##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to  .
 Commission File Number: 000-31045
 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)
 þ o
  þ o
  Common Stock, $0.0015 Par Value
    
    
    
    55,974,036 as of July 29, 2005.




---



RAINDANCE COMMUNICATIONS, INC.
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1.Financial Statements
    
    
    3Condensed Balance Sheets as of June 30, 2005 and December 31, 2004 (unaudited)
    
    
    3Condensed Statements of Operations for the three and six months ended June 30, 2005 and 2004 (unaudited)
    
    
    4Condensed Statements of Cash Flows for the six months ended June 30, 2005 and 2004 (unaudited)
    
    
    5Notes to the Condensed Financial Statements (unaudited)
    
    
    6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Risk Factors that May Affect Our Operating Results and The Market Price of Our Common Stock
    
    
    29Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    42Item 4.Controls and Procedures
    
    
    42PART II.OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    43Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 3.Defaults Upon Senior Securities
    
    
    43Item 4.Submission of Matters to a Vote of Security Holders
    
    
    43Item 5.Other Information
    
    
    44Item 6.Exhibits
    
    
    44SIGNATURES AND CERTIFICATIONS
    
    
    45Certification by the CEO Pursuant to Section 302Certification by the CFO Pursuant to Section 302Certification by the CEO and CFO Pursuant to Section 906
  2.




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 RAINDANCE COMMUNICATIONS, INC.
 
 CONDENSED BALANCE SHEETS
 (In thousands, except share and per share data)
 (Unaudited)
 June 30, 2005
    
    December 31, 2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    9,504
    
    
    $
    10,458Short-term investments
    
    
    38,665
    
    
    
    32,935Accounts receivable, net of allowance for doubtful accounts of $490 and $310 at June
30, 2005 and December 31, 2004, respectively
    
    
    10,223
    
    
    
    9,922Prepaid expenses and other current assets
    
    
    1,410
    
    
    
    1,593Due from employees
    
    
    5
    
    
    
    12Total current assets
    
    
    59,807
    
    
    
    54,920Property and equipment, net
    
    
    14,840
    
    
    
    17,807Goodwill
    
    
    45,587
    
    
    
    45,587Other assets
    
    
    358
    
    
    
    411Total Assets
    
    $
    120,592
    
    
    $
    118,725Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    6,663
    
    
    $
    7,447Accrued expenses
    
    
    390
    
    
    
    510Accrued compensation
    
    
    2,011
    
    
    
    1,506Accrued property tax
    
    
    142
    
    
    
    258Accrued severance obligation
    
    
    
    
    
    
    345Restructuring reserve
    
    
    40
    
    
    
    188Current portion of deferred revenue
    
    
    269
    
    
    
    420Total current liabilities
    
    
    9,515
    
    
    
    10,674Deferred revenue, less current portion
    
    
    30
    
    
    
    45Total Liabilities
    
    
    9,545
    
    
    
    10,719Stockholders Equity:Common stock, par value $.0015; 130,000,000 shares authorized; 55,962,730 and 54,936,434
shares issued and outstanding at June 30, 2005 and December 31, 2004, respectively
    
    
    84
    
    
    
    82Additional paid-in capital
    
    
    282,253
    
    
    
    280,561Deferred stock-based compensation
    
    
    (1,383
    )
    
    
    (960
    )Accumulated deficit
    
    
    (169,907
    )
    
    
    (171,677
    )Total Stockholders Equity
    
    
    111,047
    
    
    
    108,006Commitments and contingencies (Note 5)Total Liabilities and Stockholders Equity
    
    $
    120,592
    
    
    $
    118,725
  3.




