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RISK FACTORS

        Investing in our common stock involves a high degree of risk. You should carefully consider all the risks described below before making a decision to invest in our common stock. Our business could be harmed by any of these risks at any time. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.

Risks Relating to Our Business

We have experienced rapid growth in recent periods and our recent growth rates may not be indicative of our future growth. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service and customer satisfaction or adequately address competitive challenges.

        Our revenue has increased substantially since our inception, but we may not be able to sustain revenue growth consistent with recent history, or at all. We believe growth of our revenue depends on a number of factors, including our ability to:

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Price our services effectively so that we are able to attract and retain customers without compromising our profitability;



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Attract new customers, increase our existing customers' use of our services and provide our customers with excellent customer support;



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Continue to increase the number of telephone numbers and end-point identifying addresses in our SuperRegistry directory;



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Develop new communications applications to increase our customers' use of our services;



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Efficiently and accurately capture cost and revenue data for the more than 1.9 billion minutes of traffic delivered per month over our platform;



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Introduce our services to new markets outside of the United States; and



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Increase awareness of our brand on a global basis.

We cannot assure you that we will be able to successfully accomplish any of these tasks.

        Additionally, we currently plan to expand our business significantly to satisfy the anticipated demand for our services. To manage this growth, we must improve operational and financial systems, procedures and controls, and expand, train and manage our employee base. We must maintain and expand relationships with current customers, peering partners and other third parties, while attracting new customers, peering partners and channel partners. If we cannot manage our growth effectively, we may be unable to take advantage of market opportunities, execute our business strategies or respond to competitive pressures.

We have a history of losses and may not achieve or maintain profitability in the future.

        We had net losses of $3.3 million, $11.6 million and $9.6 million in the years ended December 31, 2009 and 2010 and the nine months ended September 30, 2011, respectively. We cannot predict if we will attain profitability in the near future or at all. We expect to continue to make significant expenditures to develop and expand our business. In addition, as a public company, we will incur additional legal, accounting and other expenses that we did not incur as a private company. These increased expenditures will make it more difficult to achieve future profitability. We may incur significant losses in the future for a number of reasons, including the other risks described in this prospectus, and unforeseen expenses, difficulties, complications and delays and other unknown events. Accordingly, we may not be able to achieve or maintain profitability. We will need to generate significant revenue to achieve profitability, and we cannot assure any prospective investor that we will

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be able to do so. Likewise, we cannot assure you of our ability to sustain or increase such profitability on a quarterly or annual basis in the future.

Our revenue is concentrated in a relatively limited number of customers, and our contracts do not include any fixed commitment to use our services. The termination of these contracts by our customers, or a decrease in traffic from those customers, could materially and adversely impact our results of operations and financial condition.

        Our top two customers for the nine months ended September 30, 2011, Sprint and Qwest, represented 21 percent and 12 percent of our revenue for the period, respectively. Our top two customers in 2010, Sprint and Qwest, represented 29 percent and 16 percent of our revenue for the period, respectively. In general, our customer contracts are non-exclusive and have neither volume nor time period commitments. Any customer is able to discontinue the use of all or a portion of our services at any time. If one or more customers were to reduce their demand for our services, our revenue could decline. If we lose one or more of our top customers, or, if one or more of these major customers significantly decreases its use of our services, our business will be materially and adversely affected. From time to time, we have experienced material reductions in revenue from key customers. For example, our revenue from one of our top customers decreased from $35.3 million in 2009 to $18.2 million in 2010. Revenue from another top customer decreased from $2.9 million in 2008 to $0.2 million in 2009. There can be no assurance that we will not have similar substantial decreases in customer revenue in the future, or that the growth in our other customers will make up for any such decreases. As a result, our future revenue is difficult to forecast. Because our expense levels are based on our expectations as to future revenue and to a large extent are fixed in the short term, we might be unable to adjust spending in time to compensate for any shortfall in revenue. Accordingly, any significant shortfall of revenue in relation to our expectations will harm our operating results.

Our pricing and billing systems are complex and errors could adversely affect our revenue and profits.

        We currently route more than 1.9 billion minutes of traffic each month and operate in a dynamic market, which makes our pricing and billing efforts complex to develop and challenging to implement. To be profitable, we must have accurate and complete information about the costs associated with connecting data and voice transmissions over our platform, and properly incorporate such information into our pricing model. Our pricing model must also reflect accurate and current information about the market for our services, including the pricing of competitive alternatives for our services, as well as reliable forecasts of traffic volume. We may determine pricing for our services based on data that is outdated or otherwise flawed. Even if we have complete and accurate market information, we may not set prices to optimize both revenue and profitability. If we price our services too high, the amount of traffic that may be routed through our platform may decrease and accordingly our revenue may decline. If we price our services too low, our margins may be adversely affected, which will reduce our ability to achieve and maintain profitability.

        Additionally, we rely heavily on a single third party to provide us with key software and services for our billing. If that third party ceases to provide those services to us for any reason, or fails to perform billing services accurately and completely, we may not be able to deliver accurate invoices promptly. Delays in invoicing can lead to delays in revenue recognition, and inaccuracies in our billing could result in lost revenue. If we fail to adapt quickly and effectively to changes affecting our costs, pricing and billing, our profitability and cash flow will be adversely affected.

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Commercial disputes and collection issues are common in our industry and any disputes with our peering partners or our customers could result in increased expenses or an inability to collect revenue for services provided and any collection problems could result in delays or failures to collect revenue.

        Our direct and indirect peering arrangements are based on commercial agreements with a variety of parties. Disputes concerning payment for services rendered can occur for numerous reasons given the complexities of the regulatory environment and the number of parties involved in handling communications traffic. From time to time, we may dispute an invoice for the amount of traffic that we delivered to our peering partners or the rates that should have been applied to that traffic. Dispute resolution generally requires a review of call detail records and negotiations with our peering partners. If we subsequently determine that the disputed amounts will be settled for an amount in excess of the amount which we originally accrued, we will recognize the difference as an increase in peering partner compensation which would adversely impact our results of operations. For example, for the year ended December 31, 2010, we determined that certain disputed amounts could result in an additional charge of $1.1 million, which resulted in us recognizing this amount as additional peering partner compensation.

