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UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC20549

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FORM10-K

Annual Report Pursuant to Section 13 or15(d)Of the Securities Exchange Act of 1934 For the FiscalYear Ended December 31, 2004

Commission File Number000-29739

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REGISTER.COM,INC.

(Exact name of registrant asspecified in itscharter)

|                                                              |  |                                      |       |        |  |  |
|--------------------------------------------------------------|--|--------------------------------------|-------|--------|--|--|
| Delaware                                                     |  | 11-3239091                           |
| (Stateor Other Jurisdiction of Incorporation orOrganization) |  | (I.R.S.Employeridentificationnumber) |
| 575Eighth Avenue, 8th Floor, New York, New York              |  |                                 | 10018 |   |
| (Addressof Registrant's Principal Executive Offices)         |  | (ZIPCode)                            |
|                                                              |

Registrant's Telephone Number,Including Area Code (212) 798-9100

Securities registeredpursuant to Section   12(b) of theAct:None

Securities registered pursuant toSection   12(g) of the Act:Common Stock $0.0001 parvaluePreferred Stock Purchase Rights

Indicate by checkmark whether the registrant (1) has filed all reports required to befiled by Section  13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

   Yes       No

Indicate by check mark if disclosure of delinquent filers pursuantto Item 405 of Regulation S-K is not contained herein, and will not becontained, to the best of registrant's knowledge, in definitiveproxy or information statements incorporated by reference in Part IIIof this Form 10-K or any amendment to this Form10-K.   

Indicate by checkmark whether theregistrant is an accelerated filer (as defined in Exchange Act Rule12b-2):

   Yes       No

The aggregate market value of the votingstock held by non-affiliates of the registrant as of June  30,2004 was approximately $91,474,782 (based on the last reported saleprice on the NASDAQ National Market on that date and calculated byexcluding all shares held by executive officers, directors and holdersknown to the registrant to beneficially own five percent or more of theregistrant's voting stock, without conceding that such personsare "affiliates" of the registrant forpurposes of the federal securities laws). The registrant does not haveany non-voting stock outstanding.

The number of sharesoutstanding of the registrant's common stock as of May 2, 2005was 24,251,426.

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REGISTER.COM,INC.2004 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

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|     |  |                                                                                                       |  | Page   |
| PART I   |  |                                                                                                       |  |   |      |   |
| Item1.   |  | Business                                                                                                   |  |   | 1                        |   |
| Item 2.  |  | Properties                                                                                                 |  |   | 32                       |   |
| Item 3.  |  | Legal Proceedings                                                                                          |  |   | 32                       |   |
| Item 4.  |  | Submission of Matters to a Vote of SecurityHolders                                                         |  |   | 34                       |   |
| PARTII   |  |                                                                                                       |  |   |      |   |
| Item5.   |  | Market for Registrant's Common Equity, RelatedStockholder Matters and Issuer Purchases of EquitySecurities |  |   | 35                       |   |
| Item 6.  |  | SelectedFinancial Data                                                                                     |  |   | 37                       |   |
| Item7.   |  | Management's Discussion and Analysis of FinancialCondition and Results of Operations                       |  |   | 39                       |   |
| Item 7A. |  | Quantitative and Qualitative DisclosuresAbout Market Risk                                                  |  |   | 54                       |   |
| Item 8.  |  | Financial Statements and Supplementary Data                                                                |  |   | 55                       |   |
| Item 9.  |  | Changes in and Disagreements With Accountantson Accounting and Financial Disclosure                        |  |   | 89                       |   |
| Item 9A. |  | Controls and Procedures                                                                                    |  |   | 89                       |   |
| Item 9B. |  | Other Information                                                                                          |  |   | 92                       |   |
| PARTIII  |  |                                                                                                       |  |   |                     |   |  |   |      |   |
| Item10.  |  | Directors and Executive Officers of the Registrant                                                         |  |   | 94                       |   |
| Item 11. |  | ExecutiveCompensation                                                                                      |  |   | 97                       |   |
| Item 12. |  | SecurityOwnership of Certain Beneficial Owners and Management and RelatedStockholder Matters               |  |   | 106                      |   |
| Item 13. |  | Certain Relationships and Related Transactions                                                             |  |   | 109                      |   |
| Item 14. |  | Principal AccountantFees and Services                                                                      |  |   | 110                      |   |
| PARTIV   |  |                                                                                                       |  |   |      |   |
| Item 15. |  | Exhibits and Financial Statement Schedules                                                                 |  |   | 112                      |   |
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This reportcontains forward-looking statements relating to future events and ourfuture performance within the meaning of Section   27A of theSecurities Act of 1933, as amended, and Section  21E of theSecurities Exchange Act of 1934, as amended, including, withoutlimitation, statements regarding our expectations, assumptions,estimates, projections, beliefs, intentions or future strategies aboutour business and our industry that are signified by the words"expects","anticipates","intends","believes" or similar language although notall forward-looking statements contain such identifying words. Actualresults could differ materially from those anticipated in suchforward-looking statements. All forward-looking statements included inthis document are based on information available to us on the datehereof. It is routine for our internal projections and expectations tochange as the year or each quarter in the year progresses, andtherefore it should be clearly understood that the internal projectionsand beliefs upon which we base our expectations may change prior to theend of each quarter or the year. Although these expectations maychange, our company policy is generally to provide our expectationsonly once per quarter, so we may not inform you of any changes untilthe next quarter. We caution that our business and financialperformance are subject to substantial risks and uncertainties. Inevaluating our business, investors and prospective investors shouldcarefully consider the information set forth below under the caption"Risk Factors" in addition to the otherinformation set forth herein and elsewhere in our other public filingswith the Securities and Exchange Commission.

PARTI

Item 1.    Business.

Overview

We are aprovider of global domain name registration, website, web hosting,email and other Internet services for businesses and consumers thatwish to have a unique address and branded identity on the Internet.Domain names serve as addresses and identities on the World Wide Web.They enable a business or person to establish an Internet presence andare integral to the use of websites (e.g., www.register.com),email (e.g., johndoe@register.com) and other types ofInternet-based services.

We began processing domain nameregistrations in the generic top level domains (gTLDs) .com, .net and..org in June 1999 and were the first registrar accredited by theInternet Corporation for Assigned Names and Numbers (ICANN) to competein the domain name registration market after ICANN introducedcompetition in the industry. We had approximately three million activedomain name registrations under management as of December 31, 2004,representing approximately 0.9  million customers. Currently, weregister, renew and transfer domain names in TLDs such as .com, .net,..org, .biz, .info and .name and in over 400 country code top leveldomains (ccTLDs), including .de for Germany and .jp for Japan and subdomains, such as .co.uk and .org.uk for the United Kingdom.

Webelieve that we offer a quick and user-friendly domain nameregistration process as well as responsive and reliable customersupport. We also assist our customers in further developing andmaintaining their Internet presence by offering them a range ofwebsite, web hosting, email and other value-added products andservices.

Throughout this report, whenever we refer to"products and services," we are referring toour various types of services, such as domain name registrations, webhosting, email, website creation, account masking, domain name recoveryand other bundled services which we refer to as "productsand services" in our marketing activities. We do not sellany tangible products.

Domain name registration activity isdriven by the use of the Internet by businesses and consumers forelectronic commerce and communication, the promotion, marketing andprotection of brands and identities across the world and other onlineactivities. Our primary goal is to become the preferred provider ofdomain names, website, web hosting, email and other Internet servicesfor customers seeking to build, manage and promote their onlinepresence.

The Company processes transactions with its customersthrough three separate channels, Retail, Corporate Services and GlobalPartner Network (GPN). Customers purchasing our services through

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the Retail channel purchase domain nameregistration and other value-added services directly from our websitelocated at www.register.com and these customers aretypically small to medium-sized businesses. Customers purchasing ourservices through the Corporate Services channel generally purchaseglobal registration and management services and/or online brand andtrademark protection directly through our customer servicerepresentatives or through a private specialized website. Our customersmay also purchase our services through our GPN wholesale channelthrough which certain companies resell our domain name registration andrelated products and services to their customers. Resellers thatparticipate in our GPN wholesale channel are typically Internet ServiceProviders (ISPs), web hosting companies, telecom carriers and webportals, but also include online and offline retailers and businessaggregators. See "Distribution Channels."

Corporate History

We are the successor by merger to FormanInteractive Corp. Forman Interactive commenced operations in 1994 as adeveloper of electronic commerce software, and began offering webhosting and related products and services in 1997. In February 1998, webegan to distribute domain names in connection with our other productsat no additional cost. In April 1999, we commenced offeringregistration services for ccTLDs. In June 1999, Forman Interactivemerged with and into the then newly formed Register.com, Inc., and webegan operating as a paid registrar in the .com, .net and .org domains.In September 2000 we acquired Afternic.com, Inc., a secondary marketexchange for domain names. We made a decision to abandon the Afternicbusiness in September 2002. In March 2002, we acquired Virtual Internetplc, a U.K. based company, which had operations in the United Statesand Europe through two divisions: Corporate Services and Hosting. InMay 2002, we sold the Hosting division. Virtual Internet'sCorporate Services division, which provided global domain nameregistrations and online intellectual property protection, became ourEuropean Corporate Services group. Virtual Internet had previously beenour joint venture partner in RegistryPro, the core assets of which wesold in February 2004. In 2003, we changed the name of Virtual Internetto Register.com Europe plc, and refer to it herein as RCOM Europe.

Restatement and Reclassification of Financial Statements

The Company has restated its previously issued ConsolidatedFinancial Statements as of and for the years ended December 31, 2000through 2003. In addition, the Company has restated data for each ofthe quarterly periods of 2003 and the first three quarterly periods of2004. The restatement relates to the timing of the recognition ofrevenue, deferred revenue, and associated costs of revenue amountsrelating to domain name transactions, the reclassification of certaincredit memos issued in 2002, the correction of the provision for incometaxes and the related balance sheet accounts, and the correction of thepro forma stock based compensation expense disclosures required underStatement of Financial Accounting Standards No. 123, Accounting forStock Based Compensation. The Consolidated Financial Statementsalso reflect certain reclassifications of auction rate securities andrestricted cash. For more information see Notes 2 and 16 to ourConsolidated Financial Statements included under Item 8 of this reportand "Management's Discussion and Analysis ofFinancial Condition and Results of Operations — Quarterly Resultsof Operations."

Domain Name RegistrationSystem

The Internet domain name registration system consists oftwo principal functions: registry and registrar. A registry maintains amaster database of domain names, and their corresponding InternetProtocol (IP) addresses, registered in a particular top level domain,such as .com, .us or .uk. A registrar, such as Register.com, acts as anintermediary between the registry and customers, referred to asregistrants, seeking to register domain names. Registrars typicallyhandle billing, customer service and the technical management of adomain name registration. There are currently several hundred ICANNaccredited registrars that register domain names in one or more of thegTLDs, although not all of these accredited registrars are currentlyoperational. In addition, there are many resellers that are not ICANNaccredited registrars, but compete in the marketplace as a reseller ofdomain name registrations through reseller arrangements withregistrars.

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The domain name system is organizedaccording to industry nomenclature by levels, so that, for example, inthe domain name mybrand.com, .com is the top level domain and mybrandis the second level domain. Top level domains are classified as eithergTLDs or ccTLDs. Each ccTLD is affiliated with a specific country,whereas gTLDs are not. Although the original and most common gTLDscontinue to be .com, .net and .org, in November 2000, ICANN approvedseven additional gTLD registries: .biz, .info, .name, .pro, .museum,..coop and .aero. The .museum, .coop and .aero gTLDs are authorized onlyfor use in specific industry segments. In April 2005, ICANN announcedthe designation of two new sponsored TLDs: .jobs and .travel. ICANN iscurrently engaged in commercial and technical negotiations with thefollowing additional candidate registries: .cat, .post and .mobi.

There are currently more than 400 different ccTLDs, such as .de forGermany and .jp for Japan or sub domains, such as .co.uk and .org.ukfor the United Kingdom, representing more than 200  countries andterritories. Each registry for a ccTLD is responsible for maintainingand operating its own database of registered domain names. Some ccTLDsare unrestricted and allow anyone, from anywhere, to register theirdomain names on a first-come, first-served basis. Others require thatregistrants have a local presence in the country and may have otherrequirements and restrictions. High profile ccTLDs that have recentlyrelaxed previous restrictions include .in (India), .hk (Hong Kong) and..tw (Taiwan). While there have been efforts by ICANN directed atcreating uniform domain name registration rules and registraradministration guidelines, to date there has been no internationalconsensus.

From January 1993 until April 1999, NetworkSolutions, Inc. was the sole entity authorized by the U.S. governmentto act as both registrar and registry for domain names in the .com,..net and .org top level domains. In November 1998, ICANN was selectedby the U.S. Department of Commerce to oversee the management of the..com, .net and .org domains. In April 1999, as a preliminary step tointroducing competition into the domain name registration system for..com, .net and .org domains, ICANN selected Register.com as one of fiveregistrars to participate in a testbed to evaluate whether theregistration system could accommodate multiple registrars. In June1999, we were the first of these five competitive registrars to launchour registration services. In November 1999, the testbed was completed,and all registrars meeting ICANN's standards for accreditationwere permitted to register domain names in the .com, .net and .orgdomains.

For a more detailed discussion of the regulatorybackground of the domain name registration system, see"Administration of the Internet; Government Regulation andLegal Uncertainties." For risks associated with the domainname registration system, see "RiskFactors."

The Register.com Strategy

Ourobjective is to develop long-term relationships with our customers byhelping them establish, manage and expand their Internet presence andbrands in order to communicate and conduct commerce simply andeffectively online. We believe that domain names serve as thecornerstone for establishing an Internet presence and that,increasingly, it is our value-added products and services, includingemail, web hosting and website building tools, which enable ourcustomers to further develop and broaden their Internet presence. Webelieve customers will increasingly purchase additional products andservices from us to help put their domain names to use in order toachieve their online goals. Between the year ended December 31, 2002and the year ended December  31, 2004, the percentage ofcustomers who purchased our value-added services through our Retailchannel doubled. We believe that by delivering a superior level ofcustomer service and enhancing our current product and serviceofferings, we can strengthen customer loyalty and increase the lifetimevalue of our customers. In addition, we provide domain nameregistration services in hundreds of ccTLDs, offering customers usingour Corporate Services channel "one stopshopping" for their domain name registration process andfor managing their domain names across the globe.

We arefocusing our Retail channel marketing efforts on attracting andretaining customers who actively use their domain names and are morelikely both to take advantage of the additional products and serviceswe offer and to renew their domain name registrations. By focusing onthe quality of our customer base, rather than the volume of domainnames registered alone, we believe that over time we will succeed inincreasing our revenue and profit per customer.

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In late 2002, we began a restructuringprogram to address the challenges facing our business. The primary goalof our restructuring program is to introduce new systems that willenable us to operate our business more efficiently. For our Retailchannel, we are building a new systems architecture which is intendedto enable us to introduce new products and services and to improve ouroperating efficiencies and, over the long term, reduce costs. Webelieve that by making our technology architecture more flexible andefficient we should be able to achieve these goals. For our CorporateServices channel, we have developed a system to automate a significantportion of the order processing and fulfillment for ccTLDregistrations. This system was rolled out in December 2004 for ourNorth American customers and in January 2005 for our European-basedinternational customers. We anticipate that our new system for ourCorporate Services channel will enable us to take sales orders andfulfill them on a more highly automated basis, thereby reducing ourcosts for processing these orders and increasing our efficiency andaccuracy. Notwithstanding our expectations, the above-notedenhancements for the Retail channel and the Corporate Services channelsystems may not yield the anticipated cost savings and/orefficiencies.

Also, both as part of our efforts to increaseefficiencies and as a result of practical considerations, we haveoutsourced certain operations and may continue to explore opportunitiesto outsource others. These outsourced operations include the backoffice operations for parts of our business such as customer creditcard payment processing and other services. In addition, in order toconcentrate on our core competencies, we do not develop and maintainall of the products and services that we offer, but rather offercertain of our services to our customers through various third-partyservice providers engaged to perform these services on our behalf.

As part of our cost reduction efforts, we have also relocated someof our functions and operations to our Canadian facility, where theoverhead and labor costs are lower than in our other locations. Inaddition, in February 2004, we sold our .pro registry business, whichhad received ICANN's approval to operate. We sold the .proregistry because we concluded that operating the .pro registry wouldhave distracted us and taken time, energy and resources from our corebusiness of operating a registrar and selling related value-addedproducts and services.

Distribution Channels

We haveestablished multiple distribution channels which we believe enable usto reach a broader range of potential customers and increase ourexposure across the market. We strive to provide our customers withquick, easy-to-use, value-added and flexible solutions and strongcustomer support across all of our distribution channels.

Retail.    Through our www.register.com website,customers purchasing our services through our Retail channel canregister a domain name and purchase the value-added products andservices we offer to quickly and easily establish, maintain and enhancetheir Internet presence. Our marketing efforts focus on enhancing ourreturn on investment by improving customer retention, upsellingadditional products and services to our domain name registrants andoptimizing their lifetime value. We have used a combination of directresponse and targeted mass marketing vehicles to reach our targetcustomers, including: television, radio, outbound and inboundtelemarketing, email, direct mail, online marketing and an affiliateprogram through which we pay a commission for customer referrals thatresult in domain name registrations.

CorporateServices.    Our Corporate Services channel is dedicated tomeeting the needs of larger, global and brand-intensive customers andother registrants with respect to their domain name registration andmanagement, and online brand and trademark protection. We expanded theinternational reach of this channel in 2002 through our acquisition ofVirtual Internet (now RCOM Europe). Customers purchasing our servicesthrough our Corporate Services channel are typically largemulti-national entities that have extensive domain name portfolios.Many companies currently rely on their own personnel to monitor andprotect their name brands and trademarks on the Internet by registeringand renewing these domain names on a worldwide basis, across hundredsof ccTLDs. We believe that we can provide these services moreefficiently through our dedicated account team and our relationshipswith numerous registries. We reach customers interested in ourCorporate 

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Services channel principally through ourdirect sales forces in the U.S. and Europe, supported by our marketingefforts. Customers who use our Corporate Services channel include over50% of the world's top 100 most valuable brands, as rankedby Interbrand in 2004.

Global Partner Network.    Wealso offer our products and services indirectly through our GlobalPartner Network (GPN) wholesale channel through companies that resellour domain name registration and Internet products and services. OurGPN resellers are typically ISPs, web hosting companies, telecomcarriers and web portals, but also include online and offline retailersand business aggregators. These customers seek to generate revenue andincrease their own customer retention by offering our domain nameregistration and related web services to their customers. In additionto providing our GPN resellers with software solutions to enable themto resell our services, we provide them with tools that allow them tocontrol aspects of domain name registrations for their customersdirectly and to monitor their customers' domain name registrationactivity. We offer our GPN resellers a choice between softwaresolutions that are distinguishable primarily based upon the complexityof implementation and the degree of integration they provide.

NameBargain.    Through our www.namebargain.comwebsite, we offer low price domain name registrations and otherproducts and services targeted at customers who buy in bulk. However,domain names and related products and services purchased through thisservice come with limited services and limited customer support. We didonly very limited promotion of this service in 2004.

Ourfinancial information by geographic area is included in Note 2 to ourConsolidated Financial Statements included under Item 8 of thisreport.

Products and Services

We are committed tooffering "best of breed" products andservices in order to empower our customers to establish their Internetpresence and to drive their success. We offer the following keyproducts and services:

Domain Name RegistrationServices.Our core expertise is inproviding domain name registration and management services. Weregister, renew and, in certain cases, transfer domain names in the..com, .net, .org, .biz, .info and .name gTLDs and numerous ccTLDs, ofwhich more than 30 may currently be registered through ourwww.register.com website or www.namebargain.com. Wegenerally offer one year through ten year registration periods for theinitial domain name registration and one to nine year terms forrenewals. In connection with domain name registrations procured throughour Retail channel, we provide the following basic products andservices, for no additionalfee:

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| •  | FirstStepSite®.    Weprovide our customers who have registered domain names throughwww.register.com the ability to create a basic website and postit on the Internet. Customers can select from a limited number oflayouts, themes and colors and also upload images to customize theirFirstStepSites. |

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| •  | Website Forwarding— Basic.    We allow customers to forward any domain nameregistered to them to any website page they choose. This service adds asmall navigation bar, on which we display Register.com or third-partyadvertising, in a frame at the bottom of the website'sscreen. |

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| •  | DomainManagerTM.    This online application enables our customers toview and modify important account information online, on a real-timebasis, including their email address, the location of the server thathosts their website and all billing information. It also enablescustomers to renew their domain name registrations quickly andefficiently online. On a more technical level, Domain Manager allowsour customers to modify certain information about their domain names,such as zone file addresses, through password-protected online accountaccess. |

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| •  | DNS Services.    We are oneof the largest authoritative Domain Name Server (DNS) providers in theworld. DNS provides the Internet and Internet users with authoritativerouting information for domain names. |

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During the three fiscal years endedDecember 31, 2004, 2003 and 2002, domain name registrations haveaccounted for 84%, 87% and 91%, respectively, andother products and services accounted for 14%, 9%, and5%, respectively, of our consolidated revenues.

Renewal Services.    Encouraging our customers to renewtheir domain name registrations with us is of great importance, astheir renewals will allow us to increase our profitability by loweringour overall marketing costs. We are committed to making our renewalservices more efficient and easier to use. In order to strengthen ourrenewal efforts, and to help our customers protect their domain nameregistrations from inadvertent lapse and deletion, we have developedretention-based initiatives and provide services suchas:

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| •  | QuickRenewTM — aneasy-to-use, one-step online renewalprocess. |

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| •  | SafeRenewTM — ourautomatic renewal service whereby customers who provide a credit cardauthorization at the time of registration or at any time thereafter,will automatically have their domain names and value-added servicesrenewed as they expire. |

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| •  | RenewalManagerTM — an easy way for our customers to renew multipledomain name registrations at onetime. |

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| •  | Outbound email and telemarketingefforts to current customers reminding them to protect and renew theirnames that are about to lapse. |

Domain Name Registrant andRegistrar Transfers.    We facilitate the processing of domainname registration transfers between registrants. Also, we enablecustomers to transfer to us, as registrar, domain names in certaingTLDs that they originally registered with a different registrar. Inresponse to new policies recently adopted by ICANN, we have beenrevising our current transfer processes. We have implemented asubstantial majority of these revisions and expect to complete them inthe second quarter of 2005.

Value-AddedServices.    Our Value-Added Services not only promote the usageof domain names and thereby increase our renewal rate but they are alsokey to our strategies of improving the quality of our customer base andincreasing our revenue and profit per customer. Our Value-AddedServices, some of which we developed internally and some of which aredeveloped by third-parties and private-labeled by us,include:

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| •  | Personalized BrandedEmail.    We offer email services that enable our customers to usetheir unique domain names to create branded email addresses, such asmyname@mybrand.com. Our basic email offering allows ourcustomers to access their email via a web-based interface or to havedirect and automatic email delivery. We expanded our line of emailproducts significantly in 2004 to include a variety of service,storage, and management options, including an account that allows usersto purchase up to 10 email boxes within theaccount. |

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| •  | HostedMicrosoft® Exchange.    We offer this service whichenables our small business customers to benefit from most of thefunctions of Microsoft Outlook Exchange (including shared address booksand calendars) without their having to incur the cost of maintaining anExchange server. |

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| •  | WebSiteNOW!TM.    Ourtemplate-based do-it-yourself website building tool allows users withno HTML programming skills to create and publish websites on theInternet that contain images, text and hyperlinks.   OurWebSiteNOW! product has more storage space, higher-quality templatesand is more flexible in design capabilities than our basicFirstStepSite®product. |

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| •  | Web Hosting.    All of ourweb hosting products allow users to put websites online usingeither  the included  do-it-yourself website building toolor by uploading existing files to the web hosting account directly orthrough a third-party site-building tool like MicrosoftFrontpage®.   We also offer web hosting accountsthat include ecommerce software that can be used to create an onlinestore. |

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| •  | Website DesignServices.    We offer, both directly and through an advertiser,professional design services that can build customized websites forcustomers using our web hosting services. |

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| •  | WebsiteForwarding — Premium.    Our premium domain name forwardingservice eliminates the advertising included with our basic websiteforwarding service. Our premium service also allows customers to maskthe forwarding of a domain name by keeping the domain name in theaddress bar as opposed to showing the address of the website to whichthe domain name has been forwarded. |

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| •  | Data Backup.    We offer data backup toour customers, which allows users to backup the files on theircomputers automatically when they establish an Internet connection.This is the first branded Register.com service that does not require adomain name for operation. Anyone with a computer and an Internetconnection can use thisservice. |

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| •  | Website Promotion.    Weoffer services facilitating the submission of our customers'domain names and keywords to various search engines. This helps ourcustomers promote theirwebsites. |

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| •  | Digital Certificates.    Weoffer digital certificates to our customers to provide a security keyfor their services which facilitates conducting e-commerce withconfidence. |

Additional Product and Service Offerings throughour Advertisers.    In addition, we pursue advertisers who webelieve can offer additional products and services that will appeal toour customers and in most cases enable them to further develop theirbusinesses. Examples of these advertised services include:incorporation services, search engine advertising and virtual intranetapplications for the small office and home office market.

Corporate Services.    Through our Corporate Serviceschannel, we offer an array of products and services to assist ourglobal and brand-intensive customers with high volume domain nameregistration and management and online brand protection needs,including:

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| •  | Multiple Domain NameRegistrations and Transfers.    We enable our customers to registerand transfer large numbers of domain names in both the gTLD and ccTLDname spaces. For those customers who consolidate their domain namesunder our management, we can administer the renewal process withgreaterease. |

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| •  | NameConsole2.0TM.    Weprovide a web-based management portal, which allows customers toprovide their employees with managed registration capability, includingbulk registration of gTLDs and ccTLDs, online responding capabilitiesand user permission levels, through a customized password-protectedinterface. |

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| •  | Internet Audit.    Weassist our customers in identifying how their intellectual property isrepresented on the Internet, helping them to identify domain names andweb pages that contain references to their marks andbrands. |

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| •  | NameWatchTM.    Usingthis service, our customers can monitor for newly registered domainnames that they believe are confusingly similar or otherwisepotentially infringing of their trademarkrights. |

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| •  | Brand PatrolTM.    Thisservice helps our customers to monitor non-domain name relatedpotential online intellectual property infringement, includingunauthorized retailing and metataginfringement. |

|              |                                                                                                                                                                                                                      |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Account Masking.    Weenable customers to register domain names with anonymity (byRegister.com acting as registrant) so that they can confidentiallysecure a name for a product, service oridea. |

|              |                                                                                                                                                                                                                                                           |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Premium DNS.    We offerdifferent levels of DNS services, but all domain names of customerssubscribing to our Premium DNS service are hosted onRegister.com's Premium DNS infrastructure, providing geographicand network redundancy. |

Customer Service

We believethat our ability to establish and maintain long-term relationships withour customers and to differentiate ourselves from our competitiondepends significantly on the strength of our 

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customer support operations and staff. Wevalue frequent communication with and feedback from our customers inorder to continually improve the quality of care provided by ourcustomer service representatives. Our customer support group seeks toprovide dependable and timely resolution of customer inquiries, 24hours per day, seven days per week. Our customer servicerepresentatives handle general inquiries about the domain nameregistration process and our product and service offerings, investigatethe status of orders and payments and answer technical questions aboutthe Internet and domain name management.

We maintain a customercare facility in Canada. Our customer care center provides enhancedcustomer service and technical support, including a complementaryonline and telephone ticketing system, a toll-free call-in number and ahighly trained staff, to provide faster and specialized attention tocustomer inquiries. As a result of our ongoing training, we have teamsof customer service representatives who specialize in key aspects ofour business, and who are skilled in assisting our customers with ourproducts, services and technology. We also outsource to a specializedcustomer care provider a significant portion of our customers'online inquiries.

We operate with a "continuousimprovement" philosophy that consistently strives toensure our customers receive "best of breed"service and technical support. We are focused on continuously raisingthe bar in delivery of industry-class service level response times,first call resolution, superior technical knowledge and customersatisfaction.

Advertising Sales

Our goal is to partnerwith advertisers in order to offer various business products andservices to our customers, either on a co-branded or private labelbasis, or through a link to our advertisers' sites. We believethat our user base provides advertisers and merchants with anattractive platform from which to reach their respective targetaudiences. In addition to our Register.com and NameBargain.comwebsites, in 2004 we sold advertising space on theFirstStepSite® web pages created through our service andon web pages to which we point our customers' domain namesfollowing their registration until they launch their own website orotherwise change their DNS records. We recently discontinuedadvertising on the FirstStepSite® web pages.

Technology

The primary focus of our restructuring programis to complete the development of and successfully launch newtechnology infrastructures for both our Retail and our CorporateServices channels. We believe that by improving our systems, networkand platform and creating a more highly automated system, we will beable to reduce our operating expenses. We believe that theseimprovements will also enable us to introduce new products and servicesmore rapidly and cost-effectively. Although we believe that our currentsystems are reliable and secure, we hope that this new infrastructurewill allow us to achieve greater reliability and security as well asgreater scalability and flexibility, which will enhance our ability toremain competitive. Our technology costs (which in prior filings mayhave been referred to as research and development costs) were $18.1million, $18.4 million and $13.2 million in 2004, 2003 and 2002,respectively.

Facilities.    Our principal systemssupporting our www.register.com website, Retail and CorporateServices channels, web hosting and critical internal systems arelocated at a third-party hosting facility in New York. We continuallymonitor these systems to improve various aspects of their reliability.We believe this facility has ample power redundancy, fire suppression,peering to other ISPs, bandwidth and backbone redundancy to support thecurrent and anticipated growth of our business. We also have additionalsystems for our premium DNS services at three additional co-locatedhosting facilities, for a total of four hosting facilities. However,our systems for our other products and services are not geographicallyredundant.

Reliability.    Our technology platform isdesigned for reliability. Hardware components are redundant to providehigh availability. We provide software and data reliability through avariety of devices, processes and quality-assurance procedures.Depending on the specific system, our standard procedures include dailydatabase backups, storage of critical information and incrementalbackups of ongoing database modifications.

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Scalability andFlexibility.    Although we believe that our current platform isscalable and flexible, our new architecture will be designed to haveeven greater scalability and flexibility than our current platform. Wehave designed our current systems to handle a large volume of domainname registrations, general website traffic and domain name serverqueries in an efficient, scalable and fault-tolerant manner. Ourapplication servers are clustered and use a highly available, redundantshared file system that allows us to add additional capacity in a moreflexible manner.

Security.    Our technologyincorporates a variety of security techniques to protect domain nameregistration data, customer data, and access controls to our networksand systems. These include communications via Secure Socket Layer(SSL), access control at network routers via rules-base, and encryptionand authentication of various password-based user access. We have alsoimplemented a security policy that limits access to internal serverpasswords to authorized personnel only and to ensure limitedaccessibility to critical components on the network. Our team ofengineers currently monitors our systems 24 hours per day, seven daysper week.

As of December 31, 2004, we did not maintain effectivecontrols over the access to financial application programs and datasuch as accounts receivable, revenue, cost of revenue, deferredrevenue, prepaid registry fees, and other financial statement accounts.Specifically, we did not maintain effective controls over the granting,maintenance and termination of user identification and passwords forour employees and consultants; the required segregation of dutieswithin certain financial applications; and the independent monitoringand verification of internal user access to data. This controldeficiency did not result in adjustments to our annual or interimfinancial statements, however, it could result in a materialmisstatement to annual or interim financial statements that would notbe prevented or detected. (see "Item 9A Controls andProcedures"). To address the material weakness related tosystems access, we had begun to implement controls to require quarterlyupdates of all user access lists to all financial applications at theend of the fourth quarter of 2004. At the end of the fourth quarter of2004, these controls had not been successfully implemented. We canprovide no assurances that we will be successful in operating thesecontrol procedures.

Administration of the Internet; GovernmentRegulation and Legal Uncertainties

Under a 1993 cooperativeagreement with the U.S. Department of Commerce, Network Solutions wasauthorized to act as the sole registry and sole registrar for domainnames in the .com, .net and .org top level domains. In October 1998,the Department of Commerce amended the Network Solutions cooperativeagreement to call for the formation of a not-for-profit corporation tooversee the management of, and create policies regarding, domain namesin the .com, .net and .org top level domains. The Department ofCommerce also proposed that additional registrars be authorized toregister domain names based upon the idea that competitive registrarswould benefit consumers and businesses. In November 1998, ICANN wasrecognized as this not-for-profit corporation by the Department ofCommerce.

ICANN's authority is based upon contracts withmember entities such as registrars and registries and compliance withits consensus policies. While these policies do not constitute law inthe United States or elsewhere, they have a significant influence onthe operation and future of the domain name registration system. Thereare currently several hundred ICANN accredited registrars that registerdomain names in one or more of the gTLDs, although not all of theseaccredited registrars are currently operational. In November 2000,ICANN approved the following gTLDs operated by new registries: .biz,..info, .name, .pro, .museum, .coop and .aero. The .museum, .coop and..aero gTLDs are authorized only for use in specific industry segments.In April 2005, ICANN announced the designation of two new sponsoredTLDs: .jobs and .travel. ICANN is currently engaged in commercial andtechnical negotiations with the following additional candidateregistries: .cat, .post and .mobi.

In March 2000, NetworkSolutions was acquired by VeriSign and in May 2001, ICANN finalizedagreements with VeriSign that superseded the original agreementsbetween the Department of Commerce and Network Solutions. Theseagreements enabled VeriSign to continue to operate the .com registryuntil at least 2007 and the .net registry until June  30, 2005,even as it retained ownership and control over its registrar businessthrough Network Solutions. The agreements also provide that

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VeriSign could continue to operate bothregistries beyond these dates if it ceased to operate the .org registryand maintained a structural separation between its registry and itsregistrar businesses. Notwithstanding the above, in November 2003VeriSign divested its Network Solutions business and ceased to operateas a registrar, although VeriSign retained a small ownership interestin the registrar business. VeriSign continues to operate the .com and..net registries. In addition, the .net registry recently was put up forbid among five applicants, including VeriSign. On March 28, 2005, ICANNposted the final report of an independent evaluator ranking VeriSignhighest among the bidders. ICANN has entered into negotiations withVerisign to reach a mutually acceptable registry agreement. In theevent that these negotiations fail and an operator other than VeriSignis selected, it is likely that the transition to the new registry wouldincrease our costs and create operational and technologicaldistractions that could make it more difficult for us to deliver ourproducts and services and result in a decline in customersatisfaction.

ICANN from time to time may create new policiessubject to (i) review and recommendation by a consensus of theapplicable supporting organization and (ii) adoption by the ICANN boardof directors. The Generic Name Supporting Organization (GNSO) reviewsand develops recommendations on gTLD policy. As a member of theRegistrars Constituency, one of the six constituencies represented inthe GNSO, we play an active role in the development of ICANN policies.Examples of new polices recently implemented by ICANN include: (i)policies governing domain name transfers that will require us to reviseour current transfer processes and (ii) policies governing the deletionof un-renewed domain names.

Recently the United Nations (UN) andthe International Telecommunications Union (ITU) have expressed anincreased interest in Internet governance. The UN and ITU haveestablished a group to review whether ICANN's authority tooversee the Internet should be transferred away from ICANN, in whole orin part, to these organizations. Although such a result is unlikely in2005, it is possible that there will be changes in the area of Internetgovernance in the future. If new laws, regulations or ICANN policiesregarding domain names and domain name registrars are adopted, we wouldbe required to comply, which could increase our costs, distract timeand energy from our operations and make it more difficult for us todeliver our products and services. New and existing laws may coverissues such as:

|              |                                                             |
|--------------|-------------------------------------------------------------|
| •  | pricing controls orincreases at the ICANN or registrylevel; |

|              |                |
|--------------|----------------|
| •  | Internettaxes; |

|              |                                                     |
|--------------|-----------------------------------------------------|
| •  | the creation of additional gTLDsand sponsored TLDs; |

|              |                     |
|--------------|---------------------|
| •  | consumerprotection; |

|              |                             |
|--------------|-----------------------------|
| •  | privacy and dataprotection; |

|              |                                       |
|--------------|---------------------------------------|
| •  | cross-border domain nameregistration; |

|              |                                              |
|--------------|----------------------------------------------|
| •  | trademark, copyright andpatent infringement; |

|              |                                    |
|--------------|------------------------------------|
| •  | domain namedispute resolution; and |

|              |                                                                                         |
|--------------|-----------------------------------------------------------------------------------------|
| •  | other claimsbased on the nature or content of domain names and domain nameregistration. |

In addition, there have been ongoing legislativedevelopments and judicial decisions with respect to trademarkinfringement claims, unfair competition claims and dispute resolutionpolicies relating to the registration of domain names. To help protectourselves from liability in the face of these ongoing legaldevelopments, we have taken the followingprecautions:

|              |                                                                                                                                                                                                                  |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | in our standard servicesagreement, we require that each customer indemnify, defend and hold usharmless for any dispute arising from the registration or use of adomain name registered in that person's name;and |

|              |                                                                                                            |
|--------------|------------------------------------------------------------------------------------------------------------|
| •  | on December 1, 1999, we implementedthe Uniform Dispute Resolution Policy (UDRP) that was approved byICANN. |

Despite these precautions, we cannot assure you that ourindemnity and dispute resolution policies will be sufficient to protectus against claims asserted by various third-parties, including claims

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of trademark infringement and unfaircompetition in our capacity as registrar. In addition, it is possiblethat a court could find that our standard agreements are notenforceable, which could subject us to liability that could have amaterial adverse effect on our business, financial condition andresults of operations. See also "RiskFactors."

In November 1999, the AnticybersquattingConsumer Protection Act was enacted by the United States government.This law seeks to curtail a practice commonly known in the domain nameregistration industry as "cybersquatting." Acybersquatter is generally defined in the Act as one who registers adomain name that is identical or similar to another party'strademark, or the name of another living person, in each case with thebad faith intent to profit from use of the domain name. The law statesthat registrars may not be held liable for registration or maintenanceof a domain name for another person absent a showing of theregistrar's bad faith intent to profit from the use of the domainname. Registrars may be held liable, however, if they do not complypromptly with procedural provisions of the law. For example, if thereis a litigation involving a domain name, the registrar is required todeposit a certificate representing the domain name registration withthe court. To date, we are not aware of any precedent to specify underwhat circumstances we may suffer liability as a registrar under thislaw. If we are held liable under this law, any liability could have amaterial adverse effect on our business, financial condition andresults of operations.

In 2003, the Federal Trade Commission(FTC) implemented several amendments to the Telemarketing Sales Rule(TSR) including the establishment of a national Do Not Call registryprohibiting telemarketers from calling numbers listed with theregistry. The amendments also created new requirements for upselling,negative option, free-to-pay continuity plans and for billing,authorization and the use of account information and pre-recordedcalls. As a result of these amendments, we were required to modify someof our inbound and outbound telemarketing procedures, but we arecurrently in compliance with these requirements.

On January 1,2004, Canada's new privacy law, the Personal InformationProtection and Electronic Documents Act, came fully into effect. Thislaw imposes rules regarding how companies can collect, use anddistribute customer data in the course of commercial activities. Thelocation of our customer service center in Canada, in particular, givesrise to the potential application of the Canadian law to our business.We have examined the impact of this law on our policies and terms andconditions and we believe that our systems for the protection of ourcustomers' personal information are in material compliance withthese requirements.

In addition, the FTC and certain stateagencies have investigated various Internet companies regarding theiruse of their customers' personal information and the federalgovernment has enacted legislation protecting the privacy ofconsumers' non-public personal information. Although we believethat our information collection and disclosure policies comply withexisting laws, we cannot assure you that, if challenged, they would befound to be in compliance with existing or future laws orregulations.

In December 2003, the CAN-SPAM Act of 2003, a newfederal anti-spam law, was enacted. This new law pre-empts variousstate anti-spam laws and establishes a single standard for emailmarketing and customer communications. Among other things, this Actrequires labeling commercial email as an advertisement and prohibitsharvesting email addresses and falsifying header information usingdeceptive or misleading subject lines. We believe that this new lawwill benefit our business and marketing efforts as we do not use spamtechniques or practices and will benefit now that others are prohibitedfrom doing so.

Although a moratorium on state and local taxationof online services and electronic commerce has been extended untilNovember 1, 2007, on July 1, 2003, a directive became effective in theEU requiring non-EU providers of electronically supplied services toprivate individuals and non-business organizations in the EU to imposevalue-added taxes (VAT) on such services. Although not all of the EUmember states have yet implemented the directive nor have the taxauthorities of all member states published official guidance on therules, if we are required to comply with this directive, we will haveto implement system changes. These systems changes may be significantand it is not yet clear 

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which of our services would be subject tothis directive. We are not currently in compliance with this directiveand, as a result, we may be subject to claims for VAT dating back toJuly 1, 2003, plus interest and/or penalties.

Our services areavailable both nationally and internationally. As such, we are subjectto state, federal and EU privacy regulations. We believe we are inmaterial compliance with these regulations in our major markets, butcannot assure you that we are in compliance with all potentiallyapplicable regulations in all of the jurisdictions in which we provideour services.

Competition

We believe that our industryexperience, product and service offerings, brand name, customer servicefocus and distribution channels enable us to compete favorably inproviding domain name registration and related products and servicesand in attracting advertisers. However, many of our competitors mayhave competitive advantages over us. Although we have one of thelongest operating histories of all the registrars and we are focused onstrengthening our customer relationships, we face competition fromresellers that may have some or all of the following advantages:greater name recognition, longer operating histories, more aggressivepricing, newer systems and/or a greater ability to automate theirservice offerings and launch new products and services moreefficiently. We also face competition from companies who offer otherservices aimed at increasing a domain name registrant's internetpresence, e.g. web hosting and design, who have decided to offer domainregistration along with their regular services.

Competitionin the Domain Name Registration Industry.    We compete withnumerous other ICANN-accredited registrars. In particular, NetworkSolutions and GoDaddy.com presently have significant market shareadvantages over us and the other registrars. The barriers forcompetitors seeking to enter the marketplace as domain name registrarsinclude developing the requisite technological infrastructure andmeeting ICANN's accreditation requirements and, depending on thelevel of service and product offerings, can range from insignificant tosignificant. There are currently several hundred ICANN accreditedregistrars that register domain names in one or more of the gTLDs,although not all of these accredited registrars are currentlyoperational.

Although there was an increase in the marketplacefor new .com and .net domain names in the year ended December 31, 2004,our total number of domain names under management has declined. Forexample, the total number of .com and .net domain names in the Verisignregistry increased by approximately 26% during the year endedDecember 31, 2004, whereas the total number of .com and .net domainnames for which we are the registrar decreased by 3%. See"Risk Factors." In addition to otherregistrars, we also face competition from resellers including, amongothers, ISPs, web hosting companies, Internet portals and searchengines, telecommunication and cable companies and Internetprofessional service firms, who align themselves with accreditedregistrars to resell domain name registration services. Many of thesecompetitors may have strengths similar to ours but may also havestronger brand recognition, more aggressive pricing and Internetindustry experience.

Competition with Respect to OurValue-Added Services.    A key component of our business strategyis to offer value-added products and services for the development ofour customers' Internet presence. However, the marketplace forthese products and services is highly competitive. Other registrarshave developed or entered into strategic relationships to offerproducts and services similar to those that we now provide, includingour email, domain name forwarding, web hosting and data backup, orproducts and services that we anticipate offering in the future. Inaddition to competing with other registrars, we also compete with manyother providers of these products and services, including applicationservice providers, Internet professional services firms and domain nameresellers.

Competition for Advertisers.    We competefor Internet advertising and sponsorship revenues with content-basedwebsites, ISPs, Internet content providers, large web-based publishers,Internet search engines and portal companies and various othercompanies that facilitate Internet advertising. We also compete withtraditional offline media for a share of advertisers' totaladvertising budgets.

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Intellectual Property and ProprietaryRights

We believe that we are well positioned in the market fordomain name registration and value-added products and services in partdue to our highly recognized brand, Register.com. We regard ourtrademarks, patents, copyrights, trade secrets and other intellectualproperty as critical to our success. We rely on patent, trademark andcopyright law, trade secret protection and confidentiality and/orlicense agreements with our employees, customers, GPN partners andothers to protect our intellectual property rights. However, despiteour precautions, third-parties could obtain and use our intellectualproperty without authorization. Furthermore, the validity,enforceability and scope of protection of intellectual property inInternet-related industries are uncertain and still evolving. The lawsof some foreign countries do not protect intellectual property to thesame extent as the laws of the United States. We own several registeredtrademarks including Register.com®,Register®, FirstStepSite®,FirstStepPortal®, Domain Lock Down® allof which have a perpetual duration, and other trademark registrationapplications are pending. Other trademarks and service marks used inthis annual report are the property of their respective owners. OnApril 12, 2005, we were issued a patent by the United States Patent andTrademark Office protecting our domain management technology. Thispatent expires on April 27, 2020. We believe that as a result of thispatent, we have proprietary rights in a key component of our domainmanagement system.

Employees

As of December 31, 2004,we had approximately 489 full-time and temporary employees and22  independent contractors. None of our employees arerepresented by a labor union or are subject to collective-bargainingagreements. We believe that we maintain good relations with ouremployees.

Additional Information and Where to Find It

Our Internet address is www.register.com. We make thefollowing filings available, free of charge, as soon as reasonablypracticable after they are electronically filed with or furnished tothe Securities and Exchange Commission, on our Investor Relationswebsite, located athttp://investor.register.com:

|              |                                 |
|--------------|---------------------------------|
| •  | ourannual reports on Form 10-K; |

|              |                                    |
|--------------|------------------------------------|
| •  | ourquarterly reports on Form 10-Q; |

|              |                                     |
|--------------|-------------------------------------|
| •  | ourcurrent reports on Form 8-K; and |

any amendments to thosereports and our other reports filed or furnished pursuant toSection  13(a) or 15(d) of the Securities Exchange Act of 1934,including our proxy reports, and beneficial ownership reports underSection 16 of the Securities Exchange Act of1934.

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RISKFACTORS

Any investment in ourcommon stock involves a high degree of risk. You should considercarefully the risks described below, together with the otherinformation contained in this report. If any of the following eventsactually occurs, our business, financial condition and results ofoperations may suffer materially. As a result, the market price of ourcommon stock could decline, and you could lose all or part of yourinvestment in our common stock.

Risks Related to Our Businessand Our Industry

We have material weaknesses in our internalcontrol over financial reporting which could cause investors to loseconfidence in our reported financial results and have a negative impacton our stock price.

Management has identified a number ofmaterial weaknesses in our internal control over financial reporting(see "Item 9A Controls and Procedures"). Someof these weaknesses resulted in errors in our historical financialstatements, which in turn resulted in a restatement of our financialstatements for certain prior periods. Although we are currently in theprocess of implementing remediation measures to correct these materialweaknesses, we can provide no assurance that we will be successful inthese efforts or that the remediation measures will result in ourhaving adequate internal control in the future. In addition, we cannotassure you that we will not in the future identify further deficienciesor weaknesses in our internal control over financial reporting. If weare unable to adequately remediate our material weaknesses and maintainan effective system of internal control, our ability to timely andaccurately report financial results may be adversely affected, whichcould cause investors to lose confidence in our reported financialresults and have a negative impact on our stock price. In addition, wewill incur substantial costs in connection with these remediationmeasures and the implementation of such measures may distractmanagement from its ordinary business functions.

Nasdaq hasinformed us that our common stock may be delisted, and any suchdelisting could materially impair the ability of investors to trade inour common stock and could have a material adverse effect on our stockprice.

On April 5, 2005, we received a written notice from thestaff of Nasdaq indicating that we failed to comply with MarketplaceRule 4310(c)(14) due to the fact that we did not file this AnnualReport on Form 10-K with the SEC by March 31, 2005. Beginning at theopening of business on April 7, 2005, Nasdaq changed our trading symbolto "RCOME," appending the fifth character"E" to our trading symbol to indicate that wehad not timely filed this report. We have requested an oral hearingbefore a Nasdaq Listing Qualifications Panel (the"Panel"), to appeal the Nasdaq staff'sdetermination which has been scheduled for the middle of May. Thehearing request has stayed the delisting of our common stock pendingthe Panel's decision. Although we believe that our filing of thisAnnual Report on Form 10-K will result in the restoration of ourtrading symbol to "RCOM" and the continuedlisting of our common stock, we can provide no assurances that thePanel will restore our trading symbol or grant our request forcontinued listing.

In addition, our remediation of certainmaterial weaknesses in our internal controls will require extensive andtime consuming manual processing, which may, in the future, delaycompletion of our quarterly financial statements. This may prevent usfrom timely filing our quarterly reports on Form 10-Q, including ourReport on Form 10-Q for the quarter ended March 31, 2005, which wouldalso be a violation of Nasdaq Marketplace Rule 4310(c)(14), and wouldsubject us to potential delisting in the future. If our common stockwere to be delisted as a result of the Panel denying our request forcontinued listing or our failure to timely file a future quarterlyreport on Form 10-Q, the ability of our investors to buy and sellshares could be materially impaired which could negatively impact ourstock price.

In addition to a potential delisting of our commonstock, any delay in the future filing of our required SEC reports couldhave other material adverse effects on our business.

Asmentioned above, the remediation of the material weaknesses to ourinternal control over financial reporting may delay the timely filingof our future quarterly reports on Form 10-Q. In 

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addition to possible delisting, any futurelate filing of a Form 10-Q would prevent the timely disclosure to themarket of our quarterly financial results which could negatively impactour stock price. Also, a future late filing of a Form 10-Q would causeus not to be in compliance with applicable federal securities lawswhich could result in action against us by the SEC.

As a resultof our failure to timely file this Report on Form 10-K, we will not beeligible to register offerings of our securities on a short formregistration statement for one year after the date hereof which couldincrease the cost of such offerings (if any) and/or delay theircompletion. A late filing of a future Form 10-Q would extend thisineligibility period until one year after the delinquent filing.

We have incurred losses in the past and cannot assure you that wewill be able to operate profitably or sustain and/or attain positivecash flow in future periods.

Although we were profitable forthe years ended December 31, 2004 and 2003, we were not profitable forthe years ended December 31, 2002 and 2001. Our net loss for 2002included a goodwill impairment writedown of $17.0 million and our netloss for 2001 included a $32.5 million writedown of intangibles. As ofDecember 31, 2004 our accumulated deficit totaled $39.4 million. Weexpect our technology costs to continue at high levels throughout 2005albeit lower than 2004 as we continue our efforts to upgrade andimprove our systems and we cannot assure you whether our efforts toupgrade and improve our systems will be completed in a timely manner orwill be successful. In addition, losses at our RCOM Europe subsidiaryhave contributed to a decline in our profitability. We are expectinglosses at RCOM Europe to impact our profitability negatively throughthe year 2005 and perhaps beyond and we cannot assure you that RCOMEurope will ever achieve profitability. We have also budgeted for anincrease in our marketing expense in 2005 compared with 2004, however,we may choose not to spend all of the money budgeted for marketing andwe cannot assure you that, if we do, such additional marketing expenseswill result in additional revenues. In addition, unless we lower thenumber of credit card refunds and maintain a low number of chargebacksrelative to total credit card transactions processed, we may continueto be subject to significant penalties that impact our profitability.We also anticipate that our revenues from advertising will bematerially lower in 2005 and perhaps beyond, compared with periodsprior to the fourth quarter of 2003. Further, we have made somedecreases in the prices for certain of our services, however, if we areforced to lower our prices further due to increased competition in theindustry and we are unable to reduce our expenses at a commensuraterate or we are not able to grow our sales at a commensurate rate, wemay not be able to operate profitably or generate positive cash flow.We also anticipate incurring substantial costs related to remediatingthe material weaknesses to our internal controls and other compliancematters related to Section 404 of the Sarbanes–Oxley Act of 2002.For all these reasons, we cannot assure you that we will be able tooperate profitably or sustain and/or attain positive cash flow in thefuture.

If our restructuring program is not completed or notsuccessful, we may not achieve the operational and financial objectiveswe have set for the Company, and our business, financial condition andresults of operations could be materially adversely affected.

We are in the midst of a restructuring program to address the coreissues that were contributing to our inefficient cost structure andhindering our efforts to improve our results of operations andearnings. The primary focuses of this program are our efforts to builda new and more flexible systems architecture for our Retail channel,which is intended to enable us to introduce new products and servicesmore rapidly and cost-effectively, and a new systems architecture forour Corporate Services channel, which is intended to enable us toreduce our costs of taking and fulfilling sales orders and to improvethe accuracy of the invoices we render to Corporate Services customers.Other goals of our restructuring program include reducing costs andreducing credit card chargeback and refund rates.