---



##### Table of Contents



RAINDANCE COMMUNICATIONS, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Revenue
    
    $
    18,693
    
    
    $
    19,328
    
    
    $
    37,758
    
    
    $
    38,911Cost of revenue:(exclusive of stock-based compensation expense of
$, $1, $ and $2, respectively, shown below)
    
    
    7,947
    
    
    
    9,045
    
    
    
    15,719
    
    
    
    17,601Gross profit
    
    
    10,746
    
    
    
    10,283
    
    
    
    22,039
    
    
    
    21,310Operating expenses:Sales and marketing (exclusive of stock-based compensation expense of
$18, $7, $36 and $19, respectively, shown below)
    
    
    5,086
    
    
    
    6,290
    
    
    
    10,438
    
    
    
    12,790Research and development (exclusive of stock-based compensation expense
of $56, $19, $112 and $69, respectively, shown below)
    
    
    2,736
    
    
    
    2,427
    
    
    
    5,599
    
    
    
    5,153General and administrative (exclusive of stock-based compensation expense
of $118, $1,298, $296 and $1,848, respectively, shown below)
    
    
    2034
    
    
    
    2,128
    
    
    
    4,299
    
    
    
    4,037Stock-based compensation expense
    
    
    192
    
    
    
    1,325
    
    
    
    444
    
    
    
    1,938Total operating expenses
    
    
    10,048
    
    
    
    12,170
    
    
    
    20,780
    
    
    
    23,918Income (loss) from operations
    
    
    698
    
    
    
    (1,887
    )
    
    
    1,259
    
    
    
    (2,608
    )Other income (expense), net
    
    
    312
    
    
    
    13
    
    
    
    511
    
    
    
    29Net income (loss)
    
    $
    1,010
    
    
    $
    (1,874
    )
    
    $
    1,770
    
    
    $
    (2,579
    )Net income (loss) per share:Basic
    
    $
    0.02
    
    
    $
    (0.03
    )
    
    $
    0.03
    
    
    $
    (0.05
    )Diluted
    
    $
    0.02
    
    
    $
    (0.03
    )
    
    $
    0.03
    
    
    $
    (0.05
    )Weighted average number of common shares outstanding:Basic
    
    
    54,959
    
    
    
    53,859
    
    
    
    54,771
    
    
    
    53,706Diluted
    
    
    57,065
    
    
    
    53,859
    
    
    
    56,942
    
    
    
    53,706
  4.




---



##### Table of Contents



RAINDANCE COMMUNICATIONS, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
 (IN THOUSANDS)
 (Unaudited)
 Six months endedJune 30,2005
    
    2004Cash flows from operating activities:Net income (loss)
    
    $
    1,770
    
    
    $
    (2,579
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization
    
    
    4,622
    
    
    
    5,591Stock-based compensation
    
    
    444
    
    
    
    1,938Other
    
    
    36
    
    
    
    40Changes in operating assets and liabilities:Accounts receivable
    
    
    (301
    )
    
    
    (2,018
    )Prepaid expenses and other current assets
    
    
    (135
    )
    
    
    (129
    )Other assets
    
    
    (75
    )
    
    
    97Accounts payable and accrued expenses
    
    
    (1,049
    )
    
    
    (461
    )Deferred revenue
    
    
    (166
    )
    
    
    185Net cash provided by operating activities
    
    
    5,146
    
    
    
    2,664Cash flows from investing activities:Purchase of property and equipment
    
    
    (1,229
    )
    
    
    (1,488
    )Proceeds from disposition of equipment
    
    
    33
    
    
    
    14Purchase of investments
    
    
    (36,353
    )
    
    
    (6,220
    )Proceeds from maturities of investments
    
    
    30,623
    
    
    
    Change in restricted cash
    
    
    
    
    
    
    23Net cash used in investing activities
    
    
    (6,926
    )
    
    
    (7,671
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    826
    
    
    
    797Payments on debt
    
    
    
    
    
    
    (2,195
    )Net cash provided (used) by financing activities
    
    
    826
    
    
    
    (1,398
    )Decrease in cash and cash equivalents
    
    
    (954
    )
    
    
    (6,405
    )Cash and cash equivalents at beginning of period
    
    
    10,458
    
    
    
    39,607Cash and cash equivalents at end of period
    
    $
    9,504
    
    
    $
    33,202Supplemental cash flow information  interest paid in cash
    
    $
    1
    
    
    $
    58Supplemental disclosure of non-cash investing and financing activities:Accounts payable incurred for purchases of property and equipment
    
    $
    102
    
    
    $
    379
  5.




