##### Table of Contents



---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

|  |  |                                                                                                                                      
|- |  | -------------------------------------------------------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the Quarterly Period Ended March 31, 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                       |  | 84-1407805                             
|(State or jurisdiction of      |  | (I.R.S. Employer Identification Number)
|incorporation or organization) |  |                                        

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  53,263,081 as of April 30, 2003.



---

---





---



##### Table of Contents



RAINDANCE COMMUNICATIONS, INC.

INDEX

|                                                                                             |                                                                                                                |  |      |    | 
|-------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                             |                                                                                                                |  | Page
|                                                                                             |                                                                                                                |  |     
|PART I. FINANCIAL INFORMATION                                                                |                                                                                                                |  |      |   
|Item 1.Financial Statements                                                                  |                                                                                                                |  |      |   
|                                                                                             | Condensed Consolidated Balance Sheets as of December
31, 2002 and March 31, 2003 (unaudited)                   |  |      | 3  | 
|                                                                                             | Condensed Consolidated Statements of Operations for
the three months ended March 31, 2002 and 2003 (unaudited) |  |      | 4  | 
|                                                                                             | Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 2002 and 2003
(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 |                                                                                                                |  | 14   |   
|                                                                                             | Additional Risk Factors that May Affect Our Operating
Results and The Market Price of Our Common Stock         |  |      | 21 | 
|Item 3.Quantitative and Qualitative Disclosures About Market
Risk                            |                                                                                                                |  | 31   |   
|Item 4. Controls and Procedures                                                              |                                                                                                                |  | 31   |   
|PART II. OTHER INFORMATION                                                                   |                                                                                                                |  |      |   
|Item 1.Legal Proceedings                                                                     |                                                                                                                |  | 32   |   
|Item 2.Changes in Securities and Use of Proceeds                                             |                                                                                                                |  | 32   |   
|Item 3.Defaults Upon Senior Securities                                                       |                                                                                                                |  | 32   |   
|Item 4.Submission of Matters to a Vote of Security Holders                                   |                                                                                                                |  | 32   |   
|Item 5.Other Information                                                                     |                                                                                                                |  | 32   |   
|Item 6.Exhibits and Reports on Form 8-K                                                      |                                                                                                                |  | 32   |   
|SIGNATURES                                                                                   |                                                                                                                |  | 33   |   
|CERTIFICATIONS                                                                               |                                                                                                                |  | 34   |   

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, or furnish them to, the SEC. Once at
www.raindance.com, go to Investors/SEC Filings and Financials.

2.



---

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
|                                                   | 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                                        
|CERTIFICATIONS                                    
|EXHIBIT INDEX                                     
|EX-99.1 CEO & CFO Certificate pursuant to Sec. 906



---



##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1.Financial Statements

RAINDANCE COMMUNICATIONS, INC.




CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

|                                            |                                                                                                                                                                              |   |                   |          |                |   |             |          |  
|------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------------- | -------- | -------------- | - | ----------- | -------- | -
|                                            |                                                                                                                                                                              |   |                   |          |                |   | (unaudited)
|                                            |                                                                                                                                                                              |   | December 31, 2002 |          | March 31, 2003
|                                            |                                                                                                                                                                              |   |                   |          |               
|Assets                                      |                                                                                                                                                                              |   |                   |          |                |   |             |         
|Current assets:                             |                                                                                                                                                                              |   |                   |          |                |   |             |         
|                                            | Cash and cash equivalents                                                                                                                                                    |   | $                 | 31,699   |                |   | $           | 32,838   |  
|                                            | Accounts receivable, net of allowance for doubtful accounts of $850 and $700 at
December 31, 2002 and March 31, 2003, respectively                                           |   |                   | 8,982    |                |   |             | 9,450    |  
|                                            | Due from affiliate                                                                                                                                                           |   |                   | 50       |                |   |             | 50       |  
|                                            | Prepaid expenses and other current assets                                                                                                                                    |   |                   | 983      |                |   |             | 1,504    |  
|                                            | Due from employees                                                                                                                                                           |   |                   | 12       |                |   |             | 14       |  
|                                            |                                                                                                                                                                              |   |                   |          |                |   |             |         
|                                            | Total current assets                                                                                                                                                         |   |                   | 41,726   |                |   |             | 43,856   |  
|Property and equipment, net                 |                                                                                                                                                                              |   | 24,493            |          |                |   | 24,102      |         
|Goodwill, net                               |                                                                                                                                                                              |   | 45,587            |          |                |   | 45,587      |         
|Due from employees                          |                                                                                                                                                                              |   | 2                 |          |                |   | 2           |         
|Other assets                                |                                                                                                                                                                              |   | 1,197             |          |                |   | 1,035       |         
|                                            |                                                                                                                                                                              |   |                   |          |                |   |             |         
|Total Assets                                |                                                                                                                                                                              | $ | 113,005           |          |                | $ | 114,582     |         
|                                            |                                                                                                                                                                              |   |                   |          |                |   |             |         
|Liabilities and Stockholders Equity        |                                                                                                                                                                              |   |                   |          |                |   |             |         
|Current liabilities:                        |                                                                                                                                                                              |   |                   |          |                |   |             |         
|                                            | Accounts payable                                                                                                                                                             |   | $                 | 5,193    |                |   | $           | 6,690    |  
|                                            | Current portion of long-term debt                                                                                                                                            |   |                   | 1,030    |                |   |             | 972      |  
|                                            | Accrued expenses                                                                                                                                                             |   |                   | 629      |                |   |             | 163      |  
|                                            | Accrued compensation                                                                                                                                                         |   |                   | 2,322    |                |   |             | 1,793    |  
|                                            | Restructuring reserve                                                                                                                                                        |   |                   | 507      |                |   |             | 361      |  
|                                            | Deferred revenue                                                                                                                                                             |   |                   | 423      |                |   |             | 461      |  
|                                            |                                                                                                                                                                              |   |                   |          |                |   |             |         
|                                            | Total current liabilities                                                                                                                                                    |   |                   | 10,104   |                |   |             | 10,440   |  
|Long-term debt, less current portion        |                                                                                                                                                                              |   | 2,026             |          |                |   | 1,783       |         
|Restructuring reserve, less current portion |                                                                                                                                                                              |   | 518               |          |                |   | 406         |         
|Other                                       |                                                                                                                                                                              |   | 34                |          |                |   | 34          |         
|                                            |                                                                                                                                                                              |   |                   |          |                |   |             |         
|Total Liabilities                           |                                                                                                                                                                              |   | 12,682            |          |                |   | 12,663      |         
|                                            |                                                                                                                                                                              |   |                   |          |                |   |             |         
|Stockholders Equity:                       |                                                                                                                                                                              |   |                   |          |                |   |             |         
|                                            | Common stock, par value $.0015; 130,000,000 shares authorized; 51,895,813 and 53,248,976
shares issued and outstanding at December 31, 2002 and March 31, 2003, respectively |   |                   | 78       |                |   |             | 80       |  
|                                            | Additional paid-in capital                                                                                                                                                   |   |                   | 276,211  |                |   |             | 277,945  |  
|                                            | Deferred stock-based compensation                                                                                                                                            |   |                   | (4,067   | )              |   |             | (4,547   | )
|                                            | Accumulated deficit                                                                                                                                                          |   |                   | (171,899 | )              |   |             | (171,559 | )
|                                            |                                                                                                                                                                              |   |                   |          |                |   |             |         
|                                            | Total Stockholders Equity                                                                                                                                                   |   |                   | 100,323  |                |   |             | 101,919  |  
|                                            |                                                                                                                                                                              |   |                   |          |                |   |             |         
|                                            | Commitments and contingencies                                                                                                                                                |   |                   |          |                |   |             |          |  
|                                            | Total Liabilities and Stockholders Equity                                                                                                                                   |   | $                 | 113,005  |                |   | $           | 114,582  |  
|                                            |                                                                                                                                                                              |   |                   |          |                |   |             |         