        We are also subject to potential billing disputes with customers. Additionally, some customers have failed to pay for services because their financial condition limits their ability to satisfy their obligations. For example, in 2007, a customer that represented 1.6 percent of our revenue defaulted on its obligation of $163,000 and declared bankruptcy. Delays in receiving payments, or our inability to collect payments pursuant to such agreements, can adversely impact our business.

Our financial position, revenue, operating results and profitability may vary significantly from quarter to quarter, which could cause the price of our common stock to decline significantly.

        As our business continues to grow, we believe that our quarterly operating results may be subject to significant fluctuation due to various factors, many of which are beyond our control. Factors that may affect our quarterly operating results in the future include the risk factors discussed in this Risk Factors section, and in particular the following:

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changes in the amount of voice traffic which major customers route through our CloudWorx CaaS Platform;



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our failure to properly anticipate changes in the price our customers are willing to pay, or the costs we must pay, to deliver certain traffic;



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the timing, capacity and breadth of direct peering established to support our customers;



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decisions by our service provider customers to establish direct connection arrangements with other major service providers rather than route traffic through our CloudWorx CaaS Platform;



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fluctuations based upon seasonality or the weighted average number of business days in a particular quarter;



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traffic outages or other failures of our platform; and



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variability of operating expenses as a percentage of revenue.

        Accordingly, it is difficult for us to accurately forecast our results of operations on a quarterly basis. If we fail to meet expectations of investors or analysts, our stock price may fall rapidly and without notice. Furthermore, the fluctuation of our quarterly operating results may render period-to-period comparisons of our operating results less meaningful and you should not rely upon them as an indication of our future performance.

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We have a limited operating history and a relatively new business in an emerging and rapidly evolving market, making it difficult to evaluate our business and future prospects, thereby increasing the risk of your investment.

        The revenue and income potential of our business and market is unproven, and our limited operating history with our current business model makes an evaluation of our business and prospects difficult. We were incorporated in June 2003 and since inception have been generating revenue from service provider customers. We first began offering applications to enterprise customers in 2008. In 2010 and the nine months ended September 30, 2011, 2.7 and 4.9 percent of our revenue, respectively, was generated from enterprise customers.

        Our ability to grow our business will depend significantly on an increase in the adoption of new technologies, which may not occur or may not occur as quickly as we anticipate. Our CloudWorx CaaS Platform has the ability to deliver multimodal communications services, including voice, video, unified communications and other rich-media applications. If the market for these multimodal and unified communications capabilities does not develop, or develop as fast as we expect, our revenue may not grow.

        We also seek to expand our business through growth in markets outside of the United States. We have no experience in providing services to, or in navigating the regulatory landscape of, those markets. If we fail to execute our business plan and attract new customers from outside of the United States, we may be unable to grow our revenue or offset declines in revenue in the United States.

        Additionally, current or future competitors may develop and offer competing products or services that are, or are perceived to be, superior to our services in some respect. Our services may not be sufficiently competitive with those new products or services and, as a result, our revenue may decrease.

Decreasing telecommunications rates may diminish or eliminate our competitive pricing advantage.

        The market for communications services is highly competitive and is characterized by decreasing rates for services. Even as traffic volumes have increased due to the increasing penetration of broadband Internet access services and consumer demand for content over such services, the rates that service providers pay each other has decreased over time. International and domestic telecommunications rates have decreased significantly over the last few years in most of the markets in which we operate, and we anticipate these rates will continue to decline in all of the markets in which we do business or expect to do business. If we are unable to reduce our operating expenses and adjust the rates we charge for our services, the decreasing market rates for the exchange of traffic may diminish or eliminate our competitive pricing position. Continued rate decreases may require us to lower our rates to remain competitive and could reduce or possibly eliminate any gross profit from our services.

If we fail to accurately forecast our revenue or the commitments we must make to satisfy demand for our services, our results of operations and financial condition could be adversely affected.

        We must continue to invest in our business such that we have sufficient infrastructure and support to transport increasing numbers of minutes through our Media Peering Grid service. Our investment in our infrastructure depends largely on our forecasts of demand for our services, which is based on historical growth in the use of our services. If communications traffic declines or does not grow as fast as it has historically grown, our revenue may be less than we forecast, and we may have incurred infrastructure costs in excess of what was required to facilitate the delivery of communications traffic through our platform. If demand for our services exceeds our forecasts, our infrastructure may not be prepared for such an increase in demand and we may not be able to capitalize fully on the growth opportunity and increase our revenue in an optimal manner. In either case, the results of operations and our financial condition could be adversely affected.

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We may lose customers if we experience system failures that significantly disrupt the availability and quality of the services that we provide.

        Our operations are dependent upon our ability to prevent system interruption. We have experienced system failures from time to time, including loss of power in a commercially hosted facility, software bugs that prevented calls from routing normally and fiber cuts that denied access to a site from our backbone. In the past, these system failures caused periods of low quality service lasting from 10 to 180 minutes and total site unavailability of 10 to 60 minutes. Although we have endeavored to mitigate the potential impact of failures through our distributed platform and redundant operations, there is no guarantee that we will not have system failures in the future, including those that are materially worse in scope or duration. Any interruption in the ability of our customers to use our services reduces our current revenue, could harm our future revenue, and could subject us to additional regulatory scrutiny. Such interruptions could also undermine customer confidence in the reliability of our services and cause us to lose customers or make it more difficult to attract new ones.