---



##### Table of Contents



RAINDANCE COMMUNICATIONS, INC.
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 (a) Basis of Presentation
    (b) Cash, Cash Equivalents and Investments in Debt Securities
   6.




---



##### Table of Contents



June 30, 2005
    
    December 31, 2004Cost and approximate fair value of
available-for-sale debt securities (in
thousands):Federal agency notes
    
    $
    23,236
    
    
    $
    16,911Commercial paper
    
    
    14,390
    
    
    
    9,977Certificates of deposit
    
    
    1,039
    
    
    
    1,027United States Treasury note
    
    
    
    
    
    
    5,020Total available-for-sale debt securities
    
    $
    38,665
    
    
    $
    32,935
  (c) Property and Equipment
  (d) Goodwill
 Goodwill and Other Intangible Assets
 (e) Fair Value of Financial Instruments and Concentrations of Credit Risk
  (f) Revenue Recognition
   7.




---



##### Table of Contents



(g) Software Development Costs and Research and Development
 Accounting
for the Cost of Computer Software to Be Sold, Leased, or Otherwise Marketed Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use
  8.




---



##### Table of Contents



(h) Net Income (Loss) Per Share
 Earnings Per Share
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income (loss)
    
    $
    1,010
    
    
    $
    (1,874
    )
    
    $
    1,770
    
    
    $
    (2,579
    )Common shares outstanding:Historical common shares outstanding at beginning of period
    
    
    54,954
    
    
    
    53,802
    
    
    
    54,261
    
    
    
    53,234Weighted average common shares issued during period
    
    
    5
    
    
    
    57
    
    
    
    510
    
    
    
    472Weighted
average common shares at end of period  basic
    
    
    54,959
    
    
    
    53,859
    
    
    
    54,771
    
    
    
    53,706Effect of dilutive common stock options and warrants
    
    
    2,106
    
    
    
    
    
    
    
    2,171
    
    
    
    Weighted
average common shares at end of period  diluted
    
    
    57,065
    
    
    
    53,859
    
    
    
    56,942
    
    
    
    53,706Net income
(loss) per share  basic
    
    $
    0.02
    
    
    $
    (0.03
    )
    
    $
    0.03
    
    
    $
    (0.05
    )Net income
(loss) per share  diluted
    
    $
    0.02
    
    
    $
    (0.03
    )
    
    $
    0.03
    
    
    $
    (0.05
    )
   Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Shares issuable under stock options
    
    
    8,012,931
    
    
    
    8,265,108
    
    
    
    7,852,211
    
    
    
    6,803,912Shares issuable pursuant to warrants
    
    
    10,000
    
    
    
    20,017
    
    
    
    10,000
    
    
    
    20,017
 (i) Stock-based Compensation
 Accounting for
Stock Issued to Employees Accounting for Stock-Based
Compensation,
 9.




---



##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income (loss), as reported
    
    $
    1,010
    
    
    $
    (1,874
    )
    
    $
    1,770
    
    
    $
    (2,579
    )Add: Stock-based employee compensation expense
attributable to common stock options
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    70Deduct: Stock-based employee compensation
expense attributable to common stock options
determined under fair value based method
    
    
    (1,009
    )
    
    
    (1,597
    )
    
    
    (2,099
    )
    
    
    (3,188
    )Deduct: Stock-based employee compensation
expense attributable to employee stock purchase plan
determined under fair value based method
    
    
    (134
    )
    
    
    (67
    )
    
    
    (375
    )
    
    
    (212
    )Net loss, as adjusted
    
    $
    (133
    )
    
    $
    (3,528
    )
    
    $
    (704
    )
    
    $
    (5,909
    )Income
(loss) per share  basic, as reported
    
    $
    0.02
    
    
    $
    (0.03
    )
    
    $
    0.03
    
    
    $
    (0.05
    )Income
(loss) per share  diluted, as reported
    
    $
    0.02
    
    
    $
    (0.03
    )
    