See accompanying notes to condensed consolidated financial statements.

3.



---



##### Table of Contents



RAINDANCE COMMUNICATIONS, INC.




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)

|                                                      |                                                                                                                         |                               |        |                    |        |      |        |       |       | 
|----------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ------ | ------------------ | ------ | ---- | ------ | ----- | ----- | 
|                                                      |                                                                                                                         |                               |        | Three months ended
|                                                      |                                                                                                                         |                               |        | March 31,         
|                                                      |                                                                                                                         |                               |        |                   
|                                                      |                                                                                                                         |                               |        | 2002               |        | 2003
|                                                      |                                                                                                                         |                               |        |                    |        |     
|Revenue                                               |                                                                                                                         | $                             | 13,877 |                    |        | $    | 15,438 |      
|Cost of revenue:                                      |                                                                                                                         |                               |        |                    |        |      |        |      
|                                                      | (exclusive of stock-based compensation expense of
$49 and $30, respectively, shown below)                               |                               |        | 6,929              |        |      |        | 6,476 |      
|                                                      |                                                                                                                         |                               |        |                    |        |      |        |      
|Gross profit                                          |                                                                                                                         |                               | 6,948  |                    |        |      | 8,962  |      
|                                                      |                                                                                                                         |                               |        |                    |        |      |        |      
|Operating expenses:                                   |                                                                                                                         |                               |        |                    |        |      |        |      
|                                                      | Sales and marketing (exclusive of stock-based compensation expense of
$78 and $69, respectively, shown below)           |                               |        | 4,201              |        |      |        | 4,463 |      
|                                                      | Research and development (exclusive of stock-based compensation
expense of $158 and $181, respectively, shown below)    |                               |        | 1,983              |        |      |        | 1,697 |      
|                                                      | General and administrative, (exclusive of stock-based compensation
expense of $365 and $501, respectively, shown below) |                               |        | 1,809              |        |      |        | 1,676 |      
|                                                      | Stock-based compensation expense                                                                                        |                               |        | 650                |        |      |        | 781   |      
|                                                      | Restructuring charges                                                                                                   |                               |        | 172                |        |      |        |      |      
|                                                      |                                                                                                                         |                               |        |                    |        |      |        |      
|                                                      |                                                                                                                         | Total operating expenses      |        |                    | 8,815  |      |        |       | 8,617 | 
|                                                      |                                                                                                                         |                               |        |                    |        |      |        |      
|                                                      |                                                                                                                         | Income (loss) from operations |        |                    | (1,867 | )    |        |       | 345   | 
|Other income (expense), net                           |                                                                                                                         |                               | 18     |                    |        |      | (5     | )    
|                                                      |                                                                                                                         |                               |        |                    |        |      |        |      
|Net income (loss)                                     |                                                                                                                         | $                             | (1,849 | )                  |        | $    | 340    |      
|                                                      |                                                                                                                         |                               |        |                    |        |      |        |      
|Net income (loss) per share:                          |                                                                                                                         |                               |        |                    |        |      |        |      
|Basic                                                 |                                                                                                                         | $                             | (0.04  | )                  |        | $    | 0.01   |      
|                                                      |                                                                                                                         |                               |        |                    |        |      |        |      
|Diluted                                               |                                                                                                                         | $                             | (0.04  | )                  |        | $    | 0.01   |      
|                                                      |                                                                                                                         |                               |        |                    |        |      |        |      
|Weighted average number of common shares outstanding: |                                                                                                                         |                               |        |                    |        |      |        |      
|Basic                                                 |                                                                                                                         |                               | 48,424 |                    |        |      | 52,557 |      
|                                                      |                                                                                                                         |                               |        |                    |        |      |        |      
|Diluted                                               |                                                                                                                         |                               | 48,424 |                    |        |      | 53,930 |      
|                                                      |                                                                                                                         |                               |        |                    |        |      |        |      

See accompanying notes to condensed consolidated financial statements.

4.



---



##### Table of Contents



RAINDANCE COMMUNICATIONS, INC.