        Our business also requires us to protect our infrastructure against damage from human error, fire, earthquakes, floods, power loss, sabotage, intentional acts of vandalism, terrorism and similar events. Despite any precautions we may take, the occurrence of a natural disaster, power outage or other unanticipated problems could result in lengthy interruptions in the availability of our services. We do not carry business interruption insurance sufficient to compensate us for losses that may result from interruptions in the availability of our services as a result of system failures.

Our offerings are dependent upon third-party facilities, equipment and services, and interruptions or delays in service from our third-party facility providers could impair our ability to deliver our services to our customers, resulting in customer dissatisfaction, damage to our reputation, loss of customers, limited growth and reduction in revenue.

        We rely on third parties' facilities and equipment to operate our business as our customers' traffic traverses a variety of facilities controlled by third parties. We principally buy equipment and software to build and update our system infrastructure from one supplier. If our third-party service providers fail to maintain facilities properly, if our equipment fails to perform as expected or if the providers of facilities or equipment fail to respond quickly to problems, our customers may experience service interruptions. Such service interruptions may affect the perceived reliability of our service which could damage our brand and reputation adversely affecting our growth. Additionally, we rely on a single supplier to provide us with key billing and related services. If that supplier stops providing those services to us for any reason, we could experience disruption in our ability to quickly capture the information we need to promptly generate invoices for our services. These delays in invoicing could materially delay our receipt of revenue from our customers.

Our IP telephony offering relies, in some instances, on third parties to originate and deliver all calls placed and received by such customers.

        In offering IP telephony services, we rely on the infrastructure of the third-party network service providers who are our peering partners to provide telephone numbers, PSTN call termination and origination services and local number portability. In relying on such third parties, we are able to offer our services over a greater geographic area and can compete with other providers of such services in a broader marketplace. But in relying on such third parties, we have less control over the quality and reliability of our service. Moreover, if any of these third-party service providers cease operations or otherwise terminate services on which we depend, we could suffer customer loss or increased costs for our services, which could have a material adverse impact on us and our reputation.

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We face significant competition from both established and new service providers, as well as from our customers, and if we do not compete successfully, we could lose market share, experience reduced revenue or suffer losses.

        The services we provide are also offered by others and in the future may be offered by an increasing number of parties. Currently, we face competition from legacy telecommunications service providers as well as emerging providers of voice peering services. Our competitors include traditional telecommunications carriers and other providers of specialized communications services.

        There are few substantial barriers to pursuing business from our customers, and we expect to face additional competition from new market entrants in the future. Many of our current and potential competitors have substantially greater financial, technical and marketing resources, larger customer bases, greater name recognition and more established relationships in the industry than we have. As a result, certain of our competitors may be able to develop and expand their network infrastructures and service offerings more quickly, adapt to new or emerging technologies and changes in customer requirements more quickly, take advantage of acquisitions and other opportunities more readily, devote greater resources to the marketing and sale of their services and adopt more aggressive pricing and incentive policies than we can. Those service providers may attract communications traffic that is currently utilizing our CloudWorx CaaS Platform.

        Moreover, some of the potentially biggest users of our peering services, like incumbent local exchange carriers, competitive local exchange carriers and wireless and cable companies, may enter into direct peering arrangements between and among themselves and with other service providers. Such direct connections may result in lower traffic volumes for us and negatively impact our business.

        Our ability to compete effectively will depend on a number of factors, including without limitation:

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our ability to offer cost-effective and high-quality services consistently and without delay;



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our ability to respond quickly and effectively to market demand for new services;



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our ability to adopt or adapt to changing regulatory standards and industry practices;



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the number and nature of our competitors and competitiveness of their services; and



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the entrance of new competitors into our markets.

        Many of these factors are outside of our control. For these reasons, we may not be able to compete successfully against our current or future competitors.

Consolidation in the telecommunications industry could lead to an unexpected and significant reduction in revenue.

        The telecommunications industry has historically been marked by significant consolidation. If two service providers that are currently connecting traffic through our platform become part of a single entity and network infrastructure, those parties may no longer need to route telecommunications traffic through our platform, which will adversely affect the revenue we generate from such traffic.

If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customer needs, our services may become less competitive or obsolete, and we could lose customers or market share.

        Our future success will depend in part on our ability to modify or enhance our services to meet customer needs, to add functionality and to address technological advancements. The telecommunications industry is characterized by rapid technological change and new service offerings, which could make our service offerings obsolete or too costly or inefficient on a relative basis. We must adapt to this rapidly changing market by continually improving the features, functionality, reliability and

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responsiveness of our services, and by developing new features, services and applications to meet changing customer needs or developing industry standards. We cannot assure you that we will be able to adapt to these challenges or respond successfully or in a cost effective way. Failure to do so would adversely affect our ability to compete and retain customers or market share. In addition, our innovations may not achieve the market penetration or price levels necessary for profitability.

The market for next generation communications services may not develop as we anticipate.

        The market for multimodal communications and unified communications services is at an early stage of development, and the market for these services may not achieve high levels of demand. Our success depends on the willingness of enterprises to adopt these next generation communications services. If demand for these services does not develop as we expect, it may adversely affect our revenue growth from enterprise customers.

Our sales channels may not be effective in selling our communications services to enterprise customers.

        Currently, we rely on sales channels to acquire enterprise customers. If our sales channel partners are not effective in generating demand from enterprise customers for our services, we may have to evaluate alternative customer acquisition models, including introducing a direct sales model for attracting and retaining enterprise customers. As a result, our operating costs may be significantly increased, which may adversely affect our ability to achieve or maintain profitability.

Our CloudWorx CaaS Platform could subject us to litigation and other disputes from third parties.

