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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 September 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
 o þ
   Common Stock, $0.0015 Par Value
    
    
    
    56,527,537 as of October 31, 2005.




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RAINDANCE COMMUNICATIONS, INC.
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1.Financial Statements
    
    
    3Condensed Balance Sheets as of September 30, 2005 and December 31, 2004 (unaudited)
    
    
    3Condensed Statements of Operations for the three and nine months ended September 30, 2005 and 2004 (unaudited)
    
    
    4Condensed Statements of Cash Flows for the nine months ended September 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
    
    
    41Item 4. Controls and Procedures
    
    
    41PART II. OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    42Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 3.Defaults Upon Senior Securities
    
    
    42Item 4.Submission of Matters to a Vote of Security Holders
    
    
    42Item 5.Other Information
    
    
    43Item 6.Exhibits.
    
    
    43SIGNATURES AND CERTIFICATIONS
    
    
    44Certification pursuant to 18 U.S.C. Section 1350 by the Chief Executive OfficerCertification pursuant to 18 U.S.C. Section 1350 by the Chief Financial OfficerCertification pursuant to 18 U.S.C. Section 1350 by the Chief Executive Officer and Chief Financial Officer
 2.




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 RAINDANCE COMMUNICATIONS, INC.
CONDENSED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
 September 30, 2005
    
    
    December 31, 2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    10,648
    
    
    $
    10,458Short-term investments
    
    
    35,921
    
    
    
    32,935Accounts receivable, net of allowance for doubtful accounts of $543 and $310 at September
30, 2005 and December 31, 2004, respectively
    
    
    10,963
    
    
    
    9,922Prepaid expenses and other current assets
    
    
    1,597
    
    
    
    1,593Due from employees
    
    
    2
    
    
    
    12Total current assets
    
    
    59,131
    
    
    
    54,920Property and equipment, net
    
    
    15,613
    
    
    
    17,807Goodwill
    
    
    45,587
    
    
    
    45,587Other intangible assets
    
    
    4,750
    
    
    
    Other assets
    
    
    316
    
    
    
    411Total Assets
    
    $
    125,397
    
    
    $
    118,725Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    8,338
    
    
    $
    7,447Accrued expenses
    
    
    279
    
    
    
    510Accrued compensation
    
    
    2,518
    
    
    
    1,506Accrued property tax
    
    
    167
    
    
    
    258Accrued severance obligation
    
    
    
    
    
    
    345Restructuring reserve
    
    
    
    
    
    
    188Current portion of deferred revenue
    
    
    309
    
    
    
    420Total current liabilities
    
    
    11,611
    
    
    
    10,674Deferred revenue, less current portion
    
    
    12
    
    
    
    45Total Liabilities
    
    
    11,623
    
    
    
    10,719Stockholders Equity:Common stock, par value $.0015; 130,000,000 shares authorized; 56,530,547 and 54,936,434
shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively.
    
    
    85
    
    
    
    82Additional paid-in capital
    
    
    282,931
    
    
    
    280,561Deferred stock-based compensation
    
    
    (1,154
    )
    
    
    (960
    )Accumulated deficit
    
    
    (168,088
    )
    
    
    (171,677
    )Total Stockholders Equity
    
    
    113,774
    
    
    
    108,006Commitments and contingencies (Note 6)Total Liabilities and Stockholders Equity
    
    $
    125,397
    
    
    $
    118,725
  3.




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RAINDANCE COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    $
    17,981
    
    
    $
    18,408
    
    
    $
    55,739
    
    
    $
    57,319Cost of revenue:(exclusive of stock-based compensation expense of
$, $, $ and$2, respectively, shown below)
    
    
    7,542
    
    
    
    8,431
    
    
    
    23,260
    
    
    
    26,032Gross profit
    
    
    10,439
    
    
    
    9,977
    
    
    
    32,479
    
    
    
    31,287Operating expenses:Sales and marketing (exclusive of stock-based compensationexpense of
$15, $7, $51 and $25, respectively, shown below)
    
    
    4,575
    
    
    