    $
    0.03
    
    
    $
    (0.05
    )(Loss) per
share  basic, as adjusted
    
    $
    (0.00
    )
    
    $
    (0.07
    )
    
    $
    (0.01
    )
    
    $
    (0.11
    )(Loss) per
share  diluted, as adjusted
    
    $
    (0.00
    )
    
    $
    (0.07
    )
    
    $
    (0.01
    )
    
    $
    (0.11
    )
  June 30,2005
    
    2004Expected life (years)
    
    
    5
    
    
    
    5Risk-free interest rate
    
    
    3.72
    %
    
    
    3.81
    %Expected volatility
    
    
    181
    %
    
    
    201
    %Expected dividend yield
    
    None
    
    None
 (2) DEBT AND LINE OF CREDIT
  10.




---



##### Table of Contents



(3) COMMON STOCK PLANS
 (a) Stock Options and Restricted Stock
   11.




---



##### Table of Contents



Six Months Ended June 30,2005
    
    2004Number of
    
    Weighted Average
    
    Number of
    
    Weighted AverageShares
    
    Exercise Price
    
    Shares
    
    Exercise PriceBalance, beginning of period
    
    
    11,383,754
    
    
    $
    3.06
    
    
    
    9,065,887
    
    
    $
    3.09Granted at fair value
    
    
    114,500
    
    
    
    2.22
    
    
    
    908,295
    
    
    
    2.50Granted at greater than fair value
    
    
    
    
    
    
    
    
    
    
    2,000,000
    
    
    
    3.28Exercised
    
    
    (112,379
    )
    
    
    1.47
    
    
    
    (231,326
    )
    
    
    1.01Cancelled
    
    
    (198,655
    )
    
    
    3.94
    
    
    
    (440,157
    )
    
    
    3.24Balance, end of period
    
    
    11,187,220
    
    
    
    3.05
    
    
    
    11,302,699
    
    
    
    3.11
  Options Outstanding
    
    Options ExercisableWeightedAverageRemaining
    
    Weighted
    
    
    
    
    
    WeightedRange of
    
    Number
    
    Contractual
    
    Average
    
    Number of
    
    AverageExercise Prices
    
    Outstanding
    
    Life
    
    Exercise Price
    
    Options
    
    Exercise Price$0.15  1.71
    
    
    2,316,849
    
    
    
    6.0
    
    
    $
    1.27
    
    
    
    1,978,954
    
    
    $
    1.211.75  2.56
    
    
    2,326,806
    
    
    
    7.1
    
    
    
    2.22
    
    
    
    1,562,229
    
    
    
    2.312.57  3.00
    
    
    1,782,801
    
    
    
    7.7
    
    
    
    2.69
    
    
    
    1,035,347
    
    
    
    2.703.01  3.28
    
    
    2,174,250
    
    
    
    8.4
    
    
    
    3.27
    
    
    
    830,318
    
    
    
    3.263.30  3.96
    
    
    1,268,355
    
    
    
    6.9
    
    
    
    3.52
    
    
    
    1,081,523
    
    
    
    3.534.02  10.80
    
    
    1,318,159
    
    
    
    5.2
    
    
    
    7.28
    
    
    
    1,289,430
    
    
    
    7.3311,187,220
    
    
    
    7.0
    
    
    
    3.05
    
    
    
    7,777,801
    
    
    
    3.18
  12.




---



##### Table of Contents



Options outstanding and ExercisableWeightedAverageRemaining
    
    WeightedRange of
    
    Number
    
    Contractual
    
    AverageExercise Prices
    
    Outstanding
    
    Life
    
    Exercise Price$1.70  2.72
    
    
    21,706
    
    
    
    3.6
    
    
    $
    1.853.92
    
    
    100,563
    
    
    
    4.5
    
    
    
    3.926.08
    
    
    19,751
    
    
    
    4.7
    
    
    
    6.08142,020
    
    
    
    4.4
    
    
    
    3.91
 (b) Employee Stock Purchase Plan
  (c) Stock Repurchase Program
  13.