        Our CloudWorx CaaS Platform relies on multiple service providers to deliver communications traffic. We enter into contractual or other arrangements with the service provider from which we receive traffic and with the peering partner to which we deliver communications traffic. However, we do not have written contractual arrangements with all of the parties that participate in the origination, transit or termination of traffic through our platform. Our partners provide us assurances that they are in compliance with applicable laws and regulations. While our contracts address compensation issues, they also recognize that the market is subject to regulatory uncertainty and changes in law. We may be subject to litigation or other disputes as a result of our indirect peering business. We may not have recourse through contractual indemnification. Our inability to seek recourse either from those with which we enter into written contracts or third parties may adversely impact our business.

We could be subject to litigation that could adversely affect our business or operations.

        We are currently the defendant in one lawsuit, and a second lawsuit has been threatened against us. These current or potential lawsuits allege various failures by our management, and could distract attention from our operation of our business. These matters are described in "Business—Legal Proceedings."

We may be vulnerable to security breaches, which could disrupt our operations and have a material adverse effect on our financial performance and operating results.

        A party who is able to compromise the security of our facilities could misappropriate either our proprietary information or the personal information of our customers, or cause interruptions or malfunctions in our operations. We may be required to expend significant capital and financial resources to protect against such threats or to alleviate problems caused by breaches in security. As techniques used to breach security change frequently, and are generally not recognized until launched against a target, we may not be able to implement security measures in a timely manner or, if and when implemented, these measures could be circumvented. Any breaches that may occur could expose us to increased risk of lawsuits, loss of existing or potential customers, harm to our reputation and

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increases in our security costs, which could have a material adverse effect on our financial performance and operating results.

If our security measures are breached and unauthorized access is obtained to a customer's stored data or any consumer data that we may store from time to time or if data is lost due to hardware failures or errors, our services may be perceived as not being secure, customers may curtail or stop using our services and we may incur significant legal and financial exposure and liabilities.

        Certain of our services involve the storage and transmission of customers' proprietary information, including certain consumer data. Security breaches related to this information could expose us to a risk of loss of this information, forfeiture or other enforcement actions by federal or state regulatory agencies or state attorneys general, litigation and possible liability, as well as damage our relationships with our customers. Our security measures may be breached as a result of third-party action, employee error, malfeasance or otherwise, during transfer of data to additional data centers or at any time, and, as a result, someone may obtain unauthorized access to our data or our customers' data. For example, in October 2011, as a result of employee error, two customers inadvertently received access to data regarding call transmissions unrelated to those customers.

        As a result of a security breach, our reputation could be damaged, our business may suffer and we could incur significant liability. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our data or our customers' data, which could result in significant legal and financial exposure and a loss of confidence in the security of our service, which would harm our future business prospects. Furthermore, our ability to collect and report data may be interrupted by a number of factors, including our inability to access the Internet, the failure of our platform, security breaches or variability in user traffic on customer websites. In addition, computer viruses may harm our systems causing us to lose data, and the transmission of computer viruses could expose us to litigation. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose sales and customers. Our errors and omissions insurance may be inadequate or may not be available in the future on acceptable terms, or at all. In addition, our policy may not cover any claim against us for loss of data or other indirect or consequential damages and defending a suit, regardless of its merit, could be costly and divert management's attention.

The loss of key members of our senior management team could prevent us from executing our business strategy and could have a material adverse effect on our business. Additionally, the failure to attract and retain qualified personnel could prevent us from executing our business strategy.

        Our future performance depends substantially on the continued services of our management and other key personnel, including members of our technical, marketing and sales teams, and our ability to retain and motivate those persons. We do not have long-term employment agreements with any of our key personnel and we do not maintain any "key person" life insurance policies. Competition for qualified personnel is intense and we may not be successful in attracting and retaining the key personnel that we need to compete effectively. The value of our common stock may adversely affect our efforts to motivate the performance of our key personnel. It may be difficult to retain those employees who have substantial in-the-money, vested options or other equity awards. Conversely, if options granted to our employees have exercise prices that are substantially above our then-current share price, it may be difficult to motivate and retain those employees. Additionally, if the market price of our common stock does not increase or declines, it may limit our ability to attract new employees with equity incentives.

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We may acquire other companies or technologies, which could divert our management's attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results.

        We may in the future seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our application suite, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.

        In addition, we do not have any experience in acquiring other businesses. If we acquire additional businesses, we may not be able to integrate successfully the acquired personnel, operations and technologies, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including:

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unanticipated costs or liabilities associated with the acquisition;



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incurrence of acquisition-related costs;



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diversion of management's attention from other business concerns;



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harm to our existing business relationships with business partners and customers as a result of the acquisition;



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the potential loss of key employees;



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use of resources that are needed in other parts of our business; and



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use of substantial portions of our available cash to consummate the acquisition.

        In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could harm our results of operations.

        Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer.

If we are unable to protect our proprietary technology and other intellectual property rights, our ability to compete for business or exclude others from competing with us may be adversely affected. Our solutions and services may infringe on the intellectual property rights of others, which may subject us to legal liability, harm our reputation, prevent us from offering certain solutions and services to our customers or distract management. Any claims or litigation involving intellectual property, whether we ultimately win or lose, could be extremely time-consuming, costly and harmful to our reputation.

        We regard the protection of our trademarks, service marks, copyrights, patents, domain names, trade dress and trade secrets as critical to our success. To protect our intellectual property rights, we rely on national, state and common law rights, as well as a variety of administrative procedures, and we seek protection through trade secrets, confidentiality agreements and other security measures, including patent law protection. To date, we have five issued patents. The process of seeking patent protection takes a long time and is expensive. We are unable to guarantee that additional patents will issue from pending or future applications or that, if patents issue, they will not be challenged, invalidated or circumvented, or that the rights granted under the patents will provide us with meaningful protection or any commercial advantage. Some of our technologies are not covered by any patent or patent application. The confidentiality agreements on which we rely to protect certain technologies may be breached and may not be adequate to protect our proprietary technologies. There can be no assurance that other countries in which we market our services will have applicable laws to protect our intellectual property rights to the same extent as the United States.