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)

|                                                                                         |  |                    |        |      |  |   |        |  
|---------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---- |  | - | ------ | -
|                                                                                         |  | Three months ended
|                                                                                         |  | March 31,         
|                                                                                         |  |                   
|                                                                                         |  | 2002               |        | 2003
|                                                                                         |  |                    |        |     
|Cash flows from operating activities:                                                    |  |                    |        |      |  |   |        |  
|Net income (loss)                                                                        |  | $                  | (1,849 | )    |  | $ | 340    |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                    |        |      |  |   |        |  
|Depreciation and amortization                                                            |  |                    | 2,348  |      |  |   | 2,632  |  
|Restructuring charges                                                                    |  |                    | 172    |      |  |   |       |  
|Stock-based compensation                                                                 |  |                    | 650    |      |  |   | 781    |  
|Other                                                                                    |  |                    | 17     |      |  |   | 15     |  
|Changes in operating assets and liabilities:                                             |  |                    |        |      |  |   |        |  
|Accounts receivable                                                                      |  |                    | (1,598 | )    |  |   | (468   | )
|Prepaid expenses and other current assets                                                |  |                    | (230   | )    |  |   | (523   | )
|Other assets                                                                             |  |                    | (15    | )    |  |   | (13    | )
|Accounts payable and accrued expenses                                                    |  |                    | 1,170  |      |  |   | (305   | )
|Deferred revenue                                                                         |  |                    | (307   | )    |  |   | 38     |  
|                                                                                         |  |                    |        |      |  |   |        |  
|Net cash provided by operating activities                                                |  |                    | 358    |      |  |   | 2,497  |  
|                                                                                         |  |                    |        |      |  |   |        |  
|Cash flows from investing activities:                                                    |  |                    |        |      |  |   |        |  
|Purchase of property and equipment                                                       |  |                    | (2,101 | )    |  |   | (1,707 | )
|Proceeds from disposition of equipment                                                   |  |                    | 3      |      |  |   | 10     |  
|Change in restricted cash                                                                |  |                    |       |      |  |   | 164    |  
|                                                                                         |  |                    |        |      |  |   |        |  
|Net cash used by investing activities                                                    |  |                    | (2,098 | )    |  |   | (1,533 | )
|                                                                                         |  |                    |        |      |  |   |        |  
|Cash flows from financing activities:                                                    |  |                    |        |      |  |   |        |  
|Proceeds from issuance of common stock                                                   |  |                    | 484    |      |  |   | 476    |  
|Payments on debt                                                                         |  |                    | (568   | )    |  |   | (301   | )
|                                                                                         |  |                    |        |      |  |   |        |  
|Net cash provided (used) by financing activities                                         |  |                    | (84    | )    |  |   | 175    |  
|                                                                                         |  |                    |        |      |  |   |        |  
|Increase (decrease) in cash and cash equivalents                                         |  |                    | (1,824 | )    |  |   | 1,139  |  
|Cash and cash equivalents at beginning of period                                         |  |                    | 34,222 |      |  |   | 31,699 |  
|                                                                                         |  |                    |        |      |  |   |        |  
|Cash and cash equivalents at end of period                                               |  | $                  | 32,398 |      |  | $ | 32,838 |  
|                                                                                         |  |                    |        |      |  |   |        |  
|Supplemental cash flow information  interest paid in cash                               |  | $                  | 228    |      |  | $ | 79     |  
|                                                                                         |  |                    |        |      |  |   |        |  
|Supplemental disclosure of non-cash investing and financing activities:                  |  |                    |        |      |  |   |        |  
|Accounts payable incurred for purchases of property and equipment                        |  | $                  | 1,040  |      |  | $ | 1,097  |  
|                                                                                         |  |                    |        |      |  |   |        |  

See accompanying notes to condensed consolidated financial statements.

5.



---



##### Table of Contents



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
integrated web conferencing services for everyday business meetings and events.
The Companys business-to-business communication services are based on
proprietary architecture that integrates 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, and 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. 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 March
31, 2003 and for the three months ended March 31, 2002 and 2003 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 months
ended March 31, 2003 are not necessarily indicative of the results that may be
expected for the full year.

Certain prior period balances have been reclassified to conform with 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 March 31, 2003
consist of money market accounts at four financial institutions.

(c)       Restricted Cash

Included in other assets is $0.4 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.

(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.

6.



---



##### Table of Contents



(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 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 March 31, 2003 was $2.4 million or 23.9% of the
Companys total accounts receivable balance at such date. 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 monthly 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.

(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) excludes 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.

7.



---



##### Table of Contents



The following table sets forth the calculation of net income (loss) per
share for the three months ended March 31, 2002 and 2003 (in thousands, except
per share amounts):

|                                      |                                                             |   |        |                    |  |      |      |        |  | 
|------------------------------------- | ----------------------------------------------------------- | - | ------ | ------------------ |  | ---- | ---- | ------ |  | 
|                                      |                                                             |   |        | Three months ended
|                                      |                                                             |   |        |                   
|                                      |                                                             |   |        | March 31,         
|                                      |                                                             |   |        |                   
|                                      |                                                             |   |        | 2002               |  | 2003
|                                      |                                                             |   |        |                    |  |     
|Net income (loss)                     |                                                             | $ | (1,849 | )                  |  | $    | 340  |       
|                                      |                                                             |   |        |                    |  |      |      |       
|Common shares outstanding:            |                                                             |   |        |                    |  |      |      |       
|                                      | Historical common shares outstanding at beginning of period |   |        | 48,130             |  |      |      | 51,896 | 
|                                      | Weighted average common shares issued during period         |   |        | 294                |  |      |      | 661    | 
|                                      |                                                             |   |        |                    |  |      |      |       
|                                      | Weighted average common shares at end of period  basic     |   |        | 48,424             |  |      |      | 52,557 | 
|                                      | Effect of dilutive common stock options and warrants        |   |        |                   |  |      |      | 1,373  | 
|                                      |                                                             |   |        |                    |  |      |      |       
|                                      | Weighted average common shares at end of period  diluted   |   |        | 48,424             |  |      |      | 53,930 | 
|                                      |                                                             |   |        |                    |  |      |      |       
|Net income (loss) per share  basic   |                                                             | $ | (0.04  | )                  |  | $    | 0.01 |       
|                                      |                                                             |   |        |                    |  |      |      |       
|Net income (loss) per share  diluted |                                                             | $ | (0.04  | )                  |  | $    | 0.01 |       
|                                      |                                                             |   |        |                    |  |      |      |       

The following common stock options and warrants have been excluded from
the computation of diluted net income (loss) per share as of March 31, 2002 and
2003 because their effect would have been antidilutive:

|                                     |  |                 |           |      |  |  |           | 
|------------------------------------ |  | --------------- | --------- | ---- |  |  | --------- | 
|                                     |  | As of March 31,
|                                     |  |                
|                                     |  | 2002            |           | 2003
|                                     |  |                 |           |     
|Shares issuable under stock options  |  |                 | 7,931,919 |      |  |  | 5,524,992 | 
|Shares issuable pursuant to warrants |  |                 | 652,790   |      |  |  | 20,017    | 

(i)       Stock-Based Compensation

The Company accounts for its stock option plan 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 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
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
months ended March 31, 2002 and 2003 (in thousands, except per share amounts):

8.