---



##### Table of Contents



(4) RESTRUCTURING
  RestructuringReserve Balance
    
    Reserve
    
    
    
    
    
    Reserve BalanceDecember 31, 2004
    
    Adjustments
    
    Payments
    
    June 30,2005Lease obligations, net of
anticipated sublease income
    
    $
    188
    
    
    $
    
    
    
    $
    (148
    )
    
    $
    40
  (5) COMMITMENTS AND CONTINGENCIES
 (a) Operating Leases
  (b) Purchase Commitments
   (c) Employment Contracts
  14.




---



##### Table of Contents



(d) Severance
  (e) Legal and Tax Contingenices
     15.




---



##### Table of Contents



(6) SUBSEQUENT EVENT
  (7) NEW ACCOUNTING PRONOUNCEMENTS
 Share-Based Payment. Accounting for
Stock-Based Compensation Accounting for Stock Issued to
Employees, Statement of Cash Flows.
      Exchanges of Nonmonetary Assets  an amendment of APB opinion No. 29.
 16.




---



##### Table of Contents



Accounting
Changes and Error Corrections. Accounting
Changes, Reporting Accounting Changes in Interim Financial Statements,
 17.




---



##### Table of Contents



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 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 15, 2005. You should also
read this analysis in conjunction with our condensed financial statements and related notes that
begin on page 3.
 You may read and copy materials that we file with the SEC at the SECs Public Reference Room
at 100 F Street NE; Room 1580, Washington, DC 20549. You may also obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other information
regarding issuers that, like us, file electronically with the SEC. The SECs Internet site can be
found at http://www.sec.gov. 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 Investor Center/SEC Filings and
Financials. Our Internet website and the information contained therein or connected thereto are not
intended to be incorporated into this Quarterly Report on Form 10-Q .
 Overview
   18.




---



##### Table of Contents



Statement of Operations Overview
  
    
    Raindance Meeting Edition and Raindance Seminar Edition.Revenue for our Raindance Meeting Edition and
Raindance Seminar Edition services is derived from subscription and usage fees. Revenue from subscriptions is
recognized monthly regardless of usage, while usage fees are based upon either connections or minutes used. We
recognize usage revenue from our Raindance Meeting Edition and Raindance Seminar Edition services in the
period the meeting is completed. We recognize revenue associated with any initial set-up fees ratably over the
term of the contract.
 
    
    Reservationless Conferencing Revenue. Revenue for our Reservationless 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 Reservationless 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
 19.




---



##### Table of Contents



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 either
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, or
recognized ratably over the software support period if we do not
have vendor-specific objective evidence for 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.
 
    
    Unlimited Conferencing. Revenue from Unlimited Conferencing is
derived from a flat, fixed charge per month depending on the
conference size limit selected by the customer. The fixed monthly
charge is recognized as revenue each month.
     20.




---



##### Table of Contents



Other
Data  Non-GAAP Financial Measure
   Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Net income (loss)
    
    $
    1,010
    
    
    $
    (1,874
    )
    
    $
    1,770
    
    
    $
    (2,579
    )Add: depreciation, amortization and other
income (expense), net
    
    
    1,880
    
    
    
    2,832
    
    
    
    4,112
    
    
    
    5,562Add: stock-based compensation expense
    
    
    192
    
    
    
    1,325
    
    
    
    444
    
    
    
    1,938Adjusted EBITDA
    
    $
    3,082
    
    
    $
    2,283
    
    
    $
    6,326
    
    
    $
    4,921
  21.




---



##### Table of Contents



Results of Operations
 Three and Six Months Ended June 30, 2005 Compared to Three and Six Months Ended June 30, 2004
 Revenue.
 Cost of Revenue.
 22.




---



##### Table of Contents



Sales and Marketing.
 23.




---



##### Table of Contents



Research and Development.
 General and Administrative.
 Stock-Based Compensation Expense.
 24.




---



##### Table of Contents



Other Income (expense), Net.
 25.




---



##### Table of Contents



Liquidity and Capital Resources
          26.