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        Our ability to compete successfully also depends on our ability to operate without infringing the proprietary rights of others. We have no means of knowing what patent applications have been filed in the United States until they are published. In addition, the technology sector in which we operate is characterized by frequent claims and litigation regarding patents, trademarks and other intellectual property rights. We may need to file lawsuits to enforce our intellectual property rights, and we may need to defend against claimed infringement of the rights of others. Any litigation could result in substantial costs to us and divert our resources. Despite our efforts in bringing or defending lawsuits, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property, or offering solutions or services that are directly competitive with ours. In the event of an adverse outcome in any such litigation, we may be required to stop our use of infringing technologies, expend significant resources to develop or acquire non-infringing technologies or obtain licenses to the intellectual property we are found to have infringed. There can be no assurance that we would be successful in such development or acquisition or that necessary licenses would be available on reasonable terms, or at all.

Risks Related to Our Industry, Including Regulation by Governmental Authorities

We operate in a dynamic legal and regulatory environment where changes in law and regulations could adversely impact our business.

        Certain of our service offerings are subject to regulation at the international, federal, state and local levels. Regulations affect our business and can change the marketplace. The adoption and enactment of new regulations, or modifications to existing ones, can have a material adverse effect on our business. Additionally, future legislative, judicial and regulatory agency actions could have an adverse effect on our business.

Our communications service offerings depend on complex compensation arrangements between service providers where federal and state regulatory reform and judicial decisions can have unpredictable results and may make our communications service offerings less viable or potentially unsustainable.

        How service providers compensate each other currently varies based on a variety of factors, including

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whether a call terminates on a wireline or wireless network;



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whether the call is local or long distance;



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whether the call is intrastate, interstate or international; and



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the classification of IP traffic as either traditional telecommunications or information services traffic.

        Depending on the nature of the traffic and the arrangements between the service providers, compensation may be determined by federal or state rules, contracts entered into between service providers, tariffs or other arrangements.

        Regulatory proceedings and litigation at the state and federal levels concerning the appropriate classification of certain traffic and the appropriate compensation for such traffic are ongoing. We cannot predict the outcome of such proceedings or litigation. Depending on the specific rulings or orders and parties involved, we may be subject to retroactive liability for certain charges or, if the relevant rulings or orders have only a prospective effect, certain services we currently offer may become less profitable or unprofitable.

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The FCC's reforms to payments between regulated service providers may result in reducing our profitability due to decreasing rates for traffic or requiring us to materially change our business practices.

        Although we provide our communications services pursuant to contracts with those service providers who connect directly to us, much of the traffic routed using our service is ultimately originated or terminated by other parties with whom we are connected indirectly, and the rights and obligations of these indirectly connected parties, including the rates they pay for the origination and termination of the traffic they carry, are often governed by regulated tariffs rather than by contracts. Those rates, in turn, have a material effect on the rates that we pay our peering partners to transmit and terminate our traffic.

        On November 18, 2011, the Federal Communications Commission, or FCC, released a Report and Order and Further Notice of Proposed Rulemaking, subsequently revised by an Order on Reconsideration released on December 23, 2011, or collectively the FCC Order, that comprehensively reforms the system under which regulated service providers compensate each other for the origination and termination of interstate, intrastate, and local telecommunications traffic. The FCC Order reduces the default rates service providers compensate each other for terminating certain types of traffic, which could result in a decrease in the revenue which we can generate from telecommunications traffic. These reductions in default rates could result in a reduction in our revenues and if not offset by corresponding reductions in the costs we must pay to originate and terminate traffic could adversely impact our results of operations or require us to materially change our business.

The FCC's reform to payments between regulated service providers occurs over multiple years and impacts specific functions performed by regulated service provider traffic. Reduction in these rates may reduce our profitability or require us to materially change our business practices during the multiyear transition to new rates.

        Historically, regulated service providers charge other service providers for various functions performed in handling voice traffic. The express goal of reforming the system of payments made between regulated service providers is to move the industry away from relying on such payments to recoup costs associated with the provision of service and instead permit regulated service providers to seek to recoup their costs from their own end-user customers. Regulated service providers are free to negotiate alternative arrangements, but the FCC Order establishes default rates in the absence of agreements between regulated service providers.

        The rules adopted by the FCC provide for a multiyear transition to a national uniform "bill-and-keep" framework as the ultimate default end state for all telecommunications traffic that is delivered to local exchange carriers for termination, while originating interstate (and some intrastate) switched access default rates are capped at current levels. Under bill-and-keep, providers do not charge an originating or other carrier for terminating traffic and instead generally seek to recover these costs from their own end-user customers.

        Pursuant to the FCC Order, the default rates for certain services provided under tariffs are lowered for the most common termination functions performed by regulated service providers when handling voice traffic. The transition period depends on the type of regulated service provider. For the largest regulated local exchange service providers, known as "price cap" carriers and for competitive local exchange carriers, or LECs, that benchmark their interstate access rates to price cap carriers, the transition plan lowers certain termination rates in a phased transition to bill and keep between July 1, 2012, and July 1, 2017. For smaller regulated service providers that offer service in rural and high cost areas, known as "rate-of-return" carriers (as well as competitive LECs that benchmark access rates to these carriers), the transition to lower termination rates begins on July 1, 2012, but extends for eight years until July 1, 2020. After the transition is complete, service providers will be permitted to seek to recoup certain termination costs directly from their customers and not from tariffed charges imposed on other service providers.