If we fail tocomplete our restructuring program successfully, and in particular failto upgrade and improve our systems in a successful, timely andcost-effective manner, or to the extent that we are currentlyanticipating, our business, financial condition and results ofoperations could be materially adversely affected. In connection withour restructuring efforts, we have incurred expenditures 

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throughout the year ended December 31, 2004on the design and launch of our new global systems for both ourCorporate Services channel and our Retail channel. Most customerspurchasing our services through our Corporate Services channel havebeen migrated to the new systems. However, we expect to incuradditional expenditures in connection with continuing data validation,debugging and process improvements at least through the second quarterof 2005 and perhaps beyond. Our Retail channel was released in itsinitial Beta version in October 2004. We expect the migration ofcustomers onto this system and the dedication of resources related tosuch migration and system implementation to continue through 2005 andperhaps beyond. We cannot assure you that any process improvements anddata migration will be completed or will be successful or that ourrestructuring program will achieve the goals or timelines we have setfor it. The implementation of new systems is a complex process thatrequires communication and coordination throughout our organization andhas significant execution risks. In addition, the expected migration ofour customers to the new system may temporarily impair our ability toservice our customers as planned. We have already experiencedsignificant delays in various stages of these projects which haveincreased our anticipated costs, delayed the anticipated benefits forthese projects and have caused delays in our ability to launch newproducts and services and upgrade current ones. In addition, we cannotassure you when or if these projects will be successfully completed.Even if our new systems architecture for our Retail channel is launchedsuccessfully, we cannot assure you that it will contain all of thefeatures and functionality that we originally planned or that it willenable us to reduce our expenses to the extent and in the time frameswe originally contemplated, or to successfully launch new products andservices or upgrade current ones in the time or manner that weoriginally contemplated. We have dedicated technology consultants andpersonnel to effect these improvements even as we maintain our currentsystems with other personnel. As long as we are focused on improvingour systems and business processes, we are limited in the time andresources we can dedicate to launching and marketing new products andservices to meet the needs of our customers and to better compete inthe marketplace. Our inability to meet the needs of our customers willaffect our ability to effectively compete, to attract and retaincustomers and to market new products and services.

Although themarketplace for new domain names has been growing, we face strongcompetition in the domain name registration services industry which weexpect will continue to intensify and we may not be able to maintain orimprove our competitive position or historical market share.

Competition in the domain name registration servicesindustry continues to intensify among the market participants.

Although there was an increase in the marketplace for new .com and..net domain names during the year ended December 31, 2004, our totalnumber of domain names under management has declined. The total numberof .com and .net domain names in the Verisign registry increased byapproximately 26% during the year ended December 31, 2004,whereas the total number of .com and .net domain names for which we arethe registrar decreased by 3%. While we experienced a slightincrease of approximately 24,000 in the total number of domain nameregistrations, renewals and transfers to us for the year ended December31, 2004 (approximately 2,111,000) compared with the year endedDecember 31, 2003 (approximately 2,087,000), our total domain namesunder management declined from approximately 3.1 million as of December31, 2003 to approximately 3.0 million as of December 31, 2004 becauseof a higher number of expirations that were not renewed.

When webegan providing online domain name registrations in the .com, .net and..org domains in June 1999, we were one of only five testbed competitiveregistrars accredited by ICANN to interface directly with NetworkSolutions' registry for .com, .net and .org domain names. Afterthe testbed period ended ICANN began accrediting new registrars andthere are currently several hundred ICANN accredited registrars thatregister domain names in one or more of the gTLDs, although not all ofthese accredited registrars are currently operational. In addition,many of these registrars offer domain name registrations and relatedproducts and services at substantially lower prices than we do. Thecontinued introduction of registrars and resellers into the domain nameregistration industry, the increased pricing pressures and the rapidgrowth of some who have entered the industry are making it

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difficult for us to maintain our industrycompetitive position. Our competitive position could be further damagedif the market place for domain names were to decrease in the future. Ifwe continue to experience a decline in the total number of paid domainname registrations under management or of our market share, ourbusiness, financial condition and results of operations could bematerially adversely affected.

We face competition fromregistrars and resellers that may have greater name recognition,particularly internationally, better systems or greater resources.

In addition to competition from other registrars, we also facecompetition from resellers including, among others, ISPs, web hostingcompanies, Internet portals and search engines, telecommunication andcable companies, systems integrators, consulting firms and Internetprofessional service firms, who align themselves with accreditedregistrars to resell domain name registration services. Many of thesecompetitors have strong brand recognition, possess core capabilities todeliver ancillary services, such as customer service, billing servicesand network management and have a broad array of value-added productsand services that they can bundle with domain name registrations. Inaddition, some of our registrar and reseller competitors have designedtheir systems and built their businesses in a manner that, we believe,enables them to be lower-cost providers than we currently are. Ourposition could be harmed by any of these existing or futurecompetitors, some of which may have greater name recognition,particularly internationally, and greater and more efficient financial,technical, marketing, distribution and other resources than we do.

Increasing competition in the domain name registration industrycould force us to further reduce our prices for our core products andservices, which would negatively impact our results of operations.

We recognized lower revenues from domain name registrations for theyear ended December 31, 2004 ($85.1 million) compared to the year endedDecember 31, 2003 ($90.3 million). The decrease was due in part to alower number of domain names under management and in part to loweraverage prices per year of subscription term. We believe that increasedcompetition and sensitivity to pricing have been the primary causes ofthe decline in our number of names under management. Some of ourcompetitors offer domain name registrations at a wholesale price levelminimally above the registry fees or even below the registry fees.Other competitors have lower pricing or have reduced and may continueto reduce their pricing for domain name registrations, renewals andtransfers both for short-term promotions and on a permanent basis. Someof these competitors have experienced a significant increase in theirregistrations, suggesting that customers are becoming more pricesensitive. Further, some of our competitors offer domain nameregistrations for free, deriving their revenues from other sources. Wehave made some decreases in the prices for certain of our services andin response to increasing competition in the domain name registrationindustry, we may be required, by marketplace factors or otherwise, toreduce further, perhaps significantly, the prices we charge for ourcore domain name registration and related products and services,especially if our competitors who charge these reduced fees are able tomaintain customer service comparable to ours. Reducing the prices wecharge for domain name registration services in order to remaincompetitive could materially adversely affect our business, financialposition and results of operations.

If our customers do notrenew their domain name registrations or if they transfer theirregistrations to our competitors, and we fail to replace their businessor to develop alternative sources of revenue, our business, financialcondition and results of operations would be materially adverselyaffected.

Our business depends in great part on ourcustomers' renewal of their domain name registrations through usand we cannot assure you that those customers who will renew theirdomain name registrations will do so through us. Although our renewalrate for paid domain name registrations for the year ended December 31,2004 was approximately 62%, our total domain name registrationsunder management decreased by 3% during the year ended December31, 2004 and have declined from a peak of approximately 3.8 million asof September 30, 2001 to approximately 3.0 million as of December 31,2004. Also, as discussed further below, our renewal rates could beadversely affected by any future modifications we may make to ourSafeRenew program. If we are unable to increase the 

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number of new domain name registrations orincrease our overall renewal rate, the combination of fewer newcustomers, fewer customers renewing their registrations through us andthe transfers of registrations to other registrars will have thecumulative effect of decreasing the number of domain name registrationsunder our management. Not only could this cause our revenues fromdomain name registrations to decrease, but we would be left with fewerdomain name customers to whom we could market our other products andservices. A decline in our domain name registrations or renewals couldmaterially adversely affect our business, financial condition andresults of operations.

If our customers do not find ourexpanded product and service offerings appealing, or if we fail toestablish ourselves as a reliable source for these products andservices, our net revenues may fall below current levels.

Ascompetition in the domain name industry continues to intensify, a keypart of our strategy is to diversify our revenue base by offeringvalue-added products and services in addition to domain nameregistrations. Although we have recently experienced increased salesfor other products and services such as email, web hosting and websitecreation tools, our efforts to date have still not resulted insubstantial diversification. Further, it will be more difficult toachieve substantial diversification in the near future as we continueto focus significant resources on our restructuring efforts. Ourprimary business, domain name registrations, renewals and transfers,generated approximately 84% and 87% of our net revenuesduring the years ended December 31, 2004 and 2003, respectively. Wecannot assure you that we will be able to attain the market'sconfidence in us as a reliable provider of products and servicesoutside of our core business. If, over time, we fail to offer productsand services that meet our customers' needs and that arecompetitive with those offered in the marketplace, our number of domainnames under management continues to decline, or our customers elect notto purchase our products and services, our revenues may decline belowcurrent levels. Our inability to successfully diversify our revenuebase from domain name registrations, together with a reduction in ournumber of domain names under management, could materially adverselyaffect our business, financial condition and results of operations.

If we do not maintain a low rate of credit card chargebacks and/orreduce our rate of credit card refunds, we will continue to face theprospect of financial penalties and we could lose our ability to acceptcredit card payments from customers, which would have a materialadverse effect on our business, financial condition and results ofoperations.

A substantial majority of our revenues originatefrom online credit card transactions. Under current credit cardindustry practices, we are liable for fraudulent and disputed creditcard transactions because we do not obtain the cardholder'ssignature at the time of the transaction, even though the financialinstitution issuing the credit card may have authorized thetransaction. We are experiencing high rates of refunds to customers inexcess of the contractual specified levels, which, combined with highrates of chargebacks in the past, have resulted in the assessment offinancial penalties by two credit card associations for periods throughDecember 31, 2001. If we are unable to lower our refund rates to levelsdefined in the credit card associations' rules, we could continueto face such penalties and may lose our rights to accept credit cardpayments from customers through one or more credit card associations.Under one association's rules, additional potential penalties maybe imposed at the discretion of the association, and we would becontractually obligated to pay such penalties if assessed. Any suchpenalties would be imposed on our credit card processor by theassociation, and under our contract with our credit card processor, weare required to reimburse such penalties.

Because the impositionof any potential penalties is at the discretion of the association,subject to contractual limitations, generally accepted accountingprinciples require that we accrue charges to general and administrativeexpense to cover what we estimate to be the maximum potential penaltiesthat could be imposed under that association's rules fortransactions occurring during those periods. Accordingly, we accruedexpense charges of $2.0 million for the year ended December 31, 2004and $2.4 million for the year ended December 31, 2003.

However,in October 2004, we obtained a release from our credit card processorfor any penalties which any credit card association may be entitled toimpose for excessive chargebacks and refunds 

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processed through September 30, 2003.Accordingly, in accordance with generally accepted accountingprinciples applicable to extinguishments of liabilities, in the fourthquarter of 2004 we reversed the expense accruals previously recordedduring the period from January 1, 2002 through September 30, 2003 inthe amount of $5.6 million. That expense reversal was recorded as areduction of general and administrative expense. On February 14, 2005and March 24, 2005 we received additional releases from any penaltiesthat any credit card association may be entitled to impose forexcessive chargebacks and refunds processed from October 1, 2003through December 31, 2003 and from January 1, 2004 through February 29,2004, respectively. As a result, in the first quarter of 2005 we willreverse an additional $0.5 million of expense accruals previouslyrecorded during the fourth quarter of 2003 and the first two months of2004, respectively. We are continuing to have discussions andcorrespondence with our credit card processor regarding potentialpenalties accrued after February 29, 2004 and based on thesediscussions and correspondence, we believe that it is likely that wewill not be required to pay the full amount accrued to date, or perhapsany amount at all. However our credit card processor has not issuedreleases for periods after February 29, 2004 and has not confirmed thatthe credit card association will not exercise its contractual rights toassess penalties for periods after February 29, 2004 or otherwiseprovided us with a further release. Accordingly, we are required tocontinue to accrue for such potential penalties. If the penaltiesultimately imposed are less than the maximum contractual amount, or ifit is determined that no penalties will be imposed, we would reverseany excess accounts previously accrued as a reduction of general andadministrative expense at that time.

On the other hand, if wecannot reduce our refund and/or chargeback rates to levels that areacceptable to the credit card associations, and maintain acceptablelevels, we will continue to face the risk that one or more credit cardassociations may, at any time, assess penalties against us or terminateour ability to accept credit card payments from customers, which wouldhave a material adverse effect on our business, financial condition,results of operations and cash flows.

Some of the measures weare implementing to reduce our rate of chargebacks and credit cardrefunds may reduce our net revenues.

In an effort to reduce ourrate of chargebacks and credit card refunds, we have implemented anumber of different measures. However, by implementing aggressiveonline fraud screens and post-transaction verifications designed toprevent fraudulent credit card transactions on our website, we mayblock legitimate customers from purchasing our services, therebyreducing our net revenues. Also, in an effort to protect ourcustomers' online identities, our SafeRenew program wasimplemented in January 2001 on an "opt out"basis to .com, .net and .org domain name registrations registeredthrough the www.register.com website, and was subsequentlyexpanded to cover certain other gTLDs and ccTLDs registered throughthis website as well as certain other products and services. Under theterms of our services agreement, at the time a covered registration,product or service comes up for renewal, we attempt to charge aregistrant's on-file credit card a renewal fee for the applicableterm and, if the charge is successful, to renew the registration,product or service for such applicable term. We had modified a portionof this program to an "opt in" basis withrespect to international transactions and, although we have changedthis portion of the program back to an "optout" status, we may choose to revise the program againfrom time to time in the future. Any modifications we undertake thatresult in the lapse of a significant number of domain nameregistrations that would have been renewed through the SafeRenewprogram could damage our relationships with customers that had reliedupon the SafeRenew program to renew their domain name registrations. Inaddition, implementing changes to the program may have an adverseeffect on our renewal rates in future periods and, as a result, maymaterially adversely affect our net revenues.

We face certainrisks as a result of changes to our management team, including ourPresident and Chief Executive Officer, who has informed us that he willnot seek to renew the term of his employment, set to expire in June2005.

Our success depends in large part on the contributions ofour management team. Over the past few years, we have experienced asignificant number of changes to the members of our management

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team and we have experienced a high voluntaryemployee turnover rate. For example, the following executivesterminated their relationships with the company: our Vice President ofHuman Resources in February 2005, our General Manager of CorporateServices in October 2004 and our Chief Technology Officer in April2004. Each role has since been filled. Although we do not believe thatthe departure of any one of these individuals will have a significantnegative impact on our business, we face operational challenges as aresult of this turnover because some members of our management team arestill learning about our company and the industry and may not have hadsufficient time to develop effective working relationships with theother members of our management team. We anticipate these challenges tocontinue in the near future, as our President and Chief ExecutiveOfficer informed us in February 2005 that he will not seek to renew hiscurrent employment agreement which is set to expire in June 2005. Weexpect to incur costs in seeking a qualified candidate to succeed ourcurrent President and Chief Executive Officer and we can provide noassurance that we will be able to identify and retain a qualifiedcandidate on terms acceptable to us or at all. If we do not succeed insolving the operational challenges we face in connection with thechanges to our management team, especially replacing our President andChief Executive Officer, we could suffer a significant adverse impacton the development of our business.

We outsource certainoperations which exposes us to risks related to our third-partyvendors.

Failure by our third-party service providersto deliver their services will have a negative effect on ourbusiness.

We do not develop and maintain all of the productsand services that we offer. We offer certain of our services to ourcustomers through various third-party service providers engaged toperform these services on our behalf. In addition, we outsource partsof our operations to third-parties and may continue to exploreopportunities to outsource others. Accordingly, we are dependent, inpart, on the services of third-party service providers, which may raiseconcerns by our resellers and customers regarding our ability tocontrol the services we offer them if certain elements are managed byanother company. In the event that these service providers fail tomaintain adequate levels of support, do not provide high qualityservice or discontinue their lines of business or cease or reduceoperations, our business, operations and customer relations may beimpacted negatively and we may be required to pursue replacementthird-party relationships, which we may not be able to obtain on asfavorable terms or at all. Although we continually evaluate ourrelationships with our third-party service providers and plan forcontingencies if a problem should arise with a provider, transitioningservices and data from one provider to another can often be acomplicated and time consuming process and we cannot assure that if weneed to switch from a provider we would be able to do so withoutsignificant disruptions, or at all. If we were unable to complete atransition to a new provider on a timely basis, or at all, we could beforced to either temporarily or permanently discontinue certainservices which may disrupt services to our customers. Any failure toprovide services would have a negative impact on our revenues. Inaddition, certain of our services are provided by non-U.S. basedcompanies and to the extent that we encounter difficulties with ournon-U.S. based providers, we may experience difficulty enforcingagreements with such providers.

In addition, some of the domainnames that we register resolve to name servers that are owned andcontrolled by third-parties. If these domain name servers are shut downfor financial reasons or other unanticipated problems, our services maybe interrupted, which could damage our relationship with our customers,our reputation and our business.

Inadequate internalcontrols of any of our third-party service providers could negativelyimpact our operations and our internal control over financialreporting.

We outsource certain operations, including payroll,customer credit card payment processing and certain other back officeoperations, to third-party service providers on whom we depend foraccurate financial information. If any of these third-party serviceproviders fails to maintain adequate internal controls, our internalcontrol over financial reporting could be negatively impacted whichcould result in a misstatement in our financial statements.

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Our advertising revenues have decreasedsignificantly due to the discontinuation of our most significantadvertising customer and we may not be able to find suitablereplacement advertising to replace this revenue in the future.

From the fourth quarter of 2002 through the third quarter of 2003,our largest advertising customer, a provider of web hosting services,accounted for a significant portion of our advertising revenue. In thethird quarter of 2003, revenues from this advertiser representedapproximately 80% of our overall advertising revenue. However,once we began to offer web hosting services to our customers, thisadvertiser became a competitor and so we decided to discontinue ouradvertising relationship with it. Accordingly, we did not selladvertising to this advertising customer during the fourth quarter of2003 or the year ended December 31, 2004 and we do not anticipate anyadditional revenue from this advertising customer in the future. Thisdecision was part of a broader strategic decision to discontinuepursuing advertising revenue from partners who sell products andservices that are potentially competitive with the Company'sproducts and services. We cannot assure you that we will be able toreplace these lost revenues with other advertising revenue or withrevenues from sales of web hosting services and other value addedservices to our own customers, and even if we can, it may take a longperiod of time to do so. We expect any decrease in our advertisingrevenue to have an adverse impact on our overall gross margin becausethe gross profit margin on advertising revenue is 100% and,accordingly, any decrease in advertising revenue not otherwise offsetwith new advertising revenue would represent a reduction of our grossprofit in the same amount.

Our past acquisitions, includingVirtual Internet (now known as RCOM Europe), subject us to significantrisks, and any potential future acquisitions or strategic investmentsor mergers may subject us to significant risks, any of which could harmour business.

Our long-term growth strategy may includeidentifying and acquiring or investing in or merging with suitablecandidates on acceptable terms. In particular, over time, we mayacquire or make investments in or merge with providers of productofferings that complement our business and other companies in thedomain name registration industry.

For example, we acquired RCOMEurope in March 2002 and, after selling its hosting division in May2002, are still in the process of integrating its business, technology,operations, and personnel with those of our U.S. and Canadianoperations. Our efforts to transition the back and front-end systemsthat we previously used in our U.S. Corporate Services channel to thosewe acquired through RCOM Europe have resulted in fulfillment delays andinvoice issuance delays and inhibited the effectiveness of our U.S.Corporate Services support and sales teams. We may face similar issuesin the future as we make efforts to improve our Corporate Servicessystems and processes and further integrate the business of RCOMEurope. RCOM Europe has incurred pre-tax losses of $10.8 million in2002 (including a goodwill impairment charge of $8.3 million), $2.0million in 2003 and $1.1 million for 2004. We are currently projectinga net loss for RCOM Europe for 2005 and we may not be able to increaserevenues or cut expenses sufficiently to make it profitable in thefuture.

Acquisitions, including our acquisition in 2002 of RCOMEurope, involve a number of risks and present financial, managerial andoperational challenges,including:

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| •  | diversion of managementattention from running our existingbusiness; |

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| •  | possible additionalmaterial weaknesses in internal control over financialreporting; |

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| •  | increased expenses,including travel, legal, administrative and compensation expensesrelated to newly hiredemployees; |

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| •  | high employee turnoveramongst the employees of the acquired company, which we haveexperienced in particular in our RCOM Europe Corporate Servicesoffice; |

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| •  | increased costs to integratethe technology, personnel, customer base and business practices of theacquired company with ourown; |

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| •  | potential exposure to additionalliabilities; |

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| •  | potential adverseeffects on our reported operating results due to possible write-down ofgoodwill and other intangible assets associated withacquisitions; |

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|              |                                                                                                   |
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| •  | potentialdisputes with the sellers of acquired businesses, technologies,services or products; and |

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| •  | inabilityto utilize tax benefits related to operating losses incurred byacquired businesses. |

Moreover, performance problems with anacquired business, technology, service or product could also have amaterial adverse impact on our reputation as a whole. In addition, anyacquired business, technology, service or product could significantlyunder-perform relative to our expectations, and we may not achieve thebenefits we expect from our acquisitions.

For all these reasons,our pursuit of an acquisition and/or investment and/or merger strategyor any individual acquisition or investment or merger, including ouracquisition of RCOM Europe, could have a material adverse effect on ourbusiness, financial condition and results of operations.

Ourinternational expansion exposes us to business risks that could limitthe effectiveness of our growth strategy and cause our results ofoperations to suffer.

Although we have historically hadcustomers in international markets, in 2002 we expanded our businessand operations in international markets through our acquisition of RCOMEurope, and we now have a significant workforce in the United Kingdomand employees in France and Germany as well. In addition, as part ofour cost reduction efforts, we have relocated some of our groups andoperations to our Canadian facility where the overhead and labor costsare lower than in our other locations. Introducing and marketing ourproducts and services internationally, developing direct and indirectinternational sales and support channels and managing foreign personneland operations will continue to require significant managementattention and financial resources. We face a number of risks associatedwith our conducting business internationally that could negativelyimpact our results of operation,including:

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| •  | management, communicationand integration problems resulting from cultural differences andgeographic dispersion; |

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| •  | sufficiency ofqualified labor pool in internationalmarkets; |

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| •  | political and economicinstability in some internationalmarkets; |

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|--------------|------------------------------|
| •  | high employee turnoverrates; |

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|--------------|------------------------------------|
| •  | competition with foreigncompanies; |

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| •  | legal uncertaintyregarding liability and compliance with foreignlaws; |

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| •  | currency fluctuations andexchange rates, to the extentmaterial; |

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| •  | potentially adverse taxconsequences or inability to realize taxbenefits; |

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| •  | difficulties in protectingintellectual property rights in international jurisdictions;and |

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| •  | the level of adoption of theInternet in international markets. |

We may not succeed in ourefforts to expand into additional international markets and if we do,we cannot assure you that one or more of the factors described abovewill not have a material adverse effect on our future internationaloperations, if any, and consequently, on our business, financialcondition and results of operation.

We cannot predict with anycertainty the effect that new governmental and regulatory policies, orindustry reactions to those policies, will have on our business.

Before April 1999, Network Solutions managed the domain nameregistration system for the .com, .net and .org domains pursuant to acooperative agreement with the U.S. government. In November 1998, theDepartment of Commerce recognized ICANN to oversee key aspects of theInternet domain name registration system. Since that time andparticularly because the domain name industry is in its early stages ofdevelopment, ICANN has been subject to strict scrutiny by the public

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and the government. Although it recentlyunderwent a restructuring, ICANN continues to face significantquestions regarding its financial viability and efficacy as a privatesector entity. While these issues will take time to sort out, thelong-term structure and mission of ICANN may evolve, even in the comingyear, to address perceived shortcomings. Accordingly, we continue toface the risks that:

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| •  | the U.S.government may, for any reason, reassess its decision to introducecompetition into, or ICANN's role in overseeing, the domain nameregistration market; |

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| •  | the Internetcommunity or the Department of Commerce or U.S. Congress may becomedissatisfied with ICANN and refuse to recognize its authority orsupport its policies, which could create instability in the domain nameregistration system; |

|              |                                                                                                            |
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| •  | pendinglitigation against ICANN could affect ICANN's role in overseeingthe domain name registrationsystem; |

|              |                                                                                                                         |
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| •  | ICANN may attempt to imposeadditional fees on registrars if it fails to obtain funding sufficientto run its operations; |

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| •  | accreditationcriteria could change in ways that are disadvantageous tous; |

|              |                                                                                        |
|--------------|----------------------------------------------------------------------------------------|
| •  | ICANN's limited resourcesmay seriously affect its ability to carry out its mandate;and |

|              |                                                                                                                                                                                                                                                                 |
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| •  | international regulatory bodies,such as the ITU, the UN or the European Union (EU), may gain increasedinfluence over the management and regulation of the domain nameregistration system, leading to increased regulation in areas such astaxation and privacy. |

Our business could be materially harmedif in the future the administration and operation of the Internet nolonger relies upon the existing domain name system.

The domainname registration industry continues to develop and adapt to changingtechnology. This development may include changes in the administrationor operation of the Internet, including the creation and institution ofalternate systems for directing Internet traffic without the use of theexisting domain name system. Some of our competitors have begunregistering domain names with extensions that rely on such alternatesystems. These competitors are not subject to ICANN accreditationrequirements and restrictions. Other competitors have attempted tointroduce naming systems that use keywords rather than traditionaldomain names. The widespread acceptance of any alternative systemscould eliminate the need to register a domain name to establish anonline presence and could materially adversely affect our business,financial condition and results of operations.

Working with thedifferent country code registries exposes us to a number ofoperational, legal and business challenges, which if not properlyaddressed, could have a material adverse effect on our business,financial condition and results of operations.

We currentlywork with hundreds of country code registries operating hundreds ofcountry code top level domains (ccTLDs) throughout the world. Countrycode registries may be administered by the host country, entrepreneursor other third-parties. Different country code registries requireregistrars to comply with specific regulations. Many of theseregulations vary from ccTLD to ccTLD. If we fail to comply with theregulations imposed by country code registries, these registries willlikely prohibit us from registering or continuing to register domainnames in their ccTLDs. Further, in most cases, our rights to provideccTLD domain name registration services are not governed by writtencontract. In the case of our existing written contracts, there isuncertainty as to which country's law may govern. As a result, wecannot be certain that we will continue to be able to register domainnames in the ccTLDs we currently offer. If these registry businessescease operations or otherwise fail to process domain name registrationsor the related information in ccTLDs, we would be unable to honor thesubscriptions of registrants who have registered, or are in the processof registering, domain names in the applicable ccTLD. In addition, theprocess for registering domain names with many of the ccTLD registriesnecessitates significant manual efforts to process numerous paperdocuments, resulting in high labor costs and an increased potential forclerical errors. The rules, requirements and processes of theregistries are also subject to change, and each time a registry makes achange, we 

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must make corresponding changes to oursystems or processes. If we are unable to keep up with theseadministrative burdens or to honor a substantial number ofsubscriptions for our customers or if the ccTLD registries fail toprocess our customers' domain name registrations in a timely andaccurate fashion, we could face claims of loss from our registrants andour business, financial condition and results of operations could bematerially adversely affected.

We cannot assure you that ourstandard agreements will be enforceable.

We rely on severalagreements that govern the terms of the services we provide to ourusers. These agreements contain a number of provisions intended tolimit our potential liability arising from our providing services forour customers including liability resulting from our failure toregister or maintain domain names. As most of our customers use ourservices online, execution of our agreements by customers occurselectronically or, in the case of our terms of use, is deemed to occurbecause of a user's continued use of the website following noticeof those terms. We believe that our reliance on these agreements isconsistent with the practices in our industry, but if a court were tofind that either one of these methods of execution is invalid or thatkey provisions of our services agreements are unenforceable, we couldbe subject to liability that could have a material adverse effect onour business, financial condition and results of operations.

Our failure to register, maintain, transfer or renew the domainnames that we process on behalf of our customers may subject us toadditional expenses, claims of loss or negative publicity, which couldhave a material adverse effect on our business.

Clerical errorsand system and process failures have resulted in inaccurate andincomplete information in our database of domain names and in ourfailure to properly register or to maintain or renew the registrationof certain domain names that we process on behalf of our customers. Ourfailure to properly register or to maintain or renew the registrationof our customers' domain names, even if we are not at fault, mayresult in our incurring significant expenses and may subject us toclaims of loss or negative publicity, which could have a materialadverse effect on our business, financial condition and results ofoperations.

In addition, ICANN recently implemented new policiesregarding how we transfer out domain names and the acknowledgementprocess, requiring us to revise our transfer processes, which we are inthe process of implementing. Pursuant to these new policies, we will nolonger be able to use certain safeguards that we had, in place toacknowledge transfer requests, which could increase the risk ofunauthorized or fraudulent transfers. Such transfers could increaseclaims of loss or subject us to negative publicity, which could have amaterial adverse effect on our business, financial condition andresults of operations.

We may be held liable if third-partiesmisappropriate our users' personal information.

Ifthird-parties succeed in penetrating our network security or otherwisemisappropriate our customers' personal or credit cardinformation, we could be subject to liability. Our liability couldinclude claims for unauthorized purchases with credit card information,impersonation or other similar fraud claims as well as for othermisuses of personal information, including for unauthorized marketingpurposes. These claims could result in penalties from credit cardassociations, potential termination by credit card associations of ourability to accept credit card payments, litigation and adversepublicity, any of which could have a material adverse effect on ourbusiness, financial condition and results of operations, as well as ourreputation, as any well-publicized compromise of security could deterpeople from using online services such as the ones we offer.

Inaddition, the Federal Trade Commission and certain state agencies haveinvestigated various Internet companies regarding their use of theircustomers' personal information. The federal government hasenacted legislation protecting the privacy of consumers'nonpublic personal information. We cannot guarantee that our currentinformation-collection procedures and disclosure policies will be foundto be in compliance with existing or future laws or regulations. Ourfailure to comply with existing laws, including those of foreigncountries, the adoption of new laws or 

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regulations regarding the use of personalinformation that require us to change the way we conduct our businessor an investigation of our privacy practices could increase the costsof operating our business.

We may not be able to protect andenforce our intellectual property rights or protect ourselves from theclaims of third-parties.

We may be unable to protectand enforce our intellectual property rights from infringement.

We rely upon copyright, trade secret, patent and trademark law,invention assignment agreements and confidentiality agreements toprotect our proprietary technology and other assets, includingsoftware, applications and trademarks, and other intellectual propertyto the extent that protection is sought or secured at all. We wereissued a patent by the United States Patent and Trademark Office onApril 12, 2005, which protects our domain manager technology. While wetypically enter into confidentiality agreements with our employees,consultants and Corporate Services and GPN partners, and generallycontrol access to and distribution and use of our proprietaryinformation, we cannot ensure that our efforts to protect ourproprietary information will be adequate against infringement ormisappropriation of our intellectual property by employees, affiliatesor third-parties, particularly in foreign countries where laws or lawenforcement practices may not protect our proprietary rights as fullyas in the United States.

Furthermore, because the validity,enforceability and scope of protection of proprietary rights inInternet-related industries are uncertain and still evolving, we cannotassure you that we will be able to defend our proprietary rights. Inaddition to being difficult to police, once any infringement isdetected, disputes concerning the ownership or rights to useintellectual property could be costly and time-consuming to litigate,may distract management from operating the business and may result inour losing significant rights and our ability to operate ourbusiness.

We cannot assure you that third-parties willnot develop technologies or processes similar or superior to ours.

We cannot ensure that third-parties will not be able toindependently develop technology, processes or other intellectualproperty that is similar to or superior to ours. The unauthorizedreproduction or other misappropriation of our intellectual propertyrights, including copying the content, look, feel or functionality ofour website, could enable third-parties to benefit from our technologywithout our receiving any compensation and could materially adverselyaffect our business, financial condition and results of operations.

We may be subject to claims of alleged infringement ofintellectual property rights of third-parties.

We do nottypically conduct comprehensive searches to determine whether ourtechnology infringes the intellectual property of others. These mattersare inherently uncertain in Internet-related industries due to therapidly evolving technological environment. There may be numerouspatent applications pending, many of which are confidential when filed,with regard to technologies similar to our own. Third-parties mayassert infringement claims against us with respect to past, current orfuture technologies, and these claims and any resultant litigation,should it occur, could subject us to significant liability for damages.Even if we prevail, litigation could be time-consuming and expensive todefend, and could result in the diversion of management's timeand attention. Any claims from third-parties may also result inlimitations on our ability to use the intellectual property subject tothese claims unless we are able to enter into royalty or licenseagreements with the third-parties making these claims. Such royalty orlicensing agreements, if required, may be unavailable on termsacceptable to us, if at all. If a successful claim of infringement isbrought against us and we fail to develop non-infringing technology orto license the infringed or similar technology on a timely basis, itcould materially adversely affect our business, financial condition andresults of operations.

We rely on certain technologies that welicense from other parties. We cannot assure you that these third-partytechnology licenses will not infringe on the proprietary rights ofothers or will 

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continue to be available to us oncommercially reasonable terms, if at all. The loss of such technologycould require us to obtain substitute technology of lower quality orperformance standards or at greater cost, which could materially harmour business.

The nature of our services may subject usto alleged infringement and other claims relating specifically todomain names.

As a registrar of domain names and a provider ofadditional web services, we may be subject to various claims, includingclaims from third-parties asserting trademark infringement or dilution,unfair competition and violations of publicity and privacy rights, tothe extent that such parties consider their rights to be violated bythe registration of particular domain names by our users or our hostingof our users' websites or secondary market activities.

Forexample, we provide an automated service enabling users to registerdomain names and do not monitor or review the content of such domainnames. Users might register domain names which, based on the nature andcontent of such domain names, could be considered obscene, hateful ordefamatory, or which could infringe or dilute a third-party'sintellectual property. The law relating to the liability of registrarsstemming from the activities of registrants in this regard is currentlyunsettled in certain jurisdictions, and the actions of our users maytherefore expose us to significant liability. Even if we were toprevail in a dispute concerning such actions, litigation could betime-consuming and expensive to defend, and could result in thediversion of management's time and attention.

In addition,the Anticybersquatting Consumer Protection Act was enacted in November1999 to curtail a practice commonly known in the industry as"cybersquatting." A cybersquatter isgenerally defined in this Act as one who registers a domain name thatis identical or similar to another party's trademark or the nameof a living person, in each case with the bad faith intent to profitfrom use of the domain name. Cybersquatting is a problem that could beexacerbated with any additional top level domain names that may beestablished by ICANN. Although this Act states that registrars may notbe held liable for registering or maintaining a domain name for anotherperson absent a showing of the registrar's bad faith intent toprofit from the use of the domain name, registrars may be held liableif they fail to comply promptly with procedural provisions under theAct. If we are held liable under this law, any liability could have amaterial adverse effect on our business, financial condition andresults of operations.

Although established case law andstatutory law have, to date, shielded us from liability relating tocybersquatting registrations on our site in the primary registrationmarket, this law remains new and unsettled in many jurisdictions andthe application of these laws and precedent to other domain nameregistration related services is still developing. Any determinationthat our other domain name registration related services facilitatecybersquatting could have a material adverse effect on our business,financial condition and results of operations.

If we are notable to comply with newly instituted security standards for creditcardholder data, we may be subject to financial penalties and we couldlose our ability to accept credit card payments from customers, whichwould have a material adverse effect on our business, financialcondition and results of operations.

Visa, MasterCard, and mostother major card companies have instituted mandatory complianceprograms that require merchants and others who store or transmitcardholder data on behalf of the merchant to adhere to the Payment CardIndustry (PCI) Data Security Standards. These standards are intended toensure that cardholder data is appropriately protected at all pointswithin the course of a transaction.

We engaged theservices of a third-party to review our cardholder data securitystandards and, based on this review, we have identified certain areasin which we do not meet the PCI Data Security Standards. We are in theprocess of addressing these areas of non-compliance, which efforts mayincrease our costs and distract time and energy from our operations. Wecannot assure you that we will achieve compliance in a timely manner orprior to deadlines that may be set by the credit card companies, whichmay subject us to penalties established or to be established by thecredit card 

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companies. Further, if our existingcardholder data security systems are breached before we are able toachieve compliance with the new standards, we may be subject to certainadditional penalties, including, under certain circumstances, a fine ofup to $500,000 per incident and the possible revocation of our merchantcredentials. The accrual of penalties could, and the loss of ourmerchant credentials from any of the major credit card companies would,have a material adverse effect on our business, financial condition andresults of operations.

Risks Related to Our Technology and theInternet

Systems disruptions and failures could cause ourcustomers, resellers and advertisers to become dissatisfied with us andmay impair our business.

Our customers, advertisers andresellers may become dissatisfied with our products and services due tointerruptions in access to our website or our failure to adopt andadapt to changing technology.

Our ability to maintain ourcomputer and telecommunications equipment in working order and toreasonably protect them from interruption is critical to our success.Our website must accommodate a high volume of traffic and deliverfrequently updated information. In addition, the technology underlyingthe Internet and the applications available to simplify electroniccommerce are continuously being enhanced or upgraded and to remaincompetitive, we must incorporate these emerging technologies into ourinfrastructure on a cost-effective and timely basis. We occasionallyexperience system application failures, as well as slower responsetimes. We also conduct planned site outages and experience unplannedsite outages. To date, these disruptions of service and slower responsetimes have had minimal impact on our business. However, our customers,advertisers and resellers may become dissatisfied by any systemsfailure that interrupts our ability to provide our products andservices to them or increases response times. Substantial or repeatedsystem failures would significantly reduce the attractiveness of ourwebsite and could cause our customers, advertisers and resellers toswitch to another domain name registration service provider.

Although we carry general liability and professional liabilityinsurance, our insurance may not cover any claims by dissatisfiedcustomers, advertisers, affiliates, or resellers, or may be inadequateto indemnify us for any liability that may be imposed in the event thata claim were brought against us. Our business could be materiallyharmed by any system failure, security breach or other damage thatinterrupts or delays our operations.

As part of ourrestructuring process, we have been incurring substantial expenses toupdate our technology, improve our systems' performance anddevelop new applications to meet the evolving needs of our customersand ensure the compatibility of our current systems with emergingtechnologies. We cannot assure you that we will be able to achievethese goals on a timely basis as changes in technologies occur.

Our customers, advertisers and resellers may becomedissatisfied with our products and services due to interruptions in ouraccess to the registration systems of generic top level domain orcountry code registries.

We depend on the registration systemsof generic top level domain and country code registries to registerdomain names on behalf of our customers. We have in the pastexperienced problems with the registration systems of these top leveldomain registries, including outages, particularly during theirimplementation phase. Any significant outages in the registrationsystems of these registries would prevent us from delivering or delayour delivery of our services to our customers. Prolonged or repeatedinterruptions in our access to the registries could cause ourcustomers, advertisers and resellers to switch to another domain nameregistration service provider.

Our business would bematerially harmed if our computer systems become damaged.

Wecurrently do not have a comprehensive multi-site disaster recovery planin effect and our systems redundancies are not geographicallydistributed. We have no current plans to add additional facilities tomake our systems geographically redundant. Fires, floods, earthquakes,power losses, 

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telecommunications failures, break-ins andsimilar events could damage these systems and severely harm ourbusiness because our services could be interrupted for an indeterminatelength of time. Computer viruses, electronic break-ins, human error orother similar disruptive problems could also adversely affect oursystems.

Despite any precautions we may take, the occurrence ofa natural disaster, a decision to close a facility we are using withoutadequate notice for financial reasons or other unanticipated problemsat any of our facilities including our hosting facilities, could resultin lengthy interruptions in our services. In addition, the failure byour hosting facilities to provide our required data communications orany damage to or failure of our systems could result in interruptionsin our service. Such interruptions would reduce our revenues andprofits, and our future revenues and profits would be harmed if ourusers were to believe that our systems are unreliable. In addition, ourbusiness interruption insurance may not be adequate to compensate usfor losses that may occur. Accordingly, any significant damage to oursystems or disruption in our ability to provide our services would havea material adverse effect on our business, financial condition andresults of operations.

Our ability to deliver our products andservices and our financial condition depend on our ability to licensethird-party software, systems and related services on reasonable termsfrom reliable parties.

We depend upon various third-parties,including some competitors, for software, systems and related services,including access to the various registration systems of domain nameregistries. Many of these parties have a limited operating history ormay depend on reliable delivery of services from others. If theseparties fail to provide reliable software, systems and related serviceson agreeable license terms, we may be unable to deliver our productsand services.

If our customers turn to other registrars fortheir registration needs for new TLDs, our business, financialcondition and results of operations could suffer.

In April2005, ICANN announced the designation of two new sponsored TLDs: .jobsand .travel. The registry for .travel is expected to launch in late2005, and the registry for .jobs is expected to launch in late summeror early fall 2005. Intervening factors may result in delays in thelaunches for the new TLDs. We cannot assure you that we willsuccessfully market our capabilities with respect to new TLDs or thatcustomers will rely on us to provide registration services within thesedomains. Although we expect the overall number of registrations in eachnew TLD will be significantly lower than for .com registrations, ourbusiness, financial condition and results of operations could suffer ifsubstantial numbers of our customers turn to other registrars for theirnew TLD registration needs.

Our failure to respond to the rapidtechnological changes in our industry may harm our business.

Ifwe are unable, for technological, legal, financial or other reasons, toadapt in a timely manner to changing market conditions or customerrequirements, we could lose customers, strategic alliances and marketshare. The Internet and electronic commerce are characterized by rapidtechnological change. Sudden changes in user and customer requirementsand preferences, the frequent introduction of new products and servicesembodying new technologies and the emergence of new industry standardsand practices could render our existing products, services and systemsobsolete. The emerging nature of products and services in the domainname registration industry and their rapid evolution will require thatwe continually improve the performance, features and reliability of ourproducts and services. Our success will depend, in part, on our abilityto:

|              |                                            |
|--------------|--------------------------------------------|
| •  | enhance our existing products andservices; |

|              |                                                                                                                                                                                        |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | design, develop, launchand/or license new products, services and technologies that address theincreasingly sophisticated and varied needs of our current andprospective customers; and |

|              |                                                                                                                     |
|--------------|---------------------------------------------------------------------------------------------------------------------|
| •  | respond totechnological advances and emerging industry standards and practices ona cost-effective and timely basis. |

The development of additionalproducts and services and other proprietary technology involvessignificant technological and business risks and requires substantialexpenditures and lead time. We 

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may be unable to use new technologieseffectively or adapt our websites, internally developed technology ortransaction-processing systems to customer requirements or emergingindustry standards. Updating our technology internally and licensingnew technology from third-parties may require us to incur significantadditional capital expenditures.

If Internet usage does notgrow, or if the Internet does not continue to expand as a medium forcommerce, our business may suffer.

Our success depends upon thecontinued development and acceptance of the Internet as a widely usedmedium for commerce and communication. We cannot assure you that use ofthe Internet will continue to grow at the pace it has in recent years.A number of factors could prevent continued growth, development andacceptance, including:

|              |                                                                                                                 |
|--------------|-----------------------------------------------------------------------------------------------------------------|
| •  | theunwillingness of companies and consumers to shift their purchasing fromtraditional vendors to onlinevendors; |

|              |                                                                                                                                               |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------|
| •  | the Internet infrastructuremay not be able to support the demands placed on it, and itsperformance and reliability may decline as usagegrows; |

|              |                                                                                                                                                                                                                                                                          |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | security and authenticationissues may create concerns with respect to the transmission over theInternet of confidential information, such as credit card numbers, andattempts by unauthorized computer users, so-called hackers, topenetrate online security systems;and |

|              |                                                                                                                                                                                             |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | privacy concerns, including thoserelated to the ability of websites to gather user information withoutthe user's knowledge or consent, may impact consumers'willingness to interact online. |

Any of these issues could slowthe growth of the Internet, which could have a material adverse effecton our business, financial condition and results of operations.

We may become subject to burdensome government regulations andlegal uncertainties affecting the Internet.

To date, governmentregulations have not materially restricted the use of the Internet. Thelegal and regulatory environment pertaining to the Internet, however,is uncertain and may change. Both new and existing laws may be appliedto the Internet by state, federal or foreign governments, coveringitems such as:

|              |                                                           |
|--------------|-----------------------------------------------------------|
| •  | sales and othertaxes, including European Value-Added Tax; |

|              |                                   |
|--------------|-----------------------------------|
| •  | user privacy and security issues; |

|              |                                               |
|--------------|-----------------------------------------------|
| •  | the expansion of intellectual propertyrights; |

|              |                   |
|--------------|-------------------|
| •  | pricing controls; |

|              |                                                      |
|--------------|------------------------------------------------------|
| •  | characteristics and quality of productsand services; |

|              |                     |
|--------------|---------------------|
| •  | consumerprotection; |

|              |                       |
|--------------|-----------------------|
| •  | cross-bordercommerce; |

|              |                       |
|--------------|-----------------------|
| •  | libel and defamation; |

|              |                                              |
|--------------|----------------------------------------------|
| •  | copyright, trademark and patentinfringement; |

|              |                  |
|--------------|------------------|
| •  | pornography; and |

|              |                                                                    |
|--------------|--------------------------------------------------------------------|
| •  | other claims based on the nature andcontent of Internet materials. |

The adoption of any new laws orregulations or the new application or interpretation of existing lawsor regulations to the Internet could hinder the growth in use of theInternet and other online services generally and decrease theacceptance of the Internet and other online services as media ofcommunications, commerce and advertising. Our business may be harmed ifany slowing of the growth 

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of the Internet reduces the demand for ourservices. In addition, new legislation could increase our costs ofdoing business and prevent us from delivering our products and servicesover the Internet, thereby harming our business, financial conditionand results of operations.

The introduction of tax lawstargeting companies engaged in electronic commerce could materiallyadversely affect our business, financial condition and results ofoperations.

We file tax returns in such countries and states asrequired by law based on existing regulations applicable to traditionalbusinesses. However, one or more states could seek to impose additionalincome tax obligations or sales tax collection obligations onout-of-state companies, such as ours, which engage in or facilitateelectronic commerce. A number of proposals have been made at state andlocal levels that could impose such taxes on the sale of products andservices through the Internet or the income derived from such sales.Such proposals, if adopted, could substantially impair the growth ofelectronic commerce and materially adversely affect our business,financial condition and results of operations.

On December 3,2004, the president signed into law an extension of a moratorium oncertain state and local taxation of online services and electroniccommerce until November 1, 2007. While the legislation extends themoratorium, it is not a permanent ban on such taxes. The imposition ofsuch taxes in the future could materially adversely affect ourbusiness, financial condition and results of operations.

Inaddition, on July 1, 2003, a directive became effective in the EUrequiring non-EU providers of electronically supplied services toprivate individuals and non-business organizations in the EU to imposevalue-added taxes (VAT) on such services. Although not all of the EUmember states have yet implemented the directive nor have the taxauthorities of all of the member states published official guidance onthe rules, if we are required to comply with this directive, we willhave to implement system changes. These systems changes may besignificant and it is not yet clear which of our products and services,if any, would be subject to this directive. If it were determined thatone or more of our products and services are subject to this directive,we would not be in compliance with this directive and, as a result, wemay be subject to claims for VAT dating back to July 1, 2003, plusinterest and/or penalties. In addition, imposition of VAT may also leadto some of our products and services that we offer in EU countriesbecoming more expensive relative to services rendered in thosecountries by EU businesses, which could put us at a competitivedisadvantage if we were to pass along the VAT to our customers, orcould reduce our profit margin if we were to absorb the VAT as anadditional cost to our business.

Investment Risks

Ourstock price is highly volatile.

The market price of our commonstock has been and may continue to be highly volatile and significantlyaffected by a number of factors,including:

|              |                                                                                                      |
|--------------|------------------------------------------------------------------------------------------------------|
| •  | general market andeconomic conditions and market conditions affecting technologycompanies generally; |

|              |                                                      |
|--------------|------------------------------------------------------|
| •  | limitedavailability of our shares on the openmarket; |

|              |                                                                                |
|--------------|--------------------------------------------------------------------------------|
| •  | actual or anticipatedfluctuations in our quarterly or annual operatingresults; |

|              |                                                                                                                      |
|--------------|----------------------------------------------------------------------------------------------------------------------|
| •  | our actual or anticipatednet cash inflow or outflows from operations, capital expenditures orfinancing-relateditems; |

|              |                                                                                                       |
|--------------|-------------------------------------------------------------------------------------------------------|
| •  | announcements of acquisitionsor investments, developments in Internet governance or corporateactions; |

|              |                                |
|--------------|--------------------------------|
| •  | industry conditions andtrends; |

|              |                                                |
|--------------|------------------------------------------------|
| •  | interest in the Company bypotential acquirors; |

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|              |                                                          |
|--------------|----------------------------------------------------------|
| •  | ourrestatement of previously issued financialstatements; |

|              |                                                                                                                                                                                                                                                                                                                                            |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | the delay in our filingof this Annual Report on Form 10-K and any potential delay in futureSEC filings caused by additional manual controls and procedures beingimplemented in connection with the remediation of the materialweaknesses in our internal controls (and any delisting of our commonstock as a result of any such delay);and |

|              |                                                                                                                                    |
|--------------|------------------------------------------------------------------------------------------------------------------------------------|
| •  | management's identificationof any material weaknesses or significant deficiencies in our internalcontrol over financial reporting. |

The stock market hasexperienced extreme price and volume fluctuations that haveparticularly affected the market prices of the securities of technologyrelated companies. These fluctuations may adversely affect the marketprice of our common stock.

The market price for our sharescould be negatively affected if we utilize a significant portion of ourremaining cash and marketable securities.

If we utilize asignificant portion of our cash and marketable securities, the marketprice for our shares could be negatively affected. We may in the futureuse our cash and/or securities for mergers, acquisitions or otherbusiness combinations or strategic investments, or we may distributeadditional cash to stockholders including by way of one or moredividends, distributions or repurchases of additional shares and/orwarrants on the open market, in private transactions or by othermethods, subject to the approval of our Board of Directors andcompliance with applicable securities laws. If the market price of ourstock declined significantly, it could, among other things, also resultin:

|              |                                                                                                                          |
|--------------|--------------------------------------------------------------------------------------------------------------------------|
| •  | our possible noncompliance withthe Nasdaq National Market's listing requirements and thepossible delisting of ourshares; |

|              |                                                                                                                                                             |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | reduced trading volumes, anilliquid market for the trading of our shares, and more difficultiesinvolved with the selling of our shares by our stockholders; |

|              |                                                                            |
|--------------|----------------------------------------------------------------------------|
| •  | our shares losing their appeal as acurrency for future acquisitions;and/or |

|              |                                                                                                                |
|--------------|----------------------------------------------------------------------------------------------------------------|
| •  | an impairment in our abilityto access the capital markets should we desire or need to raiseadditional capital. |

We may be required to set the date for our2005 annual meeting of stockholders on or after July 20, 2005 which,under our bylaws would allow stockholders subject to satisfaction ofthe other conditions imposed by our bylaws to nominate an alternateslate of directors to replace some or all of our existing directors atour 2005 annual meeting.

On February 8, 2005 we entered into anagreement with Barington Companies Equity Partners, L.P.("Barington"), one of our stockholders,whereby we agreed to certain target dates to appoint two new directorsand a new Chief Executive Officer. Although our nominating committeeconducted a search for new director candidates, it did not satisfy theinitial target date for appointing a new director by February 15, 2005.As a result, to the extent not otherwise modified, this agreement nowrequires us to set the date of our 2005 annual meeting of stockholderson or after July 20, 2005. This date requirement for the annual meetinghas the practical effect of allowing Barington, or any otherstockholder subject to satisfaction of the other conditions imposed byour bylaws, to nominate an alternate slate of directors to replace someor all of our existing directors at our 2005 annual meeting, which, ifsuccessful, could result in a change in control or change in managementor both. In addition, this agreement increased (from 8% to15%) a standstill limitation previously agreed to by Barington(and certain related stockholders) on ownership of our common stock.James A. Mitarotonda, one of our current directors, is the Chairman ofthe Board, President and Chief Executive Officer of Barington and isthe managing member of the general partner of Barington. Any contestedelection could distract management from its focus on operating ourbusiness and will result in significant fees and expenses.

Ourexecutive officers and directors own a significant percentage of ourshares, which will limit your ability to influence corporatematters.

As of April 25, 2005, our executive officers anddirectors beneficially owned approximately 15.8% of our commonstock. Accordingly, these stockholders could have significant influenceover the 

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outcome of any corporate transaction orother matter submitted to our stockholders for approval, includingmergers, consolidations or a sale of all or substantially all of ourassets. The interests of these stockholders may differ from theinterests of our other stockholders. In addition, third-parties may bediscouraged from making a tender offer or bid to acquire us because ofthis concentration of ownership.

Our charter documents, ourStockholder Rights Plan and Delaware law may inhibit a takeover thatstockholders may consider favorable.