---



##### Table of Contents



|                                                                                                                                      |  |                              |        |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------ | ---- |  | - | ------ | -
|                                                                                                                                      |  | Three months ended March 31,
|                                                                                                                                      |  |                             
|                                                                                                                                      |  | 2002                         |        | 2003
|                                                                                                                                      |  |                              |        |     
|Net income (loss), as reported                                                                                                        |  | $                            | (1,849 | )    |  | $ | 340    |  
|Add: Stock-based employee compensation expense attributable to
common stock options                                                   |  |                              | 650    |      |  |   | 432    |  
|Deduct: Total stock-based employee compensation expense
attributable
to common stock options determined under fair value based
method |  | $                            | (3,172 | )    |  | $ | (2,321 | )
|                                                                                                                                      |  |                              |        |      |  |   |        |  
|Net (loss), as adjusted                                                                                                               |  | $                            | (4,371 | )    |  | $ | (1,549 | )
|                                                                                                                                      |  |                              |        |      |  |   |        |  
|Income (loss) per share  basic, as reported                                                                                          |  | $                            | (0.04  | )    |  | $ | 0.01   |  
|                                                                                                                                      |  |                              |        |      |  |   |        |  
|Income (loss) per share  diluted, as reported                                                                                        |  | $                            | (0.04  | )    |  | $ | 0.01   |  
|                                                                                                                                      |  |                              |        |      |  |   |        |  
|(Loss) per share  basic, as adjusted                                                                                                 |  | $                            | (0.09  | )    |  | $ | (0.03  | )
|                                                                                                                                      |  |                              |        |      |  |   |        |  
|(Loss) per share  diluted, as adjusted                                                                                               |  | $                            | (0.09  | )    |  | $ | (0.03  | )
|                                                                                                                                      |  |                              |        |      |  |   |        |  

The per share weighted-average fair value of stock options granted during
the first quarter of 2002 and 2003 was $3.73 and $1.60, 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 months ended March 31, 2002 and 2003:

|                        |  |                              |     |      |  |  |     |  
|----------------------- |  | ---------------------------- | --- | ---- |  |  | --- | -
|                        |  | Three months ended March 31,
|                        |  |                             
|                        |  | 2002                         |     | 2003
|                        |  |                              |     |     
|Expected Life (years)   |  |                              | 6   |      |  |  | 6   |  
|Risk-free interest rate |  |                              | 5   | %    |  |  | 5   | %
|Expected volatility     |  |                              | 106 | %    |  |  | 118 | %
|Expected dividend yield |  | None                         |     | None

(2)       ACQUISITIONS

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, which will be 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 | 
|                                        |  |               |     | 

9.



---



##### Table of Contents



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).

|                                              |  |                              |        |      |  |   |        | 
|--------------------------------------------- |  | ---------------------------- | ------ | ---- |  | - | ------ | 
|                                              |  | Three Months Ended March 31,
|                                              |  |                             
|                                              |  | 2002                         |        | 2003
|                                              |  |                              |        |     
|Revenue                                       |  | $                            | 14,858 |      |  | $ | 15,438 | 
|Net income (loss)                             |  |                              | (1,643 | )    |  |   | 340    | 
|Basic and diluted net income (loss) per share |  |                              | (0.03  | )    |  |   | 0.01   | 

The pro forma results for the three months ended March 31, 2002 combine
the Companys results for the three months ended March 31, 2002 with the
results of InterAct for the period from January 1, 2002 through March 31, 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)       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 March 31,
2003, there were 4,234,013 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 has assumed certain stock option plans and the outstanding
stock options of Contigo Software, Inc. (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.

The Company utilizes APB Opinion 25 in accounting for its plans. In the
three months ended March 31, 2003, a total of 3,100 common shares were granted
at less than fair value to members of our Board of Directors, resulting in
total compensation of $5,200. 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 will be $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.

10.



---



##### Table of Contents



Stock option activity in the Companys 2000 Equity Incentive Plan during
the three months ended March 31, 2003 was as follows:

|                             |                       |  |           |         |                  |   |                              |      |                  |  |           |          |   |   |      |      | 
|---------------------------- | --------------------- |  | --------- | ------- | ---------------- | - | ---------------------------- | ---- | ---------------- |  | --------- | -------- | - | - | ---- | ---- | 
|                             |                       |  |           |         |                  |   | Three Months Ended March 31, |      |                  |  |          
|                             |                       |  |           |         |                  |   |                              |      |                  |  |          
|                             |                       |  | 2002      |         | 2003            
|                             |                       |  |           |         |                 
|                             |                       |  | Number of |         | Weighted-average |   | Number of                    |      | Weighted-average
|                             |                       |  | Shares    |         | exercise price   |   | Shares                       |      | exercise price  
|                             |                       |  |           |         |                  |   |                              |      |                 
|Balance, beginning of period |                       |  | 7,593,578 |         |                  | $ | 3.33                         |      |                  |  | 8,229,267 |          |   | $ | 3.39 |     
|                             | Granted at fair value |  |           | 148,585 |                  |   |                              | 4.47 |                  |  |           | 862,300  |   |   |      | 1.84 | 
|                             | Exercised             |  |           | (72,002 | )                |   |                              | 1.79 |                  |  |           | (10,408  | ) |   |      | 1.48 | 
|                             | Cancelled             |  |           | (87,773 | )                |   |                              | 5.90 |                  |  |           | (118,427 | ) |   |      | 5.10 | 
|                             |                       |  |           |         |                  |   |                              |      |                  |  |           |          |   |   |      |     
|Balance, end of period       |                       |  | 7,582,388 |         |                  |   | 3.34                         |      |                  |  | 8,962,732 |          |   |   | 3.22 |     
|                             |                       |  |           |         |                  |   |                              |      |                  |  |           |          |   |   |      |     

Restricted shares issued for options exercised which are subject to
repurchase totaled 6,850 shares at March 31, 2003.