    6,005
    
    
    
    15,013
    
    
    
    18,795Research and development (exclusive of stock-based compensationexpense
of $68, $46, $181 and $115, respectively, shown below)
    
    
    2,369
    
    
    
    2,618
    
    
    
    7,967
    
    
    
    7,771General and administrative (exclusive of stock-based compensationexpense
of $109, $81, $405 and $1,930, respectively, shown below)
    
    
    1,746
    
    
    
    1,699
    
    
    
    6,045
    
    
    
    5,736Stock-based compensation expense
    
    
    192
    
    
    
    134
    
    
    
    637
    
    
    
    2,072Total operating expenses
    
    
    8,882
    
    
    
    10,456
    
    
    
    29,662
    
    
    
    34,374Income (loss) from operations
    
    
    1,557
    
    
    
    (479
    )
    
    
    2,817
    
    
    
    (3,087
    )Other income (expense), net
    
    
    362
    
    
    
    87
    
    
    
    872
    
    
    
    116Income (loss) before provision for income taxes
    
    
    1,919
    
    
    
    (392
    )
    
    
    3,689
    
    
    
    (2,971
    )Provision for income taxes
    
    
    100
    
    
    
    
    
    
    
    100
    
    
    
    Net income (loss)
    
    $
    1,819
    
    
    $
    (392
    )
    
    $
    3,589
    
    
    $
    (2,971
    )Net income (loss) per share:Basic
    
    $
    0.03
    
    
    $
    (0.01
    )
    
    $
    0.07
    
    
    $
    (0.06
    )Diluted
    
    $
    0.03
    
    
    $
    (0.01
    )
    
    $
    0.06
    
    
    $
    (0.06
    )Weighted average number of common shares outstanding:Basic
    
    
    55,268
    
    
    
    54,079
    
    
    
    54,938
    
    
    
    53,831Diluted
    
    
    57,386
    
    
    
    54,079
    
    
    
    57,091
    
    
    
    53,831
  4.




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RAINDANCE COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
 Nine months endedSeptember 30,2005
    
    
    2004Cash flows from operating activities:Net income (loss)
    
    $
    3,589
    
    
    $
    (2,971
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization
    
    
    6,572
    
    
    
    8,431Stock-based compensation
    
    
    637
    
    
    
    2,072Other
    
    
    54
    
    
    
    50Changes in operating assets and liabilities:Accounts receivable
    
    
    101
    
    
    
    (1,883
    )Prepaid expenses and other current assets
    
    
    (28
    )
    
    
    (617
    )Other assets
    
    
    (42
    )
    
    
    64Accounts payable and accrued expenses
    
    
    (1,200
    )
    
    
    718Deferred revenue
    
    
    (145
    )
    
    
    174Net cash provided by operating activities
    
    
    9,538
    
    
    
    6,038Cash flows from investing activities:Purchase of property and equipment
    
    
    (2,054
    )
    
    
    (2,557
    )Proceeds from disposition of equipment
    
    
    42
    
    
    
    18Purchase of investments
    
    
    (46,421
    )
    
    
    (11,242
    )Proceeds from maturities of investments
    
    
    43,435
    
    
    
    6,220Cash paid for the acquisition of BCE Conferencing, Inc.
    
    
    (5,892
    )
    
    
    Cash received from affiliate
    
    
    
    
    
    
    77Change in restricted cash
    
    
    
    
    
    
    236Net cash used in investing activities
    
    
    (10,890
    )
    
    
    (7,248
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    1,542
    
    
    
    1,180Payments on debt
    
    
    
    
    
    
    (2,367
    )Net cash provided (used) by financing activities
    
    
    1,542
    
    
    
    (1,187
    )Increase (decrease) in cash and cash equivalents
    
    
    190
    
    
    
    (2,397
    )Cash and cash equivalents at beginning of period
    
    
    10,458
    
    
    
    39,607Cash and cash equivalents at end of period
    
    $
    10,648
    
    
    $
    37,210Supplemental cash flow information  interest paid in cash
    
    $
    1
    
    
    $
    64Supplemental disclosure of non-cash investing and financing activities:Accounts payable incurred for purchases of property and equipment
    
    $
    2,291
    
    
    $
    216
  5.