Provisions in our amendedand restated certificate of incorporation, our amended and restatedbylaws, our Stockholder Rights Plan and Delaware law could delay orprevent a change of control or change in management that would providestockholders with a premium to the market price of their common stock.Our Stockholder Rights Plan has significant anti-takeover effects bycausing substantial dilution to a person or group that attempts toacquire us on terms not approved by our Board of Directors. Theauthorization of undesignated preferred stock, for example, gives ourboard the ability to issue preferred stock with voting or other rightsor preferences that could impede the success of any attempt to changecontrol of the Company. If a change of control or change in managementis delayed or prevented, this premium may not be realized or the marketprice of our common stock could decline.

Item2.    Properties.

We currently lease approximately 30,000square feet of office space in New York, New York under a contract thatexpires in September 2009. We also lease 6,500 square feet of officespace in Maryland under a contract that expires in January 2006. Inaddition, we have entered into a five-year lease expiring in August2006, renewable at our option for up to two additional five-year terms,for approximately 20,000 square feet of office space in Canada, and arein negotiations to lease up to an additional 20,000 square feet inCanada during the year ended December 31, 2005. Our subsidiary, RCOMEurope leases approximately 2,919 square feet of space in London,England under a lease that expires in February 2007. RCOM Europeformerly owned a building containing approximately 2,000 square feet ofoffice space in London, which it sold in May 2004 for £567,500(or approximately $1,014,000). We also maintain leases for smallerfacilities in Cardiff and Paris. Subject to the successful negotiationof the lease for additional space in Canada, we believe that theforegoing space will meet our needs for at least the next twelvemonths. We are also obligated under an office lease in Princeton, NewJersey, that we have subleased to an un-affiliated company.

Item 3.    Legal Proceedings.

On November 15, 2001, theCompany, its former Chairman, President and Chief Executive OfficerRichard D. Forman and its former Vice President of Finance andAccounting, Alan G. Breitman (the "IndividualDefendants"), and Goldman Sachs & Co. and LehmanBrothers, Inc., two of the underwriters in the syndicate for our March3, 2000 initial public offering, were named as defendants in a classaction complaint filed by Stafford Perkins, on behalf of himself andall others similarly situated, alleging violations of the federalsecurities laws in the United States District Court, Southern Districtof New York. Goldman Sachs & Co. and Lehman Brothers, Inc.distributed 172,500 of the 5,750,000 shares in the initial publicoffering. A Consolidated Amended Complaint captioned In re:Register.com, Inc. Initial Public Offering Securities Litigation (whichis now the operative complaint), was filed on April 19, 2002. TheConsolidated Amended Complaint seeks unspecified damages as a result ofvarious alleged securities law violations arising from activitiespurportedly engaged in by the underwriters in connection with ourinitial public offering. Plaintiffs allege that the underwriterdefendants agreed to allocate stock in the Company's initialpublic offering to certain investors in exchange for excessive andundisclosed commissions and agreements by those investors to makeadditional purchases of stock in the aftermarket at pre-determinedprices. Plaintiffs allege that the prospectus for the Company'sinitial public offering was false and misleading in violation of thesecurities laws because it did not disclose these arrangements. Theaction is being coordinated with approximately three hundred othernearly identical actions filed against other companies before one

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judge in the U.S. District Court for theSouthern District of New York. On October 9, 2002, the Court dismissedthe Individual Defendants from the case without prejudice based onStipulations of Dismissal filed by the plaintiffs and the IndividualDefendants. On February 19, 2003, the Court denied the motion todismiss the complaint against the Company. On October 13, 2004, theCourt certified a class in six of the approximately 300 other nearlyidentical actions and noted that the decision is intended to providestrong guidance to all parties regarding class certification in theremaining cases. Plaintiffs have not yet moved to certify a class inthe Company's case. The Company has approved a settlementagreement and related agreements which set forth the terms of asettlement between the Company, the Individual Defendants, theplaintiff class and the vast majority of the other approximately 300issuer defendants. Among other provisions, the settlement provides fora release of the Company and the Individual Defendants for the conductalleged in the action to be wrongful. The Company would agree toundertake certain responsibilities, including agreeing to assign away,not assert, or release certain potential claims the Company may haveagainst its underwriters. The settlement agreement also provides aguaranteed recovery of $1 billion to plaintiffs for the cases relatingto all of the approximately 300 issuers. To the extent that theunderwriter defendants settle all of the cases for at least $1 billion,no payment will be required under the issuers' settlementagreement. To the extent that the underwriter defendants settle forless than $1 billion, the issuers are required to make up thedifference. It is anticipated that any potential financial obligationof the Company to plaintiffs under the settlement agreement and relatedagreements will be covered by existing insurance. We are currently notaware of any material limitations on the expected recovery of anypotential financial obligation to plaintiffs from our insurancecarriers. To our knowledge, our insurance carriers are solvent, and weare not aware of any uncertainties as to the legal sufficiency of aninsurance claim with respect to any recovery by plaintiffs. Therefore,we do not expect that the settlement will involve any payment by theCompany. If material limitations on the expected recovery of anypotential financial obligation to the plaintiffs from theCompany's insurance carriers should arise, the Company'smaximum financial obligation to plaintiffs pursuant to the settlementagreement would be less than $3.4 million. On February 15, 2005, theCourt granted preliminary approval of the settlement agreement, subjectto certain modifications consistent with its opinion. The Court ruledthat the issuer defendants and the plaintiffs must submit a revisedsettlement agreement which provides for a mutual bar of allcontribution claims by the settling and non-settling parties and doesnot bar the parties from pursuing other claims. The issuers andplaintiffs have negotiated a revised settlement agreement consistentwith the Court's opinion and are in the process of obtainingapproval from the approximately 300 issuer defendants and individualsassociated with those issuers. The parties must submit a revisedsettlement to the court by May 2, 2005. The underwriter defendants willhave until May 16, 2005 to object to the revised settlement agreement.There is no assurance that the Court will grant final approval to thesettlement. If the settlement agreement is not approved and the Companyis found liable, the Company is unable to estimate or predict thepotential damages that might be awarded, whether such damages would begreater than the Company's insurance coverage, and whether suchdamages would have a material impact on the Company's results ofoperations or financial condition in any future period.

Register.com was named as a defendant in a purported class actionlawsuit filed by Brian Wornow, on behalf of himself and all otherssimilarly situated, in the Supreme Court of the State of New York onMay 2, 2002, which alleged that our SafeRenew program violates New Yorklaw. Our SafeRenew program was implemented in January 2001 on an"opt-out basis" to .com, .net and .orgregistrations registered through the www.register.com website, and wassubsequently expanded to cover certain ccTLDs registered through thiswebsite. Under the terms of our services agreement, at the time acovered registration comes up for renewal, we attempt to charge aregistrant's on-file credit card a one year renewal fee and, ifthe charge is successful, to renew the registration for that additionalone-year period. Register.com believes that the SafeRenew program wasproperly adopted as an effort to protect our customers' onlineidentities. Plaintiff sought a declaratory judgment that the SafeRenewprogram violates New York General Obligations Law Section 5-903, andalso asserted claims for breach of contract, money had and received,and unjust enrichment. Plaintiff further sought to enjoin Register.comfrom automatically renewing domain name registrations, an award ofcompensatory damages, restitution, disgorgement of profits (plusinterest), cost and expenses, 

33

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attorneys' fees, and punitive damages.On September 6, 2002, Register.com filed a motion to dismiss thecomplaint in its entirety. On April 17, 2003, Register.com'smotion was granted as to two counts (declaratory judgment and breach ofcontract), but denied as to two other counts (unjust enrichment andmoney had and received). On May 2, 2003, Plaintiff filed a notice ofappeal to the Appellate Division, First Department of the two countsthat were dismissed. On May 15, 2003, Plaintiff filed an amendedcomplaint asserting new causes of action against Register.com for (i)deceptive trade practices in violation of New York General Business LawSection 349; (ii) conversion; and (iii) breach of the implied covenantof good faith and fair dealing. On June 9, 2003, Register.com moved todismiss Plaintiff's newly asserted causes of action. On February19, 2004, Register.com's motion to dismiss the first, fourth anda fifth causes of action of Plaintiff's amended complaint wasgranted. Plaintiff has perfected an appeal from this ruling and on June8, 2004 the Appellate Division, First Department affirmed the dismissalof all five counts. On July 30, 2004, Register.com and the Plaintiffentered into a settlement agreement, the terms of which were subject toapproval by the Court. In the second quarter of 2004, the Companyrecorded a provision of $1.4 million for the settlement which itestimated to be its probable exposure net of contributions to be madeby its insurance carrier. The Court granted final approval of thesettlement agreement on January 24, 2005. Pursuant to the settlementagreement, Register.com agreed to set up a fund of $2.0 million to beused to pay all properly submitted refund claims to settlement classmembers as well as Court-approved attorneys' fees and litigationexpenses incurred by class counsel. If the fund is oversubscribedduring the claims period specified in the settlement agreement, thenRegister.com agreed to contribute up to an additional $350,000 toreplenish the fund, after which contribution, if any, Register.com hasno additional obligation to contribute to the fund. As anticipated,Register.com's initial contribution to the fund, net ofcontributions made by its insurance carrier, will be approximately $1.4million.

On February 9, 2001, Register.com was named as adefendant in a purported class action lawsuit filed by Michael Zurakov,on behalf of himself and all others similarly situated, in the SupremeCourt of the State of New York. The complaint alleged that by linkingnew domain names registered through Register.com to a"Coming Soon" web page that informs visitorsthe name was recently registered through Register.com, and provideslinks to services provided by Register.com and its business partners,as well as a banner advertisement for such services, Register.com (i)breached an implied covenant of good faith and fair dealing; (ii)engaged in deceptive trade practices in violation of New York GeneralBusiness Law Section 349; and (iii) was unjustly enriched. In August2001, the Court granted Register.com's motion to dismissPlaintiff's claims for failure to state a claim upon which reliefmay be granted. Plaintiff appealed the dismissal and in April 2003 theAppellate Division, First Department affirmed the dismissal of theunjust enrichment cause of action, but reinstated the causes of actionfor breach of an implied covenant of good faith and fair dealing anddeceptive trade practices. Thereafter, Register.com and Plaintiffagreed upon a settlement which, following notice to the proposedsettlement class, was approved by the Court on November 3, 2003. Inaccordance with the settlement, Register.com has provided each memberof the putative class with a coupon for a five dollar discount off offuture purchases of Register.com's fees for domain nameregistrations and renewals and has paid attorney's fees in theamount awarded by the Court to class counsel. These coupons expired inOctober 2004 and the case has been dismissed.

There are variousother claims, lawsuits and pending actions against the Companyincidental to the operations of its business. It is the opinion ofmanagement, after consultation with counsel, that the ultimateresolution of such claims, lawsuits and pending actions will not bematerial to the Company and will not have a material adverse effect onthe Company's financial position, results of operations orliquidity.

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

No matter was submitted to a vote of securityholders during the fourth quarter of2004.

34

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PARTII

|               |                                                                                                             |
|---------------|-------------------------------------------------------------------------------------------------------------|
| Item 5.  | Market for Registrant'sCommon Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities. |

Our common stock has been quoted on theNasdaq National Market since our initial public offering onMarch  3, 2000. Prior to our initial public offering, there wasno public market for our common stock. Due to our failure to timelyfile this Report on Form 10-K, on April 7, 2005 the trading symbol forour common stock was changed by Nasdaq from"RCOM" to "RCOME".In addition, as a result of the late filing, Nasdaq's staff hasinformed us that our common stock may be delisted. We have requested anoral hearing before a Nasdaq Listing Qualifications Panel to appeal theNasdaq staff's determination and this request has stayed thedelisting pending the outcome of the appeal. Although we believe thatour filing of this Report on Form 10-K will result in the continuedlisting of our common stock and the restoration of our trading symbolto "RCOM" we can provide no assurances thatour common stock will continue to be listed or that our trading symbolwill be restored. See also "RiskFactors".

The following table sets forth, for theperiods indicated, the high and low sales prices per share of thecommon stock as reported on the Nasdaq National Market.

|                                  |  |        |        |        |  |        |        |        |  |  |
|----------------------------------|--|--------|--------|--------|--|--------|--------|--------|--|--|
|                             |  | High   |        | Low    |
| **YearEnding December 31,2004:** |  |   |   |   |  |   |   |   |
| FourthQuarter                    |  | $      | 6.83   |   |  | $      | 5.27   |   |
| ThirdQuarter                     |  |   | 6.06   |   |  |   | 5.15   |   |
| SecondQuarter                    |  |   | 6.24   |   |  |   | 5.03   |   |
| FirstQuarter                     |  |   | 6.49   |   |  |   | 5.05   |   |
|                             |  |   |   |   |  |   |   |   |
| **YearEnding December 31,2003:** |  |   |   |   |  |   |   |   |
| FourthQuarter                    |  | $      | 5.85   |   |  | $      | 4.49   |   |
| ThirdQuarter                     |  |   | 6.50   |   |  |   | 4.50   |   |
| SecondQuarter                    |  |   | 6.45   |   |  |   | 5.20   |   |
| FirstQuarter                     |  |   | 5.82   |   |  |   | 4.44   |   |
|                             |  |   |   |   |  |   |   |   |
|                                  |

OnMay 2, 2005, the last sale price of our common stock reported by theNasdaq National Market was $5.17 per share. As of May 2, 2005, we hadapproximately 66 holders of record of our common stock.

Dividend Policy

We have never declared nor paid any cashdividends on our common stock; however, we may consider the payment ofa dividend in the future.

Recent Sales of UnregisteredSecurities

The information disclosed under"Unregistered Sales of Equity Securities"included in Item 9B of this Report on Form 10-K is incorporated byreference into this Item 5.

Issuer Purchases of EquitySecurities

The information in the table below reflects thedelivery to us of certain shares of our common stock as payment of theexercise price under certain warrants previously outstanding. Theshares delivered were not purchased by us under any plan or program andsuch shares have been cancelled and are no longer outstanding. Wecurrently have no plan or program to repurchase any of oursecurities.

35

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|                                              |  |                                            |  |                                       |  |                                                                                           |  |                                                                                                                      |  |  |  |  |  |  |  |  |  |  |
|----------------------------------------------|--|--------------------------------------------|--|---------------------------------------|--|-------------------------------------------------------------------------------------------|--|----------------------------------------------------------------------------------------------------------------------|--|--|--|--|--|--|--|--|--|--|
| Period                                       |  | TotalNumber of Shares (or Units) Purchased |  | AveragePrice Paid per Share (or Unit) |  | Total Number ofShares (or Units) Purchased as Part of PubliclyAnnounced Plans or Programs |  | Maximum Number(or Approximate Dollar Value) of Shares (or Units)that May Yet be Purchased Under the Plans orPrograms |
| **February 1, 2005 –February28, 2005** |  | 72,006(1)                                  |  | $6.33(2)                              |  | N/A                                                                                       |  | N/A                                                                                                                  |
|                                              |

|     |                                                                                                                                                                                                                                                                   |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Represents(i) 60,041 shares of our common stock tendered as payment of theexercise price of warrants exercised on February 7, 2005 and (ii)11,965 shares of our common stock tendered as payment of the exerciseprice of warrants exercised on February 24, 2005. |

|     |                                                                                                                                                                                                                                                                                                                     |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | The shares of common stock tendered as payment ofthe exercise price of warrants were valued at fair market value on theexercise date, or (i) $6.35 per share with respect to the 60,041 sharestendered on February 7, 2005 and (ii) $6.25 per share with respect tothe 11,965 shares tendered on February 24, 2005. |

EquityCompensation Plan Information

The following table providesinformation as of December  31, 2004 with respect to shares ofour common stock that may be issued under our existing equitycompensationplans:

|                                                              |  |                                                                                      |  |                                                                        |  |                                                                                                                                   |  |  |  |  |  |  |  |  |
|--------------------------------------------------------------|--|--------------------------------------------------------------------------------------|--|------------------------------------------------------------------------|--|-----------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|--|--|--|--|
| PlanCategory                                                 |  | Number of securitiesto be issueduponexerciseof outstandingoptions,warrants andrights |  | Weighted averageexercise priceofoutstandingoptions, warrantsand rights |  | Numberof securitiesremaining available forfuture issuanceunderequity compensationplans (excludingsecuritiesreflectedin column(a)) |
|                                                         |  | (a)                                                                                  |  | (b)                                                                    |  | (c)                                                                                                                               |
| Equitycompensation plans approved by security holders(1)     |  | 5,741,813(2)                                                                         |  | $7.54                                                                  |  | 4,041,467(3)                                                                                                                      |
| Equitycompensation plans not approved by security holders(4) |  | 11,343                                                                               |  | $1.02                                                                  |  | —                                           |
| Total                                                        |  | 5,753,156                                                                            |  | $7.53                                                                  |  | 4,041,467                                                                                                     |
|                                                              |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                            |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Includesoptions to purchase shares of our common stock under our Amended andRestated 2000 Stock Incentive Plan and our Employee Stock Purchase Plan(ESPP). |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Excludes purchase rights accruingunder the ESPP, which has a shareholder approved reserve of 467,709shares of common stock as of January 3, 2005. Under the ESPP, eacheligible employee may purchase shares of common stock through payrolldeductions of up to 10% of their eligible compensation. Theprice paid by the employee is 85% of the fair market value onthe employee's entry date into the offering period or thepurchase date, whichever is lower. |

|     |                                                                                  |
|-----|----------------------------------------------------------------------------------|
| (3) | Consistsof shares available for future issuance under the 2000 Plan and theESPP. |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (4) | Consists of the following warrants topurchase shares of Common Stock issued prior to the Company'sinitial public offering, pursuant to compensation arrangements withadvisors: 843 shares at an exercise price of $0.43 per share, whichexpires September  21, 2008; 5,250 shares at an exercise price of$0.57 per share, which expires March  17, 2009; and 5,250 sharesat an exercise price of $1.57 per share, which expires June  10,2009. |

36

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Item 6.    Selected FinancialData.

The following table sets forth certain selectedconsolidated financial data of the Company for the years endedDecember  31, 2004, 2003, 2002, 2001 and 2000. The selectedconsolidated data is derived from our Consolidated FinancialStatements. Data as of December 31, 2000, 2001, 2002, and 2003, and forthe years then ended, have been reclassified and restated — seeNotes 2 and 16 to our Consolidated Financial Statements included inItem 8 of this Report on Form 10-K for the impact of thereclassification and restatement on 2003 and 2002. See below for theimpact of the reclassification and restatement on 2001 and 2000. Inaddition, the Company has restated data for each of the quarterlyperiods of 2003 and the first three quarterly periods of 2004. See"Management's Discussion and Analysis of FinancialCondition and Results of Operations—Quarterly Results ofOperations" for the impact of the restatement on thesequarterly periods. You should read the following selected consolidatedfinancial data together with our consolidated financial statements andtheir notes as well as "Management's Discussion andAnalysis of Financial Condition and Results ofOperations."

|                                                             |  |                                        |         |               |  |               |         |               |  |               |         |         |  |        |         |         |  |        |         |         |  |  |
|-------------------------------------------------------------|--|----------------------------------------|---------|---------------|--|---------------|---------|---------------|--|---------------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                        |  | YearEnded December31,                  |
|                                                        |  | 2004                                   |         | 2003Restated* |  | 2002Restated* |         | 2001Restated* |  | 2000Restated* |
|                                                        |  | (inthousands, except per shareamounts) |
| Statement of OperationsData:                                |  |                                   |    |          |  |          |    |          |  |          |    |    |  |   |    |    |  |   |    |    |
| Netrevenues                                                 |  | $                                      | 100,857 |          |  | $             | 103,242 |          |  | $             | 102,421 |    |  | $      | 114,976 |    |  | $      | 82,517  |    |
| Costofrevenues                                              |  |                                   | 31,812  |          |  |          | 32,387  |          |  |          | 34,689  |    |  |   | 34,420  |    |  |   | 22,851  |    |
| Grossprofit                                                 |  |                                   | 69,045  |          |  |          | 70,855  |          |  |          | 67,732  |    |  |   | 80,556  |    |  |   | 59,666  |    |
| Operatingexpenses:                                          |  |                                   |    |          |  |          |    |          |  |          |    |    |  |   |    |    |  |   |    |    |
| Salesandmarketing                                           |  |                                   | 30,858  |          |  |          | 25,960  |          |  |          | 31,066  |    |  |   | 33,532  |    |  |   | 47,311  |    |
| Technology                                                  |  |                                   | 18,066  |          |  |          | 18,408  |          |  |          | 13,202  |    |  |   | 7,741   |    |  |   | 5,580   |    |
| Generalandadministrative                                    |  |                                   | 15,602  |          |  |          | 27,555  |          |  |          | 24,947  |    |  |   | 14,769  |    |  |   | 13,434  |    |
| Amortizationand impairment of goodwill and otherintangibles |  |                                   | 727     |          |  |          | 551     |          |  |          | 17,290  |    |  |   | 45,299  |    |  |   | 5,582   |    |
| Totaloperatingexpenses                                      |  |                                   | 65,253  |          |  |          | 72,474  |          |  |          | 86,505  |    |  |   | 101,341 |    |  |   | 71,907  |    |
| Income(loss) fromoperations                                 |  |                                   | 3,792   |          |  |          | (1,619  | )        |  |          | (18,773 | )  |  |   | (20,785 | )  |  |   | (12,241 | )  |
| Otherincome,net                                             |  |                                   | 1,266   |          |  |          | 2,990   |          |  |          | 5,589   |    |  |   | 8,664   |    |  |   | 9,520   |    |
| Gainon sale ofinvestment                                    |  |                                   | — |          |  |          | — |          |  |          | — |    |  |   | — |    |  |   | 4,603   |    |
| Income(loss) before provision (benefit) for incometaxes     |  |                                   | 5,058   |          |  |          | 1,371   |          |  |          | (13,184 | )  |  |   | (12,121 | )  |  |   | 1,882   |    |
| Provision(benefit) for incometaxes                          |  |                                   | 1,800   |          |  |          | (916    | )        |  |          | (2,276  | )  |  |   | 11,007  |    |  |   | — |    |
| Netincome(loss)                                             |  | $                                      | 3,258   |          |  | $             | 2,287   |          |  | $             | (10,908 | )  |  | $      | (23,128 | )  |  | $      | 1,882   |    |
| Basicincome (loss) pershare                                 |  | $                                      | 0.14    |          |  | $             | 0.06    |          |  | $             | (0.27   | )  |  | $      | (0.62   | )  |  | $      | 0.06    |    |
| Dilutedincome (loss) pershare                               |  | $                                      | 0.13    |          |  | $             | 0.06    |          |  | $             | (0.27   | )  |  | $      | (0.62   | )  |  | $      | 0.05    |    |
| Weightedaverage number of sharesoutstanding:                |  |                                   |    |          |  |          |    |          |  |          |    |    |  |   |    |    |  |   |    |    |
|     Basic                               |  |                                   | 23,672  |          |  |          | 35,701  |          |  |          | 40,022  |    |  |   | 37,421  |    |  |   | 31,394  |    |
|     Diluted                             |  |                                   | 24,963  |          |  |          | 37,662  |          |  |          | 40,022  |    |  |   | 37,421  |    |  |   | 39,184  |    |
|                                                             |

37

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|                                                 |  |        |         |               |  |               |         |               |  |               |         |        |  |        |         |        |  |        |         |        |  |  |
|-------------------------------------------------|--|--------|---------|---------------|--|---------------|---------|---------------|--|---------------|---------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--|
|                                            |  | 2004   |         | 2003Restated* |  | 2002Restated* |         | 2001Restated* |  | 2000Restated* |
| BalanceSheetData:                               |  |   |    |          |  |          |    |          |  |          |    |   |  |   |    |   |  |   |    |   |
| Cash,cash equivalents and short-terminvestments |  | $      | 99,196  |          |  | $             | 88,734  |          |  | $             | 148,141 |   |  | $      | 132,418 |   |  | $      | 121,839 |   |
| Workingcapital                                  |  |   | 53,710  |          |  |          | 53,771  |          |  |          | 115,853 |   |  |   | 113,295 |   |  |   | 85,079  |   |
| Marketablesecurities —noncurrent          |  |   | 9,111   |          |  |          | 2,527   |          |  |          | 61,205  |   |  |   | 57,651  |   |  |   | 47,980  |   |
| Totalassets                                     |  |   | 177,984 |          |  |          | 167,438 |          |  |          | 293,958 |   |  |   | 272,641 |   |  |   | 298,121 |   |
| Totaldeferredrevenues                           |  |   | 98,649  |          |  |          | 95,892  |          |  |          | 95,005  |   |  |   | 83,137  |   |  |   | 92,970  |   |
| Totalliabilities                                |  |   | 116,112 |          |  |          | 110,362 |          |  |          | 121,082 |   |  |   | 98,755  |   |  |   | 108,176 |   |
| Stockholders'equity                             |  |   | 61,872  |          |  |          | 57,076  |          |  |          | 172,876 |   |  |   | 173,886 |   |  |   | 189,945 |   |
|                                                 |

|  |
|--|
|  |  |
|  |

|   |                                                                                                                                                    |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------|
| * | SeeNotes 2 and 16 to Consolidated Financial Statements as well as belowfor additional information regarding the reclassifications andrestatements. |

A summary of the impact of thereclassification and restatement of data for the years ended December31, 2001 and 2000, and as of December 31, 2002, 2001 and 2000, is asfollows:

|                                                         |  |                                      |         |                             |  |             |         |            |  |   |        |         |  |   |         |         |  |  |  |  |  |  |
|---------------------------------------------------------|--|--------------------------------------|---------|-----------------------------|--|-------------|---------|------------|--|---|--------|---------|--|---|---------|---------|--|--|--|--|--|--|
|                                                    |  | Yearended December 31, 2001          |         | Year ended December 31,2000 |  |
|                                                    |  | AsReported                           |         | As Restated                 |  | As Reported |         | AsRestated |  |
|                                                    |  | (in thousands, except pershare data) |         |
| Changes to ConsolidatedStatement of Operations          |  |
| Netrevenues                                             |  | $                                    | 116,281 |                        |  | $           | 114,976 |       |  | $ | 86,110 |    |  | $ | 82,517  |    |  |
| Grossprofit                                             |  | $                                    | 81,491  |                        |  | $           | 80,556  |       |  | $ | 62,241 |    |  | $ | 59,666  |    |  |
| Income(loss) fromoperations                             |  | $                                    | (19,850 | )                      |  | $           | (20,785 | )     |  | $ | (9,666 | )  |  | $ | (12,241 | )  |  |
| Income(loss) before provision (benefit) for incometaxes |  | $                                    | (11,186 | )                      |  | $           | (12,121 | )     |  | $ | 4,457  |    |  | $ | 1,882   |    |  |
| Netincome(loss)                                         |  | $                                    | (21,587 | )                      |  | $           | (23,128 | )     |  | $ | 270    |    |  | $ | 1,882   |    |  |
| Basicincome (loss) pershare                             |  | $                                    | (0.58   | )                      |  | $           | (0.62   | )     |  | $ | 0.01   |    |  | $ | 0.06    |    |  |
| Dilutedincome (loss) pershare                           |  | $                                    | (0.58   | )                      |  | $           | (0.62   | )     |  | $ | 0.01   |    |  | $ | 0.06    |    |  |
|                                                         |

|                                                  |  |                        |         |                        |  |             |         |            |  |   |         |        |  |   |         |        |  |  |  |  |  |  |
|--------------------------------------------------|--|------------------------|---------|------------------------|--|-------------|---------|------------|--|---|---------|--------|--|---|---------|--------|--|--|--|--|--|--|
|                                             |  | Asof December 31, 2002 |         | As of December 31,2001 |  |
|                                             |  | AsReported             |         | As Restated            |  | As Reported |         | AsRestated |  |
|                                             |  | (inthousands)          |         |
| Changes to Balance SheetData:                    |  |
| Cash, cash equivalents, andshort-terminvestments |  | $                      | 155,840 |                   |  | $           | 148,141 |       |  | $ | 140,118 |   |  | $ | 132,418 |   |  |
| Workingcapital                                   |  | $                      | 117,337 |                   |  | $           | 115,853 |       |  | $ | 120,592 |   |  | $ | 113,295 |   |  |
| Marketablesecurities —noncurrent           |  | $                      | 61,205  |                   |  | $           | 61,205  |       |  | $ | 57,651  |   |  | $ | 57,651  |   |  |
| Totalassets                                      |  | $                      | 285,604 |                   |  | $           | 293,958 |       |  | $ | 268,789 |   |  | $ | 272,641 |   |  |
| Totaldeferredrevenues                            |  | $                      | 87,110  |                   |  | $           | 95,005  |       |  | $ | 77,379  |   |  | $ | 83,137  |   |  |
| Totalliabilities                                 |  | $                      | 111,962 |                   |  | $           | 121,082 |       |  | $ | 93,196  |   |  | $ | 98,755  |   |  |
| Stockholdersequity                               |  | $                      | 173,642 |                   |  | $           | 172,876 |       |  | $ | 175,593 |   |  | $ | 173,886 |   |  |
|                                                  |

38

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|                                                  |  |                       |         |             |  |   |         |        |  |  |
|--------------------------------------------------|--|-----------------------|---------|-------------|--|---|---------|--------|--|--|
|                                             |  | Asof December 31,2000 |
|                                             |  | AsReported            |         | As Restated |
|                                             |  | (inthousands)         |
| Changes to Balance SheetData:                    |  |
| Cash, cash equivalents, andshort-terminvestments |  | $                     | 125,439 |        |  | $ | 121,839 |   |
| Workingcapital                                   |  | $                     | 92,160  |        |  | $ | 85,079  |   |
| Marketablesecurities -noncurrent                 |  | $                     | 47,980  |        |  | $ | 47,980  |   |
| Totalassets                                      |  | $                     | 292,617 |        |  | $ | 298,121 |   |
| Totaldeferredrevenues                            |  | $                     | 88,516  |        |  | $ | 92,970  |   |
| Totalliabilities                                 |  | $                     | 103,722 |        |  | $ | 108,176 |   |
| Stockholdersequity                               |  | $                     | 188,895 |        |  | $ | 189,945 |   |
|                                                  |

Item7.    Management's Discussion and Analysis of FinancialCondition and Results of Operations.

This reportcontains forward-looking statements relating to future events and ourfuture performance within the meaning of Section  27A of theSecurities Act of 1933, as amended, and Section  21E of theSecurities Exchange Act of 1934, as amended, including, withoutlimitation, statements regarding our expectations, beliefs, intentionsor future strategies that are signified by the words"expects","anticipates","intends","believes" or similar language although notall forward-looking statements contain such identifying words. Actualresults could differ materially from those anticipated in suchforward-looking statements. All forward-looking statements included inthis document are based on information available to us on the datehereof. It is routine for our internal projections and expectations tochange as the year or each quarter in the year progress, and thereforeit should be clearly understood that the internal projections andbeliefs upon which we base our expectations may change prior to the endof each quarter or the year. Although these expectations may change,our company policy is generally to provide our expectations only onceper quarter, so we may not inform you of any changes until the nextquarter. We caution investors that our business and financialperformance are subject to substantial risks and uncertainties. Inevaluating our business, prospective investors should carefullyconsider the information set forth under the caption "RiskFactors" in addition to the other information set forthherein and elsewhere in our other public filings with the Securitiesand Exchange Commission.

Restatement and Reclassification ofFinancial Statements

We have restated our previously issuedConsolidated Financial Statements as of and for the years endedDecember 31, 2000 through 2003 and have restated data for each of thequarterly periods of 2003 and the first three quarterly periods of2004. The restatement relates to the timing of the recognition ofrevenue, deferred revenue, and associated cost of revenue amountsrelating to domain name transactions, the reclassification of certaincredit memos issued in 2002, the correction of the provision for incometaxes and the related balance sheet accounts, and the correction of proforma stock based compensation expense disclosures required underStatement of Financial Accounting Standards No. 123, Accounting forStock Based Compensation.

The information contained in ourCurrent Reports on Form 8-K filed with the Securities and ExchangeCommission on March 17, 2005 and March 31, 2005 regarding ourpreliminary identification of material weaknesses in internal controlover financial reporting and related remediation plans and therestatement and reclassification of our financial statements andfinancial data is superseded in its entirety and replaced by theinformation included in this Annual Report on Form 10-K.

Oursystems, processes and controls were originally established to record,process, summarize and report transactions in accordance with afull-month revenue recognition convention which we have historicallyapplied in the determination of revenue recognition with respect toinitial and renewed domain name registrations. We have concluded, basedon a review of our customers' registration activity, that the useof a mid-month revenue recognition convention is necessary to recordrevenue under generally accepted accounting principles in that themid-month revenue recognition convention 

39

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does not materially differ from the use of adaily recognition method. In addition, we have found errors in oursystems that resulted in errors in the timing of revenue and associatedcost of revenue recognition for domain name transactions such assubscriptions renewed prior to their scheduled expiration dates, domainnames transferred in from other registrars and domain names transferredout to other registrars. The restatement also corrects theclassification of certain credit memos issued in 2002 to present themas a reduction of revenue instead of as a general and administrativeexpense.

Also, we corrected the provision for income taxes toreflect the tax impact of the above noted changes to our revenue andassociated cost of revenue recognition, to adjust certain tax credits,to adjust recorded amounts of the tax benefits related to stock-basedcompensation and the related windfall tax benefits as additionalpaid-in capital, to adjust amounts excluded from taxable income for taxfree interest and to adjust deferred taxes for changes in state andlocal tax rates.

We also restated the Pro Forma Stock BasedCompensation table as set forth in Note 2 to the Consolidated FinancialStatements to reflect the tax effect of the adjustments to reported proforma net income (loss) and to correct assumptions used in computingstock-based compensation expense under the fair value based method.

The effect of the above restatements on periods prior to 2002increased the amount of the accumulated deficit previously reported asof December 31, 2001 by $0.5 million.

The impact of theserestatements for the year ended December 31, 2003 was to decrease netincome by $3.3 million, and to decrease income per share $0.10 pershare (basic) and $0.09 per share (diluted). The impact of theserestatements for the year ended December 31, 2002 was to increase netloss by $0.5 million and to increase loss per share (basic and diluted)$0.01 per share. For a more detailed description of the effects of therestatement on the our Consolidated Balance Sheet as of December 31,2003 and Consolidated Statements of Operations for the years endedDecember 31, 2002 and December 31, 2003 see Note 16 to our ConsolidatedFinancial Statements included under Item 8 of this report on Form 10-K.See "Selected Consolidated Financial Data"for the impact of the restatement on prior periods and see"—Quarterly Results of Operations" forthe impact of the restatement on the seven quarterly periods endedSeptember 30, 2004.

The amounts included in the discussion belowfor 2003 and 2002 have been updated to reflect the restatements.

Our financial statements also reflect the reclassifications ofauction rate securities and restricted cash. As discussed in Note 2 toour Consolidated Financial Statements, we reclassified certaininvestment securities known as "auction ratesecurities" that had contractual maturity dates greaterthan 90 days but interest reset dates of less than 90 days, as"short-term investments". Previously weclassified such investment securities as cash and cash equivalents.Accordingly, we have adjusted our consolidated balance sheet as ofDecember 31, 2003 to reflect these $14.0 million of auction ratesecurities as short-term investments. We have also presented thepurchases and sales of these securities within the investing section ofthe Consolidated Statements of Cash Flows for all periods presented. Wehave also reclassified restricted cash of $3.3 million from cash andcash equivalents to other current assets ($2.2 million) and otherassets ($1.1 million) at December 31, 2003. The correspondingreclassification of restricted cash at December 31, 2002 totaledapproximately $7.7 million, of which $5.6 million was classified asother current assets and $2.1 million was classified as other assets.These reclassifications increased cash flows from investing activitiesfor the years ended December 31, 2003 and 2002 by $3.2 million and$13.3 million, respectively.

Overview

We are a providerof global domain name registration, website, web hosting, email andother Internet services for businesses and consumers that wish to havea unique address and branded identity on the Internet. Domain namesserve as addresses and identities on the World Wide Web. They enable abusiness or person to establish an Internet presence and are integralto the use of websites (e.g. www.register.com), email (e.g.johndoe@register.com) and other types of Internet-basedservices.

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Critical Accounting Policies

Ourdiscussion and analysis of our financial condition and results ofoperations is based upon our Consolidated Financial Statements, whichhave been prepared in accordance with accounting principles generallyaccepted in the United States of America. Note 2 to our ConsolidatedFinancial Statements includes a summary of the critical accountingpolicies and methods used in the preparation of our ConsolidatedFinancial Statements. The preparation of our financial statements inconformity with generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reportedamounts of assets, liabilities, revenues and expenses, and relateddisclosures of contingent assets and liabilities in the notesaccompanying the financial statements. We regularly evaluate ourestimates and assumptions on an on-going basis and adjust them asnecessary to accurately reflect current conditions. These estimates arebased on current and historical experience, on information from thirdparty professionals and on various other factors that are believed tobe reasonable under the circumstances. Actual results could differ fromthese estimates. Our most critical accounting estimates are discussedin the following paragraphs.

Net Revenues

We derive ournet revenues from domain name registrations, other products andservices, and advertising. We earn registration fees in connection withnew, renewed, and transferred-in registrations. Registration periodsgenerally range from one to ten years. Under this subscription-basedmodel, we recognize revenue over the period during which we provide theregistration services, including customer service and maintenance ofthe individual domain name records. Accordingly, domain nameregistration revenues are deferred at the time of the registration andare recognized ratably over the term of the registration period, or inthe case of transferred-in registrations, over the period from thetransfer-in date (which is generally earlier than the start date of thenext paid registration period) through the end of the paid registrationperiod. In the event a registration is transferred out to anotherregistrar prior to the end of the subscription term, we recognize anyremaining unamortized deferred revenue related to that registrationimmediately on the transfer-out date.

We experienced a decreasein our total names under management to approximately 3.0 million as ofDecember 31, 2004 from approximately 3.1 million as of December 31,2003.

In addition to our standard registration fees, many ofwhich are published on our www.register.com website, we have anumber of different fee structures for our domain name registrationservices. Our Corporate Services channel provides a diversified rangeof generally higher-priced services and also extends volume-baseddiscounts for domain name registrations and transfers. Revenues fromprocessing fees for domain name applications, which may or may notresult in domain name registrations, and other intellectual propertyprotection services related to the introduction of new gTLDs, arerecognized upon the provision of services.

We pay referralcommissions to certain participants in our Global Partner Network andto participants in our affiliate network. Other participants in ourGlobal Partner Network pay us a wholesale price per registration,discounted from our standard registration fee.

Other productsand services, which primarily consist of email, domain name forwarding,web hosting, application processing fees for new gTLDs, intellectualproperty protection services related to the introduction of new gTLDs,and fees for modifying existing registrations, are sold either as onetime offerings or through annual or monthly subscriptions, depending onthe product or service. We recognize revenue over the period duringwhich services are provided, which may be immediate or over the term ofthe agreement with the customer. When we refer to"products and services," we are referring toour various types of bundled products and services that are referred toas products and services in our marketing activities. We do not sellany tangible products.

Advertising revenues are derived from thesale of sponsorships and banner advertisements, typically undershort-term contracts that range from one month to one year in duration.We recognize these revenues in the periods in which the advertisementsare displayed or the required number of impressions is achieved,provided that no significant company obligation remains and collectionof the resulting receivable is probable.

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We require prepayment at the time of salevia credit card for most online domain name registration sales andother products and services, which provides us with the full cash feeat the beginning of the registration period. For many of our customerswho register domain names through our Corporate Services channel, forcertain of the participants in our Global Partner Network, and for ouradvertising customers, we establish lines of credit based on creditworthiness. Critical accounting estimate: We record aprovision for estimated uncollectible accounts receivable from ourcustomers for whom we have established lines of credit. The provisionis accounted for as a reduction of revenues. We rely on priorexperience to estimate the amount of cash which will ultimately becollected from the receivables, and the resulting amount of accountsreceivable which will be uncollectible. Such amounts cannot be knownwith certainty at the financial statement date. Understating theamounts of potentially uncollectible receivables may cause revenuerecognition and the realizable value of accounts receivable to beoverstated, and vice versa.

For customers who have elected ourauto-renew option available through the Corporate Services channel, wemay renew registrations in advance of the scheduled renewal dates. Thisprocedure is based on our historical practices which have beeninformally accepted by customers but are not specified by contract. Ifa customer failed to timely notify us of its cancellation of theauto-renew option for specific domain names, we may need to issuecredits. Critical accounting estimate: We record a provisionfor amounts that we estimate may be refunded or credited back tocustomers who may notify us within four days after the scheduledrenewal date that they do not want specific domain names renewed.Historical experience is used to develop the aforementioned estimates.Underestimating the amounts of potential refunds may cause revenuerecognition and the realizable value of accounts receivable to beoverstated, and vice versa.

Under current credit card industrypractices, we are liable for fraudulent and disputed credit cardtransactions because we do not obtain the cardholder's signatureat the time of the transaction, even though the financial institutionissuing the credit card may have approved the transaction. Criticalaccounting estimates: We must estimate the amount of credit cardchargebacks we will receive in the future related to credit card salesin the current period so that we can record a provision for estimatedchargebacks initiated by credit card customers through their banks. Wealso estimate the amount of refunds we will issue to our customers whorequest refunds directly from our customer service center. Theseprovisions are reflected as a reduction of revenues. In determining ourestimates, on a monthly basis we review historical rates of credit cardchargebacks and refunds, current economic trends and changes inacceptance of our products and services. Underestimating the amounts ofpotential chargebacks and refunds may cause revenue recognition to beoverstated, and vice versa.

Cost of Revenues

Our costof revenues consists of the costs associated with providing domain nameregistrations and other products and services. Cost of revenues fordomain name registrations represents amortization of registry fees on astraight-line basis over the registration term, depreciation of theequipment used to process the domain name registrations, fees paid forco-location facilities housing our equipment, and fees paid to thefinancial institutions to process credit card payments on our behalf.Cost of revenues does not include penalties for excessive credit cardchargebacks and refunds; such penalties are classified as general andadministrative expense. We pay registry fees for gTLDs ranging from$5.30 per year for each .biz domain name registration to $6 per yearfor each .info, .com, .net and .org domain name registration. We payregistry fees ranging from $6 to $5,000 per year for one to ten-yearcountry code domain name registrations. The largest component of ourcost of revenues is registry fees which, while paid in full at the timethe domain name is registered, are recorded as a prepaid expense andamortized to cost of revenues ratably over the terms of the relatedregistrations, as described above under "NetRevenues".

Cost of revenues for our other productsand services consists of fees paid to third-party service providers,depreciation of equipment used to deliver the products and services,fees paid for co-location facilities housing our equipment, and feespaid to financial institutions to process credit card payments on ourbehalf. Cost of revenues for other products and services is recognizedratably over the periods in which the related services areprovided.

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We have no direct cost of revenuesassociated with our advertising revenues and we have no incrementalcost of revenues associated with delivering advertisements since we usethe same equipment to deliver the advertisements as we use for ourdomain name registration services. Therefore, the gross profit marginon advertising revenue is 100%, and accordingly, any decrease inadvertising revenue would represent a reduction of our gross profit ofthe same amount. We incur costs including salaries and commissions forour advertising sales staff, which are classified as operatingexpenses, not as cost of revenues.

Operating Expenses

Our operating expenses consist of sales and marketing, technology,general and administrative (including stock-based compensation), andamortization of intangibles. Our sales and marketing expenses consistprimarily of employee salaries, including customer servicerepresentatives, marketing programs such as advertising, andcommissions paid to our sales representatives. Technology expensesconsist primarily of employee salaries, fees for outside consultants,software licensing fees and related costs associated with thedevelopment and integration of new products and services, enhancementof existing services, and quality assurance. General and administrativeexpenses include salaries and other personnel-related expenses forexecutive, financial and administrative personnel, as well asprofessional fees, insurance premiums, and penalties for excessivecredit card chargebacks and refunds.

Facilities costs areallocated across the various operating expense categories.

Wecurrently account for stock-based compensation expense in accordancewith Accounting Principles Board Opinion No. 25 ("APB25") and related authoritative accounting pronouncements.Under APB 25, stock-based compensation expense relates to grants ofrestricted stock, stock options and warrants to employees and directorswith exercise prices below fair market value of the underlying stock onthe date of grant, and all such grants to consultants and vendors. Withrespect to grants made through December 31, 2004 and grants which maybe made during the year ended December 31, 2005, stock-basedcompensation expense, will continue to be accounted for under APB 25through December 31, 2005. As of January 1, 2006 we will adoptStatement of Financial Accounting Standards 123R "ShareBased Payment" ("SFAS 123R")under which stock-based compensation expense will be recorded for theunvested portions of option grants through December 31, 2005, as wellas for all future grants, based on the fair value of the options orwarrants or restricted stock as of their grant dates. Such stock-basedcompensation expense will reduce our earnings or increase our losses infuture periods. Critical accounting estimate: Our assumptionsof future volatility, estimated life of options, and future employeeturnover would have a significant impact on stock-based compensationexpense to be recorded under SFAS 123R. If our assumptions ofvolatility, option life and employee turnover are too low, ourstock-based compensation expense would be understated, and viceversa.

**Credit card penalties**.    The credit cardassociations may impose financial penalties if our chargebacks and/orrefunds exceed certain thresholds. Such penalties are not charged torevenues, but are classified as general and administrative expense. Weare experiencing high rates of refunds to customers in excess of thecontractual specified levels, which, combined with high rates ofchargebacks in the past, have resulted in the assessment of financialpenalties by two credit card associations for periods through December31, 2001. If we are unable to lower our refund rates to levels definedin the credit card associations' rules, we could continue to besubject to such penalties. Critical accounting estimate:Because the imposition of any potential penalties is at the discretionof the associations, subject to contractual limitations, generallyaccepted accounting principles require that we accrue expense to coverwhat we estimate to be the maximum potential penalties that could beimposed. In October 2004, we obtained a release for any penalties whichcould be imposed for excessive chargebacks and refunds processedthrough September 30, 2003 and, accordingly, in accordance withgenerally accepted accounting principles applicable to extinguishmentsof liabilities, in October 2004 we reversed the expense accrualspreviously recorded during the period from January 1, 2002 throughSeptember 30, 2003. On February 14, 2005 and March 24, 2005 we receivedadditional releases from any penalties which may have been imposed fortransactions processed from October 1, 

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2003 through December 31, 2003, and fromthrough January 1, 2004 through February 29, 2004, respectively. As aresult in the first quarter of 2005 we will reverse expense accrualspreviously recorded during the fourth quarter of 2003 and the first twomonths of 2004, respectively. Based on discussions and correspondencewith our credit card processor regarding potential penalties accruedafter February 29, 2004, we believe that it is likely that we will notbe required to pay the full amount accrued, or perhaps any amount atall for periods after such date. However we are required to continue toaccrue for such potential penalties for periods after February 29, 2004until we obtain a release or it is determined that no penalties will beimposed or penalties are actually assessed. If the penalties ultimatelyimposed are less than the maximum contractual amount, or if it isdetermined that no penalties will be imposed, we would reverse anyexcess amounts previously accrued as a reduction of general andadministrative expense at that time. Accordingly, our general andadministrative expense may vary significantly from period to period asa result of accruals for potential credit card penalties and reversalsthereof.

If a significant percentage of customers continue torequest refunds from us or contact their bank to request that theamount we charged to their credit card be charged back to us based onclaims that their credit card was used fraudulently or without theirconsent, our business could be materially adversely affected. See"Risk Factors" and Note 15 to ourConsolidated Financial Statements "Commitments andContingencies — Credit Card Penalties" foradditional information in connection with penalties that may be imposedby credit card associations and other risks associated with theCompany's credit card chargebacks and refunds.

**AssetImpairment**.    We review our assets for impairment wheneverevents or circumstances indicate that the carrying amounts may not berecoverable. We assess the recoverability of intangibles usingestimated undiscounted cash flows, and by estimating the current fairvalue of the asset in an arms-length sale transaction. Criticalaccounting estimate: Based on the foregoing factors, if weconclude that an impairment of an asset has occurred, we record animpairment write-down. An impairment loss would be recognized whenestimated undiscounted future cash flows expected to result from theuse of the asset and its eventual disposition are less than itscarrying amount, and when the estimated fair value of the asset in anarms-length sale transaction is lower than the carrying value. If suchassets are considered impaired, the amount of the impairment loss ismeasured as the amount by which the carrying value of the asset exceedsthe estimated fair value of the asset. Estimated undiscounted futurecash flows are based on projections and the estimated fair value isbased to an extent on management's judgment and/or independentappraisals. Overestimating the future cash flows or estimated fairvalue may lead to overstating the recoverable value of the assets, orin the failure to identify an impairment loss.

**Litigation**.    There are various claims, lawsuits andpending actions against the Company as more fully described under"Litigation" in Note 15 to our ConsolidatedFinancial Statements. Critical accounting estimate: Weestimate our probable exposure, net of anticipated insurance proceeds,for each of these matters, and if we believe a loss is probable and wecan reasonably estimate the amount of loss, we record an expenseprovision. If our estimates are understated, our reported income fromoperations would be overstated.

Income Taxes

Inpreparing our financial statements, we make estimates of our taxobligations based on estimates of timing differences for reportingitems for financial statement and tax purposes and items of income orexpense that are excluded from net income for financial reportingpurposes or taxable income for tax return purposes. The mostsignificant differences include deferred revenue, tax exempt interestincome and deduction for stock compensation and goodwill. We recognizedeferred taxes by the asset and liability method of accounting forincome taxes. Under the asset and liability method, deferred incometaxes are recognized for differences between the financial statementand tax bases of assets and liabilities at enacted statutory tax ratesin effect for the years in which the differences are expected toreverse. The effect on deferred taxes of a change in tax rates isrecognized as income or expense in the period that includes theenactment date. Critical accounting estimate: Valuationallowances are established when appropriate based on management'sjudgment, to reduce the carrying 

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value of deferred tax assets to the amountsexpected to be realized. Although we reported a pre-tax loss in 2002,we estimate that it is more likely than not that we will realize thecarrying value of our deferred tax asset. However, if our estimate isincorrect, revisions to the estimated net realizable value of thedeferred tax asset could cause our provision for income taxes to varysignificantly from period to period and could result in our inabilityto fully realize the carrying value of the deferred tax asset.

Net Income (Loss)

Although we were profitable for the year2004 and the year 2003, we were not profitable for the year 2002. Ournet loss for 2002 included a goodwill impairment write-down andamortization of intangibles of $17.0 million. Although we have recentlytaken several initiatives intended to reduce our operating expenses, wecannot assure you as to when or if these reductions will be realized.Losses at RCOM Europe and RPI Inc. (formerly RegistryPro, Inc.), priorto the sale of the core assets of RPI Inc. in February 2004, havecontributed to a decline in our profitability. Further, our advertisingrevenues were materially lower in 2004 compared with prior periods, andwe anticipate that our revenues from advertising will continue to bematerially lower in 2005 and perhaps beyond compared with 2003 andprior years. We expect losses at RCOM Europe to impact ourprofitability negatively through the year 2005 and perhaps beyond. Inaddition, unless we lower our credit card refunds and reduce our levelof credit card chargebacks, we may continue to be potentially liablefor significant penalties from credit card associations, which wouldcontinue to impact our profitability (see "RiskFactors" for additional information). From October 1, 2003through December 31, 2004, we have accrued a net total of $2.5 millionfor such potential penalties (net of reversals in the fourth quarter of2004 of potential penalties recorded in prior periods), which amount isincluded in accounts payable and accrued liabilities on theConsolidated Balance Sheet. If the penalties ultimately imposed areless than the maximum contractual amount, or if it is determined thatno penalties will be imposed, the Company would reverse any excessaccounts previously accrued as a reduction of general andadministrative expense at that time. We also anticipate incurringsubstantial costs related to remediating the material weaknesses to ourinternal controls and other compliance matters related to theSarbanes-Oxley Act of 2002.

For all the above reasons, we cannotassure you that we will be able to operate profitably or attain and/orsustain positive cash flow in the future.

Year 2004 comparedwith Year 2003

Net Revenues

Total net revenuesdecreased 2% to $100.9 million in 2004 from $103.2 million in2003.

Domain name registrations.        Recognitionof revenues from domain name registrations decreased 6% to $85.1million in 2004 from $90.3 million in 2003. The decrease was due inpart to a lower number of domain names under management, and in part tolower average sale prices per year of subscription term. The averagenumber of names under management during 2004 was 3.0 million, down from3.2 million during 2003. We expect to face continued pricing pressurein the future, which could adversely impact our revenues andprofitability.

Other Products andServices.        Revenues from other products and servicesincreased 61% to $14.4 million in 2004 from $8.9  millionin 2003. This increase was due primarily to increased unit volumes ofweb hosting services and WebSiteNOW!, our template-based do-it-yourselfwebsite building tool, and increased Email services revenue.