---



##### Table of Contents



Payments Due by PeriodTotal
    
    Less than 1 year
    
    2-3 years
    
    4-5 years
    
    Over 5 yearsLong-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating leases, exclusive of sublease receivables
    
    
    4,232
    
    
    
    1,322
    
    
    
    1,883
    
    
    
    1,027
    
    
    
    Purchase obligations
    
    
    4,044
    
    
    
    4,008
    
    
    
    36
    
    
    
    
    
    
    
    Total contractual obligations and commitments
    
    $
    8,276
    
    
    $
    5,330
    
    
    $
    1,919
    
    
    $
    1,027
    
    
    $
    
    27.




---



##### Table of Contents



Critical Accounting Policies and Estimates
   28.




---



##### Table of Contents



Risk Factors That May Affect Our Operating Results and The Market Price Of Our Common Stock
  You should not rely on forward-looking statements because they are inherently uncertain.
   We have a history of losses and we may not achieve or maintain profitability.
  We have a limited operating history, which makes it difficult to evaluate our business.
  29.




---



##### Table of Contents



We may fail to meet market expectations because of fluctuations or lack of growth in our quarterly
operating results, which would cause our stock price to 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 significant portion of our revenue is attributable to large customers that have no obligation to
continue to use our services.
  30.




---



##### Table of Contents



If our revenue for a particular period is lower than we expect our financial results will be
negatively impacted, which may require us to reduce our operating expenses.
  We have experienced significant pricing pressure, which is expected to continue and has negatively
impacted our financial results.
  The growth of our business substantially depends on our ability to successfully develop and
introduce new services and features in a timely manner.
   Our next-generation services may impact the revenue we receive from existing services.
  31.




---



##### Table of Contents



Competition in the web conferencing services and software market is intense and we may be unable to
compete successfully, particularly as a result of recent announcements from large software
companies.
   Competition in the conferencing services market may increase due to competitors entering or
expanding their positions in the marketplace.
   .
    
    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;.
    
    competitors could be acquired by or enter into strategic
relationships with third parties that have greater resources and
experience than we do, such as the Cisco/Latitude,
Microsoft/Placeware, and West/Intercall and West/Sprint
acquisitions, thereby reducing our ability to compete with such
competitors; or
 .
    
    competitors could acquire or partner with our key suppliers, such as the acquisition
of Voyant Technologies, our primary conferencing bridge supplier, by Polycom, Inc.
 32.




---



##### Table of Contents



Our sales cycle makes it difficult to predict our quarterly operating results.
  We have limited marketing, branding and lead-generation efforts, which may not be successful.
  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.
   If we do not attract or retain qualified management and personnel, our business may be harmed.
   33.




---



##### Table of Contents



Our largest conferencing bridge supplier has threatened litigation against us regarding a
significant contract dispute.
  We have been sued for breach of contract and unjust enrichment and may be subject to additional
litigation.
  We have been sued for patent infringement in the past and may be subject to additional claims
alleging patent and intellectual property infringement in the future.
  34.




---



##### Table of Contents



Our competitors may be able to create systems with similar functionality to ours and third parties
may obtain unauthorized use of our intellectual property.
   We substantially depend on a single supplier for conferencing bridges 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.
   35.




---



##### Table of Contents



Due to increased price compression in the conferencing industry, we may be required to alter the
architecture of our audio conferencing network.
  Our transition to VoIP technology is subject to significant risks, delays and costs.
  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.
  Our business will suffer if our systems or services fail or become unavailable.
   36.




---



##### Table of Contents



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.
  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.
  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.
  We may pursue additional business relationships through acquisitions, joint ventures, or other
investment prospects, which may not be successful, and we may not realize the benefits of any
acquisition, joint venture, or other investment.
  37.




---



##### Table of Contents



.
    
    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 failure to manage growth could cause increases in our operating costs, harm our ability to
achieve or maintain profitability, and therefore, decrease the value of our stock.
  If we do not expand further internationally, our ability to attract and retain multi-national
customers will be harmed and as a result our business and operating results may be harmed.
   .
    
    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;
 38.