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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.




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September 30, 2005
    
    
    December 31, 2004Cost and approximate fair value of
available-for-sale debt securities (in
thousands):Federal agency notes
    
    $
    22,109
    
    
    $
    16,911Commercial paper
    
    
    12,789
    
    
    
    9,977Certificates of deposit
    
    
    1,023
    
    
    
    1,027United States Treasury note
    
    
    
    
    
    
    5,020Total available-for-sale debt securities
    
    $
    35,921
    
    
    $
    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.




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(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.




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(h) Net Income (Loss) Per Share
 Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    1,819
    
    
    $
    (392
    )
    
    $
    3,589
    
    
    $
    (2,971
    )Common shares outstanding:Historical common shares outstanding at beginning of period
    
    
    54,981
    
    
    
    53,906
    
    
    
    54,261
    
    
    
    53,234Weighted average common shares issued during period
    
    
    287
    
    
    
    173
    
    
    
    677
    
    
    
    597Weighted average common shares at end of period  basic
    
    
    55,268
    
    
    
    54,079
    
    
    
    54,938
    
    
    
    53,831Effect of dilutive restricted stock, common stock options and warrants
    
    
    2,118
    
    
    
    
    
    
    
    2,153
    
    
    
    Weighted average common shares at end of period  diluted
    
    
    57,386
    
    
    
    54,079
    
    
    
    57,091
    
    
    
    53,831Net income (loss) per share  basic
    
    $
    0.03
    
    
    $
    (0.01
    )
    
    $
    0.07
    
    
    $
    (0.06
    )Net income (loss) per share  diluted
    
    $
    0.03
    
    
    $
    (0.01
    )
    
    $
    0.06
    
    
    $
    (0.06
    )
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Shares issuable under stock options
    
    
    7,631,280
    
    
    
    9,374,167
    
    
    
    7,777,758
    
    
    
    7,960,251Shares issuable pursuant to warrants
    
    
    
    
    
    
    20,017
    
    
    
    
    
    
    
    20,017
 (i) Stock-based Compensation
 Accounting for
Stock Issued to Employees Accounting for Stock-Based Compensation,
 9.




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss), as reported
    
    $
    1,819
    
    
    $
    (392
    )
    
    $
    3,589
    
    
    $
    (2,971
    )Add: Stock-based employee compensation expense
attributable to common stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70Deduct: Stock-based employee compensation
expense attributable to common stock options
determined under fair value based method
    
    
    (955
    )
    
    
    (1,378
    )
    
    
    (3,054
    )
    
    
    (4,566
    )Deduct: Stock-based employee compensation
expense attributable to employee stock purchase plan
determined under fair value based method
    
    
    (123
    )
    
    
    (247
    )
    
    
    (685
    )
    
    
    (460
    )Net income (loss), as adjusted
    
    $
    741
    
    
    $
    (2,017
    )
    
    $
    (150
    )
    
    $
    (7,927
    )Income (loss) per share  basic, as reported
    
    $
    0.03
    
    
    $
    (0.01
    )
    
    $
    0.07
    
    
    $
    (0.06
    )Income (loss) per share  diluted, as reported
    
    $
    0.03
    
    
    $
    (0.01
    )
    
    $
    0.06
    
    
    $
    (0.06
    )Income (loss) per share  basic, as adjusted
    
    $
    0.01
    
    
    $
    (0.04
    )
    
    $
    (0.00
    )
    
    $
    (0.15
    )Income (loss) per share  diluted, as adjusted
    
    $
    0.01
    
    
    $
    (0.04
    )
    
    $
    (0.00
    )
    
    $
    (0.15
    )
  September 30,2005
    
    
    2004Expected life (years)
    
    
    5
    
    
    
    5Risk-free interest rate
    
    
    4.18
    %
    
    
    3.38
    %Expected volatility
    
    
    177
    %
    
    
    196
    %Expected dividend yield
    
    None
    
    None
 10.