AtDecember  31, 2004, our deferred revenue balance was $98.6million, compared with $95.9 million at December  31, 2003,representing an increase of $2.7  million for the year 2004. Ourdeferred revenue balance is an indicator of revenue to be recognized infuture periods.

Advertising.        Revenues fromadvertising decreased 64% to $1.4 million in 2004 from $4.0million in 2003. From the fourth quarter of 2002 through the thirdquarter of 2003, our largest advertising customer, a provider ofweb-hosting services, accounted for approximately $1.0 million of

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advertising revenues per quarter. However,once we began selling web-hosting services directly to our owncustomers, this advertiser became a competitor and so we decided todiscontinue our advertising relationship with it. We have not soldadvertising to this advertising customer after September 30, 2003 andwe do not anticipate any additional revenue from this customer.Accordingly, our advertising revenue has been approximately $1.0million lower in each subsequent quarter compared with the level ofadvertising revenue in the third quarter of 2003, and, unless we canreplace these lost revenues with advertising sales to other customers,we expect that our advertising revenue will to continue to remain atthis lower level in future quarters as well. Our sales of web-hostingservices directly to our own customers are classified as revenues fromother products and services.

Cost of Revenues

Totalcost of revenues decreased 2% to $31.8 million in 2004 from$32.4 million in 2003.

Cost of Domain NameRegistrations.        Costs recognized for domain nameregistrations decreased 3% to $29.8 million in 2004 from $30.8million in 2003. The decrease resulted primarily from a lower number ofdomain names under management and lower data center expenses.

Cost of Other Products and Services.    Cost of otherproducts and services increased 28% to $2.1 million in 2004,from $1.6 million in 2003. The increase was related to higher revenuesfrom other products and services, primarily web hosting and email.

Gross Profit Margin

Our gross profit margin decreased to68.5% in 2004 from 68.6% in 2003, primarily as a resultof lower advertising revenue (which has a 100% gross margin),offset in part by increases in revenues from other products andservices, which have a higher gross profit margin than domain nameregistration services.

Operating Expenses

Totaloperating expenses decreased 10% to $65.3 million in 2004 from$72.5  million in 2003.

Sales andMarketing.        Sales and marketing expenses increased19% to $30.9 million in 2004 from $26.0  million in 2003.The increase was primarily due to an increased level of television andradio advertisements and online media spending.

Technology.    Technology expenses decreased 2% to$18.1 million in 2004 from $18.4  million in 2003. The decreaseresulted primarily from lower costs for software licenses andmaintenance. We anticipate that technology expenses will continue athigh levels in 2005 (albeit lower than 2004), and perhaps beyond, as wecontinue our efforts to upgrade and improve our systems.

General and Administrative.    General and administrativeexpenses decreased 43% to $15.6 million in 2004 from $27.6million in 2003. The decline was in part due to the incurrence in 2003of $6.8 million of advisory fees and expenses in connection with ourconsideration of various strategic alternatives following theunsolicited acquisition proposals we received in early 2003 and inconnection with the self-tender offer for $120 million of our commonstock and warrants completed in September 2003. Also contributing tothe decline in general and administrative expense in 2004 was thereversal in the fourth quarter of 2004 of $5.6 million of potentialcredit card penalties which had been recorded from January 1, 2002through September 30, 2003. These potential penalties were reversed inaccordance with generally accepted accounting principles applicable toextinguishments of liabilities following our receipt of a release inOctober 2004 from our credit card processor for any penalties which mayhave been imposed for excessive chargebacks and refunds processedthrough September 30, 2003. These decreases in general andadministrative expense were offset in part by a $2.8 million increasein professional fees related to our efforts to comply with theSarbanes-Oxley Act of 2002, and a $1.4 million provision in 2004 forsettlement of a litigation matter.

Generally accepted accountingprinciples require that we accrue amounts to cover what we estimate tobe the maximum potential financial penalties that could be imposed bycredit card 

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associations if our chargebacks and/orrefunds exceed certain thresholds. Accordingly, our general andadministrative expense included expense accruals of $3.7 million, $2.4million, and $2.0 million in 2002, 2003, and 2004, respectively, forsuch potential penalties. After giving effect to the reversal of $5.6million of such penalties as mentioned above, as of December 31, 2004our balance sheet reflected an accrued liability of $2.5 million forpotential credit card penalties, which represents our estimate of themaximum potential penalties that could be imposed under one credit cardassociation's rules for chargebacks and/or refunds in excess ofcertain thresholds. If the penalties ultimately imposed are less thanthe maximum contractual amount, or if it is determined that nopenalties will be imposed, we would reverse any excess amountspreviously accrued as a reduction of general and administrative expenseat that time. For additional information in connection with potentialcredit card penalties, see "Risk Factors" andNotes 15 and 17 to our Consolidated Financial Statements.

OtherIncome, Net

Other income, net, which consisted primarily ofinterest income, net of interest expense, decreased to $1.3 million in2004 from $3.0 million in 2003. The decrease was primarily due to areduction of interest income as a result of our lower cash balance,which resulted from our self-tender offer for $120 million of ourcommon stock and warrants completed in September 2003.

Provision for Income Taxes

The provision for income taxesin 2004 was $1.8 million, representing an effective rate of 36%of pre-tax income. The effective tax rate differs from the Federalstatutory rate due to the effect of foreign and state income taxes,offset in part by tax credits. Our income before income taxes in 2003was $1.4 million, but we recorded an income tax benefit, net, of $0.9million, primarily as a result of our filing an election with the IRSto include the consolidated income or loss of RCOM Europe in ourconsolidated U.S. federal tax return starting in year 2003. Seeadditional discussion below under "Year 2003 compared withYear 2002 — Provision for Income Taxes" and Note 12to our Consolidated Financial Statements for a reconciliation of thestatutory Federal income tax rate to our effective income tax rate foreach period.

Earnings Per Share — Weighted average numberof shares

The weighted average number of shares outstanding forthe year 2004 was 23,672,000 (basic) and 24,963,000 (diluted), comparedto the year 2003 (35,701,000 (basic) and 37,662,000 (diluted)). As aresult of the completion in September 2003 of the Company's $120million self-tender offer, in which the Company purchased 17,910,347shares of its common stock and warrants to purchase 987,283 shares ofits common stock (based on the conversion of such warrants on acashless basis at the $6.35 per share offer price), the number ofshares outstanding declined as of the completion date. The lowerweighted average number of shares will have the effect of increasingnet income (loss) per share in future fiscal periods compared toperiods before September 2003 when the number of outstanding shares waslarger. The use of $120 million of our cash to consummate theself-tender offer reduced and will continue to reduce our futureinterest income because our available cash and investment balances willbe lower than periods before September 2003.

Year 2003 comparedwith Year 2002

Net Revenues

Total net revenuesincreased 1% to $103.2 million in 2003 from $102.4 million in2002.

Domain name registrations.        Recognitionof revenues from domain name registrations decreased 3% to $90.3million in 2003 from $93.4 million in 2002. This decrease was dueprimarily to a lower number of domain names registered, and in part tolower average sale prices per year of subscription term. The averagenumber of names under management during 2003 was 3.2 million, down from3.3 million during 2002. These reductions were offset in part by theinclusion of RCOM 

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Europe in our results of operations for thefull year in 2003, versus the period from March 8, 2002 (the date ofacquisition) through December 31, 2002; domain registration revenues ofRCOM Europe of $10.9 million and $6.8  million were recognized in2003 and 2002, respectively.

Other Products andservices.        Revenues from other products and servicesincreased 84% to $8.9  million in 2003 from $4.8million in 2002. The largest component of the increased revenues inthis category was email services.

At December  31, 2003,our deferred revenue balance was $95.9 million, compared with $95.0million at December  31, 2002, representing an increase of$0.9  million for the year 2003. Our deferred revenue balance isan indicator of revenue to be recognized in future periods.

Advertising.        Revenues from advertising decreased4% to $4.0 million in 2003 from $4.2 million in 2002. From thefourth quarter of 2002 through the third quarter of 2003, our largestadvertising customer, a provider of web-hosting services, had accountedfor approximately $1.0 million of advertising revenues per quarter.However in the fourth quarter of 2003 we began to offer web-hostingservices to our own customers, and decided to discontinue thisadvertising relationship. Accordingly, we have not sold advertising tothis customer since the third quarter of 2003 and we do not expect tosell advertising to this customer in future periods. Our advertisingrevenue has declined by approximately $1 million in each quartercompared with the level of advertising revenue in the third quarter of2003, and, unless we can replace these revenues with advertising salesto other customers, we expect that decline to continue in futurequarters as well. Our sales of web-hosting services directly to our owncustomers are classified as revenues from other products andservices.

Cost of Revenues

Total cost of revenuesdecreased 7% to $32.4 million in 2003 from $34.7 million in2002.

Cost of Domain Name Registrations.        Costsrecognized for domain name registrations decreased 9% to $30.8million in 2003 from $33.9 million in 2002. The decrease resultedprimarily from a lower number of domain names registered in 2003 and areduction of data center operations expenses.

Cost of OtherProducts and Services.    Cost of other products and servicesincreased 100% to $1.6  million in 2003 from $0.8 millionin 2002 in part as a result of increased revenues from other productsand services in 2003 (primarily email services), and in part because in2002 we had received a $0.4 million refund from the .biz registry as aresult of that registry's decision to cancel certain .bizapplications.

Gross Profit Margin

Our gross profitmargin increased to 68.6% in 2003 from 66.1% in 2002,primarily as a result of lower costs of our data center operations, andin part due to increases in revenues from other products and services,which have a higher gross profit margin than domain name registrationservices.

Operating Expenses

Total operating expensesdecreased 16% to $72.5  million in 2003 from $86.5million in 2002.

Sales and Marketing.        Salesand marketing expenses decreased 16% to $26.0  million in2003 from $31.1  million in 2002. The decrease was primarily dueto reductions in online and off-line media spending.

Technology.    Technology expenses increased 39% to$18.4  million in 2003 from $13.2  million in 2002. Theincrease resulted primarily from higher salaries and consulting feesfor personnel working to improve our systems and operations.

General and Administrative.    General and administrativeexpenses increased 10% to $27.6  million in 2003 from$24.9 million in 2002. The increase was primarily due to $6.8 millionof advisory fees and expenses incurred in 2003 in connection with ourconsideration of various strategic alternatives 

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following the unsolicited acquisitionproposals we received in early 2003 and in connection with theself-tender offer for $120 million of our common stock and warrantscompleted in September 2003. This was partially offset by loweraccruals for potential credit card penalties ($2.4 million in 2003versus $4.5 million in 2002), a decline of $0.9 million in amortizationof stock-based compensation, and a decline of $0.9 million in theprovision for uncollectible accounts receivable.

As of December31, 2003 our balance sheet reflected an accrued liability of $6.1million for potential credit card penalties, which represented ourestimate of the maximum potential penalties that could be imposed underone credit card association's rules for chargebacks and/orrefunds in excess of certain thresholds. For additional information inconnection with potential credit card penalties, see "RiskFactors" and Note 15 to Consolidated Financial Statements,"Contingencies — Potential Credit CardPenalties."

Amortization and Writedown ofGoodwill and Other Intangibles.    Amortization of intangibleswas $0.6 million in 2003 compared with amortization and writedown ofgoodwill and other intangibles of $17.3  million in 2002. InSeptember 2002, we made a decision to abandon the Afternic business. Asa consequence of that decision, as well as negative industry andeconomic trends affecting us and the general decline in technologycompany valuations, including the valuation of our common stock, weperformed an impairment analysis of the goodwill and intangible assetsrecorded in connection with our various acquisitions. Because the totalmarket value of our common stock at September  30, 2002 was lowerthan the book value of our stockholders' equity, we recorded agoodwill impairment loss of $17.0 million in September 2002. Also, inaccordance with SFAS 142, we ceased amortization of goodwill effectiveJanuary  1, 2002.

Other Income, Net

Other income,net, which consisted primarily of interest income, net of interestexpense, decreased to $3.0 million in 2003 from $5.6 million in 2002.The decrease was primarily due to lower prevailing interest rates andin part to a reduction of $120 million in our investment portfolio inconnection with our self-tender offer for $120 million of our commonstock and warrants completed in September 2003.

Provision forIncome Taxes

In 2003 we made a tax election which allowed us torecord a tax benefit of approximately $3.2 million related to anotherwise non-deductible goodwill impairment charge of $8.3 millionrecorded by RCOM Europe in 2002. At the time of the goodwill impairmentcharge in 2002, we did not record an income tax benefit as the goodwillimpairment was not deductible for tax purposes in the country ofdomicile of RCOM Europe and therefore the tax benefit was notrealizable. In March 2003, we filed an election with the U.S. taxingauthorities to include the income or losses of RCOM Europe in ourconsolidated U.S. Federal income tax return effective January 1, 2003.Accordingly, the goodwill that had been impaired for financialstatement purposes in 2002 became deductible in the U.S. over a periodof approximately 14 years beginning on January 1, 2003. Based on thisand our expectation of generating future taxable income in the U.S.,the realization of the income tax benefit related to the taxdeductibility of the goodwill is considered more likely than not andtherefore a deferred income tax asset was recorded in the first quarterof 2003. Our income tax provision for 2003 also reflected the impact ofstate tax rate changes, as well as the impact of non-deductibleadvisory fees incurred as discussed above under "Generaland Administrative" expenses.

The provision forincome taxes in 2002 was a benefit of $2.3 million, representing aneffective tax rate of 17% of the pre-tax loss. Thislower-than-statutory effective tax benefit resulted primarily from thefact that only a portion of the goodwill impairment writedown was taxdeductible, and in part because no tax benefits were recorded inconnection with losses generated by RCOM Europe, as realization was notassured. These factors were partially offset by tax exempt interestincome.

49

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Earnings Per Share — Weightedaverage number of shares

The weighted average number of sharesoutstanding for the year 2003 was 35,701,000 shares (basic) and37,662,000 shares (diluted). For the year 2002, the weighted averagenumber of shares outstanding was 40,022,000 shares (basic and diluted).As a result of our completion in September 2003 of our $120 millionself-tender offer, in which we purchased 17,910,347 shares of ourcommon stock and warrants to purchase 987,283 shares of our commonstock (based on the conversion of warrants on a cashless basis at the$6.35 per share offer price), the weighted average number of sharesdeclined in the fourth quarter of 2003. The lower number of sharesoutstanding will have the effect of increasing net income (loss) pershare in future periods; however, interest income on our available cashand investment balances will be lower.

Quarterly Results ofOperations

The following table sets forth selected unauditedquarterly statement of operations data for the eight quarters endedDecember 31, 2004. In our opinion this information has been prepared onsubstantially the same basis as the audited financial statementsappearing elsewhere in this report on Form 10-K, and all necessaryadjustments, consisting only of normal recurring adjustments (except asdisclosed herein), have been included in order to state fairly theunaudited quarterly results of operations data. The quarterly datashould be read in conjunction with our annual financial statements andrelated notes appearing elsewhere in this report on Form 10-K. Data forperiods prior to the quarter ended December 31, 2004 have been restated— see Note 16 to our Consolidated Financial Statements includedunder Item 8 of this report on Form 10-K for a discussion of the natureof the restatements. The operating results for any quarter are notnecessarily indicative of results for any futureperiod.

50

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|                                                            |  |                                         |        |                           |  |                     |        |                      |  |                         |        |                          |  |                     |        |                      |  |        |        |        |  |        |        |        |  |        |        |         |  |        |        |         |  |  |
|------------------------------------------------------------|--|-----------------------------------------|--------|---------------------------|--|---------------------|--------|----------------------|--|-------------------------|--------|--------------------------|--|---------------------|--------|----------------------|--|--------|--------|--------|--|--------|--------|--------|--|--------|--------|---------|--|--------|--------|---------|--|--|
|                                                       |  | QuarterEnded                            |
|                                                       |  | December31,2004                         |        | September30, 2004Restated |  | June30,2004Restated |        | March31,2004Restated |  | December31,2003Restated |        | September30,2003Restated |  | June30,2003Restated |        | March31,2003Restated |
|                                                       |  | (in thousands,except per share amounts) |
| Netrevenues                                                |  | $                                       | 25,097 |                      |  | $                   | 24,635 |                 |  | $                       | 24,817 |                     |  | $                   | 26,308 |                 |  | $      | 25,691 |   |  | $      | 25,479 |   |  | $      | 25,835 |    |  | $      | 26,237 |    |
| Costofrevenues                                             |  |                                    | 7,594  |                      |  |                | 7,787  |                 |  |                    | 7,909  |                     |  |                | 8,522  |                 |  |   | 8,192  |   |  |   | 7,671  |   |  |   | 8,475  |    |  |   | 8,049  |    |
| Grossprofit                                                |  |                                    | 17,503 |                      |  |                | 16,848 |                 |  |                    | 16,908 |                     |  |                | 17,786 |                 |  |   | 17,499 |   |  |   | 17,808 |   |  |   | 17,360 |    |  |   | 18,188 |    |
| Operatingexpenses:                                         |  |                                    |   |                      |  |                |   |                 |  |                    |   |                     |  |                |   |                 |  |   |   |   |  |   |   |   |  |   |   |    |  |   |   |    |
|     Salesandmarketing                  |  |                                    | 9,240  |                      |  |                | 7,271  |                 |  |                    | 7,056  |                     |  |                | 7,291  |                 |  |   | 6,616  |   |  |   | 6,098  |   |  |   | 6,599  |    |  |   | 6,647  |    |
| Technology                                                 |  |                                    | 4,994  |                      |  |                | 4,164  |                 |  |                    | 4,706  |                     |  |                | 4,202  |                 |  |   | 5,259  |   |  |   | 5,079  |   |  |   | 4,169  |    |  |   | 3,901  |    |
| Generalandadministrative                                   |  |                                    | 823    |                      |  |                | 4,872  |                 |  |                    | 5,307  |                     |  |                | 4,600  |                 |  |   | 5,232  |   |  |   | 4,877  |   |  |   | 11,354 |    |  |   | 6,092  |    |
| Amortizationand writedown of goodwill and otherintangibles |  |                                    | 256    |                      |  |                | 156    |                 |  |                    | 157    |                     |  |                | 158    |                 |  |   | 145    |   |  |   | 137    |   |  |   | 135    |    |  |   | 134    |    |
| Totaloperatingexpenses                                     |  |                                    | 15,313 |                      |  |                | 16,463 |                 |  |                    | 17,226 |                     |  |                | 16,251 |                 |  |   | 17,252 |   |  |   | 16,191 |   |  |   | 22,257 |    |  |   | 16,774 |    |
| Income(loss) fromoperations                                |  |                                    | 2,190  |                      |  |                | 385    |                 |  |                    | (318   | )                   |  |                | 1,535  |                 |  |   | 247    |   |  |   | 1,617  |   |  |   | (4,897 | )  |  |   | 1,414  |    |
| Otherincome (expense),net                                  |  |                                    | 433    |                      |  |                | 239    |                 |  |                    | 235    |                     |  |                | 359    |                 |  |   | 441    |   |  |   | 771    |   |  |   | 899    |    |  |   | 879    |    |
| Income(loss) before provision (benefit) for incometaxes    |  |                                    | 2,623  |                      |  |                | 624    |                 |  |                    | (83    | )                   |  |                | 1,894  |                 |  |   | 688    |   |  |   | 2,388  |   |  |   | (3,998 | )  |  |   | 2,293  |    |
| Provision(benefit) for incometaxes                         |  |                                    | 934    |                      |  |                | 222    |                 |  |                    | (30    | )                   |  |                | 674    |                 |  |   | 248    |   |  |   | 862    |   |  |   | (1,443 | )  |  |   | (584   | )  |
| Netincome(loss)                                            |  | $                                       | 1,689  |                      |  | $                   | 402    |                 |  | $                       | (53    | )                   |  | $                   | 1,220  |                 |  | $      | 440    |   |  | $      | 1,526  |   |  | $      | (2,555 | )  |  | $      | 2,877  |    |
| Basic(loss) income per share                               |  | $                                       | .07    |                      |  | $                   | ..02   |                 |  | $                       | (0.00  | )                   |  | $                   | 0.05   |                 |  | $      | 0.02   |   |  | $      | 0.04   |   |  | $      | (0.06  | )  |  | $      | 0.07   |    |
| Diluted(loss) income per share                             |  | $                                       | .07    |                      |  | $                   | ..02   |                 |  | $                       | (0.00  | )                   |  | $                   | 0.05   |                 |  | $      | 0.02   |   |  | $      | 0.04   |   |  | $      | (0.06  | )  |  | $      | 0.07   |    |
| Weightedaverage number of sharesoutstanding:               |  |                                    |   |                      |  |                |   |                 |  |                    |   |                     |  |                |   |                 |  |   |   |   |  |   |   |   |  |   |   |    |  |   |   |    |
|     Basic                              |  |                                    | 23,768 |                      |  |                | 23,713 |                 |  |                    | 23,645 |                     |  |                | 23,560 |                 |  |   | 23,519 |   |  |   | 37,426 |   |  |   | 40,991 |    |  |   | 40,685 |    |
|     Diluted                            |  |                                    | 25,078 |                      |  |                | 25,048 |                 |  |                    | 23,645 |                     |  |                | 24,909 |                 |  |   | 25,311 |   |  |   | 38,927 |   |  |   | 40,991 |    |  |   | 43,286 |    |
|                                                            |

Notesto Quarterly Results of Operations:

|          |                                                                                                                                                                                                                                                                                    |
|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.  | General andadministrative expense for the quarters ended March 31, June 30, andSeptember 30, 2003 includes $1.0 million, $5.4 million, and $0.3million, respectively, of advisory fees and expenses incurred inconnection with our consideration of various strategicalternatives. |

|          |                                                                                                                                                                                                                         |
|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.  | General and administrative expensefor the quarter ended December 31, 2004 includes a reversal of $5.6million of potential credit card penalties which had been recorded fromJanuary 1, 2002 through September 30, 2003. |

|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.  | Theprovision (benefit) for income taxes for the full year 2003 representsan effective tax rate of 67% of pretax income, which includesthe effect of a $3.2 million tax benefit recorded in March 2003 relatedto a goodwill impairment charge recorded by RCOM Europe in 2002. InMarch 2003 we filed an election with the U.S. taxing authorities toinclude the income or losses of RCOM Europe in our consolidated U.S.Federal income tax return effective January 1, 2003, and accordingly,we recorded the aforementioned $3.2 million tax benefit in March 2003.The aforementioned election changed the state and local tax apportionfactors, which in part offset the tax benefit from the goodwillimpairment charge. The effective tax rate for the full year 2003 alsoreflected the impact of state tax rate changes, as well as the impactof non-deductible advisory fees incurred in connection with ourconsideration of various strategic alternatives. |

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|                                                         |  |                                     |        |                            |  |                             |        |                                |  |             |        |             |  |            |         |             |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |  |
|---------------------------------------------------------|--|-------------------------------------|--------|----------------------------|--|-----------------------------|--------|--------------------------------|--|-------------|--------|-------------|--|------------|---------|-------------|--|---|--------|--------|--|---|--------|--------|--|---|--------|--------|--|---|--------|--------|--|--|
|                                                    |  | QuarterEnded September 30, 2004     |        | Quarter Ended June30, 2004 |  | Quarter Ended March 31,2004 |        | Quarter Ended December 31,2003 |
|                                                    |  | AsReported                          |        | As Restated                |  | As Reported                 |        | AsRestated                     |  | As Reported |        | As Restated |  | AsReported |         | As Restated |
|                                                    |  | (inthousands except per share data) |
| Changes toConsolidated Statement of Operations          |  |
| Netrevenues                                             |  | $                                   | 24,573 |                       |  | $                           | 24,635 |                           |  | $           | 24,419 |        |  | $          | 24,817  |        |  | $ | 25,917 |   |  | $ | 26,308 |   |  | $ | 25,313 |   |  | $ | 25,691 |   |
| Grossprofit                                             |  | $                                   | 16,805 |                       |  | $                           | 16,848 |                           |  | $           | 16,624 |        |  | $          | 16,908  |        |  | $ | 17,506 |   |  | $ | 17,786 |   |  | $ | 17,228 |   |  | $ | 17,499 |   |
| Income(loss) before provision (benefit) for incometaxes |  | $                                   | 582    |                       |  | $                           | 624    |                           |  | $           | (366   | )      |  | $          | (83     | )      |  | $ | 1,614  |   |  | $ | 1,894  |   |  | $ | 690    |   |  | $ | 688    |   |
| Netincome(loss)                                         |  | $                                   | 352    |                       |  | $                           | 402    |                           |  | $           | (384   | )      |  | $          | (53     | )      |  | $ | 1,085  |   |  | $ | 1,220  |   |  | $ | 887    |   |  | $ | 440    |   |
| Basicincome (loss) pershare                             |  | $                                   | 0.01   |                       |  | $                           | 0.02   |                           |  | $           | (0.02  | )      |  | $          | — |        |  | $ | 0.05   |   |  | $ | 0.05   |   |  | $ | 0.04   |   |  | $ | 0.02   |   |
| Dilutedincome (loss) pershare                           |  | $                                   | 0.01   |                       |  | $                           | 0.02   |                           |  | $           | (0.02  | )      |  | $          | — |        |  | $ | 0.04   |   |  | $ | 0.05   |   |  | $ | 0.04   |   |  | $ | 0.02   |   |
|                                                         |

|                                                         |  |                                     |        |                            |  |                             |        |            |  |             |        |            |  |   |        |         |  |   |        |        |  |   |        |        |  |  |
|---------------------------------------------------------|--|-------------------------------------|--------|----------------------------|--|-----------------------------|--------|------------|--|-------------|--------|------------|--|---|--------|---------|--|---|--------|--------|--|---|--------|--------|--|--|
|                                                    |  | QuarterEnded September 30, 2003     |        | Quarter Ended June30, 2003 |  | Quarter Ended March 31,2003 |
|                                                    |  | AsReported                          |        | As Restated                |  | As Reported                 |        | AsRestated |  | As Reported |        | AsRestated |
|                                                    |  | (in thousands except pershare data) |
| Changes to Consolidated Statement ofOperations          |  |
| Netrevenues                                             |  | $                                   | 25,749 |                       |  | $                           | 25,479 |       |  | $           | 26,167 |       |  | $ | 25,835 |    |  | $ | 27,090 |   |  | $ | 26,237 |   |
| Grossprofit                                             |  | $                                   | 18,001 |                       |  | $                           | 17,808 |       |  | $           | 17,597 |       |  | $ | 17,360 |    |  | $ | 18,799 |   |  | $ | 18,188 |   |
| Income(loss) before provision (benefit) for incometaxes |  | $                                   | 2,581  |                       |  | $                           | 2,388  |       |  | $           | (3,761 | )     |  | $ | (3,998 | )  |  | $ | 2,904  |   |  | $ | 2,293  |   |
| Netincome(loss)                                         |  | $                                   | 2,423  |                       |  | $                           | 1,526  |       |  | $           | (2,996 | )     |  | $ | (2,555 | )  |  | $ | 5,235  |   |  | $ | 2,877  |   |
| Basicincome (loss) pershare                             |  | $                                   | 0.06   |                       |  | $                           | 0.04   |       |  | $           | (0.07  | )     |  | $ | (0.06  | )  |  | $ | 0.13   |   |  | $ | 0.07   |   |
| Dilutedincome (loss) pershare                           |  | $                                   | 0.06   |                       |  | $                           | 0.04   |       |  | $           | (0.07  | )     |  | $ | (0.06  | )  |  | $ | 0.12   |   |  | $ | 0.07   |   |
|                                                         |

Recentaccounting pronouncements

SFAS 123R "Share-BasedPayment" was issued in December 2004, and becomeseffective for the Company on January l, 2006. This statement willrequire that the Company record stock-based compensation expense forthe unvested portions of stock options and warrants granted throughDecember 31, 2005 and for all grants on or after January 1, 2006 ofstock options, warrants, and restricted stock, in all cases based ontheir fair value on the respective grant dates. This statement willalso require that our Employee Stock Purchase Plan be treated as acompensatory plan for which stock-based compensation expense will berecorded starting January 1, 2006. Management has not determined theimpact that adoption of SFAS 123R will have on the Company'sfinancial statements, however based on options outstanding as ofDecember 31, 2004 it is currently estimated that the impact would be toincrease operating expense and reduce net income for the year endedDecember 31, 2006, however management is unable at this time toprecisely estimate the impact. In March 2005, the SEC staff issuedStaff Accounting Bulletin No. 107 (SAB 107) to give guidance onimplementation of SFAS 123R, which the Company plans to consider inimplementing SFAS 123R.

Liquidity and Capital Resources

Historically, we have funded our operations and met our capitalexpenditure requirements primarily through cash generated fromoperations, sales of equity securities and borrowings. We issued5,222,279 shares of our common stock to the public on March 3, 2000,which enabled us to raise approximately $115.3 million in cash afterdeducting underwriting discount and other offering expenses. InSeptember 2003, we used $120 million of our cash, short-terminvestments and marketable securities to complete a self-tender offerin which we purchased 17,910,347 shares of our common stock andwarrants to purchase 987,283 shares of our common stock (based on theconversion of warrants on a cashless basis at the $6.35 per share offerprice).

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At December 31, 2004, our cash and cashequivalents, short-term investments and noncurrent marketablesecurities totaled $108.3 million, compared with $91.3 million atDecember 31, 2003, representing an increase of $17.0 million for theyear 2004. During the year 2004 we generated $18.3 million of net cashprovided from operating activities and we used $3.1 million for capitalexpenditures, compared with $10.5 million of net cash provided fromoperating activities and $4.0 million of capital expenditures in 2003.During 2004, we received $1.0 million proceeds from the sale of aproperty and $0.8 million from exercises of options and warrants.

Net cash provided by operating activities increased by $7.8 millionin 2004 compared with 2003. This increase was due primarily to theabsence of $6.8 million of advisory fees that had been incurred in2003, and to a $2.7 million refund in 2004 of taxes paid in prioryears. The foregoing factors were offset in part by lower interestincome on marketable securities and temporary investments, and higherexpenses for sales and marketing and for professional fees related tocompliance with the Sarbanes Oxley Act in 2004. Our recent reduction insales prices and our anticipated lower revenues from advertising andcontinuing professional fees related to compliance with the SarbanesOxley Act and remediation of our material control weaknesses mayadversely impact our cash provided by operating activities in futureperiods.

Cash provided by operating activities declined by $6.0million in 2003 compared with 2002, primarily because of the incurrenceof $6.8 million of advisory fees in connection with our considerationof various strategic alternatives following the unsolicited acquisitionproposals we received in early 2003, as well as lower interest incomeon marketable securities and temporary investments in 2003.

Wecurrently expect our expenses for technology to decline during 2005compared with 2004; however as a result of delays in the implementationof our new systems in connection with our restructuring program, wecannot assure you that we will be successful in reducing our technologyexpenses. We expect our sales and marketing expense to increase in 2005compared with 2004. We believe that our current balance of cash,short-term investments and noncurrent marketable securities togetherwith anticipated cash to be provided from operations will be sufficientto meet our anticipated cash needs for working capital and capitalexpenditures for at least the next 12 months. However, when compared toour financial position prior to the consummation of our $120 millionself-tender offer in September 2003, we have significantly reduced ourcash position and our future interest income, reduced our ability toengage in significant transactions without additional debt or equityfinancing, reduced our ability to cover existing contingent or otherfuture liabilities, and potentially negatively impacted our liquidityduring future periods of increased capital requirements or operatingexpenses. Our noncurrent marketable securities totalling $9.1 millionas of December 31, 2004 represent publicly traded debt securities withstated maturities greater than twelve months, however such securitiesare readily saleable. Although they are available for sale and readilymarketable, management does not expect to use the proceeds from theseinvestments to fund operations over the next twelve months.

Asummary of our contractual obligations for operating leases and othercommitments as of December  31, 2004 is asfollows:

|                           |  |                                                     |       |                 |  |           |       |           |  |                  |       |        |  |        |         |        |  |        |         |        |  |  |
|---------------------------|--|-----------------------------------------------------|-------|-----------------|--|-----------|-------|-----------|--|------------------|-------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--|
|                      |  | Totalpayments due in each of the periods shownbelow |       |            |  |      |       |      |  |             |
|                      |  | Total                                               |       | Lessthan 1 Year |  | 2-3 Years |       | 4-5 Years |  | More than 5Years |
|                      |  | (inthousands)                                       |       |            |  |      |       |      |  |             |
| Operatingleaseobligations |  | $                                                   | 5,049 |            |  | $         | 1,367 |      |  | $                | 2,080 |   |  | $      | 1,526   |   |  | $      | 76      |   |
| Purchaseobligations(1)    |  |                                                | 1,528 |            |  |      | 774   |      |  |             | 754   |   |  |   | — |   |  |   | — |   |
| Total                     |  | $                                                   | 6,577 |            |  | $         | 2,141 |      |  | $                | 2,834 |   |  | $      | 1,526   |   |  | $      | 76      |   |
|                           |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                                                                                                 |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Purchaseobligations include agreements to purchase goods or services that areenforceable and legally binding on the Company and that specify allsignificant terms, including: fixed minimum quantities to be purchased:fixed, minimum or variable pricing provisions; and the approximatetiming of the transaction. Purchase obligations exclude agreements thatare cancelable without penalty. |

We have nooff-balance sheet arrangements.

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Item 7A.    Quantitative andQualitative Disclosures About Market Risk.

Our exposure tomarket risk is primarily related to interest rate sensitivity, which isaffected by changes in the general level of U.S. interest rates. Webelieve that we are not subject to a material interest rate riskbecause substantially all of our investments are in fixed-rate,short-term securities having a maturity of not more than two years,with a majority having a maturity of less than one year. Accordingly,the fair value of our investment portfolio would not be significantlyimpacted by a 100 basis point increase or decrease in interest rates.From time to time we also invest in publicly traded stocks, and we aresubject to market price risk with respect to such investments. AtDecember  31, 2004, the fair value of our investments in publiclytraded stocks was insignificant.

We generally do not enter intofinancial instruments for trading or speculative purposes or to hedgeexposure. We do not currently utilize derivative financial instrumentsand we have no present intention of utilizing derivative financialinstruments in the future, however it is possible that we may enterinto such transactions or similar transactions in the future. AtDecember  31, 2004 we had no long-term debt or foreign currencyhedging or derivative instruments.

Our consolidated financialstatements are denominated in U.S. dollars. We derived 11% ofour net revenues in 2004 from operations outside of the United States.We face foreign currency risks in part because our Europeansubsidiaries receive revenues and pay expenses in local currencies, andin part because the expenses of our customer service and operationscenter in Canada are paid in Canadian dollars. Our Europeansubsidiaries incur most of their expenses in their local currencies,which in part offsets our foreign currency risk related to Europeanrevenues received in local currencies. In 2004 we estimate that the netadverse impact on our consolidated operating results of the weakerdollar in 2004 versus 2003 against the Euro and British Pound wasapproximately $0.2 million. Our European subsidiaries use their localcurrency as their functional currency. Because the financial results ofour foreign subsidiaries are translated into U.S. dollars forconsolidation, as exchange rates fluctuate, such financial results mayvary from expectations and may adversely impact our operating resultsand our net income (loss). The US-dollar equivalent cost of operatingour Canadian customer service and operations center was adverselyimpacted by the weakening of the US dollar against the Canadian dollarin 2004; we estimate the adverse impact on our consolidated operatingresults in 2004 vs 2003 was approximately $0.4 million.

Item8.    Financial Statements and Supplementary Data.

INDEX TOCONSOLIDATED FINANCIALSTATEMENTS

|                                                                                                               |  |        |    |        |  |  |
|---------------------------------------------------------------------------------------------------------------|--|--------|----|--------|--|--|
|                                                                                                          |  | Page   |
| Reportof PricewaterhouseCoopers LLP, Independent Registered Public AccountingFirm                             |  |   | 56 |   |
| Consolidated Balance Sheets as ofDecember 31, 2004 and 2003                                                   |  |   | 59 |   |
| ConsolidatedStatements of Operations for the years ended December 31, 2004, 2003and 2002                      |  |   | 60 |   |
| Consolidated Statements ofChanges in Stockholders' Equity for the years endedDecember  31, 2004, 2003 and2002 |  |   | 61 |   |
| Consolidated Statements of CashFlows for the years ended December  31, 2004, 2003 and2002                     |  |   | 63 |   |
| Notes to Consolidated FinancialStatements                                                                     |  |   | 64 |   |
| Financial StatementSchedule Schedule II—Valuation and QualifyingAccount                                 |  |   | 88 |   |
|                                                                                                               |

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Report ofIndependent Registered Public Accounting Firm

To theBoard of Directors and Shareholders of Register.com, Inc.:

We have completed an integrated audit of Register.com,Inc.'s 2004 consolidated financial statements and of its internalcontrol over financial reporting as of December 31, 2004 and audits ofits 2003 and 2002 consolidated financial statements in accordance withthe standards of the Public Company Accounting Oversight Board (UnitedStates). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statementschedule

In our opinion, the consolidated financialstatements listed in the accompanying index present fairly, in allmaterial respects, the financial position of Register.com and itssubsidiaries (the "Company") at December 31,2004 and 2003, and the results of their operations and their cash flowsfor each of the three years in the period ended December 31, 2004 inconformity with accounting principles generally accepted in the UnitedStates of America. In addition, in our opinion, the financial statementschedule listed in the accompanying index presents fairly, in allmaterial respects, the information set forth therein when read inconjunction with the related consolidated financial statements. Thesefinancial statements and financial statement schedule are theresponsibility of the Company's management. Our responsibility isto express an opinion on these financial statements and financialstatement schedule based on our audits. We conducted our audits ofthese statements in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. Anaudit of financial statements includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significantestimates made by management, and evaluating the overall financialstatement presentation. We believe that our audits provide a reasonablebasis for our opinion.

As discussed in Note 16 to theConsolidated Financial Statements, the Company has restated itsConsolidated Financial Statements as of December 31, 2003 and for eachof the two years in the period ended December 31, 2003.

Internal control over financial reporting

Also, we have audited management's assessment, includedin Management's Report on Internal Control Over FinancialReporting appearing under Item 9A, that Register.com, Inc. did notmaintain effective internal control over financial reporting as ofDecember 31, 2004, because the Company did not maintain effectivecontrols over the timing of the recognition of revenue, deferredrevenue and associated cost of revenue amounts related to domain nametransactions; the accuracy of accounts receivable from certaincustomers and the related revenue and deferred revenue; the preparationand review of the provision for income taxes and the related incometaxes payable and deferred income tax asset and liability accounts; thepreparation and review of financial statement disclosures related topro forma stock-based compensation expense; and, the access tofinancial application programs and data such as accounts receivable,revenue, cost of revenue, deferred and prepaid registry fees, based oncriteria established in Internal Control — IntegratedFramework issued by the Committee of Sponsoring Organizations ofthe Treadway Commission ("COSO"). TheCompany's management is responsible for maintaining effectiveinternal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting. Ourresponsibility is to express opinions on management's assessmentand on the effectiveness of the Company's internal control overfinancial reporting based on our audit.

We conducted ouraudit of internal control over financial reporting in accordance withthe standards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal controlover financial reporting was maintained in all material respects. Anaudit of internal control over financial reporting includes obtainingan understanding of internal control over financial reporting,evaluating management's assessment, testing and evaluating thedesign and operating effectiveness of internal control, and performingsuch other procedures as we consider necessary in the circumstances. Webelieve that our audit provides a reasonable basis for ouropinions.

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A company's internal controlover financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company'sinternal control over financial reporting includes those policies andprocedures that (i) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (ii) provide reasonableassurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures ofthe company are being made only in accordance with authorizations ofmanagement and directors of the company; and (iii) provide reasonableassurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company's assets thatcould have a material effect on the financial statements.

Because of its inherent limitations, internal control overfinancial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods aresubject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

A materialweakness is a control deficiency, or combination of controldeficiencies, that results in more than a remote likelihood that amaterial misstatement of the annual or interim financial statementswill not be prevented or detected. The following material weaknesseshave been identified and included in management's assessment.

The Company did not maintain effective controls overthe timing of the recognition of its revenue and deferred revenue andassociated cost of revenue amounts related to domain name transactions.Specifically, the Company incorrectly utilized a full month conventionfor recognizing revenue and associated cost of revenue with respect toinitial and renewed domain name registrations. Additionally, theCompany's controls failed to detect application errors in itscomputer systems that resulted in errors in the timing of revenue andassociated cost of revenue recognition for certain domain nametransactions such as: subscriptions renewed prior to their scheduledexpiration dates, domain names transferred in from other registrars,domain names transferred out to other registrars and customer credits.This control deficiency resulted in the restatement of theCompany's financial statements for the years ended December 31,2002 and 2003, for each of the quarters of 2003, and for each of thefirst three quarters of 2004 as well as audit adjustments in the fourthquarter of 2004. Additionally, this control deficiency could result ina misstatement of the Company's revenue and deferred revenue andassociated cost of revenue that would result in a material misstatementto the Company's annual or interim financial statements thatwould not be prevented or detected.

The Companydid not maintain effective controls over the accuracy of its accountsreceivable from certain customers and the related revenue and deferredrevenue. Specifically, the Company did not maintain effective controlsto prevent or detect errors in the processing or invoicing of certaincustomer transactions. Because of system processing errors and manualoverrides, certain transactions were billed twice or not billed in themonth in which the order was fulfilled or certain subscription termswere not recorded accurately. Additionally, certain price tables usedto generate invoices were not maintained with correct prices and termsof domain name registrations, and manual overrides led to amountsbilled in error to certain customers. In addition, the Company providedcertain customers with customized invoice formats which are notsupported by its systems and therefore the Company has had to createsuch invoices manually which led to invoicing errors. This controldeficiency did not result in adjustments to the Company's annualor interim financial statements, however, it could result in amisstatement of accounts receivable, revenue and deferred revenueaccounts that would result in a material misstatement to theCompany's annual or interim financial statements that would notbe prevented or detected.

The Company did notmaintain effective controls over the preparation and review of itsprovision for income taxes and the related income taxes payable anddeferred income tax asset and liability accounts. Specifically, theCompany did not maintain effective controls to prevent or 

56

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detect errors in the preparation of its taxprovision. This control deficiency resulted in the restatement of theCompany's financial statements for the years ended December 31,2002 and 2003, for each of the quarters of 2003, and for each of thefirst three quarters of 2004 as well as audit adjustments in the fourthquarter of 2004. Additionally, this control deficiency could result ina misstatement of the Company's provision for income taxes andrelated balance sheet accounts that would result in a materialmisstatement to the Company's annual or interim financialstatements that would not be prevented or detected.

The Company did not maintain effective controls overthe preparation and review of its financial statement footnotedisclosures related to pro forma stock-based compensation expense.Specifically, the Company did not accurately calculate the estimatedfair value of stock options on their grant dates as the Company did notadjust amounts for the effect of income taxes nor did the Companyadequately use and review the assumptions underlying the schedulessupporting pro forma disclosures in its financial statement footnotes.This control deficiency resulted in the restatement of the pro formastock-based compensation expense disclosures in the Company'sfinancial statement footnotes for the years ended December 31, 2002 and2003, for each of the first three quarters of 2003 and 2004, as well asaudit adjustments to the Company's 2004 footnote disclosures ofpro forma stock-based compensation expense. Additionally, this controldeficiency could result in a misstatement of the Company'sdisclosures related to pro forma stock-based compensation expense thatwould result in a material misstatement to the Company's annualor interim financial statement that would not be prevented ordetected.

The Company did not maintain effectivecontrols over the access to financial application programs and datasuch as accounts receivable, revenue, cost of revenue, deferredrevenue, prepaid registry fees, and other financial statement accounts.Specifically, the Company did not maintain effective controls over thegranting, maintenance and termination of user identification andpasswords; the required segregation of duties within certain financialapplications; and the independent monitoring and verification of useraccess to data. This control deficiency did not result in adjustmentsto the Company's annual or interim financial statements, however,it could result in a material misstatement to annual or interimfinancial statements that would not be prevented or detected.

These material weaknesses were considered in determining thenature, timing, and extent of audit tests applied in our audit of the2004 consolidated financial statements, and our opinion regarding theeffectiveness of the Company's internal control over financialreporting does not affect our opinion on those consolidated financialstatements.

In our opinion, management's assessmentthat Register.com, Inc. did not maintain effective internal controlover financial reporting as of December 31, 2004, is fairly stated, inall material respects, based on criteria established in InternalControl — Integrated Framework issued by the COSO. Also, inour opinion, because of the effects of the material weaknessesdescribed above on the achievement of the objectives of the controlcriteria, the Company has not maintained effective internal controlover financial reporting as of December 31, 2004, based on criteriaestablished in Internal Control — Integrated Frameworkissued by the COSO.

/s/ PricewaterhouseCoopers LLP

New York, New York May 3, 2005

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REGISTER.COM, INC.CONSOLIDATEDBALANCE SHEETS(in thousands, except per sharedata)

|                                                                                                                                                                                    |  |             |         |            |  |        |         |         |  |  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|-------------|---------|------------|--|--------|---------|---------|--|--|
|                                                                                                                                                                               |  | December31, |
|                                                                                                                                                                               |  | 2004        |         | 2003       |
|                                                                                                                                                                               |  |        |         | (Restated) |
| **Assets:**                                                                                                                                                                        |  |        |    |       |  |   |    |    |
| **CurrentAssets:**                                                                                                                                                                 |  |        |    |       |  |   |    |    |
|     Cash and cashequivalents                                                                                                                                   |  | $           | 52,146  |       |  | $      | 35,741  |    |
|     Short-terminvestments                                                                                                                                      |  |        | 47,050  |       |  |   | 52,993  |    |
|     Accountsreceivable, less allowance of $1,611 and $1,850,respectively                                                                                       |  |        | 6,236   |       |  |   | 6,505   |    |
|     Prepaidexpenses                                                                                                                                            |  |        | 13,237  |       |  |   | 16,185  |    |
|     Deferredtax asset,net                                                                                                                                      |  |        | 3,092   |       |  |   | 9,893   |    |
|     Other currentassets                                                                                                                                        |  |        | 4,642   |       |  |   | 6,664   |    |
|         Totalcurrent assets                                                                                                                |  |        | 126,403 |       |  |   | 127,981 |    |
| Fixedassets, net                                                                                                                                                                   |  |        | 7,481   |       |  |   | 8,363   |    |
| Prepaidexpenses, net of currentportion                                                                                                                                             |  |        | 12,107  |       |  |   | 10,696  |    |
| Deferred taxasset, net                                                                                                                                                             |  |        | 19,547  |       |  |   | 14,087  |    |
| Otherinvestments                                                                                                                                                                   |  |        | 496     |       |  |   | 396     |    |
| Marketablesecurities —noncurrent                                                                                                                                             |  |        | 9,111   |       |  |   | 2,527   |    |
| Intangibleassets, net                                                                                                                                                              |  |        | 1,359   |       |  |   | 1,952   |    |
| Otherassets                                                                                                                                                                        |  |        | 1,480   |       |  |   | 1,436   |    |
|         Totalassets                                                                                                                        |  | $           | 177,984 |       |  | $      | 167,438 |    |
| **Liabilitiesand Stockholders'Equity:**                                                                                                                                            |  |        |    |       |  |   |    |    |
| **CurrentLiabilities:**                                                                                                                                                            |  |        |    |       |  |   |    |    |
|     Accountspayable and accruedexpenses                                                                                                                        |  | $           | 17,463  |       |  | $      | 14,469  |    |
|     Deferredrevenue                                                                                                                                            |  |        | 55,230  |       |  |   | 59,741  |    |
|         Totalcurrentliabilities                                                                                                            |  |        | 72,693  |       |  |   | 74,210  |    |
| Deferredrevenue — noncurrentportion                                                                                                                                          |  |        | 43,419  |       |  |   | 36,152  |    |
|         Totalliabilities                                                                                                                   |  |        | 116,112 |       |  |   | 110,362 |    |
| Commitmentsandcontingencies                                                                                                                                                        |  |        |    |       |  |   |    |    |
| **Stockholders'equity:**                                                                                                                                                           |  |        |    |       |  |   |    |    |
| Preferredstock—$.0001 par value, 5,000,000 shares authorized; none issuedand outstanding at December  31, 2004 and2003                                                       |  |        | — |       |  |   | — |    |
| Commonstock—$.0001 par value, 200,000,000 shares authorized; 23,824,797and 23,536,801 shares issued and outstanding at December  31,2004 and December  31, 2003,respectively |  |        | 2       |       |  |   | 2       |    |
|     Additionalpaid-incapital                                                                                                                                   |  |        | 98,724  |       |  |   | 98,094  |    |
|     Unearnedcompensation                                                                                                                                       |  |        | (122    | )     |  |   | (528    | )  |
|     Accumulatedother comprehensiveincome                                                                                                                       |  |        | 2,646   |       |  |   | 2,144   |    |
|     Accumulateddeficit                                                                                                                                         |  |        | (39,378 | )     |  |   | (42,636 | )  |
| Totalstockholders'equity                                                                                                                                                           |  |        | 61,872  |       |  |   | 57,076  |    |
|         Totalliabilities and stockholders'equity                                                                                           |  | $           | 177,984 |       |  | $      | 167,438 |    |
|                                                                                                                                                                                    |

Theaccompanying notes are an integral part of these consolidated financialstatements.

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REGISTER.COM, INC.CONSOLIDATEDSTATEMENTS OF OPERATIONS(in thousands, except per sharedata)

|                                                                        |  |                       |         |                |  |                 |         |         |  |        |         |         |  |  |
|------------------------------------------------------------------------|--|-----------------------|---------|----------------|--|-----------------|---------|---------|--|--------|---------|---------|--|--|
|                                                                   |  | Yearended December31, |
|                                                                   |  | 2004                  |         | 2003(Restated) |  | 2002 (Restated) |
| Netrevenues                                                            |  | $                     | 100,857 |           |  | $               | 103,242 |    |  | $      | 102,421 |    |
| Costofrevenues                                                         |  |                  | 31,812  |           |  |            | 32,387  |    |  |   | 34,689  |    |
|         Grossprofit            |  |                  | 69,045  |           |  |            | 70,855  |    |  |   | 67,732  |    |
| Operatingexpenses:                                                     |  |                  |    |           |  |            |    |    |  |   |    |    |
|     Sales andmarketing                             |  |                  | 30,858  |           |  |            | 25,960  |    |  |   | 31,066  |    |
|     Technology                                     |  |                  | 18,066  |           |  |            | 18,408  |    |  |   | 13,202  |    |
| Generalandadministrative                                               |  |                  | 15,602  |           |  |            | 27,555  |    |  |   | 24,947  |    |
| Amortizationand impairment of goodwill and otherintangibles            |  |                  | 727     |           |  |            | 551     |    |  |   | 17,290  |    |
|         Totaloperatingexpenses |  |                  | 65,253  |           |  |            | 72,474  |    |  |   | 86,505  |    |
| Income(loss) fromoperations                                            |  |                  | 3,792   |           |  |            | (1,619  | )  |  |   | (18,773 | )  |
| Otherincome,net                                                        |  |                  | 1,266   |           |  |            | 2,990   |    |  |   | 5,589   |    |
| Income(loss) before provision (benefit) for incometaxes                |  |                  | 5,058   |           |  |            | 1,371   |    |  |   | (13,184 | )  |
| Provision(benefit) for incometaxes                                     |  |                  | 1,800   |           |  |            | (916    | )  |  |   | (2,276  | )  |
|         Netincome(loss)        |  | $                     | 3,258   |           |  | $               | 2,287   |    |  | $      | (10,908 | )  |
|     Basicincome (loss) pershare                    |  | $                     | 0.14    |           |  | $               | 0.06    |    |  | $      | (0.27   | )  |
|     Dilutedincome (loss) pershare                  |  | $                     | 0.13    |           |  | $               | 0.06    |    |  | $      | (0.27   | )  |
| Weightedaverage number of sharesoutstanding:                           |  |                  |    |           |  |            |    |    |  |   |    |    |
|     Basic                                          |  |                  | 23,672  |           |  |            | 35,701  |    |  |   | 40,022  |    |
|     Diluted                                        |  |                  | 24,963  |           |  |            | 37,662  |    |  |   | 40,022  |    |
|                                                                        |

Theaccompanying notes are an integral part of these consolidated financialstatements.