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        The transition to bill and keep begins by capping default rates that regulated service providers can charge pursuant to tariffs to other service providers for a variety of functions performed to terminate voice traffic (as noted, some originating switched access rates also are capped at this time). Depending on the particular function performed and the type of regulated service provider, the tariffed rate to terminate traffic steps down until a unified rate for inter- and intrastate voice traffic of $0.0007 is established by July 1, 2016 for the most common termination functions performed by price cap regulated service providers and their competitors when processing voice traffic. Beginning July 1, 2017, these regulated service providers will be permitted to seek to recover the costs associated with exchanging most local traffic and terminating most intrastate and interstate access traffic only from their customers and not other regulated service providers. The rules will also cap the tariffed rate for terminating traffic at $0.0007 by July 1, 2017, for additional tandem switching and transport functions performed by these regulated service providers, when the terminating carrier owns the serving tandem switch. Beginning July 1, 2018, the tandem switching tariffed rate for these regulated service providers changes to zero such that both tandem and end office costs will be recoverable only from customers rather than service providers, when the terminating carrier owns the serving tandem switch. For smaller carriers located in rural and high cost areas and their competitors, the steps and tariffed rate caps differ and the transition extends until July 1, 2020.

        The FCC Order also addresses wireless service provider traffic. The FCC Order adopts bill and keep as the default compensation for all CMRS-LEC non-access traffic; as a result, traffic exchanged between LECs and CMRS providers pursuant to an interconnection agreement will be subject to a default bill-and-keep methodology beginning on July 1, 2012. CMRS providers will be subject to the transition applicable to price cap carriers in the event that CMRS providers' reciprocal compensation default rates are inconsistent with the reforms adopted in the FCC Order.

        The FCC Order establishes new rules concerning traffic exchanged over PSTN facilities that originates or terminates in Internet Protocol format, referred to as "VoIP-PSTN" traffic. As with traditional and wireless telecommunications traffic, regulated service providers will ultimately be subject to bill and keep when terminating such traffic. But as part of the transition to that end point, the FCC Order adopts a VoIP-PSTN initial transitional framework for compensation between regulated service providers. The FCC Order establishes two default rates for such traffic: toll and local. The rate for terminating intrastate and interstate toll traffic will match the relevant tariffed interstate access rate for traditional non-VoIP toll traffic, and the local rate will match the local ("reciprocal compensation") rate associated with traditional non-VoIP local traffic. Further, the FCC Order allows regulated service providers to tariff charges associated with handling VoIP-PSTN traffic in a manner consistent with the rates established by the FCC Order. The VoIP-PSTN reforms became effective December 29, 2011.

        As noted above, the FCC Order broadly reforms the system of default rates that apply to payments between regulated service providers. This may affect both our revenues and costs for delivery of voice traffic to our peering partners over our CloudWorx CaaS platform, particularly for indirect peering. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations—Key Components of Our Results of Operations" for a more detailed discussion of our revenues and peering partner compensation costs. While the rates for termination of VoIP-PSTN traffic may initially increase, the FCC Order ultimately may reduce default rates for all types of telecommunications traffic and that may impact the rates we are able to negotiate with our peering partners, may lower our profit margins, may make certain traffic that we handle less profitable than other traffic, may reduce traffic volumes either globally or for certain types of traffic that we currently handle, may require us to find new business partners, or may require us to materially change our business practices. We cannot predict the full impact of the FCC Order at this time.

        The FCC Order has been appealed by multiple plaintiffs. The U.S. Court of Appeals for the Tenth Circuit has been chosen to hear these appeals. Multiple petitions for reconsideration of the FCC Order have also been filed with the FCC. We cannot predict whether and to what extent these or any other

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appeals may succeed, whether these appeals will be allowed to move forward in advance of the petitions for reconsideration, what the FCC may order with respect to these petitions, or the impact of any of the foregoing on our business. It could also take some time for regulated service providers to modify their rates when providing service pursuant to commercial agreements as such providers must invoke change in law clauses in the relevant agreements to implement the new rates.

We may be subject to increased liability for Federal Universal Service Fund contributions.

        We are required to contribute to the Federal Universal Service Fund, or USF, a percentage (which varies quarterly) of certain of our revenue derived from providing retail interstate and international telecommunications and communications services. We are required to report our revenue periodically to enable the Universal Service Administrative Company, which administers the Fund on behalf of the FCC, to determine our contribution requirement. Based on these reports, we pass through our estimated contribution obligation to customers in the form of an assessment. We are also required to obtain and maintain exemption certifications for our service provider customers. The rules governing allocation of our revenue between telecommunications services (which are subject to assessment) and information services (which are not) are complex and in some situations ambiguous. If we are determined to have allocated our revenue incorrectly or otherwise failed to report all required revenue from end-users, we could be subject to liability for underpayment of contributions to the Fund, which would be extremely difficult to recover from customers. If the certifications that some of our customers provide to justify the exemption of their charges from USF assessments are found to be defective and we cannot show we reasonably expected such customers be exempt from the Fund, we may be subject to additional USF contribution liabilities. While we may be legally entitled to collect any shortfall USF contribution from our customers, we may not be able to do so and this could have a material adverse impact on our business.

The FCC is actively considering reform of the USF and, depending on the reforms adopted, the ultimate cost of our services to our customers may rise.

        The FCC is actively considering ways to reform the USF in a manner that does not require additional statutory authority. The FCC could adopt a number of different reforms that change the methodology for contributing to the USF. Depending on the reform adopted, this could increase what we are required to contribute to the USF, which could result in increasing the price of our offerings. We cannot predict the impact of this proceeding on our business. Additionally, the U.S. Congress, the FCC, state legislatures and/or state agencies may target, among other things, state USF contribution methodologies, access or settlement charges that are exchanged between service providers, imposing taxes related to Internet communications, imposing tariffs or other regulations based on encryption concerns, or the characteristics and quality of products and services that we may offer. New laws or regulations concerning these or other areas of our business could restrict our growth or increase our cost of doing business.

The outcome of pending regulatory proceedings, litigation or other disputes may subject us to retroactive liability for intercarrier compensation arrangements.