The following table summarizes information about stock options outstanding
under the Companys 2000 Equity Incentive Plan at March 31, 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 |             |  |                     | 325,536   |                |  |           | 5.7 |                     |  | $    | 0.37 |  |  |           | 268,438   |  |  | $    | 0.26 | 
|                | 0.93 -   1.17 |             |  |                     | 1,095,098 |                |  |           | 7.8 |                     |  |      | 1.06 |  |  |           | 527,887   |  |  |      | 1.06 | 
|                | 1.18 -   1.55 |             |  |                     | 754,222   |                |  |           | 7.1 |                     |  |      | 1.40 |  |  |           | 405,521   |  |  |      | 1.37 | 
|                | 1.56 -   2.22 |             |  |                     | 1,436,376 |                |  |           | 8.3 |                     |  |      | 1.73 |  |  |           | 550,767   |  |  |      | 1.63 | 
|                | 2.23 -   2.69 |             |  |                     | 1,487,370 |                |  |           | 7.8 |                     |  |      | 2.60 |  |  |           | 973,389   |  |  |      | 2.59 | 
|                | 2.70 -   3.75 |             |  |                     | 2,016,521 |                |  |           | 8.9 |                     |  |      | 3.41 |  |  |           | 508,427   |  |  |      | 3.44 | 
|                | 3.76 - 10.80  |             |  |                     | 1,847,609 |                |  |           | 7.1 |                     |  |      | 7.20 |  |  |           | 1,319,744 |  |  |      | 7.76 | 
|                |               |             |  |                     |           |                |  |           |     |                     |  |      |      |  |  |           |           |  |  |      |     
|                |               |             |  | 8,962,732           |           |                |  | 7.9       |     |                     |  | 3.22 |      |  |  | 4,554,173 |           |  |  | 3.65 |     
|                |               |             |  |                     |           |                |  |           |     |                     |  |      |      |  |  |           |           |  |  |      |     

In addition, the Company has sold or granted for services provided
1,332,849 shares of common stock through stock purchase rights under the Plan
at prices and values ranging from $0.15 to $10.80 per share.

In the quarter ended March 31, 2003 the Company modified stock option
grants for a departing member of its board of directors. The Company
accelerated the vesting on 42,223 options, which had a weighted average
exercise price of $3.22. The Company also extended the time period permitted to
exercise these options and certain options that were fully vested to one year.
86,666 options were affected by the additional time period permitted to
exercise and the weighted average exercise price of those options was $2.54.
The Company recorded compensation charges of $22,600 based on the intrinsic
value of the stock option grants at the date of modification.

11.



---



##### Table of Contents



There was no stock option activity in the assumed plans during the three
months ended March 31, 2003 and 179,797 options remain outstanding.

The following table summarizes information about stock options outstanding
under the Companys assumed plans at March 31, 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      |  |                |                     | 5.8       |                     |                | $    | 1.05 |  |  |          | 59,483  |  |  | $    | 1.05 | 
|                | 2.73 - 3.92  |             |         | 100,563     |  |                |                     | 6.8       |                     |                |      | 3.92 |  |  |          | 100,563 |  |  |      | 3.92 | 
|                | 3.93 - 6.08  |             |         | 19,751      |  |                |                     | 6.9       |                     |                |      | 6.08 |  |  |          | 19,751  |  |  |      | 6.08 | 
|                |              |             |         |             |  |                |                     |           |                     |                |      |      |  |  |          |         |  |  |      |     
|                |              |             | 179,797 |             |  |                | 6.5                 |           |                     |                | 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 is 4,606,111. In February 2003,
561,479 shares were purchased by employees at an average price of $0.82 per
share. At March 31, 2003, 3,007,788 shares were reserved for future issuance.
At March 31, 2003 approximately $81,462 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.

(4)       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 three months of 2003 are
detailed below (in thousands):

|                                   |  |                   |       |             |  |               |   |                |  |                 |      |   |  |   |     |  | 
|---------------------------------- |  | ----------------- | ----- | ----------- |  | ------------- | - | -------------- |  | --------------- | ---- | - |  | - | --- |  | 
|                                   |  |                   |       |             |  | Restructuring |   |                |  |                 |      |   |  |   |    
|                                   |  | Reserve Balance   |       | Reserve     |  |               |   |                |  | Reserve Balance |     
|                                   |  | December 31, 2002 |       | Adjustments |  | Payments      |   | March 31, 2003 | 
|                                   |  |                   |       |             |  |               |   |                | 
|Closure of remote sales facilities |  | $                 | 1,025 |             |  | $             |  |                |  | $               | (258 | ) |  | $ | 767 |  | 
|                                   |  |                   |       |             |  |               |   |                |  |                 |      |   |  |   |     |  | 

At March 31, 2003, the Companys restructuring reserves totaled $0.8
million, of which $0.4 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 March 31, 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 March 31, 2003, approximate $1.6 million that are scheduled to be
received through August 2005. As of March 31, 2003, the facility reserve was
comprised of commitments associated with two offices. The minimum lease
payments for the two offices total approximately $34,000 per month and total
future minimum lease payments approximate $1.0 million at March 31, 2003. The
Company has fully reserved one of the remaining offices because the office is
expected to 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

12.



---



##### Table of Contents



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.

(5)       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 4, the Company is
attempting to sublease or otherwise minimize its net commitment with respect to
two offices. Total future minimum lease payments, not including any reductions
for subleases and other potential reductions, under all operating leases,
approximate $10.0 million at March 31, 2003. Future minimum sublease
receivables for the seven subleased facilities, as of March 31, 2003,
approximate $1.6 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 March 31, 2003 was
approximately $24.3 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 terminated by the executive or the
Company, and provides for a termination payment under certain circumstances. As
of March 31, 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.