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REGISTER.COM, INC.CONSOLIDATEDSTATEMENT OF STOCKHOLDERS' EQUITY(in thousands, except persharedata)

|                                                       |  |             |             |         |  |                          |         |                      |  |                                     |          |                    |  |                            |         |                             |  |        |         |         |  |        |         |         |  |        |          |         |  |        |         |         |  |  |
|-------------------------------------------------------|--|-------------|-------------|---------|--|--------------------------|---------|----------------------|--|-------------------------------------|----------|--------------------|--|----------------------------|---------|-----------------------------|--|--------|---------|---------|--|--------|---------|---------|--|--------|----------|---------|--|--------|---------|---------|--|--|
|                                                  |  | CommonStock |             |
|                                                  |  | Shares      |             | Amount  |  | AdditionalPaid-inCapital |         | UnearnedCompensation |  | Accumulatedothercomprehensiveincome |          | AccumulatedDeficit |  | Total Stockholders' Equity |         | Comprehensive Income (Loss) |
|                                                  |  |        |             |    |  | (Restated)               |         |                 |  | (Restated)                          |          | (Restated)         |  | (Restated)                 |         | (Restated)                  |
| Balanceat January 1,2002                              |  |        | 38,296,581  |    |  | $                        | 4       |                 |  | $                                   | 209,519  |               |  | $                          | (3,007  | )                      |  | $      | 1,386   |    |  | $      | (34,015 | )  |  | $      | 173,887  |    |  |   |    |    |
| Issuanceof shares for the Employee Stock PurchasePlan |  |        | 62,470      |    |  |                     | — |                 |  |                                | 349      |               |  |                       | — |                        |  |   | — |    |  |   | — |    |  |   | 349      |    |  |   |    |    |
| Amortizationof unearnedcompensation                   |  |        | —     |    |  |                     | — |                 |  |                                | —  |               |  |                       | 1,937   |                        |  |   | — |    |  |   | — |    |  |   | 1,937    |    |  |   |    |    |
| Exerciseof stock options, including taxbenefits       |  |        | 1,537,899   |    |  |                     | — |                 |  |                                | 8,408    |               |  |                       | — |                        |  |   | — |    |  |   | — |    |  |   | 8,408    |    |  |   |    |    |
| Exerciseofwarrants                                    |  |        | 1,063,406   |    |  |                     | — |                 |  |                                | 42       |               |  |                       | — |                        |  |   | — |    |  |   | — |    |  |   | 42       |    |  |   |    |    |
| Issuanceof restrictedstock                            |  |        | 34,246      |    |  |                     | — |                 |  |                                | 306      |               |  |                       | (306    | )                      |  |   | — |    |  |   | — |    |  |   | —  |    |  |   |    |    |
| Repurchaseand retirement of treasurystock             |  |        | (370,100    | )  |  |                     | — |                 |  |                                | (1,632   | )             |  |                       | — |                        |  |   | — |    |  |   | — |    |  |   | (1,632   | )  |  |   |    |    |
| Net(loss)                                             |  |        |        |    |  |                     | — |                 |  |                                | —  |               |  |                       | — |                        |  |   | — |    |  |   | (10,908 | )  |  |   | (10,908  | )  |  | $      | (10,908 | )  |
| Netunrealized holding loss on marketablesecurities    |  |        | —     |    |  |                     | — |                 |  |                                | —  |               |  |                       | — |                        |  |   | (595    | )  |  |   | — |    |  |   | (595     | )  |  |   | (595    | )  |
| Foreigncurrencytranslation                            |  |        | —     |    |  |                     | — |                 |  |                                | —  |               |  |                       | — |                        |  |   | 1,388   |    |  |   | — |    |  |   | 1,388    |    |  |   | 1,388   |    |
| Comprehensive(loss)                                   |  |        |        |    |  |                     |    |                 |  |                                |     |               |  |                       |    |                        |  |   |    |    |  |   |    |    |  |   |     |    |  | $      | (10,115 | )  |
| Balanceat December  31,2002                           |  |        | 40,624,502  |    |  |                     | 4       |                 |  |                                | 216,992  |               |  |                       | (1,376  | )                      |  |   | 2,179   |    |  |   | (44,923 | )  |  |   | 172,876  |    |  |   |    |    |
| Issuanceof shares for the Employee Stock PurchasePlan |  |        | 62,900      |    |  |                     | — |                 |  |                                | 207      |               |  |                       | — |                        |  |   | — |    |  |   | — |    |  |   | 207      |    |  |   |    |    |
| Amortizationof unearnedcompensation                   |  |        | —     |    |  |                     | — |                 |  |                                | —  |               |  |                       | 1,048   |                        |  |   | — |    |  |   | — |    |  |   | 1,048    |    |  |   |    |    |
| Exerciseof stock options, including taxbenefits       |  |        | 338,731     |    |  |                     | — |                 |  |                                | 719      |               |  |                       | — |                        |  |   | — |    |  |   | — |    |  |   | 719      |    |  |   |    |    |
| Exerciseofwarrants                                    |  |        | 388,622     |    |  |                     | — |                 |  |                                | 1        |               |  |                       | — |                        |  |   | — |    |  |   | — |    |  |   | 1        |    |  |   |    |    |
| Issuanceof restrictedstock                            |  |        | 37,951      |    |  |                     | — |                 |  |                                | 200      |               |  |                       | (200    | )                      |  |   | — |    |  |   | — |    |  |   | —  |    |  |   |    |    |
| Repurchaseand Retirement of commonstock               |  |        | (17,915,905 | )  |  |                     | (2      | )               |  |                                | (120,025 | )             |  |                       | — |                        |  |   | — |    |  |   | — |    |  |   | (120,027 | )  |  |   |    |    |
| Netincome                                             |  |        | —     |    |  |                     | — |                 |  |                                | —  |               |  |                       | — |                        |  |   | — |    |  |   | 2,287   |    |  |   | 2,287    |    |  | $      | 2,287   |    |
| Netunrealized holding loss on marketablesecurities    |  |        | —     |    |  |                     | — |                 |  |                                | —  |               |  |                       | — |                        |  |   | (693    | )  |  |   | — |    |  |   | (693     | )  |  |   | (693    | )  |
| Foreigncurrencytranslation                            |  |        | —     |    |  |                     | — |                 |  |                                | —  |               |  |                       | — |                        |  |   | 658     |    |  |   | — |    |  |   | 658      |    |  |   | 658     |    |
| Comprehensiveincome                                   |  |        |        |    |  |                     |    |                 |  |                                |     |               |  |                       |    |                        |  |   |    |    |  |   |    |    |  |   |     |    |  | $      | 2,252   |    |
| Balanceat December 31,2003                            |  |        | 23,536,801  |    |  |                     | 2       |                 |  |                                | 98,094   |               |  |                       | (528    | )                      |  |   | 2,144   |    |  |   | (42,636 | )  |  |   | 57,076   |    |  |   |    |    |
| Issuanceof shares for the Employee Stock PurchasePlan |  |        | 64,160      |    |  |                     | — |                 |  |                                | 229      |               |  |                       | — |                        |  |   | — |    |  |   | — |    |  |   | 229      |    |  |   |    |    |
| Amortizationof unearnedcompensation                   |  |        | —     |    |  |                     | — |                 |  |                                | —  |               |  |                       | 306     |                        |  |   | — |    |  |   | — |    |  |   | 306      |    |  |   |    |    |
|                                                       |

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|                                                    |  |             |            |         |  |                          |         |                      |  |                                     |         |                    |  |                            |         |                             |  |        |         |         |  |        |         |         |  |        |         |         |  |        |        |         |  |  |
|----------------------------------------------------|--|-------------|------------|---------|--|--------------------------|---------|----------------------|--|-------------------------------------|---------|--------------------|--|----------------------------|---------|-----------------------------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--------|--------|---------|--|--|
|                                               |  | CommonStock |            |
|                                               |  | Shares      |            | Amount  |  | AdditionalPaid-inCapital |         | UnearnedCompensation |  | Accumulatedothercomprehensiveincome |         | AccumulatedDeficit |  | Total Stockholders' Equity |         | Comprehensive Income (Loss) |
|                                               |  |        |            |    |  | (Restated)               |         |                 |  | (Restated)                          |         | (Restated)         |  | (Restated)                 |         | (Restated)                  |
| Exercise of stock options,including taxbenefits    |  |        | 113,916    |    |  |                     | — |                 |  |                                | 501     |               |  |                       | — |                        |  |   | — |    |  |   | — |    |  |   | 501     |    |  |   |   |    |
|                                               |  |        |       |    |  |                     |    |                 |  |                                |    |               |  |                       |    |                        |  |   |    |    |  |   |    |    |  |   |    |    |  |   |   |    |
| Exerciseofwarrants                                 |  |        | 118,654    |    |  |                     | — |                 |  |                                | — |               |  |                       | — |                        |  |   | — |    |  |   | — |    |  |   | — |    |  |   |   |    |
| Cancellationof restrictedstock                     |  |        | (8,734     | )  |  |                     | — |                 |  |                                | (100    | )             |  |                       | 100     |                        |  |   | — |    |  |   | — |    |  |   | — |    |  |   |   |    |
|                                               |  |        |       |    |  |                     |    |                 |  |                                |    |               |  |                       |    |                        |  |   |    |    |  |   |    |    |  |   |    |    |  |   |   |    |
| Netincome                                          |  |        | —    |    |  |                     | — |                 |  |                                | — |               |  |                       | — |                        |  |   | — |    |  |   | 3,258   |    |  |   | 3,258   |    |  | $      | 3,258  |    |
| Netunrealized holding loss on marketablesecurities |  |        | —    |    |  |                     | — |                 |  |                                | — |               |  |                       | — |                        |  |   | (167    | )  |  |   | — |    |  |   | (167    | )  |  |   | (167   | )  |
| Foreigncurrencytranslation                         |  |        | —    |    |  |                     | — |                 |  |                                | — |               |  |                       | — |                        |  |   | 669     |    |  |   |    |    |  |   | 669     |    |  |   | 669    |    |
| Comprehensiveincome                                |  |        |       |    |  |                     |    |                 |  |                                |    |               |  |                       |    |                        |  |   |    |    |  |   |    |    |  |   |    |    |  | $      | 3,760  |    |
| Balanceat December 31,2004                         |  |        | 23,824,797 |    |  | $                        | 2       |                 |  | $                                   | 98,724  |               |  | $                          | (122    | )                      |  | $      | 2,646   |    |  | $      | (39,378 | )  |  | $      | 61,872  |    |  |
|                                                    |

|  |                                                                                                                                                                                                         |
|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | Accumulatedother comprehensive income of $2,646 at December 31, 2004 is comprisedof an unrealized loss on marketable securities of $67 and an unrealizedgain on foreign currency translation of $2,713. |

Theaccompanying notes are an integral part of these consolidated financialstatements.

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REGISTER.COM, INC.CONSOLIDATEDSTATEMENTS OF CASH FLOWS(inthousands)

|                                                                                                 |  |                       |          |                |  |                |          |         |  |        |          |         |  |  |
|-------------------------------------------------------------------------------------------------|--|-----------------------|----------|----------------|--|----------------|----------|---------|--|--------|----------|---------|--|--|
|                                                                                            |  | Yearended December31, |
|                                                                                            |  | 2004                  |          | 2003(Restated) |  | 2002(Restated) |
| **Cash flows from operatingactivities**                                                         |  |                  |     |           |  |           |     |    |  |   |     |    |
| Net income(loss)                                                                                |  | $                     | 3,258    |           |  | $              | 2,287    |    |  | $      | (10,908  | )  |
| Adjustmentsto reconcile net income (loss) to net cash provided by (used in)operatingactivities: |  |                  |     |           |  |           |     |    |  |   |     |    |
| Depreciation,amortization and writedown of goodwill and other intangibleassets                  |  |                  | 4,260    |           |  |           | 4,844    |    |  |   | 21,802   |    |
| Gainon sale of fixedassets                                                                      |  |                  | (443     | )         |  |           | —  |    |  |   | —  |    |
| Stock-basedcompensation                                                                         |  |                  | 306      |           |  |           | 1,048    |    |  |   | 1,937    |    |
| Deferredincometaxes                                                                             |  |                  | 1,341    |           |  |           | 1,963    |    |  |   | (5,885   | )  |
| Taxeffect of exercise of certain employee stockoptions                                          |  |                  | (79      | )         |  |           | (28      | )  |  |   | 2,500    |    |
| Changesin assets and liabilities affecting operating cash flows, net ofacquisitions:            |  |                  |     |           |  |           |     |    |  |   |     |    |
| Accountsreceivable                                                                              |  |                  | 543      |           |  |           | 2,221    |    |  |   | 6,191    |    |
| Prepaidexpenses                                                                                 |  |                  | 1,538    |           |  |           | (2,052   | )  |  |   | (1,248   | )  |
| Deferredrevenues                                                                                |  |                  | 2,757    |           |  |           | 887      |    |  |   | 4,002    |    |
| Othercurrentassets                                                                              |  |                  | 2,045    |           |  |           | 1,002    |    |  |   | (368     | )  |
| Otherassets                                                                                     |  |                  | (44      | )         |  |           | 786      |    |  |   | (122     | )  |
| Accountspayable and accruedexpenses                                                             |  |                  | 2,735    |           |  |           | (2,424   | )  |  |   | (1,445   | )  |
| Netcash provided by operatingactivities                                                         |  |                  | 18,217   |           |  |           | 10,534   |    |  |   | 16,456   |    |
| **Cashflows from investingactivities**                                                          |  |                  |     |           |  |           |     |    |  |   |     |    |
| Capitalexpenditures                                                                             |  |                  | (3,098   | )         |  |           | (4,026   | )  |  |   | (3,247   | )  |
| Proceedsfrom sale of fixedassets                                                                |  |                  | 1,014    |           |  |           | —  |    |  |   | —  |    |
| Reductionin restricted cashdeposits                                                             |  |                  | —  |           |  |           | 4,400    |    |  |   | —  |    |
| Purchasesofinvestments                                                                          |  |                  | (274,080 | )         |  |           | (411,572 | )  |  |   | (286,840 | )  |
| Maturitiesofinvestments                                                                         |  |                  | 273,439  |           |  |           | 535,236  |    |  |   | 270,416  |    |
| Otherinvestments                                                                                |  |                  | (100     | )         |  |           | —  |    |  |   | —  |    |
| Acquisitions,net                                                                                |  |                  | —  |           |  |           | —  |    |  |   | (9,359   | )  |
| Netcash (used) provided by investingactivities                                                  |  |                  | (2,825   | )         |  |           | 124,038  |    |  |   | (29,030  | )  |
| **Cashflows from financingactivities**                                                          |  |                  |     |           |  |           |     |    |  |   |     |    |
| Issuanceof notespayable                                                                         |  |                  | —  |           |  |           | —  |    |  |   | 8,552    |    |
| Repaymentof notespayable                                                                        |  |                  | —  |           |  |           | (10,585  | )  |  |   | (219     | )  |
| Netproceeds from issuance of common stock andwarrants                                           |  |                  | 809      |           |  |           | 955      |    |  |   | 6,299    |    |
| Retirementof commonstock                                                                        |  |                  | —  |           |  |           | (120,027 | )  |  |   | (1,632   | )  |
| Netcash provided (used) by financingactivities                                                  |  |                  | 809      |           |  |           | (129,657 | )  |  |   | 13,000   |    |
| Effectof exchange rate changes oncash                                                           |  |                  | 204      |           |  |           | 714      |    |  |   | 222      |    |
| **Netincrease in cash and cashequivalents**                                                     |  |                  | 16,405   |           |  |           | 5,629    |    |  |   | 648      |    |
| Cashand cash equivalents at beginning ofperiod                                                  |  |                  | 35,741   |           |  |           | 30,112   |    |  |   | 29,464   |    |
| **Cashand cash equivalents at end ofperiod**                                                    |  | $                     | 52,146   |           |  | $              | 35,741   |    |  | $      | 30,112   |    |
| **Supplementaldisclosure of cash flow information:**                                            |  |
| Cashpaid for interest                                                                           |  | $                     | —  |           |  | $              | 77       |    |  | $      | 123      |    |
| Cash paid (refunded)for income taxes, net                                                       |  | $                     | (1,716   | )         |  | $              | 130      |    |  | $      | 1,731    |    |
|                                                                                                 |

The accompanyingnotes are an integral part of these consolidated financialstatements.

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.

REGISTER.COM, INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

1.    Nature of Business And Organization

Nature of Business

Register.com, Inc., together with itswholly owned subsidiaries (the "Company" or"Register.com"), provides Internet domainname registration and other online services such as website creationtools, email, domain name forwarding and advertising.

TheCompany is an ICANN-accredited registrar of domain names. ICANN is anindependent non-profit organization selected by the U.S. Department ofCommerce to manage and oversee the domain name system.

Restatement

The Company has restated its previously issuedconsolidated financial statements as of and for the years endedDecember 31, 2002 and 2003. See Note 16 for further information.

2. Summary of Significant Accounting Policies

Principlesof Consolidation

The consolidated financial statements includethe accounts of Register.com, Inc. and its wholly owned subsidiaries.Intercompany balances and transactions have been eliminated. TheCompany has determined that it has no variable interest entities, orfor those entities which are variable interest entities, theCompany was not the primary beneficiary, and therefore, noconsolidation of such entities is required.

Cash equivalentsand reclassification of certain securities as short-terminvestments

The Company considers all highly liquid investmentspurchased with an initial contractual maturity of 90 days or less to becash equivalents. The Company maintains its cash balances in highlyrated financial institutions. At times, such cash balances exceed theFederal Deposit Insurance Corporation limit.

The Company hastemporary investments in "auction-ratesecurities", which are securities whose interest rate isreset periodically in an auction process. If an auction fails for anyreason, investors must hold their securities until the next auctiondate. Investors cannot force issuers to redeem auction rate securitiesprior to the stated/contractual maturity of the instrument if anauction fails. The Company had previously classified auction-ratesecurities with a contractual interest reset date within 90 days orless as cash equivalents. The Company has reclassified its investmentsin such auction rate securities as short-term investments for allperiods presented.

Restricted cash balances

The Companyhas restricted cash balances of $3.3 million as of December 31, 2004and December 31, 2003, representing cash deposits which serve assecurity primarily to support outstanding letters of credit. Of thetotal $3.3 million, $2.2 million is included in other current assetsand $1.1 million is included in other assets.

Investments

The Company classifies its investments in debt securities asmarketable securities in accordance with Statement of FinancialAccounting Standards ("SFAS") No. 115,"Accounting for Certain 

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Investments in Debt and EquitySecurities." All of the Company's investments areclassified as "available for sale"securities. Marketable securities are carried at fair market value,with unrealized gains and losses reported in stockholders' equityas a component of other comprehensive income (loss). Realized gains orlosses on securities sold are calculated based on the specificidentification method.

Securities with remaining contractualmaturities of less than one year from the balance sheet date, andauction rate securities with contractual interest reset dates of lessthan one year and which are available for current operations, areclassified as current. All other securities are classified asnon-current.

Fixed assets

Capitalized softwarepurchased or developed for internal use is classified within fixedassets. Depreciation and amortization is calculated using thestraight-line method. Estimated useful lives are as follows:capitalized computer software — three years; equipment, furnitureand fixtures — three to five years; buildings — fiftyyears; leasehold improvements — shorter of the estimated usefullife of each improvement or the lease term. Costs of additions andimprovements are capitalized, and repairs and maintenance costs arecharged to operations as incurred.

In May 2004, the Company soldcertain owned real estate for $1.0 million, resulting in a gain of $0.4million, which is reflected as a reduction of general andadministrative expense in the Consolidated Statement of Operations.

Revenue recognition

The Company's revenues areprimarily derived from domain name registration fees, other productsand services, and advertising.

Domain name registrationfees

Registration fees charged to end-users for registrationservices are recognized on a straight-line basis over the registrationterm, using either a daily recognition method or a mid-month revenuerecognition convention which does not materially differ from the use ofa daily recognition method. Accordingly, domain name registrationrevenues are deferred at the time of the registration and arerecognized ratably over the term of the registration period, or in thecase of transferred-in registrations, over the period from thetransfer-in date (which is generally earlier than the start date of thenext paid registration period) through the end of the paid registrationperiod. In the event a registration is transferred out to anotherregistrar prior to the end of the subscription term, any remainingunamortized deferred revenue related to that registration isimmediately recognized as revenue on the transfer-out date. A majorityof end-user subscribers pay for services with credit cards for whichthe Company receives remittances from the credit card associations,generally within two business days after the sale transaction isprocessed. A provision for estimated refunds to customers andchargebacks from customers is recorded as a reduction of revenue. Formany corporate customers who register domain names through theCompany's Corporate Services channel and participants in our theCompany's Global Partner Network, the Company establishes linesof credit based on credit worthiness. Referral commissions payable toparticipants in the Global Partner Network are deducted from grossregistration revenue for presentation in the financial statements.

Other products and services

Revenue from other products andservices, which primarily include web-based email, web site buildingtools, and web hosting, are generally recognized on a straight-linebasis over the period in which services are provided. Payments receivedin advance of services rendered are included in deferred revenue.

Advertising

Advertising revenues are derived principallyfrom short-term advertising contracts. Advertising revenues arerecognized in the periods in which the advertisements are displayed orthe required 

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number of impressions are achieved, providedthat no significant Company obligation remains and collection of theresulting receivable is probable.

Deferred revenue

Deferred revenue represents the unearned portion of paymentsreceived and invoices rendered, net of provisions for estimated refundsto customers and chargebacks from customers, and referral commissionsfor certain Global Partner Network partners.

Prepaidexpenses

Prepaid expenses represent primarily advance paymentsto registries for domain name registrations as well as other advancepayments for various other expenses. Prepaid expenses are amortized toexpense on a straight-line basis over the period covered by theexpenses. In the case of prepaid registry fees, the amortization periodis consistent with the revenue recognition of the related domain nameregistration.

Technology and software development costs

Technology costs include salaries and related expenses, softwarelicensing and maintenance, hardware maintenance, consulting fees, andan allocation of facilities expenses for rent, telephone and utilities.All technology costs are charged to expense as incurred other thancosts of hardware and capitalizable software development costs.Software development costs incurred for significant software projectssubsequent to the preliminary project stage and prior to thepost-implementation stage are capitalized when management believes itis probable that the software project will be completed and placed inservice and used to perform the function intended. Capitalized softwarecosts are amortized to expense over a 3-year period commencing when thesoftware is ready for its intended use. Computer hardware isdepreciated over its estimated useful life which is between three andfive years, depending upon the type of hardware.

Advertisingcosts

Advertising costs include media advertising, direct mailand other promotional activities, and are charged to expense asincurred. Advertising expense was $13.1 million, $7.4 million and$11.9  million for the years 2004, 2003 and 2002,respectively.

Income taxes

The Company recognizesdeferred income taxes by the asset and liability method, based ondifferences between the financial statement and tax bases of assets andliabilities at enacted statutory tax rates in effect for the years inwhich the differences are expected to reverse. The effect of a changein tax rates on deferred taxes is recognized in income in the period ofthe enactment date. In addition, valuation allowances are establishedwhen appropriate to reduce deferred tax assets to the amounts expectedto be realized.

Fair value of financial instruments

Thecarrying values of cash and cash equivalents, accounts receivable,accounts payable and accrued expenses, approximate fair value becauseof the relatively short-term nature of these instruments.

Concentration of credit risk

Concentration of credit riskassociated with accounts receivable is limited due to the large numberof customers, as well as their dispersion across various industries andgeographic areas. No customer comprised more than 10% ofaccounts receivable or revenues as of December 31, 2004 and 2003 andfor each of the years ended December 31, 2004, 2003, and 2002,respectively. The Company has no derivative financial instruments.

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Use of estimates

The preparationof financial statements in conformity with generally acceptedaccounting principles requires management to make estimates andassumptions that affect the amounts reported in the financialstatements and accompanying notes. The Company's most significantestimates relate to potential refunds to customers and credit cardchargebacks from customers; the realizability of accounts receivable,fixed assets, other investments, intangible assets, and deferred taxassets; potential liability to credit card associations for penaltiesfor credit card chargebacks and refunds in excess of certainthresholds; potential liability for various matters in litigation; andestimated useful lives of fixed assets and intangible assets. Actualresults could differ from management's estimates. The markets forthe Company's products and services are characterized by intensecompetition, continual technology advances and new product/serviceintroductions, all of which could impact the future realizability ofthe Company's assets.

Contingent Liabilities —Legal Fees

Legal fees incurred in connection with litigationmatters are charged to expense as incurred, and provisions forestimated losses on contingencies do not include an estimate for legalfees.

Stock-based compensation

The Company accounts forstock-based compensation in accordance with Accounting Principles BoardOpinion No. 25, "Accounting for Stock Issued toEmployees," ("APB 25") andrelated interpretations. The Company provides the disclosures requiredby SFAS 123, "Accounting for Stock-BasedCompensation." For financial reporting purposes, theCompany amortizes stock-based compensation over the vesting periodusing the straight-line basis.

The Company's stock-basedincentive plans are more fully described in Notes 8 and 9. Thefollowing table illustrates the pro forma effect on net income (loss)and net income (loss) per share had compensation cost for stock-basedincentive plans been determined in accordance with the fair value basedmethod of accounting for stock-based compensation as prescribed by SFAS123. Because option grants awarded during 2004, 2003 and 2002 vest overseveral years, additional awards may be issued in the future, and theassumptions of volatility, interest rate, and estimate life of optionsmay vary in the future, the pro forma results shown below are notlikely to be representative of the effects on future years of theapplication of the fair value based method.

The amountspreviously reported for 2003 and 2002 have been restated to correctcomputational errors resulting from incorrect use of the systemutilized to determine the estimated fair value of options on grantdate. In addition, the Company previously reported stock-basedcompensation on a gross basis, rather than net of taxes. A comparisonof the restated amounts with the amounts originally reported ispresented in Note 16 "Restatement of Financial Statementsand Footnotes".

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|                                                                                                   |  |                                      |        |                |  |                |        |         |  |        |         |         |  |  |
|---------------------------------------------------------------------------------------------------|--|--------------------------------------|--------|----------------|--|----------------|--------|---------|--|--------|---------|---------|--|--|
|                                                                                              |  | Yearended December31,                |        |           |  |           |
|                                                                                              |  | 2004                                 |        | 2003(Restated) |  | 2002(Restated) |
|                                                                                              |  | (inthousands, except per share data) |
| **Netincome (loss):**                                                                             |  |                                 |   |           |  |           |   |    |  |   |    |    |
| Asreported                                                                                        |  | $                                    | 3,258  |           |  | $              | 2,287  |    |  | $      | (10,908 | )  |
| Add:Stock-based compensation included in reported net income (net oftaxes)                        |  |                                 | 177    |           |  |           | 608    |    |  |   | 1,123   |    |
| Deduct:stock-based compensation expense determined under the fair value basedmethod (net oftaxes) |  |                                 | (2,205 | )         |  |           | (5,569 | )  |  |   | (6,694  | )  |
| Proforma net income(loss)                                                                         |  | $                                    | 1,231  |           |  | $              | (2,674 | )  |  | $      | (16,478 | )  |
|                                                                                              |  |                                 |   |           |  |           |   |    |  |   |    |    |
| **Netincome (loss) pershare:**                                                                    |  |                                 |   |           |  |           |   |    |  |   |    |    |
| As reported—basic                                                                           |  | $                                    | 0.14   |           |  | $              | 0.06   |    |  | $      | (0.27   | )  |
| Proforma —basic                                                                             |  | $                                    | 0.05   |           |  | $              | (0.07  | )  |  | $      | (0.41   | )  |
|                                                                                              |  |                                 |   |           |  |           |   |    |  |   |    |    |
| Asreported —diluted                                                                         |  | $                                    | 0.13   |           |  | $              | 0.06   |    |  |   | ($0.27  | )  |
| Proforma —diluted                                                                           |  | $                                    | 0.05   |           |  | $              | (0.07  | )  |  | $      | (0.41   | )  |
|                                                                                              |  |                                 |   |           |  |           |   |    |  |   |    |    |
| Proforma weighted average shares —basic                                                     |  |                                 | 23,672 |           |  |           | 35,701 |    |  |   | 40,022  |    |
| Proforma weighted average shares —diluted                                                   |  |                                 | 24,432 |           |  |           | 35,701 |    |  |   | 40,022  |    |
|                                                                                                   |

Otherdisclosures required by SFAS 123 have been included in Note 8.

Other income, net

Other income, net for the year endedDecember 31, 2004 was $1.3 million, comprised of interest income of$1.2 million and realized gains on sales of securities of $0.2 million,offset by bank fees of $0.1 million. For the year ended December 31,2003 other income, net, was $3.0 million, comprised of interest incomeof $3.1 million and foreign exchange transaction gains of $0.1 million,offset by interest expense $0.2 million. For the year ended December31, 2002 other income (expense), net, was $5.6 million, comprised ofinterest income of $6.0 million, net of bank charges of $0.2 millionand interest expense of $0.2 million.

Net income (loss) pershare

The Company calculates earnings per share in accordancewith SFAS 128, "Earnings Per Share."

Basic earnings per share ("Basic EPS") iscomputed by dividing net income (loss) by the weighted average numberof common shares outstanding during the period. Diluted earnings pershare ("Diluted EPS") gives effect to alldilutive potential common shares outstanding during a period. Incomputing Diluted EPS, the treasury stock method is used in determiningthe number of shares assumed to be purchased from the proceeds ofexercises of options and warrants.

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Details of the calculations of net income(loss) per share are asfollows:

|                                                 |  |                                      |        |                |  |                |        |        |  |        |         |               |  |  |
|-------------------------------------------------|--|--------------------------------------|--------|----------------|--|----------------|--------|--------|--|--------|---------|---------------|--|--|
|                                            |  | Yearended December31,                |        |           |  |           |
|                                            |  | 2004                                 |        | 2003(Restated) |  | 2002(Restated) |
|                                            |  | (inthousands, except per share data) |
| **Netincome (loss) per share —basic:**    |  |                                 |   |           |  |           |   |   |  |   |    |          |
| Net income(loss)                                |  | $                                    | 3,258  |           |  | $              | 2,287  |   |  | $      | (10,908 | )        |
| Weightedaverage shares —basic             |  |                                 | 23,672 |           |  |           | 35,701 |   |  |   | 40,022  |          |
| Netincome (loss) per share —basic         |  | $                                    | 0.14   |           |  | $              | 0.06   |   |  | $      | (0.27   | )        |
|                                            |  |                                 |   |           |  |           |   |   |  |   |    |          |
| **Netincome (loss) per share —diluted:**  |  |                                 |   |           |  |           |   |   |  |   |    |          |
| Net income(loss)                                |  | $                                    | 3,258  |           |  | $              | 2,287  |   |  | $      | (10,908 | )        |
| Weightedaverage shares outstanding —basic |  |                                 | 23,672 |           |  |           | 35,701 |   |  |   | 40,022  |          |
| Dilutedeffect of stockoptions                   |  |                                 | 209    |           |  |           | 264    |   |  |   |         | *   |
| Dilutedeffect ofwarrants                        |  |                                 | 1,082  |           |  |           | 1,697  |   |  |   |         | *        |
| Weightedaverage shares —diluted           |  |                                 | 24,963 |           |  |           | 37,662 |   |  |   | 40,022  |          |
| Netincome (loss) per share —diluted       |  | $                                    | 0.13   |           |  | $              | 0.06   |   |  | $      | (0.27   | )        |
|                                                 |

|  |
|--|
|  |  |
|  |

|   |                                                                                                                                                                                |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| * | Inclusionof common stock equivalent shares would result in an anti-dilutive netloss per share. As a result, diluted net loss per share is the same asbasic net loss per share. |

For years ended December 31,2004, 2003 and 2002, respectively, options to purchase 2.3 million, 3.5million and 3.8 million shares of common stock were excluded from thecalculation of diluted earnings per share because the exercise pricewas greater than the average market price of the common shares duringsuch periods and were therefore anti-dilutive. In 2002, 2.8 millionshares of common stock were excluded from the calculation of dilutedloss per share as they were anti-dilutive due to the net loss for theyear.

Weighted average number of shares

The weightedaverage number of shares outstanding for the year 2004 was 23,672,000shares (basic) and 24,963,000 shares (diluted). For the comparableperiod of 2003, the weighted average number of shares outstanding was35,701,000 shares (basic) and 37,662,000 shares (diluted). As a resultof the completion in September 2003 of the Company's $120 millionself-tender offer, in which the Company purchased 17,910,347 shares ofits common stock and warrants to purchase 987,283 shares of its commonstock (based on the conversion of such warrants on a cashless basis atthe $6.35 per share offer price), the weighted average number of shareshas declined. The lower weighted average number of shares will have theeffect of increasing net income (loss) per share in future periods ascompared to earlier periods when the number of outstanding shares waslarger.

Comprehensive income (loss)

Comprehensiveincome (loss) represents the change in net equity from transactions andother events and circumstances from non-owner sources. It includes netincome (loss) adjusted for the change in net unrealized gain (loss) onmarketable securities and foreign currency translation. Comprehensiveincome (loss) for the years ended December 31, 2004, 2003, and 2002 areshown in the Consolidated Statement of Stockholders' Equitybefore income tax expense (benefit) because the effect of income taxesis not material.

Foreign Currency Translation

Theassets and liabilities of foreign subsidiaries are translated into USdollars at the year-end exchange rates. Revenues, expenses and cashflows of foreign subsidiaries are translated into US 

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dollars at the average exchange rate duringthe year. Cumulative currency translation adjustments are reflectedwithin accumulated other comprehensive income within stockholdersequity. Realized gains and losses from foreign currency transactionswere not material for any period presented.

Segment andGeographic Reporting

The Company follows SFAS 131"Disclosures about Segments of an Enterprise and RelatedInformation," which established standards for reportingoperating segments in annual financial statements, and relateddisclosures about geographic areas and major customers.

TheCompany has multiple operating segments which it refers to as"marketing channels" (see"Business—Distribution Channels") whichhave been aggregated into a single reportable segment in accordancewith paragraph 17 of SFAS 131. The marketing channels include theRetail channel, Corporate Services channel and GPN channel. TheCompany's core services, domain name registrations, email, andweb site hosting, are available to all of the Company'scustomers.

The Company maintains operations in North America andEurope. Geographic information for the years ending 2004, 2003 and 2002are as follows:

|                       |  |                       |         |                |  |                |         |         |  |        |         |         |  |  |
|-----------------------|--|-----------------------|---------|----------------|--|----------------|---------|---------|--|--------|---------|---------|--|--|
|                  |  | Yearended December31, |
|                  |  | 2004                  |         | 2003(Restated) |  | 2002(Restated) |
|                  |  | (inthousands)         |
| **Net income(loss):** |  |                  |    |           |  |
| NorthAmerica          |  | $                     | 4,341   |           |  | $              | 4,258   |    |  | $      | (138    | )  |
| Europe                |  |                  | (1,082  | )         |  |           | (1,971  | )  |  |   | (10,770 | )  |
|                  |  | $                     | 3,258   |           |  | $              | 2,287   |    |  | $      | (10,908 | )  |
| **Netrevenues:**      |  |                  |    |           |  |           |    |    |  |   |    |    |
| NorthAmerica          |  | $                     | 90,013  |           |  | $              | 92,294  |    |  | $      | 95,606  |    |
| Europe                |  |                  | 10,844  |           |  |           | 10,948  |    |  |   | 6,815   |    |
|                  |  | $                     | 100,857 |           |  | $              | 103,242 |    |  | $      | 102,421 |    |
|                       |

|                       |  |                       |        |                |  |                |        |        |  |        |        |        |  |  |
|-----------------------|--|-----------------------|--------|----------------|--|----------------|--------|--------|--|--------|--------|--------|--|--|
|                  |  | Yearended December31, |
|                  |  | 2004                  |        | 2003(Restated) |  | 2002(Restated) |
|                  |  | (inthousands)         |
| **Long livedassets:** |  |                  |   |           |  |           |   |   |  |   |   |   |
| NorthAmerica          |  | $                     | 20,783 |           |  | $              | 18,925 |   |  | $      | 16,114 |   |
| Europe                |  |                  | 2,140  |           |  |           | 3,918  |   |  |   | 5,079  |   |
|                  |  | $                     | 22,923 |           |  | $              | 22,843 |   |  | $      | 21,193 |   |
|                       |

TheCompany maintains three separate service lines. Service lineinformation for the years ended December 31, 2004, 2003 and 2002 is asfollows:

|                           |  |                       |         |                |  |                |         |        |  |        |         |        |  |  |
|---------------------------|--|-----------------------|---------|----------------|--|----------------|---------|--------|--|--------|---------|--------|--|--|
|                      |  | Yearended December31, |
|                      |  | 2004                  |         | 2003(Restated) |  | 2002(Restated) |
|                      |  | (inthousands)         |
| **Netrevenue:**           |  |                  |    |           |  |           |    |   |  |   |    |   |
| Domain nameregistrations  |  | $                     | 85,053  |           |  | $              | 90,331  |   |  | $      | 93,424  |   |
| Otherproducts andservices |  |                  | 14,383  |           |  |           | 8,927   |   |  |   | 4,839   |   |
| Advertising               |  |                  | 1,421   |           |  |           | 3,984   |   |  |   | 4,158   |   |
|                      |  | $                     | 100,857 |           |  | $              | 103,242 |   |  | $      | 102,421 |   |
|                           |

Goodwill

The Company records as goodwill the excess of purchase price overthe fair value of the tangible and identifiable intangible assetsacquired and liabilities assumed. Based on SFAS No. 142,"Goodwill 

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and Other Intangible Assets",goodwill is not amortized, but is tested for impairment using atwo-step process which is performed annually, as well as when an eventtriggering impairment may have occurred. The first step tests forimpairment on an undiscounted cash flow basis, while the second step,if necessary, measures the impairment based on fair value. See Note 14for additional information.

Long-lived assets (excludingGoodwill)

The Company reviews its intangibles for impairmentannually or whenever events or changes in circumstances indicate thatthe carrying amount of these assets may not be recoverable. The Companyassesses the recoverability of intangibles using estimated undiscountedcash flows and the estimated fair value of the asset in an arms-lengthsale transaction. The Company also obtains evidence of the fair valueof its intangible assets and compares the fair values with the carryingamount of the assets. Based on the foregoing factors, if the Companyconcludes that an impairment of intangibles has occurred, an impairmentwrite-down is recorded.

As of December 31, 2004 the Company hadone remaining intangible asset, a customer list, which was recorded inconnection with the acquisition of Virtual Internet plc (now called"RCOM Europe") and which has not yet beenfully amortized. As of December 31, 2004 and 2003, the gross book valueof the customer list was $2,149, accumulated amortization was $790 and$500, respectively, and the net book value was $1,359 and $1,649,respectively. The Company had previously recorded software and atradename as intangible assets in connection with acquisitions, butthose assets were fully amortized as of December 31, 2004.

Amortization expense recorded for the Company's intangibleassets for the years ended December 31, 2004, 2003 and 2002 was $0.7million, $0.6 million, and $0.4 million, respectively. Projectedamortization for the customer list is asfollows:

|                        |  |                |     |        |  |  |
|------------------------|--|----------------|-----|--------|--|--|
| Projectedamortization: |  | (in thousands) |
| Year2005               |  | $              | 419 |   |
| Year2006               |  | $              | 419 |   |
| Year2007               |  | $              | 419 |   |
| Year2008               |  | $              | 102 |   |
|                        |

Recent accountingpronouncements

Except as discussed below, the Company does notexpect the impact of the future adoption of recently issued accountingpronouncements to have a material impact on the Company'sfinancial statements.

SFAS 123R "Share BasedPayments" was issued in December 2004, and requirescompanies to expense the value of employee options and similar awards.SFAS 123R becomes effective for the Company on January 1, 2006 and willrequire that stock-based compensation charges be recorded for theunvested portions of option grants and restricted stock throughDecember 31, 2005, as well as for all future grants, based on the fairvalue of the options or warrants or restricted stock as of their grantdates. Management has not determined the impact which the adoption ofSFAS 123R will have on the Company's financial statements,however based on options outstanding as of December 31, 2004 it iscurrently estimated that the impact would increase operating expenseand reduce net income for the year ended December 31, 2006, howevermanagement is unable at this time to precisely estimate the impact. InMarch 2005, the SEC staff issued Staff Accounting Bulletin No. 107 (SAB107) to give guidance on implementation of SFAS 123R, which the Companyplans to consider in implementing SFAS 123R.

Reclassifications

For comparative purposes, certain amountsin the financial statements of prior periods have been reclassified toconform to the current year's presentation.

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The Company reclassified certaininvestment securities known as "auction-ratesecurities" that had contractual maturity dates greaterthan 90 days but interest reset dates of less than 90 days, as"short-term investments". Previously theCompany classified such investment securities as cash and cashequivalents. Accordingly, the Company has adjusted its consolidatedbalance sheet as of December 31, 2003 to reflect these $14.0 million ofauction-rate securities as short-term investments. The Company has alsoreclassified restricted cash of $3.3 million from cash and cashequivalents to $2.2 million in other current assets and $1.1 million inother assets at December 31, 2003. The corresponding reclassificationof restricted cash at December 31, 2002 totaled approximately $7.7million, of which $5.6 million was classified as other current assetsand $2.1 million was classified as other assets. Thesereclassifications increased cash flows from investing activities forthe years ended December 31, 2003 and 2002 by $3.2 million and $13.3million, respectively.

3.    Fixed Assets

Capitalizedsoftware purchased or developed for internal use is classified withinfixed assets. Fixed assets consist of thefollowing:

|                                               |  |               |         |         |  |        |         |         |  |  |
|-----------------------------------------------|--|---------------|---------|---------|--|--------|---------|---------|--|--|
|                                          |  | December31,   |
|                                          |  | 2004          |         | 2003    |
|                                          |  | (inthousands) |
| Computer equipment and capitalizedsoftware    |  | $             | 21,547  |    |  | $      | 18,538  |    |
| Furnitureand fixtures                         |  |          | 435     |    |  |   | 430     |    |
| Officeequipment                               |  |          | 634     |    |  |   | 626     |    |
| Building                                      |  |          | — |    |  |   | 512     |    |
| Leaseholdimprovements                         |  |          | 3,035   |    |  |   | 2,994   |    |
|                                          |  |          | 25,651  |    |  |   | 23,100  |    |
| Less:accumulated depreciation andamortization |  |          | (18,170 | )  |  |   | (14,737 | )  |
| Fixedassets,net                               |  | $             | 7,481   |    |  | $      | 8,363   |    |
|                                               |

Depreciationand amortization expense of fixed assets was $3.5, $4.3 and $4.5million for the years ended December 31, 2004, 2003 and 2002,respectively.

4.    Accounts Payable and AccruedExpenses

Accounts payable and accrued expenses consist of thefollowing:

|                                         |  |               |        |                |  |        |         |        |  |  |
|-----------------------------------------|--|---------------|--------|----------------|--|--------|---------|--------|--|--|
|                                    |  | December31,   |
|                                    |  | 2004          |        | 2003(Restated) |
|                                    |  | (inthousands) |
| Trade accountspayable                   |  | $             | 911    |           |  | $      | 595     |   |
| Accruedcompensation andbenefits         |  |          | 4,141  |           |  |   | 3,179   |   |
| Accruedregistry fees and relatedcosts   |  |          | 1,904  |           |  |   | 387     |   |
| Potential creditcard penalties (Note15) |  |          | 2,545  |           |  |   | 6,138   |   |
| Accrued advertisingexpense              |  |          | 1,151  |           |  |   | 680     |   |
| Accruedprofessionalfees                 |  |          | 2,642  |           |  |   | 718     |   |
| Provision forsettlement oflitigation    |  |          | 1,400  |           |  |   | — |   |
| Other                                   |  |          | 2,769  |           |  |   | 2,772   |   |
|                                    |  | $             | 17,463 |           |  | $      | 14,469  |   |
|                                         |

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5. Investments

As ofDecember  31, 2004 and 2003, short-term investments andmarketable securities — noncurrent, consisted of thefollowing:

|                                                         |  |           |        |                |  |                              |        |                              |  |        |         |        |  |        |         |        |  |  |
|---------------------------------------------------------|--|-----------|--------|----------------|--|------------------------------|--------|------------------------------|--|--------|---------|--------|--|--------|---------|--------|--|--|
|                                                    |  | FairValue |        | Amortized Cost |  | GrossUnrealizedHolding Gains |        | GrossUnrealizedHoldingLosses |
| **December 31, 2004 (inthousands)**                     |  |
|     Short-terminvestments:          |  |      |   |           |  |                         |   |                         |  |   |    |   |  |   |    |   |
|     Municipalauction ratesecurities |  | $         | 35,779 |           |  | $                            | 35,803 |                         |  | $      | 13      |   |  | $      | 37      |   |
|     Municipaldemandnotes            |  |      | 5,100  |           |  |                         | 5,100  |                         |  |   | — |   |  |   | — |   |
|     Municipaldebtobligations        |  |      | 6,171  |           |  |                         | 6,182  |                         |  |   | — |   |  |   | 11      |   |
| Totalshort-terminvestments                              |  | $         | 47,050 |           |  | $                            | 47,085 |                         |  | $      | 13      |   |  | $      | 48      |   |
| Marketablesecurities —noncurrent:                 |  |      |   |           |  |                         |   |                         |  |   |    |   |  |   |    |   |
|     Municipalauction ratesecurities |  | $         | 3,625  |           |  | $                            | 3,646  |                         |  |   | — |   |  | $      | 22      |   |
|     Municipaldebtobligations        |  |      | 5,416  |           |  |                         | 5,436  |                         |  |   | — |   |  | $      | 19      |   |
|     Equitysecurities                |  |      | 70     |           |  |                         | 61     |                         |  |   | 9       |   |  |   | — |   |
| Totalmarketable securities —noncurrent            |  | $         | 9,111  |           |  | $                            | 9,143  |                         |  | $      | 9       |   |  | $      | 41      |   |
|                                                         |

|                                                                                              |  |           |        |                |  |                              |        |                              |  |        |         |        |  |        |         |        |  |  |
|----------------------------------------------------------------------------------------------|--|-----------|--------|----------------|--|------------------------------|--------|------------------------------|--|--------|---------|--------|--|--------|---------|--------|--|--|
|                                                                                         |  | FairValue |        | Amortized Cost |  | GrossUnrealizedHolding Gains |        | GrossUnrealizedHoldingLosses |
| **December 31, 2003 (inthousands)**                                                          |  |
| Short-terminvestments:                                                                       |  |      |   |           |  |                         |   |                         |  |   |    |   |  |   |    |   |
|     Municipalauction ratesecurities                                      |  | $         | 51,951 |           |  | $                            | 51,910 |                         |  | $      | 52      |   |  | $      | 11      |   |
|     Municipaldebtobligations                                             |  |      | 1,042  |           |  |                         | 1,042  |                         |  |   | — |   |  |   | — |   |
|         Totalshort-terminvestments                   |  | $         | 52,993 |           |  | $                            | 52,952 |                         |  | $      | 52      |   |  | $      | 11      |   |
| Marketablesecurities —noncurrent:                                                      |  |      |   |           |  |                         |   |                         |  |   |    |   |  |   |    |   |
|     Municipalauction ratesecurities                                      |  | $         | 2,000  |           |  | $                            | 2,000  |                         |  |   | — |   |  |   | — |   |
|     Equitysecurities                                                     |  |      | 527    |           |  |                         | 470    |                         |  |   | 57      |   |  |   | — |   |
|         Totalmarketable securities —noncurrent |  | $         | 2,527  |           |  | $                            | 2,470  |                         |  | $      | 57      |   |  | $      | — |   |
|                                                                                              |

Grossrealized gains and losses from sales of securities were $0.2 millionand $0.0 million in the year ended December 31, 2004, respectively.Gross realized gains and losses from sales of securities were notsignificant for the years ended December 31, 2003 or 2002. Netunrealized holding losses of $0.1  million and net unrealizedholding gains of $0.1 million on securities are included in accumulatedcomprehensive income at December  31, 2004 and 2003,respectively. The Company has evaluated its investments which are in anunrealized holding loss position and has concluded that the losses aretemporary.

Other investments at December  31, 2004 arecomprised of a $0.4  million investment in Afilias USA, Inc., adomain registry, and a $0.1 million investment in Hostopia.com, aprovider of private label wholesale hosting and e-mail applicationservices. Other investments at December  31, 2003 was comprisedof a $0.4  million investment in Afilias USA, Inc.

6.    Stockholders' Equity

Common Stock

Prior to January 1, 2002, the Company granted compensatoryequity instruments to employees. Under APB 25, the Company recordedunearned compensation equal to the excess of the fair value of the

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Company's common stock on the dates ofgrant over the amount the employees must pay to acquire the commonstock. The unearned compensation is being amortized to expense over thevesting periods.

During 2003 and 2002, the Company issued37,951 and 34,246 shares, respectively, of restricted stock toemployees. The fair value of the restricted stock at the dates ofissuance was recorded as unearned compensation and is being amortizedto expense over the vesting periods. As the result of employeeterminations 8,734 shares of unvested restricted stock were cancelledduring 2004.

In connection with the above, the Companyrecorded compensation expense of $0.3 million, $1.0 million and $1.9million for the years ended December 31, 2004, 2003, and 2002,respectively. As of December 31, 2004, the unamortized balance ofunearned compensation totaled $0.1 million which will be amortized toexpense over the vesting periods through December 31, 2008.

Self-Tender Offer

In September 2003, the Company used $120million of its cash, short-term investments and marketable securitiesto complete a self-tender offer in which the Company purchased17,910,347 shares of its common stock and warrants to purchase 987,283shares of its common stock (based on the conversion of warrants on acashless basis at the $6.35 per share offer price).

Retirementof Common Stock

During 2002, the Company repurchased andretired 370,100 shares of its common stock at a cost of $1.6million.

Preferred Stock Purchase Rights

In October2002, the Company declared a dividend distribution of one preferredshare purchase right (the "Right") for eachoutstanding share of the Company's Common Stock, to stockholdersof record at the close of business on November 12, 2002. Each Rightentitles the registered holder to purchase from the Company a unitconsisting of one one-thousandth of a share (a"Unit") of Series A Junior ParticipatingPreferred Stock ("Series A Preferred") at aprice of $32.00 per Unit. The Rights, which expire on November 12,2012, will only become exercisable upon distribution. Distribution ofthe Rights will not occur until ten days after the earlier of (i) thepublic announcement that a person or group has acquired beneficialownership of 15% or more of the outstanding shares of CommonStock (an "Acquiring Person"), or (ii) thecommencement of, or announcement of an intention to make, a tenderoffer or exchange offer that would result in a person or groupacquiring the beneficial ownership of 15% or more of theoutstanding shares of the Company's Common Stock. Under specifiedcircumstances, the holders of the Rights, other than the AcquiringPerson, would be entitled to receive, upon exercise of the Rights,Series A Preferred having a value equal to two times the exercise priceof the Rights.

Voting

Each share of common stockentitles the holder to one vote on all matters submitted to a vote ofthe Company's stockholders.