        The regulations and other arrangements that govern compensation between service providers are complex and, depending on the traffic at issue, subject to federal and state jurisdiction, including regulation by the FCC and state public utilities commissions. Application of current intercarrier compensation rules is constantly under review. A number of state commissions are actively considering disputes between service providers that could adversely affect us. Additionally, there is ongoing litigation in the industry that could affect certain components of our indirect peering business, such as the charges our indirect peering partners pay to transport and terminate our traffic. Depending on when and how the FCC, state commissions or other entities with jurisdiction and authority ultimately resolve the intercarrier compensation disputes, or interpret regulatory rulings, we may be subject to

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retroactive liability for intercarrier compensation charges. Due to this legal uncertainty, we are unable to predict the impact on our business. Moreover, it is possible that we may be subject to retroactive liability for certain traffic. It may be difficult to collect from our customers for such retroactive liability. Should we be subject to retroactive liability and be unable to collect on such liabilities from our customers or third parties, our business may be adversely impacted.

We are subject to federal and state regulation for certain of our communications service offerings and we may be subject to enforcement actions or other adverse proceedings that may have a material adverse impact on our reputation or our future results of operations.

        For certain of our communications services offerings, we are subject to regulation by the FCC and state public utilities commissions. Among other requirements, we must obtain and maintain certificates of authority to offer communications services at the state and federal level and we are subject to reporting requirements. Interstate and intrastate telecommunications services are subject to a wide range of frequently changing state and federal regulations, rules and laws and we cannot ensure that we are always in compliance with all of these requirements at any single point in time. The agencies responsible for the enforcement of these laws, rules and regulations have initiated and may continue to initiate inquiries or actions based on customer complaints or on their own initiative. While we believe our actions and positions are in compliance with the related rules and in accordance with accepted industry practices, we cannot predict with certainty the timing or outcome of these various reviews. We may be subject to fines, penalties, forfeitures or other enforcement actions as well as complaints seeking damages that could result in monetary or reputational harm. Any of these outcomes could have material adverse impact on our future results of operations.

The FCC could classify some of our offerings as telecommunications services, which could result in additional federal and state regulatory obligations.

        Federal and state authorities are currently considering the appropriate classification of certain of our offerings. For example, on February 12, 2004, the FCC initiated a notice of proposed rulemaking to consider the appropriate regulatory classification for VoIP and other IP-enabled services. On November 9, 2004, the FCC ruled that Vonage DigitalVoice and similar nomadic VoIP services are not subject to state certification, tariffing and other similar common-carrier service provider regulations. This ruling was appealed by several states. On March 21, 2007, the United States Court of Appeals for the Eighth Circuit affirmed the FCC's declaratory ruling.

        The FCC has yet to classify IP-enabled services, particularly interconnected VoIP services, as either telecommunications services or information services. If the FCC classifies certain or all of our IP-enabled service offerings as telecommunications services, we may be subject to additional regulatory obligations at both the federal and state levels and less favorable rates associated with such traffic. It is possible that certain states may classify IP-enabled services like those that we offer as telecommunications services. This may adversely impact our business by increasing the cost of offering such services and the rates we pay to terminate such traffic.

The FCC and certain state regulatory agencies must grant approval before we engage in certain transactions or other activities which may result in delay or increase our transaction costs.

        Certain transactions and agreements, including among other things mergers, acquisitions of other regulated companies, and asset sales, require regulatory approval either at the federal or state level, or sometimes from both federal and state regulatory agencies. Delays in receiving required regulatory approvals (including approvals relating to stock issuance, acquisitions, financing activities, or transactions resulting in transfers of control) and completing interconnection agreements with other carriers may have a material adverse effect on our business.

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Internet service providers might restrict our ability to provide services to our customers.

        Some of our offerings depend on the ability of our customers to access our services through broadband Internet connections and certain of our products require significant bandwidth to work effectively. Broadband access to the Internet is provided by companies that have increasing market power in the broadband Internet access marketplace, including incumbent telephone companies, cable companies and mobile communications companies. Some of these providers have stated that they may take measures that could degrade, disrupt or increase the cost of user access to certain of our products by restricting or prohibiting the use of their infrastructure to support or facilitate our offerings, or by charging increased fees to us or our users to provide our offerings, while others, including some of the largest providers of broadband Internet access services, have committed to not engaging in such behavior. The ability of the FCC to regulate broadband Internet access services has been called into question by a recent ruling of the United States Court of Appeals for the District of Columbia.

        On December 23, 2010, the FCC released an order that would impose non-discrimination rules on providers of fixed and wireless broadband Internet access services, with wireless providers subject to a more limited set of rules. While the substance of the rules and the process used by the FCC in adopting the rules differs from the FCC's previous Internet policy principles that were called into question by the United States Court of Appeals for the District of Columbia, questions remain concerning the FCC's legal authority to adopt rules governing the conduct of fixed and wireless broadband Internet access providers. The FCC's rules became effective on November 20, 2011. Appeals were filed in several different federal courts of appeal. The federal courts issued an order that all appeals would be heard in the United States Court of Appeals for the District of Columbia. Subsequently, appeals filed in other circuits were transferred to the U.S. Court of Appeals for the District of Columbia and are pending consolidation. Additionally, one party filed a Petition for Reconsideration with the FCC. We cannot predict whether and to what extent these or any other appeals may succeed, whether the appeals will be allowed to move forward in advance of the FCC's consideration of the Petition for Reconsideration, what the FCC may order with respect to the Petition, nor can we predict what impact the rules or lack thereof will have on our business at this time. While we believe that substantial interference with access to our products and services is unlikely, such broadband Internet access provider interference has occurred in very limited circumstances in the U.S., and could result in a loss of existing users and increased costs, and could impair our ability to attract new users, thereby harming our revenue and growth.

Our ability to offer services outside the U.S. is subject to the local regulatory environment, which is different than the U.S. and our growth may be impeded.