(6)       CUSTOMER CONCENTRATION

In the three months ended March 31, 2003, no single customer accounted for
greater than 10% of the Companys total revenue. At March 31, 2003, the Company
had a receivable due from Qwest Communications International, Inc. of $2.4
million or 23.9% of the Companys total accounts receivable balance at such
date.

13.



---



##### 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
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.

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 integrated web conferencing services that offer simple,
reliable and cost-effective tools for everyday business meetings and events.
These services offer a continuum of real-time, interactive communications tools
for businesses, including automated phone conferencing, web conferencing for
web presentations with online controls and advanced collaboration tools, which
allow users, among other things, to share applications, tour the web and
whiteboard ideas online. 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 currently available in a limited
customer preview with general availability expected 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.

Other than our two most recent quarters ended December 31, 2002 and March
31, 2003, we have incurred losses since commencing operations and, as of March
31, 2003, we had an accumulated deficit of $171.6 million. Our net loss was
$1.8 million and our net income was $0.3 million for the three months ended
March 31, 2002 and 2003, respectively. Although we have achieved quarterly net
income for two consecutive quarters, we may incur losses in subsequent
quarters, particularly due to significant non-cash charges for amortization of
deferred stock-based compensation and depreciation expense and an anticipated
increase in sales and marketing expenditures. Despite the progress we have
made in managing and controlling expenses, we will need to generate higher
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 the 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 is
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 in
deferred stock-based compensation, which will be expensed over three years. 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.

14.



---



##### Table of Contents



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 March 31, 2002, 9.5% of our revenue was non-usage based as
compared to 9.0% in the quarter ended March 31, 2003. 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 monthly 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.

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; however, we do not expect a need for large-scale capital
expenditures in the first half of 2003. As a result, we expect expenses for
depreciation, Internet access and bandwidth expenses to slightly 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 2003.

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 of
internally developed software in the first quarter of 2003. 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.

15.



---



##### Table of Contents



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 March 31, 2003,
we recorded $1.2 million of deferred stock-based compensation, and we expensed
$0.8 million related to stock-based compensation. 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 6 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 Conferencing, LLC, 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 are scheduled to be released in equal one-third increments and will be
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 $2.0 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 March
31, 2003, under our stock compensation 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 charges (adjusted EBITDA). This analysis
eliminates the effects of considerable amounts of depreciation and stock-based
compensation.

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

|                                                                |  |                              |        |      |  |   |       | 
|--------------------------------------------------------------- |  | ---------------------------- | ------ | ---- |  | - | ----- | 
|                                                                |  | Three Months Ended March 31,
|                                                                |  |                             
|                                                                |  | 2002                         |        | 2003
|                                                                |  |                              |        |     
|Net income (loss)                                               |  | $                            | (1,849 | )    |  | $ | 340   | 
|Add: Depreciation, amortization and other income
(expense), net |  |                              | 2,330  |      |  |   | 2,636 | 
|Add: Stock-based compensation expense                           |  |                              | 650    |      |  |   | 781   | 
|                                                                |  |                              |        |      |  |   |       | 
|Adjusted EBITDA                                                 |  | $                            | 1,131  |      |  | $ | 3,757 | 
|                                                                |  |                              |        |      |  |   |       | 

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 by a larger margin, primarily as a result of our
efforts to control operating costs while simultaneously increasing revenue. For
the three months ended March 31, 2003, as compared with the three months ended
March 31, 2002, our net loss decreased by $2.2 million, resulting in $0.3
million in net income for the current quarter. For the three months ended
March 31, 2003, as compared with the three months ended March 31, 2002,
adjusted EBITDA increased by $2.6 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 generally accepted
accounting principles. Since our initial public offering, we have consistently
reported adjusted EBITDA, a financial measure that is not defined by Generally
Accepted Accounting

16.



---



##### Table of Contents



Principles. We believe that adjusted EBITDA is a useful performance
metric for our investors. Adjusted EBITDA 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, net income excluding
such non-cash charges may permit investors to better compare results from
period to period. Additionally, 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 generally accepted
accounting principles is as follows: net cash provided by operations was $0.4
million and $2.5 million for the three months ended March 31, 2002 and 2003,
respectively; net cash used by investing activities was $2.1 million and $1.5
million for the three months ended March 31, 2002 and 2003, respectively; net
cash used by financing activities was $0.1 million for the three months ended
March 31, 2002 and net cash provided by financing activities was $0.2 million
for the three months ended March 31, 2003.

Results of Operations

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

Revenue.Total revenue increased by $1.5 million from $13.9 million for
the quarter ended March 31, 2002 to $15.4 million for the quarter ended March
31, 2003. 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 was partially offset by pricing pressure we
are experiencing for some of our services.

Cost of Revenue.Cost of revenue decreased $0.4 million from $6.9 million
for the three months ended March 31, 2002 to $6.5 million for the three months
ended March 31, 2003. Telecommunication costs decreased $0.7 million for the
quarter ended March 31, 2003 over the quarter ended March 31, 2002 due to
volume discounts received from our long distance telephony providers. Salaries
expense decreased $0.1 million due to decreased headcount from the quarter
ended March 31, 2002 to the quarter ended March 31, 2003. Additionally,
maintenance and repairs expense increased $0.1 million for the three months
ended March 31, 2003 from the three months ended March 31, 2002. The primary
reasons for our gross profit improvement are an increase in absolute dollars of
our subscription-based revenue or non-usage based revenue, on which we generate
higher margins, a reduction in our long distance rates and a general
improvement in our infrastructure utilization.

Sales and Marketing.Sales and marketing expense increased $0.3 million
from $4.2 million for the three months ended March 31, 2002 to $4.5 million for
the three months ended March 31, 2003. Personnel and payroll related expenses
increased $0.3 million from the three months ended March 31, 2002 as compared
to the three months ended March 31, 2003, due to increased headcount associated
with our acquisition of InterAct in April 2002. Allocated depreciation expense
increased $0.3 million from the three months ended March 31, 2002 to the three
months ended March 31, 2003, also on account of increased sales and marketing
headcount. Offsetting these increases, bad debt expense decreased $0.3 million
for the three months ended March 31, 2003 as compared with the three months
ended March 31, 2002 due to fewer bankruptcy filings within our customer base,
as well as a general improvement in our accounts receivable aging.

