the price of our common stock would decline. Growth in revenue
from our services will depend in part on an increase in the number of customers
using the web-based features in addition to our traditional conferencing
features.

Our current stock compensation expense negatively impacts our earnings, and if
we are required to report employee stock options as an expense in conjunction
with new accounting standards, our earnings will be adversely affected, which
may cause our stock price to decline.

Under our current accounting practice, stock compensation expense is
recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price. As of June 30, 2003 we had
approximately $3.7 million in deferred equity-based compensation expense. We
expect this expense to be amortized over six years and to negatively impact our
earnings during that time. $2.0 million of this expense will expire over the
next year as options granted

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prior to our initial public offering and certain restricted stock grants
vest. In addition, options granted to consultants will fluctuate with our
stock price, and as a result, the amount of future stock compensation expense
related to any unvested portion of such options is difficult to predict.
Regulatory authorities are currently reviewing various proposals that would
change the way stock options are reported. If we are required to report all
employee stock options as an expense based on a change in accounting standards,
our earnings will be negatively impacted, which may cause our stock price to
decline and our ability to sustain profitability on a consistent basis or at
all could be harmed.

We disclose non-GAAP financial information.

We prepare and release quarterly unaudited and annual audited financial
statements prepared in accordance with Generally Accepted Accounting Principles
(GAAP). We also disclose and discuss certain non-GAAP financial information
in the related earnings release and investor conference call. This non-GAAP
financial information excludes certain non-cash expenses, consisting primarily
of depreciation, the amortization of intangible assets and stock-based
compensation. We believe the disclosure of non-GAAP financial information helps
investors more meaningfully evaluate the results of our operations. However,
we urge investors to carefully review the GAAP financial information included
as part of our Quarterly Reports on Form 10-Q, our Annual Reports on Form 10-K,
and our quarterly earnings releases and compare the GAAP financial information
with the non-GAAP financial results disclosed in our quarterly earnings
releases and investor calls.

We are subject to risks associated with governmental regulation and legal
uncertainties.

It is likely that a number of laws and regulations may be adopted in the
United States and other countries with respect to the Internet that might
affect us. These laws may relate to areas such as:



| |  |  | changes in telecommunications regulations;                                                
| | - |  | ------------------------------------------------------------------------------------------
|
| |  |  | copyright and other intellectual property rights;                                         
|
| |  |  | encryption;                                                                               
|
| |  |  | personal privacy concerns, including the use of cookies and individual user information;
|
| |  |  | e-commerce liability; and                                                                 
|
| |  |  | email, network and information security.                                                  

Changes in telecommunications regulations could substantially increase the
costs of communicating on the Internet. This, in turn, could slow the growth in
Internet use and thereby decrease the demand for our services. Several
telecommunications carriers are advocating that the Federal Communications
Commission regulate the Internet in the same manner as other telecommunications
services by imposing access fees on Internet service providers. Recent events
suggest that the FCC may begin regulating the Internet in such a way. In
addition, we operate our services throughout the United States and state
regulatory authorities may seek to regulate aspects of our services as
telecommunication activities.

Other countries and political organizations are likely to impose or favor
more and different regulations than those that have been proposed in the United
States, thus furthering the complexity of regulation. The adoption of such laws
or regulations, and uncertainties associated with their validity and
enforcement, may affect the available distribution channels for and costs
associated with our services, and may affect the growth of the Internet. Such
laws or regulations may therefore harm our business.

We may be subject to assessment of sales and other taxes for the sale of our
services, license of technology or provision of services, for which we have not
accounted.

We may have to pay past sales or other taxes that we have not collected
from our customers. We do not currently collect sales or other taxes on the
sale of our services. Our business would be harmed if one or more states or any
foreign country were to require us to collect sales or other taxes from current
or past sales of services, particularly because we would be unable to go back
to customers to collect sales taxes for past sales and may have to pay such
taxes out of our own funds.

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Our stock price is volatile and this volatility may depress our stock price,
result in litigation or indicate that our goodwill is impaired, resulting in
further declines to our stock price.

The stock market in general, and the stock price of our company in
particular, have experienced extreme price and volume fluctuations. For
example, between January 1, 2002 and June 30, 2003 our stock has traded as high
as $6.30 and as low as $1.20 on the Nasdaq National Market. The volatility of
our stock price can be due to factors such as, fluctuating operating results,
significant purchases and sales of our stock, announcements by us or our
competitors, changes in security analysts estimates of our performance, or our
failure to meet analysts expectations. Many of these factors are beyond our
control. In addition, broad market and industry factors may negatively impact
our stock price, regardless of our operating performance. Many companies that
have experienced volatility in their stock prices have been targets for
securities class action litigation. If we were subject to any such litigation,
we could be required to expend substantial costs and resources, which could
harm our business. Additionally, one of the factors that we consider in
determining a potential impairment of our goodwill is our stock market
capitalization. If our stock price declines and remains depressed for an
extended period of time, our reported goodwill could be materially adversely
impaired which would require us to write down our goodwill, and this charge may
cause our stock price to decline further.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