---



##### Table of Contents



.
    
    fluctuations in currency exchange rates;.
    
    difficulties in collecting accounts receivable and longer collection periods;.
    
    imposition of currency exchange controls; and.
    
    potentially adverse tax consequences.
  Our Reservationless 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 may be subject to assessment of state sales and other taxes for the sale of our services,
license of technology or provision of services, which we have not collected from our customers.
  Our current stock compensation expense negatively impacts our earnings, and once we are required to
report the fair value of employee stock options and employee stock purchase plans as an expense in
conjunction with Financial Accounting Standards Board 123R  Share-based Payment, our earnings will
be adversely affected, which may cause our stock price to decline.
  39.




---



##### Table of Contents



We disclose non-GAAP financial information.
  Our corporate compliance program cannot guarantee that we are in compliance with all potentially
applicable regulations.
  We are subject to risks associated with governmental regulation and legal uncertainties.
  .
    
    changes in telecommunications regulations;.
    
    copyright and other intellectual property rights;.
    
    exporting technology.
    
    encryption;.
    
    personal privacy concerns, including the use of cookies and individual user information;.
    
    e-commerce liability; and.
    
    email, network and information security.
  40.




---



##### Table of Contents



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.
  41.




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
 Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
   Changes in Internal Controls
  42.




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    (d) Maximum Number (or(c) Total Number of
    
    Approximate Dollar Value) of(a) Total Number
    
    
    
    Shares Purchased as Part
    
    Shares that May Yet Beof Shares
    
    (b) Average Price
    
    of Publicly Announced
    
    Purchased Under the Plans orPeriod
    
    Purchased
    
    Paid per Share
    
    Plans or Programs
    
    Programs6/30/05
    
    3,377(1)
    
    $2.08
    
    None
    
    Not Applicable
 
 (1)
    
    Shares acquired in payment of tax liabilities pursuant to the partial vesting
of stock bonus awards issued to executive officers and key employees under our 2000 Equity
Incentive Plan. The tax liabilities were paid in July 2005. 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  Votes For
    
    Votes WithheldPatrick J. Lombardi
    
    
    50,779,845
    
    
    
    914,289
  43.




---



##### Table of Contents



Year of Annual Meeting inWhich Term ExpiresKathleen J. Cunningham
    
    
    2006Donald F. Detampel, Jr.
    
    
    2006Cary L. Deacon
    
    
    2007William J. Elsner
    
    
    2007
  For
    
    Against
    
    Abstain
    
    Broker Non-Votes50,768,578
    
    
    901,785
    
    
    
    23,771
    
    
    
    0
 
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit No.
    
    Description31.1
    
    Certification pursuant to 18 U.S.C. Section 1350 by the
Chief Executive Officer, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed with the Securities and Exchange
Commission as Exhibit 31.1 to the Companys Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2005.31.2
    
    Certification pursuant to 18 U.S.C. Section 1350 by the
Chief Financial Officer, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed with the Securities and Exchange
Commission as Exhibit 31.2 to the Companys Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2005.32.1
    
    Certifications pursuant to 18 U.S.C. Section 1350 by
the Chief Executive Officer and Chief Financial Officer, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed with the
Securities and Exchange Commission as Exhibit 32.1 to the Companys
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2005.
 44.




---



##### Table of Contents



SIGNATURE
  RAINDANCE COMMUNICATIONS, INC.Date: August 5, 2005
    By:
    /s/ Nicholas J. CuccaroChief Financial Officer(Principal Financial Officer and Duly Authorized Officer) 45.




---



##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Description31.1
    
    Certification pursuant to 18 U.S.C. Section 1350 by the
Chief Executive Officer, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed with the Securities and Exchange
Commission as Exhibit 31.1 to the Companys Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2005.31.2
    
    Certification pursuant to 18 U.S.C. Section 1350 by the
Chief Financial Officer, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed with the Securities and Exchange
Commission as Exhibit 31.2 to the Companys Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2005.32.1
    
    Certifications pursuant to 18 U.S.C. Section 1350 by
the Chief Executive Officer and Chief Financial Officer, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed with the
Securities and Exchange Commission as Exhibit 32.1 to the Companys
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2005.