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(j) Income Taxes
 Accounting for Income Taxes
 (2) ACQUISITION OF A BUSINESS
   Accounts receivable
    
    $
    1,142Intangible assets
    
    
    4,750Total preliminary purchase consideration allocation
    
    $
    5,892
  (3) DEBT AND LINE OF CREDIT
  11.




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(4) COMMON STOCK PLANS
 (a) Stock Options and Restricted Stock
    12.




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Nine Months Ended September 30,2005
    
    
    2004Weighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    Average
    
    
    Number of
    
    
    AverageShares
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise PriceBalance, beginning of period
    
    
    11,383,754
    
    
    $
    3.06
    
    
    
    9,065,887
    
    
    $
    3.09Granted at fair value
    
    
    150,000
    
    
    
    2.24
    
    
    
    1,102,295
    
    
    
    2.35Granted at greater than fair value
    
    
    
    
    
    
    
    
    
    
    2,000,000
    
    
    
    3.28Exercised
    
    
    (277,348
    )
    
    
    1.46
    
    
    
    (269,536
    )
    
    
    0.99Cancelled
    
    
    (478,889
    )
    
    
    3.80
    
    
    
    (617,307
    )
    
    
    3.33Balance, end of period
    
    
    10,777,517
    
    
    
    3.05
    
    
    
    11,281,339
    
    
    
    3.09
  Options Outstanding
    
    
    Options ExercisableWeightedAverageRemaining
    
    
    Weighted
    
    
    
    
    
    
    WeightedRange of
    
    Number
    
    
    Contractual
    
    
    Average
    
    
    Number of
    
    
    AverageExercise Prices
    
    Outstanding
    
    
    Life
    
    
    Exercise Price
    
    
    Options
    
    
    Exercise Price$   0.15  1.63
    
    
    1,809,608
    
    
    
    5.2
    
    
    $
    1.17
    
    
    
    1,749,479
    
    
    $
    1.161.64  2.25
    
    
    1,573,257
    
    
    
    8.0
    
    
    
    1.89
    
    
    
    771,603
    
    
    
    1.892.25  2.62
    
    
    1,821,877
    
    
    
    6.7
    
    
    
    2.56
    
    
    
    1,298,889
    
    
    
    2.572.62  3.17
    
    
    1,106,560
    
    
    
    6.8
    
    
    
    2.81
    
    
    
    922,124
    
    
    
    2.803.17  3.28
    
    
    2,000,000
    
    
    
    8.3
    
    
    
    3.28
    
    
    
    805,554
    
    
    
    3.283.30  10.80
    
    
    2,466,215
    
    
    
    5.8
    
    
    
    5.45
    
    
    
    2,314,743
    
    
    
    5.5710,777,517
    
    
    
    6.7
    
    
    
    3.05
    
    
    
    7,862,392
    
    
    
    3.17
   13.




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Options outstanding and ExercisableWeightedAverageRemaining
    
    WeightedRange of
    
    Number
    
    Contractual
    
    AverageExercise Prices
    
    Outstanding
    
    Life
    
    Exercise Price$1.70  2.72
    
    
    21,706
    
    
    
    3.4
    
    
    $
    1.853.92
    
    
    100,563
    
    
    
    4.3
    
    
    
    3.926.08
    
    
    19,751
    
    
    
    4.4
    
    
    
    6.08142,020
    
    
    
    4.2
    
    
    
    3.91
 (b) Employee Stock Purchase Plan
  (c) Stock Repurchase Program
  (5) RESTRUCTURING
  RestructuringReserve Balance
    
    Reserve
    
    
    
    
    
    Reserve BalanceDecember 31, 2004
    
    Adjustments
    
    Payments
    
    September 30,2005Lease obligations, net of sublease income
    
    $
    188
    
    
    $
    
    
    
    $
    (188
    )
    
    $
    
  14.




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(6) COMMITMENTS AND CONTINGENCIES
 (a) Operating Leases
  (b) Purchase Commitments
   (c) Employment Contracts
    (d) Severance
   15.