At June 30, 2003, we had long-term debt, including current portion, in the
aggregate amount of $3.2 million. The balance due of approximately $2.5
million as of June 30, 2003 under our loan and security agreement is being
repaid at a fixed interest rate of 5.25% with monthly payments due through
January 2006. The balance due of approximately $0.7 million as of June 30, 2003
under our loan agreement with a vendor will be repaid at a fixed interest rate
of 2.5% with quarterly payments due through April 2005. A change in interest
rates would not affect our obligations related to long-term debt existing as of
June 30, 2003, as the interest rates related to such debt are fixed over the
terms. At June 30, 2003, we had a $12.5 million revolving line of credit with a
loan value of $9.2 million. Advances under the revolving line of credit will
reflect interest at the banks prime rate and therefore any advances under this
revolving line of credit would subject us to interest rate fluctuations.
Increases in interest rates could, however, increase the interest expense
associated with future borrowings including any advances on our revolving line
of credit. At June 30, 2003, we did not have an outstanding balance under the
revolving line of credit. We are exposed to foreign currency risks through a
receivable from our European joint venture which is payable in Euros. We do not
employ any risk mitigation techniques with respect to this advance. Our
European joint venture is in the process of dissolution and liquidation and our
foreign currency risk with respect to the loan will be eliminated when these
processes are completed. Although we do not have any investments at June 30,
2003, we may purchase investments that may decline in value as a result of
changes in equity markets and interest rates.




Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the reports that we file under the
Securities Exchange Act of 1934, as amended (Exchange Act), is recorded,
processed, summarized and reported within the time periods specified in the
SECs rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure about our disclosure controls and procedures, as defined in Rule
13a-15(e) under the Exchange Act.

Paul A. Berberian, our Chief Executive Officer and President, and Nicholas
J. Cuccaro, our Chief Financial Officer, evaluated the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the period covered by this Form 10-Q. Based on their evaluation, they concluded
that our disclosure controls and procedures are effective.

Furthermore, there have been no changes in our internal controls over
financial reporting during the fiscal quarter covered by this Form 10-Q that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

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PART II. OTHER INFORMATION




Item 1. Legal
Proceedings

From time to time, we have been subject to legal proceedings and claims in
the ordinary course of business. Although we are not currently involved in any
material legal proceedings, we may in the future be subject to legal disputes.
Any claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources. We are not aware of any legal
proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse effect on our business.




Item 2. Changes in
Securities and Use of Proceeds

None.




Item 3. Defaults Upon
Senior Securities

None.




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

An Annual Meeting of Stockholders of the Company was held on June 5, 2003.
The stockholders elected two Class III directors to serve for three-year
terms. The stockholders present in person or by proxy cast the following
number of votes in connection with the election of directors, resulting in the
election of all nominees:

|                        |  |           |                |  |  |  |         | 
|----------------------- |  | --------- | -------------- |  |  |  | ------- | 
|                        |  | Votes For | Votes Withheld
|                        |  |           |               
|Donald F. Detampel, Jr. |  |           | 48,249,737     |  |  |  | 615,267 | 
|Daniel E. Somers        |  |           | 47,904,682     |  |  |  | 960,322 | 

The stockholders ratified the appointment of KPMG LLP as the Companys
independent auditors for the fiscal year ended 2003 by the following vote:

|           |  |         |         |         |  |                  |        |  |  |  |   | 
|---------- |  | ------- | ------- | ------- |  | ---------------- | ------ |  |  |  | - | 
|For        |  | Against |         | Abstain |  | Broker Non-Votes
|           |  |         |         |         |  |                 
|48,417,895 |  |         | 422,012 |         |  |                  | 25,097 |  |  |  | 0 | 




Item 5. Other Information

None.




Item 6. Exhibits and
Reports on Form 8-K

(A.) Exhibits

|            |  |             |      |  |  |                                                                          |  |  |  | 
|----------- |  | ----------- | ---- |  |  | ------------------------------------------------------------------------ |  |  |  | 
|Exhibit No. |  | Description |      |  |  |                                                                         
|            |  |             |      |  |  |                                                                         
|            |  |             | 31.1 |  |  | Certification of principal executive officer required by Rule 13a-14(a).
|            |  |             |      |  |  |                                                                         
|            |  |             | 31.2 |  |  | Certification of principal financial officer required by Rule 13a-14(a).
|            |  |             |      |  |  |                                                                         
|            |  |             | 32.1 |  |  | Section 1350 Certifications.                                            

(B.) Reports on Form 8-K



| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | On April 23, 2003, we filed a Form 8-K furnishing under Item 12 our
press release announcing our earnings for the quarter ended March 31,
2003.
|
| | On July 23, 2003, we filed a Form 8-K furnishing under Item 12 our
press release announcing our earnings for the quarter ended June 30, 2003.  

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SIGNATURES

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

|                      |                                |                                                                                                         
|--------------------- | ------------------------------ | --------------------------------------------------------------------------------------------------------
|                      | RAINDANCE COMMUNICATIONS, INC.
|                     
|Date: August 14, 2003 | By:                            | /s/ Nicholas J. CuccaroChief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)

35.



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##### Table of Contents



EXHIBIT INDEX

| |  |             |      |             |  |                                                                          |  |  |  | 
| |  | ----------- | ---- | ----------- |  | ------------------------------------------------------------------------ |  |  |  | 
| |  | Exhibit No. |      | Description |  |                                                                          |  | 
| |  |             |      |             |  |                                                                          |  | 
| |  |             | 31.1 |             |  | Certification of principal executive officer required by Rule 13a-14(a).
| |  |             |      |             |  |                                                                         
| |  |             | 31.2 |             |  | Certification of principal financial officer required by Rule 13a-14(a).
| |  |             |      |             |  |                                                                         
| |  |             | 32.1 |             |  | Section 1350 Certifications.                                            

36.