Research and Development.Research and development expense decreased $0.3
million from $2.0 million for the three months ended March 31, 2002 to $1.7
million for the three months ended March 31, 2003. Personnel and payroll
related expenses decreased $0.3 million for the three months ended March 31,
2003 over the three months ended March 31, 2002. This decrease is due to $0.3
million in additional capitalized costs associated with internally developed
software in the first quarter of 2003 as compared to the first quarter of 2002,
primarily due to the development of our next generation service that took place
during the current quarter.

General and Administrative.General and administrative expense decreased
$0.1 million from $1.8 million for the three months ended March 31, 2002 as
compared to $1.7 million for the three months ended March 31, 2003. Personnel
and payroll related expenses decreased $0.1 million for the three months ended
March 31, 2003 over the three months ended March 31, 2002 due to decreased
headcount.

17.



---



##### Table of Contents



Stock-Based Compensation Expense.Stock-based compensation expense
increased $0.1 million from $0.7 million for the three months ended March 31,
2002 to $0.8 million for the three months ended March 31, 2003. 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 three months ended March 31, 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, 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 6 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 Conferencing, LLC, 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 are scheduled to be released in
equal one-third increments and will be 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. We recorded a
restructuring charge of $0.2 million in the first quarter of 2002 and we did
not record a restructuring charge in the first quarter of 2003. At March 31,
2003, the restructuring reserves totaled $0.8 million, of which $0.4 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 March 31, 2003, the
facility reserve was comprised of two offices. Currently, the minimum lease
payments for these two offices total approximately $34,000 per month. We have
fully reserved one of the remaining offices because the office is expected to
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 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 periods.

Other Income (Expense).Interest income decreased $0.1 million from $0.2
million for the three months ended March 31, 2002 to $0.1 million for the three
months ended March 31, 2003. The decrease was related to higher interest rates
in 2002 compared to 2003. Interest expense remained flat at $0.1 million for
the three months ended March 31, 2002 and 2003, respectively.

Liquidity and Capital Resources

As of March 31, 2003, cash and cash equivalents were $32.8 million, an
increase of $1.1 million compared with cash and cash equivalents held as of
December 31, 2002.

Net cash provided by operations was $0.4 million and $2.5 million for the
three months ended March 31, 2002 and 2003, respectively. Cash provided by
operations increased significantly from the first three months of 2002 as
compared to the first three months of 2003 as we went from a net loss of $1.8
million to net income of $0.3 million. The improvement is also due to an
increase in accounts payable partially offset by an increase in accounts
receivable and prepaid expenses and a decrease in accrued expenses and accrued
compensation.

18.



---



##### Table of Contents



Net cash used by investing activities was $2.1 million and $1.5 million
for the three months ended March 31, 2002 and 2003, respectively. Net cash
used by investing activities in the first quarter of 2002 and 2003 primarily
related to capital expenditures for equipment purchases. Overall, 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 $0.1 million and net cash
provided by financing activities was $0.2 million for the three months ended
March 31, 2002 and 2003, respectively. Cash used by financing activities in
the first quarter of 2002 was primarily due to debt service payments offset by
cash proceeds from the exercise of common stock options. Cash provided by
financing activities in the first quarter of 2003 was primarily due to cash
proceeds from the exercise of common stock options offset by debt service
payments.

As of March 31, 2003, we had approximately $2.8 million in total debt
obligations outstanding, of which approximately $1.0 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. 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 March 31, 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 $9.3 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 March 31, 2003, the balance due
under this agreement was approximately $2.8 million, of which approximately
$1.0 million was 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 six consecutive
quarters and we expect to continue to generate positive cash flow from
operations in subsequent quarters. 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. For the three months ended
March 31, 2003, no single customer accounted for greater than 10% of our total
revenue. At March 31, 2003, we had a receivable due from Qwest Communications
International, Inc. of $2.4 million or 23.9% 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 March 31, 2003, our purchase commitments for bandwidth usage and
telephony services were approximately $24.3 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.

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 March 31, 2003, are approximately $10.0
million. We are in the process of attempting to sublease or otherwise minimize
our lease commitments with respect to two offices, and to the extent we are
successful in subleasing or otherwise relieving ourselves of the lease
obligations, these facility lease commitments, net of any subleases, will
decrease. Through March 31, 2003, we have been successful in terminating five
facility leases, thereby relieving ourselves of any future obligation, and we
have been

19.



---



##### Table of Contents



successful in subleasing seven facilities. Future minimum sublease
receivables for the seven subleased facilities, as of March 31, 2003,
approximate $1.6 million that we expect to receive through August 2005.

Our contractual obligations and commitments to make future payments as of
March 31, 2003 are as follows (in thousands):

|                                              |  |       |        |                  |  |                        |        |           |  |              |        |  |  |   |       |  |  |   |       | 
|--------------------------------------------- |  | ----- | ------ | ---------------- |  | ---------------------- | ------ | --------- |  | ------------ | ------ |  |  | - | ----- |  |  | - | ----- | 
|                                              |  |       |        |                  |  | Payments Due by Period |        |           |  |             
|                                              |  |       |        |                  |  |                        |        |           |  |             
|                                              |  | Total |        | Less than 1 year |  | 2-3 years              |        | 4-5 years |  | Over 5 years
|                                              |  |       |        |                  |  |                        |        |           |  |             
|Long-term debt                                |  | $     | 2,755  |                  |  | $                      | 972    |           |  | $            | 1,783  |  |  | $ |      |  |  | $ |      | 
|Operating leases                              |  |       | 10,042 |                  |  |                        | 2,591  |           |  |              | 4,269  |  |  |   | 1,954 |  |  |   | 1,228 | 
|Purchase obligations                          |  |       | 24,312 |                  |  |                        | 14,760 |           |  |              | 9,552  |  |  |   |      |  |  |   |      | 
|                                              |  |       |        |                  |  |                        |        |           |  |              |        |  |  |   |       |  |  |   |       | 
|Total contractual obligations and commitments |  | $     | 37,109 |                  |  | $                      | 18,323 |           |  | $            | 15,604 |  |  | $ | 1,954 |  |  | $ | 1,228 | 
|                                              |  |       |        |                  |  |                        |        |           |  |              |        |  |  |   |       |  |  |   |       | 

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, useful lives of depreciable and
intangible assets, the valuation allowance for deferred tax assets and
restructuring charges and reserves.