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(e) Legal and Tax Contingenices
       (7) NEW ACCOUNTING PRONOUNCEMENTS
 Share-Based Payment. Accounting for
Stock-Based Compensation Accounting for Stock Issued to
Employees, Statement of Cash Flows.
 16.




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Exchanges of Nonmonetary Assets  an amendment of APB opinion No. 29.
 Accounting
Changes and Error Corrections. Accounting
Changes, Reporting Accounting Changes in Interim Financial Statements,
 17.




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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 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.




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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 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.
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Other Data  Non-GAAP Financial Measure
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Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    1,819
    
    
    $
    (392
    )
    
    $
    3,589
    
    
    $
    (2,971
    )Add: depreciation, amortization and other
income (expense), net
    
    
    1,589
    
    
    
    2,754
    
    
    
    5,700
    
    
    
    8,315Add: provision for income taxes
    
    
    100
    
    
    
    
    
    
    
    100
    
    
    
    Add: stock-based compensation expense
    
    
    192
    
    
    
    134
    
    
    
    637
    
    
    
    2,072Adjusted EBITDA
    
    $
    3,700
    
    
    $
    2,496
    
    
    $
    10,026
    
    
    $
    7,416
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Results of Operations
 Three and Nine Months Ended September 30, 2005 Compared to Three and Nine Months Ended September
30, 2004
 Revenue.
 Cost of Revenue.
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Sales and Marketing.
 Research and Development.
 24.




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General and Administrative.
 Stock-Based Compensation Expense.
 25.




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Other Income (expense), net.
 Liquidity and Capital Resources
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Payments Due by PeriodTotal
    
    Less than 1 year
    
    2-3 years
    
    4-5 years
    
    Over 5 yearsLong-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating leases
    
    
    3,763
    
    
    
    1,129
    
    
    
    1,814
    
    
    
    820
    
    
    
    Purchase obligations
    
    
    3,854
    
    
    
    3,854
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations and commitments
    
    $
    7,617
    
    
    $
    4,983
    
    
    $
    1,814
    
    
    $
    820
    
    
    $
    
   Critical Accounting Policies and Estimates
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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 maintain profitability.
  We have a limited operating history, which makes it difficult to evaluate our business.
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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.
  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.
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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.
  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.
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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.
 Our sales cycle makes it difficult to predict our quarterly operating results.
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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.
   We have been sued for breach of contract and unjust enrichment and may be subject to additional
litigation.
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We have been sued for patent infringement by a significant competitor and may be subject to
additional claims alleging patent and intellectual property infringement in the future.
  Our patents may not be sufficient to protect our technology, our competitors may be able to create
systems with similar functionality to ours and third parties may obtain unauthorized use of our
intellectual property.
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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.
   Due to increased price compression in the conferencing industry, we plan to alter the architecture
of our audio conferencing network.
  Our transition to VoIP technology is subject to significant risks, delays and costs.
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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.
   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.
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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.
   
    
    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
maintain profitability, and therefore, decrease the value of our stock.
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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;
    
    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.
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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.
  We disclose non-GAAP financial information.
  Our corporate compliance program cannot guarantee that we are in compliance with all potentially
applicable regulations.
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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.
   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.
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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
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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 Shares
    
    Approximate Dollar Value) of(a) Total Number
    
    
    
    
    
    Purchased as Part of Publicly
    
    Shares that May Yet Beof Shares
    
    (b) Average Price
    
    Announced
    
    Purchased Under the Plans orPeriod
    
    Purchased
    
    Paid per Share
    
    Plans or Programs
    
    Programs9/30/05
    
    2,989(1)
    
    $
    2.32
    
    
    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 October 2005. 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
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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 September 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 September 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 September 30,
2005.
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SIGNATURE
  RAINDANCE COMMUNICATIONS, INC.Date: November 9, 2005
    
    By:
    
    /s/ Nicholas J. CuccaroChief Financial Officer(Principal Financial Officer and Duly Authorized Officer)
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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 September 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 September 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 September 30,
2005.
 45.