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7.    Warrants

Common sharesissuable upon exercise of warrants outstanding at December  31,2004 are asfollows:

|               |  |                 |  |                             |           |                                |  |   |      |        |  |  |  |  |
|---------------|--|-----------------|--|-----------------------------|-----------|--------------------------------|--|---|------|--------|--|--|--|--|
| IssuanceDate  |  | Expiration Date |  | SharesIssuableUpon Exercise |           | Average Exercise PricePerShare |
| January1998   |  | June2005        |  |                        | 1,295,224 |                           |  | $ | 0.97 |   |
| September1998 |  | September2008   |  |                        | 843       |                           |  | $ | 0.43 |   |
| March1999     |  | March2009       |  |                        | 5,250     |                           |  | $ | 0.57 |   |
| June1999      |  | June2009        |  |                        | 5,250     |                           |  | $ | 1.57 |   |
| Totals        |  |            |  |                        | 1,306,567 |                           |  | $ | 0.97 |   |
|               |

Subjectto certain preconditions, some of the Company's warrants permitthe holders to pay the exercise price by surrendering a number ofCompany common shares with a fair value on the exercise date equal tothe aggregate exercise price. The Company's other warrants permitthe holders to utilize a cashless exercise method in which the holderagrees to cancel the number of warrants equal to the number of Companycommon shares with an aggregate  fair value on the exercise dateequal to aggregate exercise price of the warrants being exercised bythis method. A summary of warrants exercised or expired during thethree year period ended December 31, 2004 is asfollows:

|                                                                                 |  |                       |         |                    |  |                                                        |            |         |  |        |           |        |  |  |
|---------------------------------------------------------------------------------|--|-----------------------|---------|--------------------|--|--------------------------------------------------------|------------|---------|--|--------|-----------|--------|--|--|
|                                                                            |  | Cashreceived (paid)   |         | Number of warrants |  | Numberof common shares issued upon exercise ofwarrants |
|                                                                            |  | (dollars inthousands) |         |
| Warrants outstanding as of December 31,2001                                     |  |                  |    |               |  |                                                   | 4,702,137  |    |  |   |      |   |
| Exercisedby cancellation of a portion of thewarrants                            |  |                  |    |               |  |                                                   | (1,161,636 | )  |  |   | 1,063,406 |   |
| Warrantsoutstanding as of December 31,2002                                      |  |                  |    |               |  |                                                   | 3,540,501  |    |  |   |      |   |
|                                                                            |  |                  |    |               |  |                                                   |       |    |  |   |      |   |
| Exercisedusingcash                                                              |  | $                     | 1       |               |  |                                                   | (290       | )  |  |   | 290       |   |
| Exercisedby cancellation of a portion of thewarrants                            |  |                  |    |               |  |                                                   | (443,920   | )  |  |   | 388,332   |   |
| Expired                                                                         |  |                  |    |               |  |                                                   | (3,500     | )  |  |   |      |   |
| Canceledto pay the exercise proceeds in the tender offer of September2003       |  |                  |    |               |  |                                                   | (356,299   | )  |  |   |      |   |
| Purchasedby the Company at $6.35 per share in the tender offer of September2003 |  |                  | ($6,269 | )             |  |                                                   | (987,283   | )  |  |   |      |   |
| Warrantsoutstanding as of December 31,2003                                      |  |                  |    |               |  |                                                   | 1,749,209  |    |  |   |      |   |
|                                                                            |  |                  |    |               |  |                                                   |       |    |  |   |      |   |
| Exercisedusingcash                                                              |  | $                     | 3       |               |  |                                                   | (778       | )  |  |   | 778       |   |
| Exercisedby cancellation of a portion of thewarrants                            |  |                  |    |               |  |                                                   | (425,295   | )  |  |   | 117,876   |   |
| Expired                                                                         |  |                  |    |               |  |                                                   | (16,569    | )  |  |   |      |   |
| Warrantsoutstanding as of December 31,2004                                      |  |                  |    |               |  |                                                   | 1,306,567  |    |  |   |      |   |
|                                                                                 |

8.    StockOption Plans

Amended and Restated 2000 Stock IncentivePlan

The Company's Amended and Restated 2000 StockIncentive Plan (the "2000 Plan") supersedesthe 1997 and 1999 Stock Option Plans. The 2000 Plan permits grants ofincentive stock options, non-qualified stock options, and otherequity-based awards. Incentive stock options and certain other awardsmay be granted only to employees, whereas non-qualified stock optionsand certain other awards may be granted to employees, non-employeedirectors, and consultants. The number of shares 

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reserved for issuance under the 2000 Plan isautomatically increased on the first trading day of each calendar yearby 2% of the total number of shares of common stock outstandingon the last trading day of the prior calendar year, up to a maximumannual increase of 1,750,000 shares. On the first business day ofJanuary  2005, 2004 and 2003 the number of shares reserved forissuance was increased by 476,496, 470,736 and 812,490, respectively.The number of shares reserved for issuance under the 2000 Plan as ofJanuary  3, 2005 was 4,517,963.

The Compensation Committeedetermines the exercise price and other terms of options and otherawards (except automatic option grants to non-employee directors) underthe 2000 Plan. All non-employee Board members, other than 3%Stockholders, are automatically granted an option to acquire 25,000shares of common stock on the date of initial election or appointmentto the Board, at an exercise price equal to the fair market value ofthe Company's common stock on the date of grant, with vesting inannual installments over two years. In addition, each non-employeeBoard member, other than 3% Stockholders, who continues to serveas a director on the date of each regularly scheduled quarterly meetingof the Board will receive an option grant to purchase 2,500 shares ofcommon stock on each such meeting date at an exercise price equal tothe fair market value of the Company's common stock on the dateof grant. Each 2,500 share option grant will vest upon theoptionee's completion of one year of board service measured fromthe grant date. 3% Stockholder means a non-employee Board memberwho, as of March 3, 2000, directly or indirectly, owned stockpossessing at least 3% of the total combined voting power of theoutstanding securities of the Company (or any Parent or Subsidiary), orwas affiliated with or was a representative of such a 3% orgreater stockholder and is compensated for his/her membership on theBoard of Directors by any such 3% or greater stockholder.

Stock option activity under the 2000 Plan is summarized asfollows:

|                                                           |  |                |            |                              |  |        |        |        |  |  |  |  |  |  |
|-----------------------------------------------------------|--|----------------|------------|------------------------------|--|--------|--------|--------|--|--|--|--|--|--|
|                                                      |  | Numberofshares |            | WeightedAverageExercisePrice |  |
| Outstanding at January  1,2002                            |  |           | 4,812,075  |                         |  | $      | 14.56  |   |  |
| Granted                                                   |  |           | 3,004,581  |                         |  |   | 6.47   |   |  |
| Exercised                                                 |  |           | (286,834   | )                       |  |   | 1.19   |   |  |
| Forfeited                                                 |  |           | (1,657,661 | )                       |  |   | 11.10  |   |  |
| Outstandingat December 31,2002                            |  |           | 5,872,161  |                         |  |   | 12.18  |   |  |
|                                                      |  |           |       |                         |  |   |   |   |  |
| Granted                                                   |  |           | 1,838,425  |                         |  |   | 5.54   |   |  |
| Exercised                                                 |  |           | (293,477   | )                       |  |   | 2.53   |   |  |
| Forfeited                                                 |  |           | (1,797,570 | )                       |  |   | 15.36  |   |  |
| Outstandingat December  31,2003                           |  |           | 5,619,539  |                         |  |   | 9.41   |   |  |
|                                                      |  |           |       |                         |  |   |   |   |  |
| Granted                                                   |  |           | 341,350    |                         |  |   | 5.54   |   |  |
| Exercised                                                 |  |           | (113,916   | )                       |  |   | 5.03   |   |  |
| Forfeited                                                 |  |           | (1,400,384 | )                       |  |   | 9.41   |   |  |
| Outstandingat December  31,2004                           |  |           | 4,446,589  |                         |  | $      | 9.46   |   |  |
|                                                      |  |           |       |                         |  |   |   |   |  |
| Optionsavailable for future grant as of December  31,2004 |  |           | 4,041,467  |                         |  |   |   |   |  |
|                                                           |

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Details of options outstanding under the2000 Plan at December  31, 2004 are asfollows:

|                          |  |                                      |           |                                                 |  |                              |      |                                     |  |                              |       |        |  |        |           |        |  |   |       |        |  |  |
|--------------------------|--|--------------------------------------|-----------|-------------------------------------------------|--|------------------------------|------|-------------------------------------|--|------------------------------|-------|--------|--|--------|-----------|--------|--|---|-------|--------|--|--|
|                     |  | OptionsOutstanding                   |           | OptionsExercisable                              |
| ExercisePrice            |  | Number Outstanding atDecember31,2004 |           | Weighted-AverageRemainingContractualLife(Years) |  | WeightedAverageExercisePrice |      | NumberExercisable atDecember31,2004 |  | WeightedAverageExercisePrice |
| $  0.86 -$2.99 |  |                                 | 56,485    |                                            |  |                         | 3.22 |                                |  | $                            | 2.86  |   |  |   | 52,458    |   |  | $ | 2.85  |   |
| $  3.45-$4.43  |  |                                 | 240,283   |                                            |  |                         | 7.82 |                                |  | $                            | 4.32  |   |  |   | 114,803   |   |  | $ | 4.28  |   |
| $  4.50-$4.50  |  |                                 | 609,900   |                                            |  |                         | 7.92 |                                |  | $                            | 4.50  |   |  |   | 314,857   |   |  | $ | 4.50  |   |
| $  4.51-$5.41  |  |                                 | 530,810   |                                            |  |                         | 8.16 |                                |  | $                            | 5.11  |   |  |   | 226,825   |   |  | $ | 4.99  |   |
| $  5.46-$5.56  |  |                                 | 503,532   |                                            |  |                         | 8.54 |                                |  | $                            | 5.48  |   |  |   | 127,394   |   |  | $ | 5.47  |   |
| $  5.58-$6.30  |  |                                 | 681,220   |                                            |  |                         | 8.19 |                                |  | $                            | 6.16  |   |  |   | 348,279   |   |  | $ | 6.24  |   |
| $  6.38-$8.09  |  |                                 | 448,324   |                                            |  |                         | 6.56 |                                |  | $                            | 7.41  |   |  |   | 331,973   |   |  | $ | 7.40  |   |
| $  8.30-$8.81  |  |                                 | 449,110   |                                            |  |                         | 6.44 |                                |  | $                            | 8.72  |   |  |   | 329,821   |   |  | $ | 8.71  |   |
| $  9.00-$12.96 |  |                                 | 477,772   |                                            |  |                         | 6.29 |                                |  | $                            | 11.32 |   |  |   | 450,969   |   |  | $ | 11.39 |   |
| $13.46-$45.00            |  |                                 | 446,803   |                                            |  |                         | 5.43 |                                |  | $                            | 35.09 |   |  |   | 446,803   |   |  | $ | 35.09 |   |
| $58.06-$58.06            |  |                                 | 1,850     |                                            |  |                         | 5.27 |                                |  | $                            | 58.06 |   |  |   | 1,850     |   |  | $ | 58.06 |   |
| $  0.86-$58.06 |  |                                 | 4,446,589 |                                            |  |                         | 7.28 |                                |  | $                            | 9.46  |   |  |   | 2,746,032 |   |  | $ | 11.77 |   |
|                          |

Thenumber of options exercisable at December 31, 2003 and 2002 was2,127,435 and 1,942,929, respectively, and the weighted averageexercise price at such dates was $14.01 and $18.31, respectively.

Prior to completion of the initial public offering in March 2000,the fair value of option grants to employees was estimated using theminimum value method of the Black-Scholes option-pricing model, whichassumes no volatility of the stock price. The estimated fair valueswere based on assumptions derived from information provided by theCompany's management. Changes in the information would affect theassumptions and the estimated fair values derived from theassumptions.

Subsequent to the initial public offering,volatility assumptions have been utilized. The assumptions used todetermine the estimated fair value of option grants to employees in2004, 2003 and 2002 were as follows:

|                       |  |                       |    |         |  |        |    |         |  |        |     |         |  |  |
|-----------------------|--|-----------------------|----|---------|--|--------|----|---------|--|--------|-----|---------|--|--|
|                  |  | Yearended December31, |
|                  |  | 2004                  |    | 2003    |  | 2002   |
| Riskfree interestrate |  |                  | 3  | %  |  |   | 3  | %  |  |   | 3.8 | %  |
| Expectedlives (years) |  |                  | 5  |    |  |   | 5  |    |  |   | 5   |    |
| Expecteddividends     |  |                  | 0  | %  |  |   | 0  | %  |  |   | 0   | %  |
| Volatility            |  |                  | 49 | %  |  |   | 72 | %  |  |   | 68  | %  |
|                       |

Theactual weighted average exercise prices, and the estimated fair valuesat grant dates of options granted during 2004, 2003, and 2002 forpurposes of determining pro forma stock-based compensation expense,were asfollows:

|                                                         |  |                       |      |                     |  |                |      |                     |  |                |      |                     |  |   |      |        |  |   |      |        |  |   |      |        |  |  |
|---------------------------------------------------------|--|-----------------------|------|---------------------|--|----------------|------|---------------------|--|----------------|------|---------------------|--|---|------|--------|--|---|------|--------|--|---|------|--------|--|--|
|                                                    |  | Yearended December31, |
|                                                    |  | 2004                  |      | 2003(Restated)      |  | 2002(Restated) |
|                                                    |  | ExercisePrice         |      | EstimatedFair Value |  | Exercise Price |      | Estimated FairValue |  | Exercise Price |      | Estimated FairValue |
| Exercise price equal to fair value of stock ongrantdate |  | $                     | 5.54 |                |  | $              | 3.01 |                |  | $              | 5.54 |                |  | $ | 3.90 |   |  | $ | 6.47 |   |  | $ | 4.45 |   |
|                                                         |

9.    EmployeeStock Purchase Plan

The Company's Employee Stock PurchasePlan (the "ESPP") became effective onMarch  3, 2000. The ESPP is designed to be a qualified plan underSection 423 of the Internal Revenue Code. Pursuant to the plan,eligible employees may purchase shares of common stock through payrolldeductions of up to 10% of eligible compensation. Shares areoffered for purchase under the ESPP 

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generally through a series of two-yearoffering periods, and the first day of each offering period is referredto as the offering date. Within each offering period, there are foursix-month purchase periods, and the last day of each purchase period isreferred to as the purchase date. The six-month purchase periods runfrom November 1 through April 30, and from May 1 through October 31. Ifthe fair market value of the Company's common stock on anypurchase date is less than the fair market value on the offering date,the current offering period will end, and a new two-year offeringperiod will automatically begin, unless a shorter term is establishedby the plan administrator. An eligible employee may become aparticipant of the ESPP on the offering date of an offering period orat the beginning of any purchase period within the offering period. Theprice paid by a participant on any purchase date is 85% of thefair market value on the participant's entry date into theoffering period or the purchase date, whichever is lower. The currentoffering period commenced on November 1, 2004 (when the fair marketvalue of the common stock was $5.46) and is scheduled to be in effectthrough October 31, 2006.

A total of 350,000 shares wereinitially reserved for issuance under the ESPP. The number of sharesreserved for issuance is automatically increased on the first tradingday of January of each year by 0.25% of the total shares ofcommon stock outstanding on the last trading day of the prior calendaryear. Accordingly, in January 2005, 2004 and 2003, the number of sharesreserved for issuance was increased by 59,562, 58,842, and 101,561shares, respectively. As of January 3, 2005, the number of sharesreserved for issuance under the ESPP was 467,709 shares. During 2004,2003, and 2002, issuances under the ESPP were 64,160 shares, 62,900shares, and 62,470 shares, respectively.

10.    EmployeeBenefit Plan

The Company makes available a 401(K) retirementplan to its employees based in the United States. Employees maycontribute up to 20% of their compensation (as defined in theplan) up to the statutory maximum amount in each calendar year. Theplan is "qualified" under IRS regulations.Effective January 1, 2004 the Company began to contribute 50% ofthe first 6% of compensation contributed by an employee. For theyears ended December 31, 2004, 2003 and 2002 the total expense for suchcontributions was $0.3 million, $0 and $0, respectively.

11.    Related Party Transactions

Peter Forman

Over the four-month period from February 2003 through June 2003,Peter Forman provided consulting services to the Company for a fee of$0.1 million. Mr. Forman was a member of the Company's board ofdirectors during that period. In June 2003, Mr. Forman was elected CEOand President of the Company and entered into an employment agreementwith the Company that includes a profit-sharing bonus arrangementwhereby Mr. Forman is eligible to receive annual bonuses equal to3% of the Company's earnings before interest, taxes,certain non-cash expenses and other costs or gains("EBIT"), as defined in the agreement,between $7 million and $25 million, and 5% of the excess over$25 million for each calendar year. Also see Note 17"Subsequent Event".

12.    IncomeTaxes

Income (loss) before provision (benefit) from incometaxes for the years ended December 31, 2004, 2003 and 2002 consists ofthefollowing:

|                                                         |  |                       |        |            |  |            |        |        |  |        |         |         |  |  |
|---------------------------------------------------------|--|-----------------------|--------|------------|--|------------|--------|--------|--|--------|---------|---------|--|--|
|                                                    |  | Yearended December31, |        |       |  |       |
|                                                    |  | 2004                  |        | 2003       |  | 2002       |
|                                                    |  |                  |        | (Restated) |  | (Restated) |
|                                                    |  | (inthousands)         |
| UnitedStates                                            |  | $                     | 5,058  |       |  | $          | 1,371  |   |  | $      | (1,306  | )  |
| Foreign                                                 |  |                  |   |       |  |       |   |   |  |   | (11,878 | )  |
| Income(loss) before provision (benefit) for incometaxes |  | $                     | 5,058  |       |  | $          | 1,371  |   |  | $      | (13,184 | )  |
|                                                         |

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The Company has made tax elections tohave RCOM Europe and its Canadian subsidiary consolidated for U.S.income tax purposes. The election was effective for RCOM Europe onJanuary  1, 2003 and since 2001 for the Canadian subsidiary. Asthe result of these elections, for the purpose of the above table,income (loss) before provision (benefit) for income taxes for theUnited States for the years ended December 31, 2004 and 2003 includesthe operating results of RCOM Europe and the Canadian subsidiary. Forthe year ended December 31, 2002, the income (loss) before provision(benefit) for income taxes for the United States includes the operatingresults for the Canadian subsidiary. Foreign (losses) included in theUnited States tax return amounted to ($10.1) million, ($8.3) millionand ($5.2) million in 2004, 2003 and 2002, respectively. Such incomeand losses related to such foreign subsidiaries are also subject toincome taxes in the foreign jurisdiction. No benefit has been recordedfor the foreign tax impact of losses since realization of these losscarryforwards in the foreign jurisdiction is unlikely. The Company hasrecorded a provision for foreign income taxes on income for theCanadian subsidiary for which the Company receives a correspondingFederal income tax credit.

The provision (benefit) for incometaxes for the years 2004, 2003 and 2002 consists of the following:

|                         |  |                       |         |            |  |            |        |         |  |        |         |         |  |  |
|-------------------------|--|-----------------------|---------|------------|--|------------|--------|---------|--|--------|---------|---------|--|--|
|                    |  | Yearended December31, |         |       |  |       |
|                    |  | 2004                  |         | 2003       |  | 2002       |
|                    |  |                  |         | (Restated) |  | (Restated) |
|                    |  | (inthousands)         |
| **CurrentProvision:**   |  |
| Federal                 |  | $                     | — |       |  | $          | (3,021 | )  |  | $      | 2,169   |    |
| State                   |  |                  | 108     |       |  |       | (95    | )  |  |   | 1,216   |    |
| Foreign                 |  |                  | 365     |       |  |       | 263    |    |  |   | — |    |
| Totalcurrent            |  |                  | 473     |       |  |       | (2,853 | )  |  |   | 3,385   |    |
| **DeferredProvision:**  |  |                  |    |       |  |       |   |    |  |   |    |    |
| Federal                 |  |                  | 1,168   |       |  |       | (187   | )  |  |   | (4,000  | )  |
| State                   |  |                  | 159     |       |  |       | 2,124  |    |  |   | (1,661  | )  |
| Totaldeferred           |  |                  | 1,327   |       |  |       | 1,937  |    |  |   | (5,661  | )  |
| Totalprovision(benefit) |  | $                     | 1,800   |       |  | $          | (916   | )  |  | $      | (2,276  | )  |
|                         |

Theprovision in the above table excludes the effect of"windfall" tax deductions related toexercises of non-qualified stock options and disqualifying dispositionsof incentive stock options. Under SFAS 109,"windfall" tax benefits resulting from theforegoing have been reflected in additional paid-in capital. As theresult of tax losses incurred in 2004, 2003 and 2002, the windfalldeduction (decreased) increased the deferred tax asset for the netoperating loss carryforward by $(14,000), $(28,000) and $224,000,respectively. As of December 31, 2004 and 2003, the Company had a taxreceivable of $0.7 million and $2.4 million, respectively, which wereincluded within other current assets.

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The components of the net deferred taxassets were asfollows:

|                                    |  |               |        |            |  |        |         |         |  |  |
|------------------------------------|--|---------------|--------|------------|--|--------|---------|---------|--|--|
|                               |  | December31,   |
|                               |  | 2004          |        | 2003       |
|                               |  |          |        | (Restated) |
|                               |  | (inthousands) |
| **Deferred tax asset(liability):** |  |          |   |       |  |   |    |    |
| Netoperating losscarryforwards     |  | $             | 3,194  |       |  | $      | 3,124   |    |
| Allowancefor doubtfulaccounts      |  |          | 672    |       |  |   | 767     |    |
| Allowance foraccountreceivable     |  |          | 631    |       |  |   | 344     |    |
| Depreciation andamortization       |  |          | (289   | )     |  |   | 252     |    |
| Deferredrevenue                    |  |          | 15,060 |       |  |   | 15,411  |    |
| Credit cardpenalty accruals        |  |          | 1,064  |       |  |   | 2,549   |    |
| Taxcreditcarryforwards             |  |          | 1,099  |       |  |   | 626     |    |
| Goodwillimpairment                 |  |          | 2,874  |       |  |   | 3,076   |    |
| Contingentliabilities              |  |          | 584    |       |  |   | — |    |
| Prepaiddomain name registryfees    |  |          | (2,803 | )     |  |   | (2,509  | )  |
| DeferredCommission                 |  |          | 346    |       |  |   | 138     |    |
| Other                              |  |          | 207    |       |  |   | 202     |    |
| **NetDeferred taxassets**          |  | $             | 22,639 |       |  | $      | 23,980  |    |
|                                    |

Asof December 31, 2004 RCOM Europe subsidiaries had a deferred tax assetof $4.5 million, primarily consisting of the benefits resulting fromnet operating loss carryforwards which have been reduced to zero by afull valuation allowance. Neither the deferred tax asset nor therelated valuation allowance are included in the above table.

Theincome tax provision (benefit) in the Statement of Operations differsfrom income tax provision (benefit) determined by applying thestatutory Federal income tax rate to the income (loss) before provision(benefit) for income taxes shown in the financial statements as aresult of the following:

|                                                                                  |  |                       |         |            |  |            |         |          |  |        |         |          |  |  |
|----------------------------------------------------------------------------------|--|-----------------------|---------|------------|--|------------|---------|----------|--|--------|---------|----------|--|--|
|                                                                             |  | Yearended December31, |         |       |  |       |
|                                                                             |  | 2004                  |         | 2003       |  | 2002       |
|                                                                             |  |                  |         | (Restated) |  | (Restated) |
|                                                                             |  | (inthousands)         |
| Tax provision (benefit) at federalstatutoryrate                                  |  |                  | 34.0    | %     |  |       | 34.0    | %   |  |   | (34.0   | )%  |
| Stateincome tax provision (benefit), net of federal taxeffect                    |  |                  | 3.5     | %     |  |       | 97.7    | %*  |  |   | (2.2    | )%  |
| Foreigntax ratedifferential                                                      |  |                  | 7.2     | %     |  |       | 19.2    | %   |  |   | 0.0     | %   |
| Foreignlosses with nobenefit                                                     |  |                  | — |       |  |       | — |     |  |   | 30.6    | %   |
| Taxexemptinterest                                                                |  |                  | (3.1    | )%    |  |       | (69.7   | )%  |  |   | (12.9   | )%  |
| Amortizationand impairment of non-deductible goodwill and other intangibleassets |  |                  | — |       |  |       | — |     |  |   | 22.3    | %   |
| Abandonmentof AfternicBusiness                                                   |  |                  | — |       |  |       | — |     |  |   | (20.4   | )%  |
| Taxcredits                                                                       |  |                  | (7.2    | )%    |  |       | — |     |  |   | — |     |
| Non-deductibleadvisorycosts                                                      |  |                  | — |       |  |       | 50.9    | %   |  |   | — |     |
| Benefitattributable to tax deductiblegoodwill                                    |  |                  | — |       |  |       | (197.7) | %*  |  |   | — |     |
| Other                                                                            |  |                  | 1.2     | %     |  |       | (1.4    | )%  |  |   | (0.7    | )%  |
| TaxProvision (benefit) per statement ofoperations                                |  |                  | 35.6    | %     |  |       | (67.0   | )%  |  |   | (17.3   | )%  |
|                                                                                  |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| * | TheCompany in 2003 made a tax election which allowed the Company to recorda tax benefit (Federal, State and Local) of approximately $3 millionrelated to an otherwise non-deductible goodwill impairment charge of $8million recorded by RCOM Europe in 2002. At the time of the goodwillimpairment charge in 2002, no income tax benefit was recorded as thegoodwill impairment was not deductible for tax purposes in the countryof domicile of RCOM Europe and therefore the tax benefit was notrealizable. In March of 2003, the Company filed an election with |

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | the U.S. taxing authorities to include theincome or losses of RCOM Europe in the Company's consolidatedU.S. Federal income tax return effective January 1, 2003. Accordingly,the goodwill that had been impaired for financial statement purposes in2002 became deductible in the U.S. over a period of approximately 14years beginning on January 1, 2003. Based on this and theCompany's expectation of generating future taxable income in theU.S., the realization of the income tax benefit related to the taxdeductibility of the goodwill is considered more likely than not andtherefore a deferred income tax asset was recorded in the first quarterof 2003. As the result of this election, the Company's state andlocal income tax apportionment factors were reduced which resulted in acorresponding reduction in the weighted average state and local taxrates used to compute the state and local net deferred tax assets.Accordingly, the state and local net deferred tax asset as ofDecember  31, 2002 was reduced during 2003 by a charge to thedeferred provision of approximately $1.7 million, net of the Federaltax benefit of approximately 0.9 million. |

As ofDecember 31, 2004, the Company had, for federal tax reporting purposes,net operating loss carryforwards of $5.6 million which expire in 2023,foreign tax credit carryforwards of $0.4 million which expire in 2014,and New York State tax credit carryforwards of $0.8 million which canbe carried forward indefinitely. At December 31, 2004 RCOM Europe hasnet operating loss carryforwards of $14.4 million which can becarryforward indefinitely.

Tax refunds, net, of $1.7million for the year ended December 31, 2004 were comprised of taxpayments of $2.1 million and tax refunds of $3.8 million.

13.    Commitments

Operating leases

The Companyleases office facilities under non-cancelable operating leases expiringthrough 2011. Future minimum lease payments are asfollows:

|                            |  |               |       |        |  |  |
|----------------------------|--|---------------|-------|--------|--|--|
| Yearsending December  31,  |  | (inthousands) |
| 2005                       |  |          | 1,367 |   |
| 2006                       |  |          | 1,159 |   |
| 2007                       |  |          | 922   |   |
| 2008                       |  |          | 860   |   |
| 2009                       |  |          | 665   |   |
| Thereafter                 |  |          | 76    |   |
| Totalminimum leasepayments |  | $             | 5,049 |   |
|                            |

Rent expense forthe years 2004, 2003 and 2002 was $1.3 million, $1.8  million and$1.5  million, respectively.

Under a prior registryagreement with ICANN, the Company had committed to provide up to $8.5million in funding and other non-cash contributions to its subsidiary,RegistryPro, for its activities in establishing, operating andmarketing the .pro top level domain (the "FundingCommitment"). Effective February 26, 2004 the Company soldthe core assets of the RegistryPro business. Through the date of sale,the Company had contributed approximately $4.1 million in cash, and hadalso made non-cash contributions. The purchaser agreed to assume up to$2.0 million of this Funding Commitment. ICANN agreed to the assignmentof the registry agreement to the purchaser, and also released theCompany from any further obligations related to the Funding Commitment.The impact of the sale of RegistryPro was not material to the financialstatements of the Company.

Employment agreements

In thenormal course of business, the Company enters into employmentagreements with certain of its executives. In November 2004, theCompany implemented an Executive Change in Control 

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Severance Program for certain seniormanagement, which provides for severance ranging from five to twelvemonths if within one year following a change in control or effectivechange in control  (each as defined in the program) that occurson or prior to May 31, 2005,  employment  is terminated (1)by the Company other than for cause, death or disability or (2) by theparticipant within 90 days following an event constituting good reason.The  severance  payable under the program will be reducedby other severance  payable under any  other  plan orarrangement between the participant and the Company. The  tensenior managers covered by the  program would be entitled toapproximately $1.8   million  in the event of a change incontrol and approximately $0.8 million  in the event of aneffective change in control  (each as defined in theprogram).

14.    Acquisitions

On March  8, 2002the Company acquired Virtual Internet plc, a U.K. based company("RCOM Europe"), for £11.99million ($16.9  million at date of acquisition). Net assetsacquired included current assets of $23.0 million; fixed assets of $1.1million; intangible assets of $2.2 million, consisting of trademarks,customer relationships and software technology; goodwill of $7.8million; and total liabilities of $17.5 million. RCOM Europe hadoperations in the United States and Europe and, at the time ofacquisition, operated through two divisions: the Corporate Servicesdivision and the Hosting division. The Corporate Services divisionprovided domain name registration and online intellectual propertymanagement and protection services, and the Hosting division providedweb-hosting services. In May 2002, the Company sold RCOM Europe'sHosting division for $0.5  million. Certain of RCOMEurope's shareholders, other than shareholders in certainjurisdictions outside of the U.K., elected to receive loan notes issuedby the Company in exchange for their RCOM Europe shares. These loannotes bore interest at a floating rate equal to LIBOR minus 1%(3.93% at December  31, 2002) and were fully redeemed byJune 2003. The cash portion of the RCOM Europe acquisition was fundedwith the Company's available cash resources. The Company'sresults of operations include Virtual Internet's CorporateServices business subsequent to March 8, 2002.

For the year2002, RCOM Europe recorded revenue of $7.2  million, and incurreda loss of $10.5 million, which included a charge of $8.3  millionrelated to an impairment of goodwill. The Company did not record a taxbenefit in connection with that loss because the goodwill was notdeductible in the separate tax return of RCOM Europe. However, in 2003the Company filed an election with the Internal Revenue Services toinclude the consolidated income or loss of RCOM Europe in theCompany's consolidated U.S. federal tax return starting in theyear 2003. Since the goodwill is deductible for U.S. federal taxpurposes, that election resulted in the Company's recording adeferred tax benefit of $3.2 million in 2003.

In September 2002,the Company made a decision to abandon its Afternic business. As aconsequence of the decision to abandon Afternic, as well as negativeindustry and economic trends then affecting the Company and the generaldecline in technology company valuations, including the valuation ofthe Company's common stock, the Company performed an impairmentanalysis of the goodwill and intangible assets recorded in connectionwith its various acquisitions. Because the total market value of theCompany's common stock as of September  30, 2002 was lowerthan the book value of its stockholders' equity, the Companyrecorded a goodwill impairment writedown of approximately $17.0million in September 2002.

15.    Contingencies

Litigation

On November 15, 2001, the Company, its formerChairman, President and Chief Executive Officer Richard D. Forman andits former Vice President of Finance and Accounting, Alan G. Breitman(the "Individual Defendants"), and GoldmanSachs & Co. and Lehman Brothers, Inc., two of the underwriters inthe syndicate for the Company's March 3, 2000 initial publicoffering, were named as defendants in a class action complaint filed byStafford Perkins, on behalf of himself and all others similarlysituated, alleging violations of the federal securities laws in theUnited States District 

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Court, Southern District of New York.Goldman Sachs & Co. and Lehman Brothers, Inc. distributed 172,500of the 5,750,000 shares in the initial public offering. A ConsolidatedAmended Complaint captioned In re: Register.com, Inc. Initial PublicOffering Securities Litigation (which is now the operative complaint),was filed on April 19, 2002. The Consolidated Amended Complaint seeksunspecified damages as a result of various alleged securities lawviolations arising from activities purportedly engaged in by theunderwriters in connection with the Company's initial publicoffering. Plaintiffs allege that the underwriter defendants agreed toallocate stock in the Company's initial public offering tocertain investors in exchange for excessive and undisclosed commissionsand agreements by those investors to make additional purchases of stockin the aftermarket at pre-determined prices. Plaintiffs allege that theprospectus for the Company's initial public offering was falseand misleading in violation of the securities laws because it did notdisclose these arrangements. The action is being coordinated withapproximately three hundred other nearly identical actions filedagainst other companies before one judge in the U.S. District Court forthe Southern District of New York. On October 9, 2002, the Courtdismissed the Individual Defendants from the case without prejudicebased on Stipulations of Dismissal filed by the plaintiffs and theIndividual Defendants. On February 19, 2003, the Court denied themotion to dismiss the complaint against the Company. On October 13,2004, the Court certified a class in six of the approximately 300 othernearly identical actions and noted that the decision is intended toprovide strong guidance to all parties regarding class certification inthe remaining cases. Plaintiffs have not yet moved to certify a classin the Company's case. The Company has approved a settlementagreement and related agreements which set forth the terms of asettlement between the Company, the Individual Defendants, theplaintiff class and the vast majority of the other approximately 300issuer defendants. Among other provisions, the settlement provides fora release of the Company and the Individual Defendants for the conductalleged in the action to be wrongful. The Company would agree toundertake certain responsibilities, including agreeing to assign away,not assert, or release certain potential claims the Company may haveagainst its underwriters. The settlement agreement also provides aguaranteed recovery of $1 billion to plaintiffs for the cases relatingto all of the approximately 300 issuers. To the extent that theunderwriter defendants settle all of the cases for at least $1 billion,no payment will be required under the issuers' settlementagreement. To the extent that the underwriter defendants settle forless than $1 billion, the issuers are required to make up thedifference. It is anticipated that any potential financial obligationof the Company to plaintiffs under the settlement agreement and relatedagreements will be covered by existing insurance. The Company iscurrently not aware of any material limitations on the expectedrecovery of any potential financial obligation to plaintiffs from theCompany's insurance carriers. To the Company's knowledge,the Company's insurance carriers are solvent, and the Company isnot aware of any uncertainties as to the legal sufficiency of aninsurance claim with respect to any recovery by plaintiffs. Therefore,the Company does not expect that the settlement will involve anypayment by the Company. If material limitations on the expectedrecovery of any potential financial obligation to the plaintiffs fromthe Company's insurance carriers should arise, theCompany's maximum financial obligation to plaintiffs pursuant tothe settlement agreement would be less than $3.4 million. On February15, 2005, the Court granted preliminary approval of the settlementagreement, subject to certain modifications consistent with itsopinion. The Court ruled that the issuer defendants and the plaintiffsmust submit a revised settlement agreement which provides for a mutualbar of all contribution claims by the settling and non-settling partiesand does not bar the parties from pursuing other claims. The issuersand plaintiffs have negotiated a revised settlement agreementconsistent with the Court's opinion and are in the process ofobtaining approval from the approximately 300 issuer defendants andindividuals associated with those issuers. The parties must submit arevised settlement to the court by May 2, 2005. The underwriterdefendants will have until May 16, 2005 to object to the revisedsettlement agreement. There is no assurance that the Court will grantfinal approval to the settlement. If the settlement agreement is notapproved and the Company is found liable, the Company is unable toestimate or predict the potential damages that might be awarded,whether such damages would be greater than the Company'sinsurance coverage, and whether such damages would have a materialimpact on the Company's results of operations or financialcondition in any future period.

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Register.com was named as a defendant ina purported class action lawsuit filed by Brian Wornow, on behalf ofhimself and all others similarly situated, in the Supreme Court of theState of New York on May 2, 2002, which alleged that theCompany's SafeRenew program violates New York law. TheCompany's SafeRenew program was implemented in January 2001 on an"opt-out basis" to .com, .net and .orgregistrations registered through the www.register.com website, and wassubsequently expanded to cover certain ccTLDs registered through thiswebsite. Under the terms of the Company's services agreement, atthe time a covered registration comes up for renewal, the Companyattempts to charge a registrant's on-file credit card a one yearrenewal fee and, if the charge is successful, to renew the registrationfor that additional one-year period. Register.com believes that theSafeRenew program was properly adopted as an effort to protect theCompany's customers' online identities. Plaintiff sought adeclaratory judgment that the SafeRenew program violates New YorkGeneral Obligations Law Section 5-903, and also asserted claims forbreach of contract, money had and received, and unjust enrichment.Plaintiff further sought to enjoin Register.com from automaticallyrenewing domain name registrations, an award of compensatory damages,restitution, disgorgement of profits (plus interest), cost andexpenses, attorneys' fees, and punitive damages. On September 6,2002, Register.com filed a motion to dismiss the complaint in itsentirety. On April 17, 2003, Register.com's motion was granted asto two counts (declaratory judgment and breach of contract), but deniedas to two other counts (unjust enrichment and money had and received).On May 2, 2003, Plaintiff filed a notice of appeal to the AppellateDivision, First Department of the two counts that were dismissed. OnMay 15, 2003, Plaintiff filed an amended complaint asserting new causesof action against Register.com for (i) deceptive trade practices inviolation of New York General Business Law Section 349; (ii)conversion; and (iii) breach of the implied covenant of good faith andfair dealing. On June 9, 2003, Register.com moved to dismissPlaintiff's newly asserted causes of action. On February 19,2004, Register.com's motion to dismiss the first, fourth and afifth causes of action of Plaintiff's amended complaint wasgranted. Plaintiff has perfected an appeal from this ruling and on June8, 2004 the Appellate Division, First Department affirmed the dismissalof all five counts. On July 30, 2004, Register.com and the Plaintiffentered into a settlement agreement, the terms of which were subject toapproval by the Court. In the second quarter of 2004, the Companyrecorded a provision of $1.4 million for the settlement which itestimated to be its probable exposure net of contributions to be madeby its insurance carrier. The Court granted final approval of thesettlement agreement on January 24, 2005. Pursuant to the settlementagreement, Register.com agreed to set up a fund of $2.0 million to beused to pay all properly submitted refund claims to settlement classmembers as well as Court-approved attorneys' fees and litigationexpenses incurred by class counsel. If the fund is oversubscribedduring the claims period specified in the settlement agreement, thenRegister.com agreed to contribute up to an additional $350,000 toreplenish the fund, after which contribution, if any, Register.com hasno additional obligation to contribute to the fund. As anticipated,Register.com's initial contribution to the fund, net ofcontributions made by its insurance carrier, will be approximately $1.4million.

On February 9, 2001, Register.com was named as adefendant in a purported class action lawsuit filed by Michael Zurakov,on behalf of himself and all others similarly situated, in the SupremeCourt of the State of New York. The complaint alleged that by linkingnew domain names registered through Register.com to a"Coming Soon" web page that informs visitorsthe name was recently registered through Register.com, and provideslinks to services provided by Register.com and its business partners,as well as a banner advertisement for such services, Register.com (i)breached an implied covenant of good faith and fair dealing; (ii)engaged in deceptive trade practices in violation of New York GeneralBusiness Law Section 349; and (iii) was unjustly enriched. In August2001, the Court granted Register.com's motion to dismissPlaintiff's claims for failure to state a claim upon which reliefmay be granted. Plaintiff appealed the dismissal and in April 2003 theAppellate Division, First Department affirmed the dismissal of theunjust enrichment cause of action, but reinstated the causes of actionfor breach of an implied covenant of good faith and fair dealing anddeceptive trade practices. Thereafter, Register.com and Plaintiffagreed upon a settlement which, following notice to the proposedsettlement class, was approved by the Court on November 3, 2003. Inaccordance with the settlement, Register.com has provided each memberof the putative class with a coupon for a five dollar discount off offuture purchases of Register.com's fees for domain nameregistrations and 

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renewals and has paid attorney's feesin the amount awarded by the Court to class counsel. These couponsexpired in October 2004 and the case has been dismissed.

In2005, Register.com together with other parties was named as a defendantin an employment related lawsuit. The proceeding is currently inpreliminary stages. The Company cannot reasonably estimate the possibleloss to the Company.

There are various other claims, lawsuitsand pending actions against the Company incidental to the operations ofits business. It is the opinion of management, after consultation withcounsel, that the ultimate resolution of such claims, lawsuits andpending actions will not be material to the Company and will not have amaterial adverse effect on the Company's financial position,results of operations or liquidity.

Potential Credit CardPenalties

The Company is experiencing high rates of refunds tocustomers and chargebacks from credit card associations in excess ofthe contractual specified levels, which have resulted in the assessmentof financial penalties by two credit card associations for periodsthrough December 31, 2001. If the Company is unable to lower its refundand chargeback rates to levels defined in the credit cardassociations' rules, the Company could continue to face suchpenalties and may lose its rights to accept credit card payments fromcustomers through one or more credit card associations. Under oneassociation's rules, additional potential penalties may beimposed at the discretion of the association, and the Company would becontractually obligated to pay such penalties if assessed. Any suchpenalties would be imposed on the Company's credit card processorby the association, and under the Company's contract with itsprocessor, the Company is required to reimburse such penalties.

Because the imposition of any potential penalties is at thediscretion of the association, subject to contractual limitations,generally accepted accounting principles require that the Companyaccrue charges to general and administrative expense to cover what theCompany estimates to be the maximum potential penalties that could beimposed under that association's rules for transactions occurringduring those periods. On October 5, 2004, the Company obtained arelease from its credit card processor for any penalties which anycredit card association may be entitled to impose for excessivechargebacks and refunds processed through September 30, 2003.Accordingly, in accordance with generally accepted accountingprinciples applicable for extinguishments of liabilities, in 2004 theCompany reversed the penalty accruals previously recorded during theperiod from January 1, 2002 through September 30, 2003 in the amount of$5.6 million. This expense reversal was recorded as a reduction ofgeneral and administrative expense in October 2004.

The netexpense charges (reversal of expense) accrued by the Company during theyears ended December 31, 2004, 2003 and 2002 were $(3.6) million, $2.4million, and $3.7 million, respectively. As of December 31, 2004, theCompany has a remaining accrued liability of $2.5 million for suchpotential penalties (covering the period from October 1, 2003 toDecember 31, 2004), which is included in Accounts payable and accruedliabilities on the Consolidated Balance Sheet.

The Company hashad discussions and correspondence with its credit card processorregarding these potential penalties. Based on these discussions andcorrespondence, the Company believes that it is likely that it will notbe required to pay the full amount accrued to date, or perhaps anyamount at all for periods after September 30, 2003. However theCompany's credit card processor will not confirm that the creditcard association will not exercise its contractual right to assesspenalties for periods after September 30, 2003 or otherwise provide theCompany with a release for these potential liabilities. Accordingly,the Company is required to continue to accrue for such potentialpenalties for periods after September 30, 2003. If the penaltiesultimately imposed are less than the maximum contractual amount, or ifit is determined that no penalties will be imposed, the Company wouldreverse any excess amounts previously accrued as a reduction of generaland administrative expense at that time. Also see Note 17"Subsequent Event".

Note 16— Restatement of Financial Statements

The Company hasrestated its previously issued consolidated financial statements as ofand for the years ended December 31, 2002 and 2003. The restatementrelates to the timing of the recognition 

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of revenue, deferred revenue, and associatedcost of revenue amounts relating to domain name transactions, thereclassification of certain credit memos issued in 2002, the correctionof the provision for income taxes and the related balance sheetaccounts, and the correction of pro forma stock-based compensationexpense disclosures required under Statement of Financial AccountingStandards No. 123, Accounting for Stock Based Compensation.

The Company's systems, processes and controls were originallyestablished to record, process, summarize and report transactions inaccordance with a full-month revenue recognition convention which theCompany has historically applied in the determination of revenuerecognition with respect to initial and renewed domain nameregistrations. The Company has concluded, based on a review of itscustomers' registration activity, that the use of a mid-monthrevenue recognition convention is necessary to record revenue undergenerally accepted accounting principles in that the mid-month revenuerecognition convention does not materially differ from the use of adaily recognition method. In addition, the Company has found errors inits systems that resulted in errors in the timing of revenue andassociated cost of revenue recognition for domain name transactionssuch as subscriptions renewed prior to their scheduled expirationdates, domain names transferred in from other registrars and domainnames transferred out to other registrars. The restatement alsocorrects the classification of certain credit memos issued in 2002 topresent them as a reduction of revenue instead of as a general andadministrative expense.

Also, the Company corrected theprovision for income taxes to reflect the tax impact of the above notedchanges to our revenue and associated cost of revenue recognition toadjust certain tax credits, to adjust recorded amounts of the taxbenefits related to stock-based compensation and the related windfalltax benefits as additional paid-in capital, to adjust amounts excludedfrom taxable income for tax free interest and to adjust deferred taxesfor changes in state and local tax rates.

The effect of theabove restatements on periods prior to 2002 increased the amount of theaccumulated deficit previously reported as of December 31, 2001 by $0.5million.

A summary of the aggregate effects of theserestatements on the Company's Consolidated Balance Sheet as ofDecember 31, 2003, and the Consolidated Statements of Operations forthe years ended December 31, 2003 and 2002 is shown below.

|                                          |  |                       |         |             |  |        |         |         |  |  |
|------------------------------------------|--|-----------------------|---------|-------------|--|--------|---------|---------|--|--|
|                                     |  | Asof December 31,2003 |
|                                     |  | AsReported            |         | As Restated |
|                                     |  | (inthousands)         |
| Changes to Consolidated BalanceSheet:    |  |
| Prepaid expenses —current          |  | $                     | 14,477  |        |  | $      | 16,185  |    |
| Deferred taxasset, net —current    |  | $                     | 17,454  |        |  |   | 9,893   |    |
| Other currentassets                      |  | $                     | 2,388   |        |  | $      | 6,664   |    |
| Total currentassets                      |  | $                     | 132,858 |        |  | $      | 127,981 |    |
| Prepaidexpenses —noncurrent        |  | $                     | 9,856   |        |  | $      | 10,696  |    |
| Deferredtax asset, net —noncurrent |  | $                     | 10,698  |        |  |   | 14,087  |    |
| Otherassets                              |  | $                     | — |        |  | $      | 1,436   |    |
| Totalassets                              |  | $                     | 166,650 |        |  | $      | 167,438 |    |
| Accountspayable and accruedliabilities   |  | $                     | 16,214  |        |  | $      | 14,469  |    |
| Deferredrevenue, net —current      |  | $                     | 53,728  |        |  | $      | 59,741  |    |
| Totalcurrentliabilities                  |  | $                     | 69,942  |        |  | $      | 74,210  |    |
| Deferredrevenue —noncurrent        |  | $                     | 33,191  |        |  | $      | 36,152  |    |
| Totalliabilities                         |  | $                     | 103,133 |        |  | $      | 110,362 |    |
| Additionalpaid-incapital                 |  | $                     | 100,228 |        |  | $      | 98,094  |    |
| Accumulateddeficit                       |  | $                     | (38,329 | )      |  | $      | (42,636 | )  |
| Totalstockholders'equity                 |  | $                     | 63,517  |        |  | $      | 57,076  |    |
|                                          |

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|                                                |  |                                      |         |                             |  |             |         |            |  |   |         |         |  |   |         |         |  |  |
|------------------------------------------------|--|--------------------------------------|---------|-----------------------------|--|-------------|---------|------------|--|---|---------|---------|--|---|---------|---------|--|--|
|                                           |  | Yearended December 31, 2003          |         | Year ended December31, 2002 |
|                                           |  | AsReported                           |         | As Restated                 |  | As Reported |         | AsRestated |
|                                           |  | (in thousands, except pershare data) |
| Changes to ConsolidatedStatement of Operations |  |
| Netrevenues                                    |  | $                                    | 104,319 |                        |  | $           | 103,242 |       |  | $ | 106,288 |    |  | $ | 102,421 |    |
| Costofrevenues                                 |  | $                                    | 32,694  |                        |  | $           | 32,387  |       |  | $ | 35,299  |    |  | $ | 34,689  |    |
| Grossprofit                                    |  | $                                    | 71,625  |                        |  | $           | 70,855  |       |  | $ | 70,989  |    |  | $ | 67,732  |    |
| Generaland administrativeexpense               |  | $                                    | 26,865  |                        |  | $           | 27,555  |       |  | $ | 26,312  |    |  | $ | 24,947  |    |
| (Loss)fromoperations                           |  | $                                    | (575    | )                      |  | $           | (1,619  | )     |  | $ | (17,192 | )  |  | $ | (18,773 | )  |
| Provision(benefit) for incometaxes             |  | $                                    | (3,135  | )                      |  | $           | (916    | )     |  | $ | (1,195  | )  |  | $ | (2,276  | )  |
| Netincome(loss)                                |  | $                                    | 5,549   |                        |  | $           | 2,287   |       |  | $ | (10,409 | )  |  | $ | (10,908 | )  |
| Basicincome (loss) pershare                    |  | $                                    | 0.16    |                        |  | $           | 0.06    |       |  | $ | (0.26   | )  |  | $ | (0.27   | )  |
| Dilutedincome (loss) pershare                  |  | $                                    | 0.15    |                        |  | $           | 0.06    |       |  | $ | (0.26   | )  |  | $ | (0.27   | )  |
|                                                |

TheCompany also restated the Pro Forma Stock-Based Compensation table asset forth in Note 2 to reflect the tax effect of the adjustments toreported pro forma net income (loss) and to correct assumptions used incomputing stock-based compensation expense under the fair value basedmethod. A comparison of the restated amounts, with the amounts asoriginally reported for the years ended December 31, 2003 and 2002 isshown below:

|                                                                                                                               |  |                                      |        |             |  |             |        |            |  |        |         |         |  |        |         |         |  |  |
|-------------------------------------------------------------------------------------------------------------------------------|--|--------------------------------------|--------|-------------|--|-------------|--------|------------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                                                                                          |  | Year2003                             |        | Year2002    |
|                                                                                                                          |  | Asreported                           |        | As restated |  | As reported |        | Asrestated |
|                                                                                                                          |  | (in thousands, except pershare data) |
| **Net income(loss):**                                                                                                         |  |
| Asreported                                                                                                                    |  | $                                    | 5,549  |        |  | $           | 2,287  |       |  | $      | (10,409 | )  |  | $      | (10,908 | )  |
| Add:Stock-based compensation included in reported net income (net of taxesin the "As restated"column)                         |  |                                 | 1,048  |        |  |        | 608    |       |  |   | 1,937   |    |  |   | 1,123   |    |
| Deduct:stock-based compensation expense determined under the fair value basedmethod (net of taxes in the "As restated"column) |  |                                 | (4,193 | )      |  |        | (5,569 | )     |  |   | (3,650  | )  |  |   | (6,694  | )  |
| Proforma net income(loss)                                                                                                     |  | $                                    | 2,404  |        |  | $           | (2,674 | )     |  | $      | (12,122 | )  |  | $      | (16,478 | )  |
| **Netincome (loss) pershare:**                                                                                                |  |                                 |   |        |  |        |   |       |  |   |    |    |  |   |    |    |
| Asreported —basic                                                                                                       |  | $                                    | 0.16   |        |  | $           | 0.06   |       |  | $      | (0.26   | )  |  | $      | (0.27   | )  |
| Proforma —basic                                                                                                         |  | $                                    | 0.07   |        |  | $           | (0.07  | )     |  | $      | (0.30   | )  |  | $      | (0.41   | )  |
|                                                                                                                          |  |                                 |   |        |  |        |   |       |  |   |    |    |  |   |    |    |
| Asreported —diluted                                                                                                     |  | $                                    | 0.15   |        |  | $           | 0.06   |       |  | $      | (0.26   | )  |  | $      | (0.27   | )  |
| Proforma —diluted                                                                                                       |  | $                                    | 0.06   |        |  | $           | (0.07  | )     |  | $      | (0.30   | )  |  | $      | (0.41   | )  |
|                                                                                                                          |  |                                 |   |        |  |        |   |       |  |   |    |    |  |   |    |    |
|                                                                                                                               |

Note17.    Subsequent Events

On February 14, 2005 and March24, 2005 the Company received additional releases from its credit cardprocessor from any penalties which may have been imposed fortransactions processed from October 1, through December 31, 2003, andfrom through January 1 through February 29, 2004, respectively. As aresult, in the first quarter of 2005 the Company will reverse $0.5million and $0.4 million of expense accruals previously recorded duringthe fourth quarter of 2003 and the first two months of 2004,respectively.

On February 6, 2005, Peter A. Forman, theCompany's President and Chief Executive Officer, informed theCompany's board of directors that he will not seek renewal of hisemployment agreement upon the expiration of its term on June 16, 2005and agreed to step down when his successor has been hired. The Companyagreed that such notice shall be a notice of termination of employmentfor "Good Reason" (as defined in theemployment agreement). The Company will be obligated to pay thefollowing amounts after termination: (1) a pro-rated bonus for 2005calculated based on Mr. Forman's minimum annual bonus, (2) a cashpayment equal to one year's salary, and (3) medical and dentalCOBRA coverage for Mr. Forman and his family for 18 months following

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termination, plus an amount equal to theincome taxes incurred by Mr. Forman on such COBRA coverage. In additionall stock option or equity grants held by Mr. Forman shall vest in fullas of the date of termination so as to become fully exercisable andshall remain exercisable for six months (or the end of scheduled termif sooner) following the date of termination. The Company estimatesthat if Mr. Forman's termination were to be effective on June 16,2005, the Company would be obligated to pay approximately $372,000under the termination agreement.