Our critical accounting policies and estimates are included in our Form
10-K, filed on March 26, 2003.

20.



---



##### Table of Contents



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 and
March 31, 2003. We realized net income of $340,000 and $553,000 in the quarters
ended December 31, 2002 and March 31, 2003, respectively. 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, and if price pressure
increases significantly. 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 operations. Accordingly, we must significantly increase our revenue to
maintain profitability. We have incurred cumulative net losses of approximately
$171.6 million from our inception through March 31, 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 and our Web
Conferencing Pro service in June 2000. In January 2001, we restructured our
company to focus solely on these 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.

21.



---



##### Table of Contents



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 $1.9 million net loss and $0.6 million net income in the
four quarters ended March 31, 2003. Our quarterly revenue ranged between $15.4
million and $15.7 million in the four quarters ended March 31, 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 spring, 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 model. For
example, in the quarter ended March 31, 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 22.7%
of our revenue in the first quarter ended March 31, 2003. These large customers
have no obligation to continue to use, or renew subscriptions for, 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 March 31, 2003, which was approximately $2.4 million or 23.9% of the
Companys total accounts receivable balance.

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 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

22.



---



##### Table of Contents



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.

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 marketplace, we may be
required to significantly reduce our pricing structure, 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, our net losses will increase
and 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 signed an agreement to acquire 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 providers,
such as Oracle, have announced their intention to provide web conferencing
services in addition to their software offerings.

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,

23.



---



##### Table of Contents



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.                                                                                                                                                                                                      

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 March 31, 2003, 15% 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.

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 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 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

24.



---



##### Table of Contents



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 50% 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 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.

Our joint venture with @viso Limited was not successful and any additional
international expansion may not be successful, which could harm our ability to
attract multi-national customers and cause our operating losses to increase.

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, and
may continue to, expend

25.



---



##### Table of Contents



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 continue to 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 expanded our sales force in connection with the
acquisition and 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 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.

26.



---



##### Table of Contents



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



| |  |  | issue equity securities that would dilute our stockholders;
| | - |  | -----------------------------------------------------------
|
| |  |  | expend cash;                                               
|
| |  |  | incur debt;                                                
|
| |  |  | assume unknown or contingent liabilities; or               
|
| |  |  | 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 proceedings could be burdensome and expensive and the
outcome could be 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,

27.



---



##### Table of Contents



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 March 31, 2003 we had
approximately $4.5 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 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.

28.



---



##### Table of Contents



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 and other charges,
consisting primarily of depreciation, the amortization of intangible assets,
stock-based compensation and restructuring costs. 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 that 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.

Our stock price is volatile and this volatility may depress our stock price,
result in litigation or impair our reported goodwill, which may cause our stock
price to decline.

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 December 31, 2002 our stock has traded as
high as $6.30 and as low as $1.95 on the Nasdaq National Market. The volatility
of our stock price can be due to factors such as, fluctuating operating

29.



---



##### Table of Contents



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 valuation techniques
that we consider in determining the impairment of goodwill is our stock market
capitalization. If our stock price continues to be volatile and remains
depressed for any extended period of time, our reported goodwill could be
materially adversely impaired, and may cause our stock price to decline
further.

30.



---



##### Table of Contents






Item 3.       Quantitative and Qualitative Disclosures about Market Risk

At March 31, 2003, we had long-term debt, including current portion, in
the aggregate amount of $2.8 million with an interest rate of 5.25% and monthly
payments due through January 2006. A change in interest rates would not affect
our obligations related to long-term debt existing as of March 31, 2003, as the
interest rate related to that debt is fixed over the term of the debt. At March
31, 2003, we had a $12.5 million revolving line of credit with a loan value of
$9.3 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 March 31,
2003, we did not have an outstanding balance under this 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 March 31, 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-14(c) under the Exchange Act. In designing and evaluating our disclosure
controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and therefore
management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible disclosure controls and procedures.

Within 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective.

There have been no significant changes in our internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date we completed our evaluation.

31.



---



##### Table of Contents






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

In January 2003 we issued an aggregate of 28,176 shares of common stock to
MMC/GATX Partnership No. 1 pursuant to its net exercise of a previously issued
warrant.




Item 3.      Defaults Upon Senior Securities

None.




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

None.




Item 5.      Other Information

None.




Item 6.      Exhibits and Reports on Form 8-K

|     |  |         
|---- |  | --------
|(A.) |  | Exhibits

| |  |             |      |             |  |                                                                                                                                                                     
| |  | ----------- | ---- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit No. |      | Description
| |  |             |      |            
| |  |             | 99.1 |             |  | Chief Executive Officer and Chief Financial Officer Certificate pursuant to Section 906 of the Public
Company Accounting Reform and Investor Protection Act of 2002.

|     |  |                    
|---- |  | -------------------
|(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.

32.



---



##### Table of Contents






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: May 14, 2003 |  | By: /s/ Nicholas J. Cuccaro
Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)

33.



---



##### Table of Contents






Form 10-Q Certification

I, Paul A. Berberian, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Raindance
Communications, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                   |  |                                                                              
|------------------ |  | -----------------------------------------------------------------------------
|Date: May 14, 2003 |  |                                                                              
|                  
|                   |  | /s/ Paul A. Berberian
Paul A. Berberian
Chief Executive Officer and President

34



---



##### Table of Contents



Form 10-Q Certification

I, Nicholas J. Cucarro, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Raindance
Communications, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                   |  |                                                                    
|------------------ |  | -------------------------------------------------------------------
|Date: May 14, 2003 |  |                                                                    
|                  
|                   |  | /s/ Nicholas J. Cuccaro
Nicholas J. Cuccaro
Chief Financial Officer

35



---



##### Table of Contents






EXHIBIT INDEX

| |  |             |      |             |  |                                                                                                                                                                     
| |  | ----------- | ---- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit No. |      | Description
| |  |             |      |            
| |  |             | 99.1 |             |  | Chief Executive Officer and Chief Financial Officer Certificate pursuant to Section 906 of the Public
Company Accounting Reform and Investor Protection Act of 2002.

36.