Schedule II — Valuationand QualifyingAccount

|                                                       |  |                             |        |                           |  |            |        |                       |  |        |        |        |  |        |        |        |  |  |
|-------------------------------------------------------|--|-----------------------------|--------|---------------------------|--|------------|--------|-----------------------|--|--------|--------|--------|--|--------|--------|--------|--|--|
|                                                  |  | BalanceatBeginning ofPeriod |        | Charged toCostsandExpense |  | Deductions |        | Balanceat EndofPeriod |
| For the year endedDecember  31,2004:                  |  |                        |   |                      |  |       |   |                  |  |   |   |   |  |   |   |   |
|     Provisionfor doubtfulaccounts |  | $                           | 1,850  |                      |  | $          | 279    |                  |  | $      | 518    |   |  | $      | 1,611  |   |
| Forthe year ended December  31,2003:                  |  |                        |   |                      |  |       |   |                  |  |   |   |   |  |   |   |   |
|     Provisionfor doubtfulaccounts |  | $                           | 2,695  |                      |  | $          | 739    |                  |  | $      | 1,584  |   |  | $      | 1,850  |   |
| Forthe year ended December 31,2002:                   |  |                        |   |                      |  |       |   |                  |  |   |   |   |  |   |   |   |
|     Provisionfor doubtfulaccounts |  | $                           | 2,179  |                      |  | $          | 2,608  |                  |  | $      | 2,092  |   |  | $      | 2,695  |   |
|                                                       |

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|              |                                                                                      |
|--------------|--------------------------------------------------------------------------------------|
| Item9.  | Changes in and Disagreements with Accountants onAccounting and Financial Disclosure. |

Not applicable.

|                |                         |
|----------------|-------------------------|
| Item 9A.  | Controls and Procedures |

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervisionand with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, of the effectiveness ofour disclosure controls and procedures, as such term is defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of1934, as amended (the "Exchange Act"), as ofthe end of the period covered by this report. Our disclosure controlsand procedures are designed to ensure that information required to bedisclosed by us in the reports that we file or submit under theExchange Act is recorded, processed, summarized and reported within thetime periods specified in the SEC's rules and forms. Based uponthis evaluation, our Chief Executive Officer and Chief FinancialOfficer concluded that, as a result of the material weaknesses setforth below and because we were unable to file our Annual Report onForm 10-K within the statutory deadlines, our disclosure controls andprocedures were not effective as of December  31, 2004. In lightof the material weaknesses, we performed additional analyses and otherpost-closing procedures to ensure that our financial statementsincluded in this report were prepared in accordance with generallyaccepted accounting principles and present fairly in all materialrespects our financial condition, results of operations and cash flowsfor the periods presented.

Management's Report onInternal Control Over Financial Reporting

Our management isresponsible for establishing and maintaining adequate internal controlover financial reporting as such term is defined in Exchange Act Rules13a-15(f) and 15d-15(f). Our internal control over financial reportingis a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally acceptedaccounting principles.

Under the supervision and with theparticipation of our management, including our Chief Executive Officerand Chief Financial Officer, management assessed the effectiveness ofour internal control over financial reporting as of December  31,2004. In making this assessment, management used the criteriaestablished by the Committee of Sponsoring Organizations of theTreadway Commission ("COSO") in InternalControl-Integrated Framework.

 A material weakness isa control deficiency, or combination of control deficiencies, thatresults in more than a remote likelihood that a material misstatementof the annual or interim financial statements will not be prevented ordetected. The control deficiencies described below were identifiedduring management's assessment of the effectiveness of ourinternal control over financial reporting as of December  31,2004 and have been determined to be materialweaknesses.

|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | As of December 31, 2004, wedid not maintain effective controls over the timing of the recognitionof our revenue and deferred revenue and associated cost of revenueamounts related to domain name transactions. Specifically, weincorrectly utilized a full month convention for recognizing revenueand associated cost of revenue with respect to initial and reneweddomain name registrations. Additionally, our controls failed to detectapplication errors in our computer systems that resulted in errors inthe timing of revenue and associated cost of revenue recognition forcertain domain name transactions such as: subscriptions renewed priorto their scheduled expiration dates, domain names transferred in fromother registrars, domain names transferred out to other registrars andcustomer credits. This control deficiency resulted in the restatementof our financial statements for the years ended December 31, 2002 and2003, for each of the quarters of 2003, and for each of the first threequarters of 2004 as well as audit adjustments in the fourth quarter of2004. Additionally, this control deficiency could result in amisstatement of our revenue and deferred revenue and associated cost ofrevenue that would result in a material misstatement to our annual orinterim financial statements that would not be prevented ordetected. |

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|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | As of December31, 2004, we did not maintain effective controls over the accuracy ofour accounts receivable from certain customers and the related revenueand deferred revenue. Specifically, we did not maintain effectivecontrols to prevent or detect errors in the processing or invoicing ofcertain customer transactions. Because of system processing errors andmanual overrides, certain transactions were billed twice or not billedin the month in which the order was fulfilled or certain subscriptionterms were not recorded accurately. Additionally, certain price tablesused to generate invoices were not maintained with correct prices andterms of domain name registrations, and manual overrides led to amountsbilled in error to certain customers. In addition, we provided certaincustomers with customized invoice formats which are not supported byour systems and therefore we have had to create such invoices manuallywhich led to invoicing errors. This control deficiency did not resultin adjustments to our annual or interim financial statements, however,it could result in a misstatement of accounts receivable, revenue anddeferred revenue accounts that would result in a material misstatementto our annual or interim financial statements that would not beprevented or detected. |

|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | As of December31, 2004, we did not maintain effective controls over the preparationand review of our provision for income taxes and the related incometaxes payable and deferred income tax asset and liability accounts.Specifically, we did not maintain effective controls to prevent ordetect errors in the preparation of our tax provision. This controldeficiency resulted in the restatement of our financial statements forthe years ended December 31, 2002 and 2003, for each of the quarters of2003, and for each of the first three quarters of 2004 as well as auditadjustments in the fourth quarter of 2004. Additionally, this controldeficiency could result in a misstatement of our provision for incometaxes and related balance sheet accounts that would result in amaterial misstatement to our annual or interim financial statementsthat would not be prevented or detected. |

|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | As of December 31, 2004, we did notmaintain effective controls over the preparation and review of ourfinancial statement footnote disclosures related to pro formastock-based compensation expense. Specifically, we did not accuratelycalculate the estimated fair value of our stock options on their grantdates as we did not adjust amounts for the effect of income taxes nordid we adequately use and review the assumptions underlying theschedules supporting our pro forma disclosures in our financialstatement footnotes. This control deficiency resulted in therestatement of the pro forma stock-based compensation expensedisclosures in our financial statement footnotes for the years endedDecember 31, 2002 and 2003, for each of the first three quarters of2003 and 2004, as well as audit adjustments to our 2004 footnotedisclosures of pro forma stock-based compensation expense.Additionally, this control deficiency could result in a misstatement ofour disclosures related to pro forma stock-based compensation expensethat would result in a material misstatement to our annual or interimfinancial statements that would not be prevented or detected. |

|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | As of December 31, 2004, we did notmaintain effective controls over the access to financial applicationprograms and data such as accounts receivable, revenue, cost ofrevenue, deferred revenue, prepaid registry fees, and other financialstatement accounts. Specifically, we did not maintain effectivecontrols over the granting, maintenance and termination of useridentification and passwords; the required segregation of duties withincertain financial applications; and the independent monitoring andverification of user access to data. This control deficiency did notresult in adjustments to our annual or interim financial statements,however, it could result in a material misstatement to annual orinterim financial statements that would not be prevented ordetected. |

Because of these material weaknesses, we haveconcluded that we did not maintain effective internal control overfinancial reporting as of December  31, 2004 based on thecriteria in the Internal Control  — IntegratedFramework issued by the COSO.

Management'sassessment of the effectiveness of our internal control over financialreporting as of December  31, 2004 has been audited byPricewaterhouseCoopers LLP, an independent registered public accountingfirm, as stated in their report which is included in Item 8 of thisreport.

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Changes in Internal Control OverFinancial Reporting and Management's Remediation Initiatives

Management has continued to enhance internal controls and increasethe oversight over those affected controls. As a result ofmanagement's evaluation of internal control over financialreporting, we are currently addressing the material weaknessesdescribed above through a number of initiatives, including thosespecifically set forth below. The audit committee and management willcontinue to monitor the effectiveness of our internal control overfinancial reporting on an ongoing basis and will take further action,as appropriate.

To address the material weakness relating to ourhistorical application of a full month revenue recognition convention,we have switched to a mid-month revenue recognition convention forperiods through 2004 and plan to make the necessary system, process andcontrol modifications to record, process, summarize and reporttransactions in accordance with this mid-month revenue recognitionconvention or using a daily recognition method. To address the materialweakness relating to application errors in our systems that resulted inerrors in the timing of revenue and related expense recognition relatedto domain name subscriptions renewed prior to their respectivescheduled expiration dates, domain names transferred in from otherregistrars, domain names transferred out to other registrars andcustomer credits, we intend to make the program changes necessary toensure that all transaction types are properly identified andappropriately processed in the systems so that all transactionsrequiring deferral and amortization of revenue recognition over aperiod of time are accounted for in the proper periods. We have notestimated the costs that will be incurred to fully implement thesechanges, however such costs could be significant and could includecosts for additional computer hardware to provide faster processingcapability and greater data storage capacity, costs for softwaredevelopment and modifications, and costs for additional personnel. Weintend to complete the implementation of our remediation plan for thismaterial weakness by the end of the third quarter of 2005 although wecannot provide any assurances that we will be successful in theseefforts. As a temporary measure, we have implemented manual controlsand procedures to ensure that the amortization of deferred revenue andrelated prepaid expense transactions are calculated in accordance withgenerally accepted accounting principles, which controls and procedureswill remain in effect until we have completed the system implementationof the remediation plan for this material weakness. However, thesetemporary manual controls and procedures are very time consuming, andthere is no assurance that we will be able to complete all of therequired procedures in sufficient time to enable us to meet therequired due dates for filing quarterly reports with the Securities andExchange Commission.

To address the material weakness related toour invoicing and transaction processing and procedures, by the end ofthe third quarter of 2005, we intend to (i) have our Corporate Serviceschannel customers agree in writing or electronically to current productprices, (ii) have prices and domain name registration expiration datescorrectly reflected in the systems, and (iii) enhance our systems to,among other things, provide the required invoice formats, although wecannot provide any assurances that we will be successful in remediatingthese issues by such time or at all. As a temporary measure, we haveinstituted manual controls and procedures to ensure that therecognition of revenue is calculated in accordance with generallyaccepted accounting principles, which controls and procedures willremain in effect until we have completed the implementation of therequired systems changes. However, these temporary manual controls andprocedures are very time consuming, and there is no assurance that wewill be able to complete all of the required procedures in sufficienttime to enable us to meet the required due dates for filing quarterlyreports with the Securities and Exchange Commission.

To addressthe material weakness related to the determination of our provision forincome taxes and the related balance sheet accounts, we had begun toimplement new control procedures that require us to calculate thefinancial statement tax provision and send it to outside tax advisorsfor review at the end of the fourth quarter of 2004. At the end of thefourth quarter of 2004, these control procedures had not beensuccessfully implemented. We believe the new control procedures willremediate this material weakness in 2005. We can provide no assurancesthat we will be successful in the design and operating effectiveness ofthese control procedures.

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To address the material weakness relatedto the calculation of our pro forma stock-based compensation expense,we implemented new procedures to train the relevant personnel toproperly input the required assumptions of volatility, interest ratesand estimated option life into the computer system that performs thecalculations of pro forma stock-based compensation expense. The newcontrol procedures adopted in 2005 also include a review by our ChiefFinancial Officer for reasonableness of the results of the calculationsproduced by the computer system. We believe the new control procedureswill adequately remediate this material weakness, although sufficienttime has not passed to allow for a determination that this weakness hasbeen remediated. We can provide no assurances that we will besuccessful in operating these control procedures.

To address thematerial weakness related to systems access, we had begun to implementcontrols to require quarterly updates of all user access lists to allfinancial applications at the end of the fourth quarter of 2004. At theend of the fourth quarter of 2004, these controls had not beensuccessfully implemented. We can provide no assurances that we will besuccessful in operating these control procedures.

Other than theremediation measures described above, there have been no changes in ourinternal control over financial reporting that occurred during thequarter ended December 31, 2004, that have materially affected, or arereasonably likely to materially affect, our internal control overfinancial reporting.

The information contained in our CurrentReports on Form 8-K filed with the Securities and Exchange Commissionon March 17, 2005 and March 31, 2005 regarding our preliminaryidentification of material weaknesses in internal control overfinancial reporting and related remediation plans and the restatementand reclassification of our financial statements and financial data issuperseded in its entirety and replaced by the information included inthis Annual Report on Form 10-K.

The statements contained inExhibit 31.1 and 31.2 should be considered in light of, and readtogether with, the information set forth in this Item 9A.

Item9B.    Other Information

Entry into a MaterialDefinitive Agreement

On November 11, 2004, we effected theinitial implementation of an Executive Change in Control SeveranceProgram. This Program is substantially similar to an Executive Changein Control Severance Program that we adopted in March 2003, whichexpired in May 2004. Under the terms of the current Program, if withinone year following a change in control or effective change in control(each as defined under the Program) that occurs on or prior to May 31,2005, a participant's employment with us is terminated (1) by usother than for cause, by reason of the participant's death or byreason of the participant's disability or (2) by the participantfor good reason, the participant will be entitled to separationbenefits of 12 months' base salary (in the event of a change incontrol) or five months' base salary (in the event of aneffective change in control), subject to a participant'sexecution and non-revocation of a release.

The Program cannot beamended in any manner that is adverse to the interests of a participantor terminated within one year following the date of its adoption orfollowing a change in control. Any successor of Register.com or itsbusinesses will be bound by the terms of the Program in the same mannerand to the same extent that we would be obligated to perform our dutiesif no succession had taken place. The cash severance benefits payableunder the terms of the Program will be reduced by other severancebenefits payable under any plan, program, policy, practice, agreementor arrangement between the participant and Register.com.

Thefollowing executives became participants in the Program in the initialimplementation: Ian Fish (Director, Product Management), MonicaSchulze-Hodges (General Manager, Retail), Roni Jacobson (GeneralCounsel), Alan Kipust (Senior Vice President of Operations), StephanieMarks (Vice President, Investor Relations & CorporateCommunications), Sushant Mohanty (Chief Information Officer), DavidSaias (Vice President, Sales), Stephen Smith (Vice President, Business

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Development) and Jonathan Stern (ChiefFinancial Officer). Stuart Horowitz (Vice President – HumanResources) and Kanchan Mahtre (Director of Operations – CorporateServices) became participants in the Program on April 29, 2005.

The description of this Program is qualified in its entirety byreference to the full text of the Program, a copy of which is filed asExhibit 10.54 to this report.

Unregistered Sales ofEquity Securities

On February 7, 2005 we issued 393,050 sharesof our common stock to Richard D. Forman upon exercise of anoutstanding warrant. The exercise price ($381,258 or $0.97 per share)was paid to us by Mr. R. Forman's tender of 60,041 shares of ourcommon stock. The tendered shares were valued at $6.35 per share (thefair market value) in accordance with the terms of the warrant.

On February 24, 2005 we issued 77,098 shares of our common stock toa warrant holder upon exercise of an outstanding warrant. The exerciseprice ($74,785 or $0.97 per share) was paid to us by the warrantholder's tender of 11,965 shares of our common stock. Thetendered shares were valued at $6.25 per share (the fair market value)in accordance with the terms of the warrant.

The shares issuedin the transactions described above were issued in reliance on theexemption from registration provided in Section 3(a)(9) of theSecurities Act of 1933, as amended, as such shares were issued for anexchange with existing security holders in transactions in which nocommissions or underwriting discounts were paid. The shares tendered inthe transactions described above have been cancelled and are no longeroutstanding.

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PARTIII

Item 10.    Directors and Executive Officers of theRegistrant.

The following table sets forth our directors andexecutive officers, their ages and the positions they hold. Ourdirectors are elected annually to serve until the next annual meetingof shareholders, or until their successors are duly elected andqualified, or until their earlier death, resignation, disqualificationor removal from office. Our executive officers will serve as such atthe pleasure of the Board of Directors, subject to the terms of anyemployment agreements which are describedherein.

|                      |  |     |  |                                                |  |  |  |  |  |  |
|----------------------|--|-----|--|------------------------------------------------|--|--|--|--|--|--|
| Name                 |  | Age |  | Position                                       |
| PeterA.Forman        |  | 43  |  | President,Chief Executive Officer and Director |
| Mitchell I.Quain     |  | 53  |  | Chairman of the Board ofDirectors              |
| Niles H.Cohen        |  | 44  |  | Director                                       |
| Dewain K.Cross       |  | 67  |  | Director                                       |
| James A.Mitarotonda  |  | 50  |  | Director                                       |
| StanleyMorten        |  | 61  |  | Director                                       |
| JimRosenthal         |  | 41  |  | Director                                       |
| Reginald VanLee      |  | 47  |  | Director                                       |
| JonathanStern        |  | 60  |  | Chief FinancialOfficer                         |
| Alan Kipust          |  | 42  |  | Senior VicePresident                           |
| David Saias          |  | 51  |  | VicePresident of Sales                         |
| MonicaSchulze-Hodges |  | 41  |  | General Manager,Retail                         |
| Roni A. Jacobson     |  | 33  |  | GeneralCounsel and Secretary                   |
|                      |

INFORMATION CONCERNINGDIRECTORS

Peter A. Forman has been our Chief ExecutiveOfficer and President since June 2003 and was also our President fromour inception until March 1998. He served as Chairman of the Board ofDirectors from our inception until May 1999 and has been a directorsince he co-founded the company in 1994. Since January 1998, Mr. Formanhas been a Managing Member of Forman Capital Management, LLC, whichspecializes in investing and assisting early stage financial andtechnology companies. Since 2001, Mr. Forman has been Managing Memberof Forman Realty Management, LLC, which specializes in the managementof and investing in real estate properties. From February 1999 to July2000, Mr. Forman served as President of WellSet, a consumer andcommercial products manufacturing, marketing and distribution company.Prior thereto, Mr. Forman served as the Chief Executive Officer of BenForman & Sons, Inc., a wholesale consumer products manufacturer.Mr. Forman received his B.S. in Economics from the Wharton School ofBusiness, University of Pennsylvania, in 1983.

Mitchell I.Quain has served as one of our directors since April 2001, asChairman of our Board of Directors since September 2002, and as ourExecutive Chairman from November 2002 to November 2003. He retired fromABN AMRO in December 2001, where he had served most recently as a ViceChairman, having joined a predecessor company in 1997. From June 1975to May 1997, Mr. Quain was with Schroders plc, where, commencing in1987, he served as Managing Director. He is currently a director ofMagnetek, Inc., Hardinge, Inc., Strategic Distribution, Inc. and TitanInternational. Mr. Quain received his B.S. in Electrical Engineeringfrom the University of Pennsylvania in 1973 and his M.B.A. from HarvardBusiness School in 1975.

Niles H. Cohen has served asone of our directors since July 2003. He also served as one of ourdirectors from November 1995 to April 2001. Since May 2003, Mr. Cohenhas been a director and Vice President of CoNexus Software, Inc., anInternet software firm in the social networking space that heco-founded. Since 1994, Mr. Cohen has been the Managing Member ofCapital Express, LLC, a venture capital firm that he founded. SinceDecember 1988, Mr. Cohen has been the President of Nihco Equities,Inc., a consulting firm that he founded. Mr. Cohen received his B.S. inEconomics from the Wharton School of Business, University ofPennsylvania, in 1982.

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Dewain K. Cross has served as oneof our directors since March 2003. Mr. Cross served Cooper Industries,Inc., a diversified, worldwide manufacturer of electrical tools andproducts, in various financial capacities from 1966 until hisretirement in 1995, including as Senior Vice President of Finance from1980 to 1995, Vice President, Finance from 1972 to 1980 and as Directorof Accounting and Taxation and Assistant Controller and Treasurer priorto that. He is currently a director of Circor International, Inc. andMagnetek, Inc. Mr. Cross has also been a member of the AmericanInstitute of Certified Public Accountants. Mr. Cross received hisB.B.A. from Clarkson University in 1961 and holds an AMP from HarvardUniversity.

James A. Mitarotonda has served as one ofour directors since July 2003. Mr. Mitarotonda is Chairman of theBoard, President and Chief Executive Officer of Barington CapitalGroup, L.P., an investment firm that he co-founded in November 1991.Mr. Mitarotonda is also Chairman of the Board, President and ChiefExecutive Officer of Barington Companies Investors, LLC, the generalpartner of Barington Companies Equity Partners, L.P., a domestic smallcapitalization value fund. In addition, he is the Chairman of theBoard, President and Chief Executive Officer of Barington CompaniesAdvisors, LLC, the investment advisor of Barington Companies OffshoreFund, Ltd., an offshore small capitalization value fund. Mr.Mitarotonda has also been a director of Dynabazaar, Inc. sinceSeptember 2003 and served as the company's President and ChiefExecutive Officer from January 2004 until December 2004. He has alsobeen a director and Chairman of LQ Corporation, Inc. since September2002 and served as the company's Co-Chief Executive Officer andCo-Chairman from April 2003 until May 2004 and as the company'ssole Chief Executive Officer from May 2004 until October 2004. Mr.Mitarotonda received his M.B.A. from New York University'sGraduate School of Business Administration (now known as the SternSchool of Business) and a B.A. in Economics from Queens College.

Stanley Morten has served as one of our directors sinceNovember 2002. Mr. Morten is a consultant and a private investor. He iscurrently the Independent Consultant to Citigroup/Smith Barney withresponsibility for its independent research effort. Beginning in 1968,Mr. Morten served various research, management and corporate financefunctions at Wertheim & Co. until the firm's acquisition bySchroders plc in 1994. Mr. Morten was an Institutional Investormagazine-ranked analyst for ten consecutive years. His subsequent rolesat Wertheim & Co. included Director of Research starting in 1982,General Partner starting in 1983, Executive Committee Member startingin 1988 and Equity Services Division Head starting in 1991. He iscurrently a director of WPP Group, plc. In 1977, Mr. Morten became aChartered Financial Analyst. Mr. Morten received his B.A. in Economicswith honors from Lake Forest College in 1966 and his M.B.A. fromHarvard Business School in 1968.

Jim Rosenthal hasserved as one of our directors since August 2000. He is the Presidentof Television and New Media for New Line Cinema, a division of TimeWarner. His responsibilities include TV Sales and Distribution, TVDevelopment and Production, Licensing and Merchandising as well asmanaging the company's online store and online auction site andoverseeing web sites that promote the company's films andproperties. He joined New Line in 1992 as head of Business Development.Prior to joining New Line, Mr. Rosenthal was a Senior Associate at BoozAllen & Hamilton, where he focused on business strategy and newbusiness evaluation for media and entertainment clients. Mr. Rosenthalreceived his A.B. in Economics from Harvard College in 1985.

Reginald Van Lee has served as one of our directors sinceJanuary 2000. Mr. Van Lee joined Booz Allen & Hamilton, Inc. in1984 and has been a Vice President and Partner there since 1993. Mr.Van Lee, who specializes in international business strategy andmanagement of technology-driven companies in the global communications,media and technology industries, is currently a Senior Vice Presidentat Booz Allen & Hamilton's New York City office. Mr. Van Leereceived his B.S. in Civil Engineering in 1979 and his M.S. in CivilEngineering in 1980 from the Massachusetts Institute of Technology. In1984, Mr. Van Lee received his M.B.A. from Harvard BusinessSchool.

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INFORMATION CONCERNING EXECUTIVEOFFICERS

Jonathan Stern has served as our ChiefFinancial Officer since June 2002. From September 1998 to June 2002,Mr. Stern was Executive Vice President and Chief Financial Officer ofLexent Inc., a Nasdaq-listed infrastructure services company. FromSeptember 1990 to September 1998, he was Vice President and Controllerof International Specialty Products Inc., a NYSE-listed specialtychemicals manufacturer. Prior to that, he was Vice President andController of Western Union Corp., a NYSE-listed telecommunicationsprovider. Prior to that he was an accountant with Price Waterhouse& Co (now PricewaterhouseCoopers LLP). Mr. Stern received a B.A. inEconomics from Brooklyn College and an M.B.A. in finance from the SternSchool of Business at New York University. Mr. Stern is a CertifiedPublic Accountant.

Alan Kipust has served as our SeniorVice President since July 2003, served as our Vice President,Operations from November 2002 until July 2003, and from February 2002to November 2002, he served as a consultant to us in the area ofoperations. From October 2000 to February 2002, Mr. Kipust was thePresident of Awards.com, a promotional product and employee recognitionfirm. From May 1999 to October 2000, he was the Chief Operating Officerof Checkout.com, a movie and music content and commerce site and fromJuly 1997 to May 1999, he was the Vice President of Operations atGenesis Direct, a direct marketing company with over 30 directmarketing brands. Prior to joining Genesis Direct, Mr. Kipustco-founded PaperDirect, Inc., a small business direct marketing firmthat sells desktop publishing supplies and whose sales grew to over$100 million during Mr. Kipust's tenure. Mr. Kipust also servesas a director of New York Road Runners. Mr. Kipust received his B.S.from California State University – Northridge in 1985 and hisM.B.A. from Pepperdine University in 1987.

David Saiasjoined Register.com in October 2004 as Vice President of Sales forboth our Corporate Services and Global Partner Network channels. Mr.Saias has over 20 years of sales leadership experience sellinghigh-value technology solutions, including enterprise software,hardware, and managed services to global 2000 organizations.Previously, from 2001 to 2004, he was Director of U.S. Sales for thedivision of Hewlett-Packard responsible for selling enterprise outputmanagement software, in which he also managed HP's OutputManagement Managed Services division with a focus on Fortune 2000clients. Other roles have included Vice President of Sales for DazelCorp., a client server output management software company that wasacquired in 1999 by Hewlett Packard, from 2000 to 2001, and SalesDirector for Intergraph Corp., a provider of digital mapping basedsolutions and systems integration services, from 1988 to 1999. Beforethat, David was Vice President of Sales & Marketing for DesktopEngineering, Inc., an engineering consulting and software developmentstartup. David received his B.S. in Marketing from Manhattan College in1975.

Monica Schulze-Hodges has served as the GeneralManager of our Retail channel since September 2003. Prior to joiningRegister.com, Ms. Schulze-Hodges was the Founding President ofStorepower.com, a business-to-business on-line wholesaler from March2000 to August 2003. Previously, Ms. Schulze-Hodges served as the VicePresident of Marketing for Genesis Direct from April 1996 to February2000. Prior thereto, Ms. Schulze-Hodges was the Vice President ofMarketing for PaperDirect Inc. Ms. Schulze-Hodges received her B.A.,Magna Cum Laude, in Theater from Tufts University and holds an M.B.A.from Harvard Business School.

Roni A. Jacobson hasserved as our General Counsel since August 2003 and served as ourDeputy General Counsel from March 2002 to August 2003 and as our asAssociate General Counsel from January 2000 to March 2002. From 1996until January 2000, Ms. Jacobson was an associate at the law firm Loeb& Loeb LLP, where she practiced corporate and media law. Ms.Jacobson received her B.A. in American History from Barnard College,Columbia University, in 1993 and her J.D., cum laude from Benjamin N.Cardozo School of Law in 1996 where she served as an editor of theCardozo Law Review.

AUDIT COMMITTEE; AUDIT COMMITTEEFINANCIAL EXPERT

The Company has a standing Audit Committeeestablished in accordance with Section 3(a)(58)(A) of the Exchange Act.The current members of the Audit Committee are Stanley Morten (Chair),Dewain K. Cross and James A. Mitarotonda. The Board of Directors hasdetermined that Mr. 

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Cross is an "audit committeefinancial expert," as such term is defined in Item 401(h)of Regulation S-K and that Mr. Cross, Mr. Morten and Mr. Mitarotondameet the applicable independence requirements prescribed by the NASDlisting standards and Item 7(d)(3)(iv) of Schedule 14A under theSecurities Exchange Act.

SECTION  16(a) BENEFICIALOWNERSHIP REPORTING COMPLIANCE

The members of our Board ofDirectors (the "Board"), our executiveofficers and persons who hold more than ten percent of theCompany's outstanding common stock are subject to the reportingrequirements of Section  16(a) of the Exchange Act, whichrequires them to file reports with respect to their ownership of ourcommon stock and their transactions in such common stock. Based upon(i)  the copies of Section  16(a) reports which we receivedfrom such persons for their 2004 Fiscal Year transactions in the commonstock and their common stock holdings, and (ii)  the writtenrepresentations received from one or more of such persons that noannual Form 5 reports were required to be filed by them for the 2004Fiscal Year, we believe that all reporting requirements underSection  16(a) for such fiscal year were met in a timely mannerby our directors, executive officers and beneficial owners of greaterthan ten percent of our common stock.

CODE OF ETHICS

The Company has adopted a "code of ethics"as defined by applicable rules of the Securities and ExchangeCommission and the Nasdaq Stock Market, which is applicable to itschief executive officer, chief financial officer, controller and othersenior financial and reporting persons and its directors. This code ispart of the Company's broader Code of Business Ethics and Conductand is publicly available on the Company's website athttp://investor.register.com. If the Company makes any amendments tothe code of ethics for its senior officers, financial and reportingpersons or directors (other than technical, administrative, or othernon-substantive amendments), or grants any waivers, including implicitwaivers, from a provision of this code to such persons, the Companywill disclose the nature of the amendment or waiver, its effective dateand to whom it applies on its website athttp://investor.register.com.

Item 11.    ExecutiveCompensation.

Executive Compensation

The followingtable provides certain summary information concerning the compensationearned during each of the last three years by our President and ChiefExecutive Officer, each of our four other most highly compensatedexecutive officers who were serving as executive officers as ofDecember  31, 2004. In addition, Mr. Pollack is also included inthe table because he would have been among our most highly compensatedexecutive officers on the last day of the 2004 fiscal year had heremained an executive officer through the end of the year. The listedindividuals are hereinafter referred to as the "NamedExecutive Officers."

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SUMMARY COMPENSATIONTABLE

|                            |  |        |        |                       |  |                                         |         |                               |  |        |         |        |  |        |         |           |  |        |         |        |  |        |         |        |  |        |         |           |  |  |
|----------------------------|--|--------|--------|-----------------------|--|-----------------------------------------|---------|-------------------------------|--|--------|---------|--------|--|--------|---------|-----------|--|--------|---------|--------|--|--------|---------|--------|--|--------|---------|-----------|--|--|
| Nameand Principal Position |  | Year   |        | AnnualCompensation    |  | Long-Term Compensation AwardsUnderlying |         | All Other AnnualCompensation  |
| Salary                     |  | Bonus* |        | AllOther Compensation |  | RestrictedStockAwards                   |         | Securities Underlying Options |  |
| Peter A. Forman(1)         |  |   | 2004   |                  |  | $                                       | 300,000 |                          |  | $      | 100,000 |   |  | $      | 14,707  | (2)  |  |   | — |   |  |   | — |   |  | $      | 6,500   | (3)  |
| Presidentand               |  |   | 2003   |                  |  |                                    | 151,154 |                          |  | $      | 225,000 |   |  |   | 15,403  | (2)  |  |   | — |   |  |   | 355,095 |   |  |   | — |      |
| ChiefExecutiveOfficer      |  |   |   |                  |  |                                    |    |                          |  |   |    |   |  |   |    |      |  |   |    |   |  |   |    |   |  |   |    |      |
|                       |  |   |   |                  |  |                                    |    |                          |  |   |    |   |  |   |    |      |  |   |    |   |  |   |    |   |  |   |    |      |
| JonathanStern(4)           |  |   | 2004   |                  |  | $                                       | 257,692 |                          |  | $      | 157,686 |   |  |   | — |      |  |   | — |   |  |   | — |   |  | $      | 6,500   | (3)  |
| Chief FinancialOfficer     |  |   | 2003   |                  |  |                                    | 250,000 |                          |  |   | 129,500 |   |  |   | — |      |  |   | — |   |  |   | 50,000  |   |  |   | — |      |
|                       |  |   | 2002   |                  |  |                                    | 129,808 |                          |  |   | 80,800  |   |  |   | — |      |  |   | — |   |  |   | 350,000 |   |  |   | — |      |
|                       |  |   |   |                  |  |                                    |    |                          |  |   |    |   |  |   |    |      |  |   |    |   |  |   |    |   |  |   |    |      |
| MichaelPollack(5)          |  |   | 2004   |                  |  | $                                       | 200,000 |                          |  | $      | 85,000  |   |  | $      | 6,473   | (6)  |  |   | — |   |  |   | — |   |  | $      | 56,000  | (7)  |
| Former GeneralManager,     |  |   | 2003   |                  |  |                                    | 200,000 |                          |  |   | 140,500 |   |  |   | 6,225   | (6)  |  |   | — |   |  |   | 25,000  |   |  |   | — |      |
| CorporateServices          |  |   | 2002   |                  |  |                                    | 200,000 |                          |  |   | 10,000  |   |  |   | 6,988   | (6)  |  |   | — |   |  |   | 14,000  |   |  |   | — |      |
|                       |  |   |   |                  |  |                                    |    |                          |  |   |    |   |  |   |    |      |  |   |    |   |  |   |    |   |  |   |    |      |
| MonicaSchulze-Hodges(8)    |  |   | 2004   |                  |  | $                                       | 195,000 |                          |  | $      | 106,681 |   |  |   | — |      |  |   | — |   |  |   | — |   |  | $      | 5,602   | (3)  |
| General Manager,Retail     |  |   | 2003   |                  |  |                                    | 56,998  |                          |  |   | 13,000  |   |  |   | — |      |  |   | — |   |  |   | 75,000  |   |  |   | — |      |
|                       |  |   |   |                  |  |                                    |    |                          |  |   |    |   |  |   |    |      |  |   |    |   |  |   |    |   |  |   |    |      |
| RoniA. Jacobson(9)         |  |   | 2004   |                  |  | $                                       | 187,500 |                          |  | $      | 103,126 |   |  |   | — |      |  |   | — |   |  |   | 75,000  |   |  | $      | 4,933   | (3)  |
| GeneralCounsel             |  |   | 2003   |                  |  |                                    | 169,711 |                          |  |   | 47,000  |   |  |   | — |      |  |   | — |   |  |   | 16,000  |   |  |   | — |      |
|                       |  |   |   |                  |  |                                    |    |                          |  |   |    |   |  |   |    |      |  |   |    |   |  |   |    |   |  |   |    |      |
| AlanKipust(10)             |  |   | 2004   |                  |  | $                                       | 200,000 |                          |  | $      | 83,100  |   |  |   | — |      |  |   | — |   |  |   | — |   |  | $      | 6,000   | (3)  |
| Sr. VicePresident          |  |   | 2003   |                  |  |                                    | 180,769 |                          |  |   | 90,962  |   |  |   | — |      |  |   | — |   |  |   | 20,000  |   |  |   | — |      |
|                       |  |   | 2002   |                  |  |                                    | 20,192  |                          |  |   | 68,000  |   |  |   | — |      |  |   | — |   |  |   | 125,000 |   |  |   | — |      |
|                            |

|  |
|--|
|  |  |
|  |

|   |                                                                                                                 |
|---|-----------------------------------------------------------------------------------------------------------------|
| * | Bonuspayments for 2003 include retention bonuses for each of Messrs. Stern,Kipust and Pollack and Ms. Jacobson. |

|     |                                                                                                                                                                                                                                                                                                                           |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | From February 2003 to June 2003, Mr.Forman served as a member of the Executive Committee of our Board ofDirectors and was elected as president and Chief Executive Officer inJune 2003. His salary for 2003 does not include the aggregate paymentof $75,400 that he received for his services on the ExecutiveCommittee. |

|     |                                                                                                                                                                                                                                                                                                                                                  |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | In accordance withMr. Forman's employment agreement with us, he is entitled toclaim a minimum of $20,000 per annum of perquisites. In addition,pursuant to Mr. Forman's employment agreement with us, wereimbursed him for certain expenses which he incurred in 2003 inconnection with obtaining professional tax and financial planningadvice. |

|     |                                                              |
|-----|--------------------------------------------------------------|
| (3) | Represents theCompany's contributions under its 401(k) plan. |

|     |                                             |
|-----|---------------------------------------------|
| (4) | Jonathan Stern started with us in June2002. |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (5) | Mr. Pollack was issued arestricted stock award for 5,587 shares on June 11, 2001, at a purchaseprice of $0.0001 per share (par value) under our Amended 2000 Plan. Theclosing price per share was $8.95 on the grant date. The restriction onthese shares expired on June 11, 2004. At June 10, 2004, the aggregatemarket value of these shares was $30,002. On September 24, 2004, weentered into a Separation Agreement and General Release with Mr.Pollack, pursuant to which the Company and Mr. Pollack agreed toterminate their employment relationship effective December 31,2004. |

|     |                                                                                                                                                                                     |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (6) | Represents forgiveness ofa portion of a loan extended to Mr. Pollack in 2001(pursuant to theterms of the loan) in connection with taxes due on his restricted stockgranted in 2001. |

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|     |                                                                                           |
|-----|-------------------------------------------------------------------------------------------|
| (7) | Includes$50,000 severance and $6,000 of the Company's contributions underits 401(k) plan. |

|     |                                                      |
|-----|------------------------------------------------------|
| (8) | Ms.Schulze-Hodges started with us in September 2003. |

|     |                                                                                                                   |
|-----|-------------------------------------------------------------------------------------------------------------------|
| (9) | Ms. Jacobson became General Counsel inAugust 2003, prior to which she was a non-executive employee of theCompany. |

|      |                                             |
|------|---------------------------------------------|
| (10) | Mr. Kipust startedwith us in November 2002. |

Stock Option Grants

Thefollowing table contains information concerning the stock optionsgranted to the Named Executive Officers during the year ended December31, 2004. All such grants were made under our Amended 2000 Plan. Wehave not granted any stock appreciation rights.

OPTION GRANTSDURING YEAR ENDED DECEMBER 31,2004

|                                            |  |                                                         |         |                                                                                                  |  |                |         |         |  |        |         |        |  |        |            |        |  |        |         |        |  |        |         |        |  |  |
|--------------------------------------------|--|---------------------------------------------------------|---------|--------------------------------------------------------------------------------------------------|--|----------------|---------|---------|--|--------|---------|--------|--|--------|------------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--|
| Name                                       |  | Individual Grants                                       |         | Potential RealizableValue at Assumed Annual Rates of Stock Price Appreciationfor Option Term (3) |
| Number of SharesUnderlying Options Granted |  | % ofTotal Options Granted to Employeesin FiscalYear (2) |         | ExercisePrice PerShare                                                                           |  | ExpirationDate |         |         |
| 5%                                         |  | 10%                                                     |         |
| PeterA.Forman                              |  |                                                    | — |                                                                                             |  |           | — |    |  |   | — |   |  |   | —    |   |  |   | — |   |  |   | — |   |
| JonathanStern                              |  |                                                    | — |                                                                                             |  |           | — |    |  |   | — |   |  |   | —    |   |  |   | — |   |  |   | — |   |
| MichaelPollack                             |  |                                                    | — |                                                                                             |  |           | — |    |  |   | — |   |  |   | —    |   |  |   | — |   |  |   | — |   |
| MonicaSchulze-Hodges                       |  |                                                    | — |                                                                                             |  |           | — |    |  |   | — |   |  |   | —    |   |  |   | — |   |  |   | — |   |
| RoniA. Jacobson(1)                         |  |                                                    | 75,000  |                                                                                             |  |           | 22      | %  |  | $      | 5.58    |   |  |   | 07/09/2014 |   |  | $      | 263,192 |   |  | $      | 666,981 |   |
| AlanKipust                                 |  |                                                    | — |                                                                                             |  |           | — |    |  |   | — |   |  |   | —    |   |  |   | — |   |  |   | — |   |
|                                            |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                                          |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Ms.Jacobson's options become exercisable in 42 equal monthlyinstallments upon the completion of each month of service commencing onthe date six months after the date of grant. In the event of certainchange of control transactions, the options will become immediatelyexercisable if not assumed or replaced with comparable rights. |

|     |                                                                                                     |
|-----|-----------------------------------------------------------------------------------------------------|
| (2) | During 2004, we granted employeesoptions to purchase an aggregate of 341,350 shares of commonstock. |

|     |                                                                                                                                                                                                                                                                                                                                                                            |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3) | The potential realizablevalue is calculated based upon the term of the option at its time ofgrant. It is calculated assuming that the stock price on the date ofgrant appreciates at the indicated annual rate, compounded annually forthe entire term of the option, and that the option is exercised andsold on the last day of its term for the appreciated stockprice. |

Option Exercise and Year-End Values

Thefollowing table provides information, with respect to the NamedExecutive Officers, concerning the exercise of options during thefiscal year ended December 31, 2004 and unexercised options held bythem at of the end of that fiscal year.

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AGGREGATED OPTION EXERCISES IN LASTFISCAL YEARAND FISCAL YEAR-END OPTIONVALUES

|                      |  |                                |         |                      |  |                                                                   |         |                                                                |  |        |         |        |  |        |         |        |  |   |         |        |  |        |         |        |  |  |
|----------------------|--|--------------------------------|---------|----------------------|--|-------------------------------------------------------------------|---------|----------------------------------------------------------------|--|--------|---------|--------|--|--------|---------|--------|--|---|---------|--------|--|--------|---------|--------|--|--|
| Name                 |  | SharesAcquired on Exercise (#) |         | Value Realized($)(1) |  | Number of Shares Underlying UnexercisedOptions at Fiscal Year End |         | Value of UnexercisedIn-the-Money Options at Fiscal Year End(2) |
| Exercisable          |  | Unexercisable                  |         | Exercisable          |  | Unexercisable                                                     |         |
| PeterA.Forman        |  |                           | — |                 |  |                                                              | — |                                                           |  |   | 171,706 |   |  |   | 198,389 |   |  | $ | 25,179  |   |  | $      | 17,855  |   |
| JonathanStern        |  |                           | — |                 |  |                                                              | — |                                                           |  |   | 227,381 |   |  |   | 172,619 |   |  | $ | 120,738 |   |  | $      | 102,262 |   |
| MichaelPollack       |  |                           | 7,143   |                 |  | $                                                                 | 4,135   |                                                           |  |   | 114,976 |   |  |   | — |   |  | $ | 309     |   |  |   | — |   |
| MonicaSchulze-Hodges |  |                           | — |                 |  |                                                              | — |                                                           |  |   | 17,857  |   |  |   | 57,143  |   |  | $ | 22,857  |   |  | $      | 73,143  |   |
| RoniA.Jacobson       |  |                           | — |                 |  |                                                              | — |                                                           |  |   | 83,714  |   |  |   | 93,286  |   |  | $ | 8,578   |   |  | $      | 70,316  |   |
| AlanKipust           |  |                           | — |                 |  |                                                              | — |                                                           |  |   | 55,238  |   |  |   | 77,857  |   |  | $ | 103,295 |   |  | $      | 144,164 |   |
|                      |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                              |
|-----|------------------------------------------------------------------------------------------------------------------------------|
| (1) | Basedupon the market price of the purchased shares on the exercise date lessthe option exercise price paid for those shares. |

|     |                                                                                                                                                                                                                                   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Based upon the market price of $6.39 pershare, determined on the basis of the closing selling price per shareof common stock on the Nasdaq National Market on December 31, 2004,less the option exercise price payable per share. |

Boardand Committee Fees

We pay our non-employee directors an annualfee of $30,000. In addition, our non-employee directors receive a$1,000 payment for each duly constituted regular or special meeting ofthe Board that they attend in person or by teleconference and a $500payment for each duly constituted committee meeting that they attend inperson or by teleconference. The Chairman of the Audit Committeereceives an additional annual payment of $10,000. As of June 11, 2004,the Chairman of the Compensation Committee began receiving, on apro-rated basis for 2004, an additional annual payment of $10,000. Wecurrently do not provide additional compensation for specialassignments of the Board of Directors.

On November 25, 2002, weentered into a letter agreement of employment with Mr. Quain pursuantto which Mr. Quain agreed to act as Executive Chairman of the Board fora one year period. Under the terms of the agreement, Mr. Quain alsoagreed to continue to act as Chairman of the Board for a period ofthree years after the initial one year period, subject to his continuedelection to the Board by our stockholders, and to perform the dutiesdescribed in the agreement for seven business days per month. Inconsideration for performing these duties, we granted Mr. Quain optionsto purchase 600,000 shares of our common stock at an exercise price of$4.50 per share on November  25, 2002. These options vest andbecome exercisable in 48 equal monthly installments of 12,500 sharesbeginning on the date of grant for as long as Mr.  Quain remainsa director, provided that (A) the option will accelerate and vest infull upon Mr.  Quain's death or permanent disability, or achange in control, which occurs at any time while Mr.  Quain isserving as a director, and (B) in the event Mr.  Quain is notreelected to the Board by our stockholders, the option will accelerateand vest as if Mr.  Quain had continued to remain ExecutiveChairman or non-executive Chairman of the Board for the twelve-monthperiod subsequent to his last date of service as a director, andprovided further that the option will immediately terminate and ceasevesting in the event that Mr.  Quain's employment isterminated for cause. In connection with this letter agreement,Mr.  Quain waived any rights or entitlement to any stock optiongrants or other benefits under the Automatic Option Grant Program ofthe Amended and Restated 2000 Stock Incentive Plan (the"Amended 2000 Plan"). Pursuant to the termsof the letter agreement, in November 2003 Mr. Quain resumed his role asChairman of the Board and ceased his role as Executive Chairman. InDecember 2003, we entered into a verbal arrangement with Mr. Quainpursuant to which Mr. Quain is entitled to receive compensation at arate of $1,000 per day for each day that he works in excess of sevenbusiness days per month, provided that such compensation does notexceed $3,500 per month.

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Automatic Option GrantProgram

Under the Automatic Option Grant Program of theAmended 2000 Plan, eligible non-employee directors receive an initialoption grant upon commencement of their service on the Board and aseries of option grants over their period of Board service. Eacheligible non-employee director receives, at the time of his or herinitial election or appointment to the Board, an option grant for25,000 shares of common stock at an exercise price equal to the fairmarket value of our common stock at the close of business on the dateof grant, provided such individual has not previously been in ouremploy. In addition, each eligible non-employee director who continuesto serve is granted an option to purchase 2,500 shares of common stockon the date of each regularly scheduled quarterly Board meeting thatoccurs in a calendar quarter following the quarter of his or herinitial election or appointment to the Board at an exercise price equalto the fair market value of our common stock at the close of businesson the date of grant. Each grant under the Automatic Option GrantProgram has a term of ten years, subject to earlier termination uponthe director's cessation of service as a director. Subject to thedirector's continuing service on the Board, 50% of theinitial 25,000-share option grant vests upon the first anniversary ofthe individual's becoming a director and 50% vests uponthe second anniversary; and each 2,500-share option grant vests uponthe director's completion of one year of Board service measuredfrom the grant date. Each option is immediately exercisable for any orall of the option shares. However, any unvested shares purchased underthe option shall be subject to repurchase by us, at the exercise pricepaid per share, upon the optionee's cessation of Board serviceprior to vesting in those shares.

In the event of a change ofcontrol or a hostile takeover, the options to purchase shares of commonstock held by our directors at such time will automatically vest infull and any repurchase rights shall automatically terminate so thateach such option may, immediately prior to the effective date of suchchange of control or hostile takeover, become fully exercisable. Eachoption that is accelerated in connection with a change of control shallterminate upon the change of control, except to the extent assumed byour successor corporation or otherwise continued in full force andeffect pursuant to the terms of the change of control. Any such optionsthat are assumed by our successor corporation shall be subject toadjustment, both as to the number of shares and as to the exerciseprice. Each option that is accelerated in connection with a hostiletakeover shall remain exercisable until its expiration date or soonertermination of the option term. Upon the occurrence of a hostiletakeover, our directors will have a thirty day period in which tosurrender their options in return for a cash distribution.

Stock Option Grants in 2004

In 2004, in accordancewith the Automatic Option Grant Program of the Amended 2000 Plan, wegranted each of our non-employee directors, excluding our Chairman,options to purchase 2,500 shares of our common stock on each of thefollowing dates on which we held regularly scheduled quarterly boardmeetings:

|              |                                                           |
|--------------|-----------------------------------------------------------|
| •  | February 10, 2004 at anexercise price per share of $5.72; |

|              |                                                     |
|--------------|-----------------------------------------------------|
| •  | May7, 2004 at an exercise price per share of $5.56; |

|              |                                                            |
|--------------|------------------------------------------------------------|
| •  | August 3, 2004 at an exercise price pershare of $5.94; and |

|              |                                                          |
|--------------|----------------------------------------------------------|
| •  | November 2, 2004at an exercise price per share of $5.46. |

IndemnificationAgreements

We have entered into indemnification agreements witheach of our directors and certain of our executive officers under whichwe have agreed to indemnify them and advance expenses on their behalfto the fullest extent permitted by Delaware law, our Amended andRestated Certificate of Incorporation, and our Amended and RestatedBy-laws.

Employment Agreements

We have entered intoemployment agreements with each of Peter A. Forman, our President andChief Executive Officer; Jonathan Stern, our Chief Financial Officer;Michael Pollack, our former 

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General Manager of Corporate Services;Monica Schulze-Hodges, our General Manager of Retail, Roni A. Jacobson,our General Counsel, and Alan Kipust, our Senior Vice President. Inconnection with the resignation of Mr. Pollack, we entered into aSeparation Agreement and General Release with him.

Peter A.Forman

We have entered into an employment agreement dated as ofJune 16, 2003 with Peter A. Forman which provides for a two year termof employment as our President and Chief Executive Officer. In February2005, Mr. Forman informed the Company's board of directors thathe will not seek renewal of his employment agreement upon theexpiration of its term on June 16, 2005 and agreed to step down priorto June 16, 2003 if and when his successor has been hired and indicatesthat he or she is ready to assume the position of Chief ExecutiveOfficer. The Company agreed that such notice shall be a notice oftermination of employment by Mr. Forman for good reason (as defined inhis employment agreement).

Under the terms of the agreement, Mr.Forman receives an annual base salary of $300,000, a minimum annualbonus of $100,000 per year, a discretionary annual bonus equal to3% of our earnings before interest and taxes("EBIT") between $7 and $25 million and5% of EBIT over $25 million and certain other benefits such asmedical and dental coverage, short and long term disability and lifeinsurance. In the event of certain extraordinary corporate transactions(such as mergers, consolidations or spin-offs), the CompensationCommittee has the authority to limit any annual bonus to $1million.

Pursuant to the agreement we agreed to grant Mr. Formanan option to purchase a number of shares of common stock of the Companyequal to 1.375 percent of our outstanding shares of common stock(including all shares underlying outstanding warrants, but excludingoutstanding employee and director options and excluding sharesrepurchased in a stock repurchase or redemption, if applicable) on theearlier to occur of December 31, 2003 or the occurrence of certainevents, including the announcement by the Company of one or more stockrepurchases or redemptions of an aggregate of $120 million.Accordingly, on August 1, 2003, the Company granted Mr. Forman optionsto purchase 350,095 shares at an exercise price of $6.30 per share. Theper share exercise price was determined in accordance with theagreement and was equal to the closing price on the first full tradingday following the announcement of our self tender offer. The optionbegan vesting on December 16, 2003 and shall vest and becomeexercisable each month in  1/30thincrements. As a result of Mr. Forman's termination of employmentfor good reason, the option will immediately vest and become fullyexercisable (and remain exercisable for 6 months) upon termination ofhis employment. Under his agreement, Mr. Forman has also been eligiblefor additional annual grants of stock options, at the sole discretionof the Compensation Committee.

In addition, as of the date oftermination of Mr. Forman's employment by Mr. Forman for goodreason, we will be required to pay him all accrued but unpaid salary,bonus and benefits and any accrued but unused vacation as of the dateof termination (the "Accrued Obligations")and a lump sum amount equal to the greater of one year's salary,or  1/12 of one year's salary times the number ofmonths remaining in his employment term. He will also be entitled tomedical and dental benefits for himself and his eligible dependentsunder COBRA for a period of 18 months following the date of terminationto be paid by us. Mr. Forman is also entitled to an additional paymentin order to compensate him for any "goldenparachute" excise tax that he incurs as a result ofreceiving the severance payments and benefits provided for in theemployment agreement.

Mr. Forman is prohibited under hisemployment agreement from using or disclosing any of our confidentialinformation at any time in the future and has assigned to us all rightsto any inventions he develops during his employment that pertain to ourbusiness or that are developed during work time or using our materialor facilities. Mr. Forman is also prohibited from competing with us orsoliciting any of our customers or employees during his employment andfor a period of one year thereafter.

Jonathan Stern

Wehave a letter agreement dated as of June 11, 2002 with Mr. Stern whichconfirms the terms of his employment. The letter agreement providesthat his employment will be "at will" and maybe 

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terminated at any time by either party. Mr.Stern is entitled to an annual salary of $250,000, which will bereviewed on an annual basis and an annual bonus of up to $150,000,which may be paid 50% in cash and 50% in fully-vestedshares of common stock. In connection with Mr. Stern's employmentwith us, we granted him options to purchase an aggregate of 350,000shares of common stock, of which:

|              |                                                                    |
|--------------|--------------------------------------------------------------------|
| •  | options to purchase 150,000 shares havean exercise price of $7.48; |

|              |                                                                        |
|--------------|------------------------------------------------------------------------|
| •  | optionsto purchase 100,000 shares have an exercise price of $7.24; and |

|              |                                                                    |
|--------------|--------------------------------------------------------------------|
| •  | options to purchase 100,000 shares havean exercise price of $4.72. |

These stock options began vesting onDecember 11, 2002 and vest in equal monthly amounts over a 42-monthperiod, for as long as Mr. Stern is employed by us. In the event thathe is terminated without cause or resigns with good reason following achange in control, each option will accelerate, vest and becomeexercisable in full on the effective date of his termination.

OnMarch 8, 2003, we granted Mr. Stern options to purchase 50,000 sharesof our common stock at an exercise price of $5.27 per share. Theoptions began vesting on September 8, 2003 and vest in 42 equal monthlyinstallments. In the event that Mr. Stern is terminated without causeor resigns with good reason following a change in control, this optionwill accelerate, vest and become exercisable in full on the effectivedate of his termination.

On May 8, 2003, we amended Mr.Stern's letter agreement to provide that if Mr. Stern'semployment with us is terminated without cause or by him for goodreason at any time, he will receive his base salary in effect at thetime of such termination or resignation for a period of twelve monthsfrom the date of such termination or resignation. In addition, Mr.Stern's medical coverage will be continued for such twelve monthperiod at our expense.

In March 2004 and March 2005, we amendedMr. Stern's letter agreement to provide a raise of $10,000 and$7,800, respectively, bringing his total salary to $267,800. EffectiveMarch 9, 2005, we further amended Section 3 of the Mr. Stern'sletter agreement to modify his bonus eligibility for the year endedDecember 31, 2004 pursuant to which he received a bonus for such yearof $157,686.

Michael Pollack

On September 24, 2004, weentered into a Separation Agreement and General Release with Mr.Pollack, which effectively terminated Mr. Pollack's prioremployment arrangement with the Company. Mr. Pollack agreed to continueto perform his then current duties through October 15, 2004 and fromOctober 16, 2004 through December 31, 2004 (the"Termination Date"), he agreed continue toperform duties necessary to transition his job responsibilities to oneor more employees designated by the Company. Subject to compliance withthe terms of the agreement, within ten (10) days of the TerminationDate, the Company agreed to pay Mr. Pollack a lump sum payment in theamount of $50,000, which amount represents three (3) months salary athis then current rate of pay, as well as his 2004 minimum bonus of$50,000, each less statutory deductions and withholdings.

Priorto the termination of his employment, Mr. Pollack's employmentwith us was governed by a letter agreement dated June 8, 2001. Theletter agreement provided that his employment would be "atwill" and might be terminated at any time by either party.Under the agreement, Mr. Pollack was entitled to an annual base salaryof $200,000 and an annual bonus of up to $150,000. Pursuant to thisagreement, we granted Mr. Pollack options to purchase 120,000 shares ofour common stock at an exercise price per share of $12.96. Theseoptions began vesting on January 17, 2002 and vested in 1/42 increments on a monthly basis through thetermination of his employment, at which time they were cancelled.Pursuant to this agreement, on June 11, 2001, we also issued Mr.Pollack 5,587 restricted shares of our common stock at a purchase priceof $0.0001 per share. The restriction on these shares expired on June11, 2004.

In connection with the grant of restricted shares onJune 11, 2001 we loaned Mr. Pollack $17,277.82 for the payment ofincome taxes and agreed to forgive the principal and interest due underthe loan in three equal annual installments, which commenced on thefirst anniversary of Mr. Pollack's start date. The loan accruedinterest at a rate of 3.93% per annum, compounded annually andbecame due and payable in full on June 11, 2004.

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On March 8, 2003, we entered into aRetention Bonus Letter Agreement with Mr. Pollack pursuant to which Mr.Pollack received a retention bonus of $25,000 in August 2003.

OnMay 23, 2003, we entered into a letter agreement with Mr. Pollackamending certain terms of our June 8, 2001 letter agreement with him.Based on his achievement of a series of performance goals, Mr. Pollackbecame entitled to receive a minimum bonus for the 2004 fiscal year of$50,000. Also pursuant to this amendment, for the 2003 fiscal yearonly, Mr. Pollack was eligible for a quarterly bonus of $35,000 forachieving certain goals in each of the second, third and fourthquarters and an additional retention bonus of $15,000 if he remainedemployed by us through September 30, 2003. Under this amendment, if Mr.Pollack's employment with us were terminated without cause or byhim for good reason at any time, he would be entitled to receive hisbase salary for a period of three months from the effective date of histermination. In addition, if we were to terminate Mr. Pollack'semployment without cause prior to December 31, 2004, he would beentitled to receive the 2004 minimum bonus.

On June 25, 2003,Mr. Pollack was granted options to purchase 25,000 shares of our commonstock at an exercise price of $5.87 a share. The options began vestingon November 23, 2003 and vested in  1/42 increments ona monthly basis through the termination of his employment, at whichtime the unexercised portion was cancelled.

MonicaSchulze-Hodges

We have a letter agreement dated August 6, 2003with Ms. Schulze-Hodges which confirms the terms of her employment. Theletter agreement provides that her employment will be "atwill" and may be terminated at any time by either party.Pursuant to the terms of the agreement, Ms. Schulze-Hodges was entitledto an annual base salary of $190,000 and an annual bonus of up to35% of her base salary to be determined based on her and thecompany's performance. Pursuant to this agreement, we alsogranted Ms. Schulze-Hodges options to purchase 75,000 shares of ourcommon stock at an exercise price per share of $5.11. These optionsbegan vesting on March 2, 2004 and vest in 42 equal monthlyinstallments.

In June 2004 and March 2005, we amended Ms.Schulze-Hodge's letter agreement to provide increases to her basesalary of $10,000 and $6,000, respectively, bringing her total basesalary to $206,000. We further amended Ms.  Schulze-Hodges'letter agreement to modify her bonus eligibility for the year endedDecember  31, 2004 pursuant to which she received a bonus forsuch year of $106,681.

Roni A. Jacobson

We have aletter agreement dated January 31, 2000 with Ms. Jacobson whichconfirms the terms of her employment in the position of AssociateGeneral Counsel. The letter agreement provides that her employment willbe "at will" and may be terminated at anytime by either party. Pursuant to the terms of the agreement, Ms.Jacobson was entitled to an annual salary of $100,000. Pursuant to thisagreement, we also granted Ms. Jacobson options to purchase 35,000shares of our common stock (after giving effect to a 3.5 for 1 stocksplit) at an exercise price per share of $12.86. These options beganvesting on April 30, 2000 and vest in 42 equal monthlyinstallments.

On August 15, 2003, Ms. Jacobson accepted theposition of General Counsel of the Company. In January 2001, April2001, March 2002, July 2003, June 2004 and March 2005, we amended Ms.Jacobson's letter agreement to provide increases in her basesalary of $25,000, $5,000, $20,000, $25,000, $25,000 and $1,500,respectively, bringing her total base salary to $201,500.

OnMarch 7, 2001, May 2, 2002, April 2, 2003 and July 9, 2004 we grantedMs. Jacobson options to purchase 30,000, 21,000, 16,000 and 75,000shares of our common stock, respectively, at exercise prices of $6.28,$8.76, $5.46 and $5.58 per share, respectively. With the exception ofthe March 7, 2001 options, which began vesting immediately, the optionsbegan vesting six months after the date of grant and vest in 42 equalmonthly installments.

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Alan Kipust

We have a letteragreement dated November 15, 2002 with Mr. Kipust which confirms theterms of his employment. The letter agreement provides that hisemployment will be "at will" and may beterminated at any time by either party. Pursuant to the terms of theagreement, Mr. Kipust was entitled to an annual salary of $175,000 andan annual bonus of at least $75,000 to be determined based on hisperformance. If we terminate Mr. Kipust's employment withoutcause prior to the payment of bonuses, Mr. Kipust is eligible toreceive a pro rated bonus based upon the number of months he worked inthe fiscal year of termination. Pursuant to this agreement, we alsogranted Mr. Kipust options to purchase 125,000 shares of our commonstock at an exercise price per share of $4.40. These options beganvesting on May 15, 2003 and vest in 42 equal monthly installments.

On March 8, 2003 we granted Mr. Kipust options to purchase 20,000shares of our common stock at an exercise price of $5.27 per share. Theoptions began vesting on September 8, 2003 and vest in 42 equal monthlyinstallments. In the event that Mr. Kipust is terminated without cause,these options will accelerate, vest and become exercisable in full onthe effective date of his termination.

On November 19, 2003, weamended Mr. Kipust's letter agreement to change his annual basesalary to $200,000 and his annual bonus to at least $50,000 to bedetermined based on his performance.

Executive Change inControl Severance Program

On November 11, 2004, we implementedof an Executive Change in Control Severance Program. This Program issubstantially similar to an Executive Change in Control SeveranceProgram that the Company adopted in March 2003, which expired in May2004. Under the terms of the current Program, if within one yearfollowing a change in control or effective change in control (each asdefined under the Program) that occurs on or prior to May 31, 2005, aparticipant's employment with us is terminated (1) by us otherthan for cause, by reason of the participant's death or by reasonof the participant's disability or (2) by the participant forgood reason, the participant will be entitled to separation benefits of12 months' base salary (in the event of a change in control) orfive months' base salary (in the event of an effective change incontrol), subject to a participant's execution and non-revocationof a release.

The Program cannot be amended in any manner thatis adverse to the interests of a participant or terminated within oneyear following the date of its adoption or following a change incontrol or effective change in control. Any successor of Register.comor its businesses will be bound by the terms of the Program in the samemanner and to the same extent that we would be obligated to perform ourduties if no succession had taken place. The cash severance benefitspayable under the terms of the Program will be reduced by otherseverance benefits payable under any plan, program, policy, practice,agreement or arrangement between the participant and Register.com.

The following executives became participants in the Program in theinitial implementation: Ian Fish (Director, Product Management), MonicaSchulze-Hodges (General Manager, Retail), Roni Jacobson (GeneralCounsel), Alan Kipust (Senior Vice President of Operations), StephanieMarks (Vice President, Investor Relations & CorporateCommunications), Sushant Mohanty (Chief Information Officer), DavidSaias (Vice President, Sales), Stephen Smith (Vice President, BusinessDevelopment) and Jonathan Stern (Chief Financial Officer). StuartHorowitz (Vice President – Human Resources) and Kanchan Mahtre(Director of Operations – Corporate Services) became participantsin the Program on April 29, 2005.

Compensation CommitteeInterlocks and Insider Participation

The Compensation Committeeconsists of three directors, Jim Rosenthal, Reginald Van Lee and JamesA. Mitarotonda. No interlocking relationship has existed between themembers of our Compensation Committee and the board of directors orcompensation committee of any other company.

Notwithstanding anything to the contrary set forth inany of the Company's previous filings made under the SecuritiesAct of 1933, as amended, or the Securities Exchange Act of 1934, asamended, that might 

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incorporate future filings made by theCompany under those statutes reference to the independence of the AuditCommittee members is not deemed filed with the Securities and ExchangeCommission and shall not be deemed incorporated by reference into anyof those prior filings or into any future filings made by the Companyunder those statutes.

Item 12.    Security Ownership ofCertain Beneficial Owners and Management and Related StockholderMatters.

The following table sets forth information known to uswith respect to the beneficial ownership of our common stock as ofApril 25, 2005, by (1) each Named Executive Officer, (2)  eachdirector, (3)  all directors and executive officers as a group,and (4) each person (or group) that beneficially owns more than5% of our common stock. Unless otherwise indicated, each of thestockholders can be reached at our principal executive offices locatedat 575 Eighth Avenue, 8th Floor, New York, NY10018.

|                                                                                                                                                |  |                           |           |         |  |        |        |         |  |  |
|------------------------------------------------------------------------------------------------------------------------------------------------|--|---------------------------|-----------|---------|--|--------|--------|---------|--|--|
|                                                                                                                                           |  | SharesBeneficiallyOwned** |
|                                                                                                                                           |  | Number                    |           | Percent |
| PeterA. Forman(1)                                                                                                                              |  |                      | 1,895,367 |    |  |   | 7.8    | %  |
| MitchellI. Quain (2)                                                                                                                           |  |                      | 484,900   |    |  |   | 2.0    | %  |
| Niles H. Cohen(3)                                                                                                                              |  |                      | 217,445   |    |  |   |        | *  |
| Dewain K. Cross(4)                                                                                                                             |  |                      | 37,500    |    |  |   |        | *  |
| James A. Mitarotonda(5)                                                                                                                        |  |                      | 452,635   |    |  |   | 1.9    | %  |
| StanleyMorten (6)                                                                                                                              |  |                      | 40,000    |    |  |   |        | *  |
| Jim Rosenthal(7)                                                                                                                               |  |                      | 97,483    |    |  |   |        | *  |
| Reginald Van Lee(8)                                                                                                                            |  |                      | 111,950   |    |  |   |        | *  |
| Jonathan Stern(9)                                                                                                                              |  |                      | 284,525   |    |  |   | 1.2    | %  |
| MichaelPollack (10)                                                                                                                            |  |                      | 5,587     |    |  |   |        | *  |
| MonicaSchulze-Hodges (11)                                                                                                                      |  |                      | 28,572    |    |  |   |        | *  |
| RoniJacobson (12)                                                                                                                              |  |                      | 102,907   |    |  |   |        | *  |
| Alan Kipust(13)                                                                                                                                |  |                      | 77,353    |    |  |   |        | *  |
| All directors andexecutive officers as a group (14 persons) (14)                                                                               |  |                      | 3,843,368 |    |  |   | 15.8   | %  |
|                                                                                                                                           |  |                      |      |    |  |   |   |    |
| RichardD. FormanRDF Ventures, LLC(15)                                                                                                          |  |                      | 2,170,103 |    |  |   | 8.9    | %  |
| BaringtonCompanies Equity Partners, L.P.Barington Companies Offshore Fund,Ltd. (BVI)Starboard Value & Opportunity Fund, LLCParche,LLC (16) |  |                      | 1,883,292 |    |  |   | 7.8    | %  |
| TheClark Estates, Inc. (17)                                                                                                                    |  |                      | 1,794,400 |    |  |   | 7.4    | %  |
| Kennedy CapitalManagement, Inc.(18)                                                                                                            |  |                      | 1,379,438 |    |  |   | 5.7    | %  |
| SheffieldAsset Management,L.L.C.(19)                                                                                                           |  |                      | 1,220,600 |    |  |   | 5.0    | %  |
|                                                                                                                                                |

|  |
|--|
|  |  |
|  |

|   |                         |
|---|-------------------------|
| * | Representsless than 1%. |

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** | Giveseffect to the shares of common stock issuable upon the exercise of alloptions exercisable within 60 days of April 25, 2005 and other rightsbeneficially owned by the indicated stockholders on that date.Beneficial ownership is determined in accordance with the rules of theSecurities and Exchange Commission and includes voting and investmentpower with respect to shares. Unless otherwise indicated, the personsnamed in the table have sole voting and sole investment control withrespect to all shares beneficially owned. Percentage ownership iscalculated based on 24,251,426 shares of our common stock outstandingas of April 25, 2005. |

|     |                                                                                                                                                                             |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Includes 1,345,127 shares of commonstock held by Forman Capital Management, LLC, of which Mr. Forman isthe managing member, warrants exercisable within 60 days to purchase |

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|  |                                                                                                                                                                                                |
|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 308,515 shares of common stock at anexercise price of $0.97 per share and options exercisable within sixtydays to purchase 241,725 shares of common stock at a weighted averageprice of $6.38. |

|     |                                                                                                                                                                                      |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Includes7,400 shares held in trust for Mr. Quain's children and optionsexercisable within sixty days to purchase 477,500 shares of commonstock at a weighted average price of $4.64. |

|     |                                                                                                                              |
|-----|------------------------------------------------------------------------------------------------------------------------------|
| (3) | Includes options exercisable withinsixty days to purchase 20,000 shares of common stock at a weightedaverage price of $5.77. |

|     |                                                                                                                                 |
|-----|---------------------------------------------------------------------------------------------------------------------------------|
| (4) | Consists of options exercisable withinsixty days to purchase 37,500 shares of common stock at a weightedaverage price of $5.43. |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (5) | Includes 405,179 shares of commonstock held by Barington Companies Equity Partners, L.P.("Barington") and 27,456 shares held byBarington Companies Offshore Fund, Ltd. (BVI) (the"Barington Fund"). Mr. Mitarotonda is thePresident and Chief Executive Officer of Barington Companies Investors,LLC ("Barington Investors"), which is thegeneral partner of Barington and, accordingly, Mr. Mitarotonda has thepower to vote and dispose of the shares owned by the Barington. Mr.Mitarotonda is the sole stockholder and director of LNA Capital Corp.("LNA"), which is the general partner ofBarington Capital Group, L.P. ("BaringtonCapital"), which is the managing member of BaringtonCompanies Advisors, LLC ("BaringtonAdvisors"), which is the investment advisor of theBarington Fund and accordingly, Mr. Mitarotonda has the power to voteand dispose of the shares owned by the Barington Fund. BaringtonCapital is also the majority member of Barington Investors so throughthis relationship, Mr. Mitarotonda may also be deemed to beneficiallyown the shares held by Barington. Also includes options held by Mr.Mitarotonda which are exercisable within sixty days to purchase 20,000shares of Common Stock at a weighted average price of $5.77. |

|     |                                                                                                                                 |
|-----|---------------------------------------------------------------------------------------------------------------------------------|
| (6) | Consists of options exercisable withinsixty days to purchase 40,000 shares of Common Stock at a weightedaverage price of $4.89. |

|     |                                                                                                                               |
|-----|-------------------------------------------------------------------------------------------------------------------------------|
| (7) | Includes options exercisable withinsixty days to purchase 92,500 shares of common stock at a weightedaverage price of $10.58. |

|     |                                                                                                                                   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------|
| (8) | Consists of options exercisable withinsixty days to purchase 111,950 shares of common stock at a weightedaverage price of $14.33. |

|     |                                                                                                                                  |
|-----|----------------------------------------------------------------------------------------------------------------------------------|
| (9) | Consists of options exercisable withinsixty days to purchase 284,525 shares of common stock at a weightedaverage price of $6.49. |

|      |                                                                                                                    |
|------|--------------------------------------------------------------------------------------------------------------------|
| (10) | Based on our transfer agent records.Mr. Pollack's position with the Company was terminated as ofDecember 31, 2004. |

|      |                                                                                                                                 |
|------|---------------------------------------------------------------------------------------------------------------------------------|
| (11) | Consistsof options exercisable within sixty days to purchase 28,572 shares ofcommon stock at a weighted average price of $5.11. |

|      |                                                                                                                              |
|------|------------------------------------------------------------------------------------------------------------------------------|
| (12) | Includes options exercisable withinsixty days to purchase 99,713 shares of common stock at a weightedaverage price of $8.85. |

|      |                                                                                                                              |
|------|------------------------------------------------------------------------------------------------------------------------------|
| (13) | Includes options exercisable withinsixty days to purchase 75,953 shares of common stock at a weightedaverage price of $4.52. |

|      |                                                                                                                                                                                                                                                          |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (14) | Includes: Niles H. Cohen, Dewain K.Cross, Peter A. Forman, James A. Mitarotonda, Stanley Morten, MitchellI. Quain, Jim Rosenthal, Reginald Van Lee, Jonathan Stern, MichaelPollack, Monica Schulze-Hodges, Roni A. Jacobson, Alan Kipust and DavidSaias. |

|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (15) | Based on a Schedule13G/A filed with the Securities and Exchange Commission on February 14,2005 by Richard D. Forman, a former director, and RDF Ventures, LLC andthe subsequent exercise of warrants identified therein. Includes1,487,977 shares of common stock held by RDF Ventures LLC, of which Mr.R. Forman is the managing member, 18,836 shares of common stock held bythe RDF 1999 Family Trust, stock options to purchase 5,000 shares of |

106

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|  |                                                                                                                                                                                         |
|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | common stock held by Mr. R. Forman and598,249 shares of common stock held by Mr. R. Forman. Mr. R. Formandisclaims beneficial ownership of the shares held by the RDF 1999Family Trust. |

|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (16) | On February 9,2005, Barington, Barington Investors, Barington Fund, BaringtonAdvisors, Barington Capital, LNA, Mr. Mitarotonda, Starboard Value& Opportunity Fund, LLC ("Starboard"),Parche, LLC ("Parche"), Admiral Advisors, LLC("Admiral"), Ramius Capital Group, LLC("Ramius"), C4S & Co., LLC("C4S"), Mr. Peter A. Cohen("Cohen"), Mr. Morgan B. Stark("Stark"), Mr. Jeffrey M. Solomon("Solomon") and Mr. Thomas W. Strauss("Strauss") jointly filed an amendment toSchedule 13D with the Securities and Exchange Commission reportingcombined ownership of 1,883,292 shares of our common stock. Accordingto this Schedule 13D, Barington owns 405,179 shares, Barington Fundowns 27,456 shares, Starboard owns 1,013,280 shares and Parche owns437,377 shares. Mr. Mitarotonda, one of our directors, is the Presidentand Chief Executive Officer of Barington Investors, which is thegeneral partner of Barington and, accordingly, Mr. Mitarotonda andBarington Investors have the power to vote and dispose of the sharesowned by Barington. Mr. Mitarotonda is the sole stockholder anddirector of LNA, which is the general partner of Barington Capital,which is the managing member of Barington Advisors, which is theinvestment advisor of Barington Fund and accordingly, Mr. Mitarotonda,LNA, Barington Capital and Barington Advisors each have the power tovote and dispose of the shares owned by the Barington Fund. BaringtonCapital is also the majority member of Barington Investors so throughthis relationship, Mr. Mitarotonda, LNA and Barington Capital may alsobe deemed to beneficially own the shares held by Barington. C4S is themanaging member of Ramius, which is the sole member of Admiral, whichis the managing member of each of Starboard and Parche and,accordingly, C4S, Ramius and Admiral each have the power to vote anddispose of the shares owned by Starboard and Parche. The managingmember of each of Starboard and Parche is Admiral. Messrs. Cohen,Stark, Solomon and Strauss are the managing members of C4S andaccordingly, each shares the power to vote and dispose of the sharesowned by Starboard and Parche. Messrs. Cohen, Stark, Solomon andStrauss disclaim beneficial ownership of such shares. Barington'sprincipal business address is 888 Seventh Avenue, 17thFloor, New York, NY 10019. Barington Fund's principal businessaddress is c/o Bison Financial Services LTD, Bison Court Road Town,Tortola, British Virgin Islands. Starboard's and Parche'sprincipal business address is 666 Third Avenue, 26th Floor,New York, NY 10017. |

|      |                                                                                                                                                                                                                                               |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (17) | Based ona Schedule 13G/A filed with the Securities and Exchange Commission onFebruary 11, 2005 by The Clark Estates, Inc. ("ClarkEstates"). Clark Estates' principal business addressis One Rockefeller Plaza, 31st Floor, New York, NY10020. |

|      |                                                                                                                                                                                                                               |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (18) | Based on a Schedule13G/A filed with the Securities and Exchange Commission on February 15,2005 by Kennedy Capital Management, Inc.("Kennedy"). Kennedy's principalbusiness address is 10829 Olive Blvd., St. Louis, MO 63141. |

|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (19) | Based on a Schedule 13G filed withthe Securities and Exchange Commission on April 28, 2005 by SheffieldAsset Management, L.L.C. ("SAM"), SheffieldPartners, L.P. ("SPLP"), SheffieldInstitutional Partners, L.P. ("SIPLP") andSheffield International Partners, Ltd.("SIPLTD", together with SAM, SPLP and SIPLP,"Sheffield"). According to Sheffield'sSchedule 13G, SAM beneficially owns and has shared voting anddispositive power with respect to 1,220,600 shares of our common stock,SPLP beneficially owns and has shared voting and dispositive power withrespect to 434,652 shares of our common stock, SIPLP beneficially ownsand has shared voting and dispositive power with respect to 356,791shares of our common stock and SIPLTD beneficially owns and has sharedvoting and dispositive power with respect to 429,157 shares of ourcommon stock. Sheffield's principal business address is 227 W.Monroe, Suite 4800, Chicago, Illinois 60606. |

107

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Equity Compensation PlanInformation

This information is included under Item 5 under thesame caption and such information is incorporated by reference intothis Item 12.

Potential Change in Control

On February6, 2005, the Company entered into an agreement (the "2005Agreement") with Barington Companies Equity Partners, L.P.("Barington") that provides that unless allof the following occur, the Company must set the date for its 2005Annual Meeting of Stockholders no earlier than July 20, 2005:

(1) one new director is recommended by the Nominating Committee ofthe Board for appointment to the Board and such nominee is so appointedby February 15, 2005;

(2) a second new director is recommendedby the Nominating Committee of the Board for appointment to the Boardand such nominee is so appointed by February 28, 2005; and

(3) acandidate to succeed the Company's current Chief ExecutiveOfficer is recommended by a newly constituted search committee of theCompany's Board and the Board approves the appointment of suchcandidate by March 30, 2005 (with the term of such candidate'semployment to commence within 30 days of such approval or another datedetermined unanimously by the Board).

The 2005 Agreement alsoamended an earlier agreement (see description below) between theCompany and a stockholder group led by Barington by increasing thestandstill limitation on the ownership of the Company's commonstock by such group from 8% to 15% of the Company'soutstanding shares.

Although the nominating committee hadcommenced the search process, the Company did not meet the initialtarget date for appointing a new director by February 15, 2005 and didnot satisfy the other targets set forth in the 2005 Agreement. As aresult, to the extent not otherwise modified, the 2005 Agreementrequires the Company to set the date for its 2005 annual meeting at noearlier than July 20, 2005. A practical effect of holding the annualmeeting on or after July 20, 2005 is that, subject to compliance withthe Company's by-laws, Barington (or any other stockholder) couldnominate an alternate slate of directors to replace some or all of theCompany's existing directors at the 2005 annual meeting, which,if successful, could result in a change of control of the Company.

Item 13.    Certain Relationships and Related Transactions.

On June 9, 2003, we entered into an Agreement (the"2003 Agreement") with a group ofstockholders led by Barington that is made up of Barington, RCMAcquisition Co., LLC, Jewelcor Management, Inc., RCG Ambrose MasterFund, Ltd., Ramius Securities, LLC, James A. Mitarotonda and SeymourHoltzman. Mr. Mitarotonda, who is currently a director of the Company,is the Chairman of the Board, President and Chief Executive Officer ofBarington and is the managing member of the general partner ofBarington. Under the terms of the 2003 Agreement, we agreed to includeMr. Mitarotonda in our Board of Directors' slate of nominees forelection as a director at the 2003 and 2004 Annual Meeting, subject tocertain conditions. In addition, we agreed to distribute an aggregateof $120 million in cash to our stockholders by means of dividend,repurchase of shares, or a combination, which we did in September 2003.The 2003 Agreement also provided that Barington withdraw its proposedproxy contest in connection with the 2003 Annual Meeting. In addition,we reimbursed Barington in the amount of $175,000 for its out-of-pocketexpenses incurred in connection with the potential proxy contest. Asnoted above, the 2005 Agreement with Barington amended the 2003Agreement by increasing the standstill limitation on the ownership ofthe Company's voting securities by such group from 8% to15% of the Company's outstanding shares. See discussion ofthe 2005 Agreement in Item 12 —Security Ownership of CertainBeneficial Owners and Management and Related Stockholder Matters— Changes in Control.

On December 20, 2001 we made a threeyear loan to Walter Meffert, Jr., our former Chief Technology Officer,in the amount of $39,394 for the payment of income taxes in connectionwith 

108

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restricted shares we granted him onNovember 12, 2001. The loan accrued interest at a rate of 3.93%per annum, compounded annually and became due and payable in full onNovember 12, 2004. Under the terms of the loan, we agreed to forgivethe principal and interest due under the loan in three equal annualinstallments, commencing on the first anniversary of Mr.Meffert's start date, provided he remained employed by us. Weforgave the first and second annual installments of the loan, and inconnection with a Separation Agreement and General Release, dated April23, 2004, between the Company and Mr. Meffert, the remaining restrictedshares were cancelled and the unpaid principal and interest due underthe loan was forgiven in full. In addition, in March 2002 we enteredinto another three year loan with Mr. Meffert in the amount of $35,975to cover his relocation costs when he joined us. The loan became dueand payable in full in March 2005 and did not accrue interest. Underthe terms of the loan we agreed to forgive the principal due under therelocation loan in three equal annual installments, commencing on thefirst anniversary of the loan date, provided Mr. Meffert remainedemployed by us. We forgave the first and second annual installments ofthe loan, and in connection with a Separation Agreement and GeneralRelease, dated April 23, 2004, between the Company and Mr. Meffert, theunpaid principal and interest due under the loan was forgiven infull.

On June 11, 2001, we made a three year loan to MichaelPollack, in the amount of $17,277.82 for the payment of income taxes inconnection with restricted shares we granted him on June 11, 2001. Theloan accrued interest at a rate of 3.93% per annum, compoundedannually and became due and payable in full on June 11, 2004. Under theterms of the loan we forgave the principal and interest due under theloan in three equal annual installments, which commenced on the firstanniversary of Mr. Pollack's start date.

On February 7,2005 we issued 393,050 shares of our common stock to Richard D. Forman,our former director and shareholder of 8.9% of our common stock,upon exercise of an outstanding warrant. The exercise price ($381,258or $0.97 per share) was paid to us by Mr. R. Forman's tender of60,041 shares of our common stock. The tendered shares were valued at$6.35 per share (the fair market value) in accordance with the terms ofthe warrant. Mr.  R. Forman is the brother of Peter Forman, ourPresident and Chief Executive Officer.

Item 14.    PrincipalAccountant Fees and Services

In addition to retainingPricewaterhouseCoopers LLP to audit our financial statements, we engagePricewaterhouseCoopers LLP to perform other services from time to time.The following table sets forth the aggregate fees paid or accrued foraudit and other services provided by PricewaterhouseCoopers LLP for thepast two fiscalyears.

|                                |  |        |           |        |  |        |           |        |  |  |
|--------------------------------|--|--------|-----------|--------|--|--------|-----------|--------|--|--|
| Typeof Fee                     |  | 2004   |           | 2003   |
| Audit Fees(1)                  |  | $      | 3,083,000 |   |  | $      | 848,000   |   |
| Audit-RelatedFees (2)          |  | $      | 72,000    |   |  | $      | 465,000   |   |
| Tax Fees(3)                    |  | $      | 207,000   |   |  | $      | 288,000   |   |
| All OtherFees                  |  |   | —   |   |  |   | —   |   |
| TotalFees For ServicesProvided |  | $      | 3,362,000 |   |  | $      | 1,601,000 |   |
|                                |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                                                    |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Includesfees primarily for the annual audit (including required quarterlyreviews), the audit of management's assessment of internalcontrol over financial reporting, audit procedures related to therestatement of the prior years' financial statements and servicesin connection with the Form  S-8 registration statement and otherSEC matters. |

|     |                                                                                                                                                                                                                                                                                                                                                     |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Includes feesprimarily for employee benefit plan audits, due diligence related topotential mergers and acquisitions, accounting consultations inconnection with potential acquisitions, advice relating to financialaccounting and reporting standards, internal control reviews, andattest services that are not required by statute orregulation. |

|     |                                                                                                                                                                                                                                                               |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3) | Includes feesprimarily for tax compliance, tax advice, tax audits and tax planningof $207,000 and $170,000 in 2004 and 2003, respectively, and other taxadvice relating to the Company's September 2003 self-tender offerof common stock of $118,000 in 2003. |

109

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Pre-approval Policies andProcedures

Effective as of May 4, 2004, the Audit Committeeestablished a pre-approval policy pursuant to which it has granted itsapproval for the Company's independent auditor's to performcertain audit-related and tax services up to specified aggregate feelevels for each service. However, the Audit Committee must specificallypre-approve the terms of the annual audit services engagement,including the attestation engagement for the independentauditor's report on management's report on internalcontrols for financial reporting. Under the pre-approval policy, theAudit Committee must revise the list of pre-approved services annually.The Audit Committee's policy also provides that any proposedservices that are not pre-approved pursuant to the policy, as well asany proposed services that exceed pre-approved fee levels establishedin the policy, will require the Audit Committee's separatepre-approval. In addition, the Audit Committee may delegatepre-approval authority to one or more of its members, who must report,for information purposes only, any pre-approval decisions to the AuditCommittee at its next scheduled meeting. The Audit Committee alsodelegated specific pre-approval authority up to certain fee levels toits Chair. None of the services described above were approved by theAudit Committee under the de minimis exception provided by Rule2-01(c)(7)(i)(C) under Regulation S-X.

AuditorIndependence

The Audit Committee has considered whetherprovision of the non-audit services described above is compatible withmaintaining the independent auditor's independence and hasdetermined that these services have not adversely affectedPricewaterhouseCoopers LLP'sindependence.

110

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PART IV

Item15.    Exhibits and Financial Statement Schedules

|           |                                                             |
|-----------|-------------------------------------------------------------|
| (a)  | 1.    Consolidated FinancialStatements. |

The financial statements as set forth under Item 8of this report are incorporated herein by reference.

2.    Financial Statement Schedules.

The Valuation and Qualifying Account Schedule as set forth underItem 8 of this report is incorporated herein by reference.

3.    Exhibits.

The following Exhibitsare incorporated herein by reference or are filed with this report asindicatedbelow.

|               |  |                                                                                                                                                                                                                                                                                                    |  |  |  |  |
|---------------|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                        |
| 3.1           |  | Amendedand Restated Certificate of Incorporation (incorporated by reference toExhibit 3.2 of Registration Statement No.333-93533).                                                                                                                                                                 |
| 3.2           |  | Certificate of Correction ofAmended and Restated Certificate of Incorporation (incorporated byreference to the identically numbered exhibit of Registrant'sQuarterly Report on Form 10-Q filed for the quarter ended March 31,2000).                                                               |
| 3.3           |  | Amended and Restated Bylaws(incorporated by reference to Exhibit 3.4 of Registration Statement No.333-93533).                                                                                                                                                                                      |
| 3.4           |  | Certificate of Designationof Rights, Preferences and Privileges of the Series A JuniorParticipating Preferred Stock (incorporated by reference to Exhibit 3.1of Registrant's Current Report on Form 8-K dated October 29,2002).                                                                    |
| 4.1           |  | Specimen common stock certificate(incorporated by reference to the identically numbered exhibit ofRegistration Statement No.333-93533).                                                                                                                                                            |
| 4.2           |  | See Exhibits 3.1, 3.2, and3.3 for provisions of the certificate of incorporation and bylawsdefining the rights of holders of Common Stock (incorporated byreference to the identically numbered exhibit of Registration StatementNo. 333-93533).                                                   |
| 4.3           |  | Registration RightsAgreement dated June 30, 1999 (incorporated by reference to theidentically numbered exhibit of Registration Statement No.333-93533).                                                                                                                                            |
| 4.4           |  | Registration RightsAgreement dated June 4, 2000 (incorporated by reference to Exhibit4.3.2 of Registrant's Quarterly Report on Form 10-Q filed for thequarter ended June 30,2000).                                                                                                                 |
| 4.5           |  | Registration Rights Agreementdated September 15, 2000 (incorporated by reference to Exhibit 4.3.3 ofRegistrant Current Report on Form 8-K dated September 29,2000).                                                                                                                                |
| 4.6           |  | Certificate of designations,preferences and relative, participating, optional and other specialrights of preferred stock and qualifications, limitations andrestrictions of Series A Convertible Preferred Stock (incorporated byreference to Exhibit 4.5 of Registration Statement No.333-93533). |
| 4.7           |  | Form of warrant to purchasecommon stock issued to Series A Convertible Preferred Stockholders(incorporated by reference to Exhibit 4.6.1 of Registration StatementNo. 333-93533).                                                                                                                  |
|               |

111

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|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |  |  |  |
|---------------|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.8           |  | Form of warrant topurchase common stock issued to Niles H. Cohen and Zachary Prensky(incorporated by reference to Exhibit 4.6.4 of Registration StatementNo. 333-93533).                                                                                                                                                                                                                                                                                                                                                  |
| 4.9*          |  | Form of Amended andRestated Common Stock Purchase Warrant -- Series A issued to Richard D.Forman, Peter A. Forman, Dan Levine and Capital Express LLC(incorporated by reference to Exhibit 4.6.5 of Registration StatementNo. 333-93533).                                                                                                                                                                                                                                                                                 |
| 4.10          |  | Warrants to purchasecommon stock issued to Legg Mason Wood Walker, Incorporated(incorporated by reference to Exhibit 4.6.6 of Registration StatementNo. 333-93533).                                                                                                                                                                                                                                                                                                                                                       |
| 4.11          |  | Form of warrant topurchase common stock issued to consultants (incorporated by referenceto Exhibit 4.6.7 of Registration Statement No.333-93533).                                                                                                                                                                                                                                                                                                                                                                         |
| 4.12*         |  | Employee Stock OptionCertificate issued to Richard D. Forman (incorporated by reference toExhibit 4.7.1 of Registration Statement No.333-93533).                                                                                                                                                                                                                                                                                                                                                                          |
| 4.13*         |  | Stock Issuance Agreement,dated March 20, 2002, with Walt Meffert, Jr. (incorporated by referenceto Exhibit 4.9 of Registrant's Annual Report on Form 10-K for theyear ended December 31, 2001).                                                                                                                                                                                                                                                                                                                           |
| 4.14*         |  | StockOption Agreement with Jonathan Stern (incorporated by reference toExhibit 4.10 of Registrant's Quarterly Report on Form 10-Q forthe quarter ended June 30,2002).                                                                                                                                                                                                                                                                                                                                                     |
| 4.15          |  | Rights Agreement, dated as ofOctober 28, 2002, between Register.com, Inc. and American StockTransfer & Trust Company, which includes the form of Certificate ofDesignation of Rights, Preferences and Privileges of the SeriesA Junior Participating Preferred Stock as Exhibit  A, the form ofRights Certificate as Exhibit B and the Summary of Rights to PurchaseSeries A Preferred Stock as Exhibit C (incorporated by reference toExhibit 4.1 of Registrant's Current Report on Form 8-K datedOctober 29, 2002). |
| 10.1          |  | 1997 Stock OptionPlan (incorporated by reference to the identically numbered exhibit ofRegistration Statement No.333-93533).                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.2          |  | 1999 Stock Option Plan(incorporated by reference to the identically numbered exhibit ofRegistration Statement No.333-93533).                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.3          |  | Registrar AccreditationAgreement, dated November 30, 1999, by and between ICANN andRegister.com, Inc (incorporated by reference to the identicallynumbered exhibit of Registration Statement No.333-93533).                                                                                                                                                                                                                                                                                                               |
| 10.4          |  | Registrar AccreditationAgreement, dated April 27, 2000, by and between ICANN and Register.com,Inc (incorporated by reference to Exhibit 10.3.2 of Registrant'sQuarterly Report on Form 10-Q filed for the quarter ended June 30,2000).                                                                                                                                                                                                                                                                                    |
| 10.5          |  | Registrar License and Agreement,dated December 13, 1999, by and between Network Solutions, Inc. andRegister.com, Inc (incorporated by reference to Exhibit 10.4 ofRegistration Statement No.333-93533).                                                                                                                                                                                                                                                                                                                   |
| 10.6          |  | Lease between PennbusRealties, Inc. and Forman Interactive Corp (incorporated by referenceto Exhibit 10.5 of Registration Statement No.333-93533).                                                                                                                                                                                                                                                                                                                                                                        |
| 10.7          |  | 2000 Stock Incentive Plan(incorporated by reference to Exhibit 10.6 of Registration StatementNo. 333-93533).                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.8          |  | Amended and Restated2000 Stock Incentive Plan (effective as of March 22, 2002)(incorporated by reference to Exhibit 10.6.2 of Registrant'sAnnual Report on Form 10-K for the year ended December 31,2001).                                                                                                                                                                                                                                                                                                                |
|               |

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|               |  |                                                                                                                                                                                                                              |  |  |  |  |
|---------------|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNumber |  | Description                                                                                                                                                                                                                  |
| 10.9*         |  | Employee StockPurchase Plan (incorporated by reference to Exhibit 10.7 ofRegistration Statement No.333-93533).                                                                                                               |
| 10.10         |  | Lease between YarmouthArea Industrial Commission and RCOM Canada, Corp (incorporated byreference to Exhibit 10.20 of the Registrant's Quarterly Reporton Form 10-Q filed for the quarter ended March 31,2001).               |
| 10.11*        |  | Letter Agreement ofEmployment, dated as of June 11, 2002, with Jonathan Stern(incorporated by reference to Exhibit 10.23 of Registrant'sQuarterly Report on Form 10-Q for the quarter ended June 30,2002).                   |
| 10.12*        |  | Employment Agreement by andbetween Register.com and Mitchell Quain, dated November 25, 2002(incorporated by reference to Exhibit 10.24 of Registrant'sCurrent Report on Form 8-K dated November 25,2002).                    |
| 10.13*        |  | Form of IndemnificationAgreement between the Company and certain executive officers anddirectors (incorporated by reference to Exhibit 10.26 ofRegistrant's Annual Report on Form 10-K for the year endedDecember 31, 2002). |
| 10.20*        |  | Offer Letter,dated June 8, 2001 with Michael Pollack (incorporated by reference toExhibit 10.28 of Registrant's Annual Report on Form 10-K for theyear ended December 31,2002).                                              |
| 10.21*        |  | Promissory Note, dated June11, 2001 with Michael Pollack (incorporated by reference to Exhibit d(9) of the Registrant's Schedule T-O filed with the SEC onDecember 16, 2002).                                                |
| 10.22*        |  | Stock IssuanceAgreement with Michael Pollack (incorporated by reference to Exhibit d(10) of the Registrant's Schedule T-O filed with the SEC onDecember 16, 2002).                                                           |
| 10.23*        |  | Stock OptionAgreement with Mitchell I. Quain (incorporated by reference to Exhibitd (12) of the Registrant's Schedule T-O filed with the SEC onDecember 16, 2002).                                                           |
| 10.24*        |  | Stock OptionAgreement with Jonathan Stern (incorporated by reference to Exhibit10.32 of Registrant's Quarterly Report on Form 10-Q filed for thequarter ended March 31,2003).                                                |
| 10.25*        |  | Restricted Stock Agreementwith Jack S. Levy, effective as of March 8, 2003 (incorporated byreference to Exhibit 10.33 of Registrant's Quarterly Report onForm 10-Q filed for the quarter ended March 31,2003).               |
| 10.26*        |  | Form of Executive Change inControl Severance Program (incorporated by reference to Exhibit 10.34of Registrant's Quarterly Report on Form 10-Q filed for thequarter ended March 31, 2003).                                    |
| 10.27*        |  | Formof U.S. Director-level Employee Change in Control Severance Program(incorporated by reference to Exhibit 10.35 of Registrant'sQuarterly Report on Form 10-Q filed for the quarter ended March 31,2003).                  |
| 10.28*        |  | Form of U.S. Employee Changein Control Severance Program (incorporated by reference to Exhibit10.36 of Registrant's Quarterly Report on Form 10-Q filed for thequarter ended March 31, 2003).                                |
| 10.29*        |  | Formof Change in Control Voluntary Termination Benefits Letter withExecutives (incorporated by reference to Exhibit 10.37 ofRegistrant's Quarterly Report on Form 10-Q filed for the quarterended March 31, 2003).           |
|               |

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|               |  |                                                                                                                                                                                                                                                                             |  |  |  |  |
|---------------|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNumber |  | Description                                                                                                                                                                                                                                                                 |
| 10.30*        |  | Form of RetentionBonus Letter Agreement with Executives who are party to the Change inControl Voluntary Termination Benefits Letter (incorporated byreference to Exhibit 10.38 of Registrant's Quarterly Report onForm 10-Q filed for the quarter ended March 31,2003).     |
| 10.31*        |  | Form of Retention Bonus LetterAgreement with Executives who are not party to the Change in ControlVoluntary Termination Benefits Letter (incorporated by reference toExhibit 10.39 of Registrant's Quarterly Report on Form 10-Q filedfor the quarter ended March 31,2003). |
| 10.32*        |  | Amendment to Letter Agreementof Employment with Jonathan Stern, dated May 8, 2003 (incorporated byreference to Exhibit 10.40 of Registrant's Quarterly Report onForm 10-Q filed for the quarter ended March 31,2003).                                                       |
| 10.33*        |  | Retention Bonus LetterAgreement with Jonathan Stern, dated May 13, 2003 (incorporated byreference to Exhibit 10.41 of Registrant's Quarterly Report onForm 10-Q filed for the quarter ended March 31,2003).                                                                 |
| 10.34         |  | Agreement, dated June 9, 2003,among Register.com, Inc., Barington Companies Equity Partners, L.P. andthe other parties listed on Schedule A thereto (incorporated byreference to Exhibit 10.42 of Registrant's Current Report on Form8-K dated June 10, 2003).              |
| 10.35*        |  | EmploymentAgreement, dated June 16, 2003, with Peter A. Forman (incorporated byreference to Exhibit 10.43 of Registrant's Current Report on Form8-K dated June 17, 2003).                                                                                                   |
| 10.36*        |  | Amendmentto Letter Agreement of Employment with Michael D. Pollack, dated May23, 2003 (incorporated by reference to Exhibit (d)(1)(T) ofRegistrant's Schedule T-O filed with the SEC on August 5,2003).                                                                     |
| 10.37*        |  | Letter Agreement ofEmployment, dated as of November 15, 2002, with Alan Kipust(incorporated by reference to Exhibit (d)(1)(CC) of Registrant'sSchedule T-O filed with the SEC on August 5,2003).                                                                            |
| 10.38*        |  | Letter of Agreement ofEmployment, dated August 6, 2003, with Monica Schulze Hodges(incorporated by reference to Exhibit (d)(1)(EE) of Registrant'sSchedule T-O/A filed with the SEC on August 14,2003).                                                                     |
| 10.39*        |  | Amendment to Letter Agreementof Employment, dated as of November 19, 2003, with Alan Kipust(incorporated by reference to Exhibit 10.39 of the Registrant'sAnnual Report on Form 10-K for the year ended December 31,2003).                                                  |
| 10.40*        |  | Separation Agreement andGeneral Release with Walt Meffert Jr. dated April 23, 2004(incorporated by reference to Exhibit 10.1 of Registrant'sQuarterly Report on Form 10-Q filed for the quarter ended March 31,2004).                                                       |
| 10.41*        |  | Offer Letter with SushantMohanty dated September 9, 2002 (incorporated by reference to Exhibit10.2 of Registrant's Quarterly Report on Form 10-Q filed for thequarter ended March 31,2004).                                                                                 |
| 10.42*        |  | Amendment dated April 26, 2004to Offer Letter with Sushant Mohanty (incorporated by reference toExhibit 10.3 of Registrant's Quarterly Report on Form 10-Q filedfor the quarter ended March 31,2004).                                                                       |
| 10.43*        |  | Separation Agreement andGeneral Release between Register.com, Inc. and Michael Pollack datedSeptember 24, 2004 (incorporated by reference to Exhibit 10.1 ofRegistrant's Current Report on Form 8-K dated September 30,2004).                                               |
|               |

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|               |  |                                                                                                                                                                                                                                                                           |  |  |  |  |
|---------------|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNumber |  | Description                                                                                                                                                                                                                                                               |
| 10.44         |  | Agreement datedFebruary 6, 2005 between Register.com, Inc. and Barington CompaniesEquity Partners, L.P. (incorporated by reference to Exhibit 10.1 ofRegistrant's Current Report on Form 8-K dated February 6,2005).                                                      |
| 10.45*        |  | Notice of Nonrenewal datedFebruary 6, 2005 between Register.com, Inc. and Peter A. Forman(incorporated by reference to Exhibit 10.2 of Registrant'sCurrent Report on Form 8-K dated February 6,2005).                                                                     |
| 10.46         |  | Registrar AccreditationAgreement Extension Amendment dated April 20, 2005 betweenRegister.com, Inc. and the Internet Corporation for Assigned Names andNumbers (incorporated by reference to Exhibit 10.1 ofRegistrant's Current Report on Form 8-K dated April 26,2005). |
| 10.47*        |  | Letter Agreement ofEmployment, dated January 31, 2000, with RoniJacobson.                                                                                                                                                                                                 |
| 10.48*        |  | Summary of Oral Amendmentsto Letter Agreement of Employment, dated January 31, 2000, with RoniJacobson                                                                                                                                                                    |
| 10.49         |  | Modification of LeaseAgreement dated October 2000, between Pennbus Realties, Inc. andRegister.com, Inc.                                                                                                                                                                   |
| 10.50*        |  | Summary of OralAgreement with Mitchell I.Quain                                                                                                                                                                                                                            |
| 10.51*        |  | Summary of Oral Amendment toLetter Agreement of Employment, dated as of June 11, 2002, withJonathan Stern                                                                                                                                                                 |
| 10.52*        |  | Summary of OralAmendment to Letter of Agreement of Employment, dated August 6, 2003,with Monica Schulze Hodges                                                                                                                                                            |
| 10.53         |  | Stipulationand Agreement of Compromise and Settlement between Register.com, Inc.and Brian Wornow dated July 302004.                                                                                                                                                       |
| 10.54*        |  | Register.com, Inc. ExecutiveChange in Control SeveranceProgram.                                                                                                                                                                                                           |
| 21.1          |  | Subsidiaries ofRegistrant.                                                                                                                                                                                                                                                |
| 23.1          |  | Consent ofPricewaterhouseCoopersLLP.                                                                                                                                                                                                                                      |
| 31.1          |  | Certification of Peter A. Forman,Chief Executive Officer of the Company, pursuant to Rules 13a-14(a) and15(d)-14(a) of the Securities Exchange Act of 1934, asamended.                                                                                                    |
| 31.2          |  | Certification of JonathanStern, Chief Financial Officer of the Company, pursuant to Rules13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of1934.                                                                                                                 |
| 32.1          |  | Certification by Peter A. Forman,Chief Executive Officer of the Company, pursuant to 18 U.S.C.§1350.                                                                                                                                                                 |
| 32.2          |  | Certification by JonathanStern, Chief Financial Officer of the Company, pursuant to 18 U.S.C.§1350.                                                                                                                                                                  |
|               |

|  |                                                                                           |
|--|-------------------------------------------------------------------------------------------|
|  | *    Indicatesmanagement contract or compensatory plan orarrangement. |

115

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SIGNATURES

Pursuantto the requirements of Section  13 or 15(d) of the SecuritiesExchange Act of 1934, Register.com, Inc. has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized,in the City of New York, State of New York, on this 3rd day of May,2005.

REGISTER.COM,INC.

|  | By: /s/ Peter A.Forman             |
|--|-----------------------------------------------------------------------------------------------------|

|  | Peter A. Forman President andChief Executive Officer |
|--|------------------------------------------------------|

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the registrant and in the capacitiesand on the datesindicated.

|                         |  |                                                                              |  |            |
|-------------------------|--|------------------------------------------------------------------------------|--|------------|
| Signature               |  | Title                                                                        |  | Date       |
|                         |
| /s/Peter A. Forman      |  | President, Chief Executive Officer and Director(Principal Executive Officer) |  | May 3,2005 |
|                         |
| Peter A.Forman          |
|                         |
| /s/ Jonathan Stern      |  | Chief Financial Officer (Principal Accounting andFinancial Officer)          |  | May 3,2005 |
|                         |
| JonathanStern           |
|                         |
| /s/ Mitchell I.Quain    |  | Chairman of theBoard of Directors                                            |  | May 3,2005 |
|                         |
| Mitchell I. Quain       |
|                         |
| /s/ Niles H. Cohen      |  | Director                                                                     |  | May 3,2005 |
|                         |
| Niles H.Cohen           |
|                         |
| /s/ Dewain K. Cross     |  | Director                                                                     |  | May 3,2005 |
|                         |
| DewainK. Cross          |
|                         |
| /s/ James A.Mitarotonda |  | Director                                                                     |  | May 3,2005 |
|                         |
| James A.Mitarotonda     |
|                         |
| /s/ Stanley Morten      |  | Director                                                                     |  | May 3,2005 |
|                         |
| StanleyMorten           |
|                         |
| /s/ Jim Rosenthal       |  | Director                                                                     |  | May 3,2005 |
|                         |
| JimRosenthal            |
|                         |
| /s/ Reginald VanLee     |  | Director                                                                     |  | May 3,2005 |
|                         |
| Reginald VanLee         |
|                         |

116

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