        As we expand into new markets outside of the United States, the regulatory structure of foreign markets differs in significant ways from the United States communications marketplace. We will have to adapt our business strategies to reflect the regulatory realities of these marketplaces which could impede our growth.

If our emergency and E911 calling services do not function properly, we may be exposed to significant liability from our users.

        Certain of our IP telephony offerings are subject to FCC rules governing the delivery of emergency calling services. Similar to other providers of similar IP telephony services, our emergency calling and E911 service are different from those associated with traditional telecommunications services. These differences may lead to an inability to make and complete calls that would not occur for users of traditional telephony services. For example, to provide the emergency calling services required by the FCC's rules to our IP telephony consumers, we must use components of both the wireline and wireless infrastructure in unique ways that can result in failed connections and calls. Access to emergency services call centers provided over the Internet may be adversely affected by power outages and

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network congestion that may not occur for users of traditional telephony services. Emergency call centers may not be equipped with appropriate hardware or software to accurately process and respond to emergency calls initiated by consumers of our IP telephony services. Users that use our IP telephony services nomadically are required to manually update their location information, and failure to do so may result in dispatching of assistance to the wrong location. As a result, we could be subject to enforcement action by the FCC or other entities—possibly exposing us to significant monetary penalties, cease and desist orders, civil liability and other adverse consequences. The FCC's rules also impose other obligations on us, such as properly recording our customers' registered locations. Failure to comply with these requirements may result in FCC enforcement action, potential monetary penalties and other adverse consequences.

The FCC has an open proceeding considering the imposition of additional E911 obligations on providers of Internet protocol telephony.

        The FCC is considering modifying the emergency calling rules applicable to providers of IP telephony services. In June 2007, the FCC released a Notice of Proposed Rulemaking to consider whether it should impose additional obligations on interconnected VoIP providers. Among other things, the FCC is considering requiring that certain providers of IP telephony—including some of our offerings—implement a solution to automatically determine the location of their customers for purposes of E911 rather than allowing customers to manually update their existing location. The FCC notice includes a tentative conclusion that certain IP telephony offerings that allow their service to be used in more than one location—including some of our offerings—be required to meet the same customer location accuracy standards applicable to providers of mobile telecommunications services.

        In September 2010, the FCC released a Notice of Inquiry again requesting comment on auto-location obligations and standards for certain IP telephony offerings which would include some of our offerings. The Notice of Inquiry sought comment on whether the FCC's rules concerning the delivery of emergency services should be extended to non-interconnected VoIP services as well as to mobile IP telephony applications used on smartphones, computers and other devices. In July 2011, the FCC released a Second Further Notice of Proposed Rulemaking, seeking comment on various issues including (i) whether to apply the FCC's 911 rules to "outbound-only" interconnected VoIP services (i.e., services that support outbound calls to the PSTN but not inbound voice calling from the PSTN); (ii) whether to develop a framework for ensuring that all covered VoIP providers can provide automatic location information for VoIP 911 calls; and (iii) whether to revise the FCC's definition of interconnected VoIP service to require an "Internet connection" rather than a broadband connection, and to "define connectivity in terms of the ability to terminate calls to all or substantially all United States E.164 telephone numbers." As part of the same release, the FCC included a Notice of Proposed Rulemaking that sought comment on whether any amendment of the definition of interconnected VoIP service should be limited to 911 purposes, or should apply more broadly to other contexts. In September 2011, the FCC released a Notice of Proposed Rulemaking seeking comment on what role the FCC should play to facilitate the implementation of "next generation" 911 capabilities, including, for example, the short-term implementation of text-to-911 solutions; the prioritization of 911 traffic, especially during times of natural and manmade disasters; long-term implementation of IP-based alternatives for delivering text, photos, videos, and other data to 911; and the path towards integration and standardization of IP-based text-to-911. We are currently unable to predict the outcome of these proceedings and the impact on our business.

States are attempting to regulate certain forms of IP telephony which could result in making such offerings less competitive with traditional offerings of telecommunications services and states are imposing additional surcharges and fees on providers of IP telephony services.

        We offer certain services through IP telephony. IP telephony is subject to less regulation than traditional telecommunications services. IP telephony has grown substantially over the last few years

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leading to increased scrutiny by federal and state legislatures and regulatory agencies. Historically, the FCC has preempted states from imposing entry, tariffing and other traditional common carrier requirements on nomadic IP telephony offerings and instead subjects such offerings to discrete regulatory obligations. But the FCC has recently allowed states to impose certain state-related funding obligations on providers of IP telephony. Additionally, a number of states are aggressively trying to exert jurisdiction over certain forms of IP telephony, including some of our offerings, making the legal status of our services uncertain and subject to change as a result of future regulatory action, judicial decisions or legislation in any of the jurisdictions in which we operate. Increased regulation at the state level could increase the costs associated with our service offerings.

        Our retail offerings of both telecommunications and IP telephony require us to collect and remit various federal and state surcharges. We pass these regulatory fees along to our customers consistent with federal and state law. With respect to our IP telephony offering, an increasing number of states are considering the imposition of additional state-based surcharges and fees. We would likely pass such surcharges and fees along to our customers resulting in increasing the overall bill for our customers. The resulting increase in cost associated with our service may make our services less competitive with traditional providers of telecommunications services and may also put us at a competitive disadvantage to providers of IP telephony that choose not to comply with these obligations.

There may be risks associated with our ability to comply with the requirements of federal and other regulations related to Customer Proprietary Network Information.

        The FCC's existing rules provide that service providers may not use customer proprietary network information, or CPNI, without customer approval except under specific circumstances, and must comply with detailed customer approval processes when using CPNI outside of such circumstances. The FCC's CPNI rules also impose, among other obligations, data security requirements on service providers and interconnected VoIP providers like us.

        At the present time, we do not utilize our customer's CPNI in a manner which would require us to obtain consent from our customers but, in the event that we do in the future, we will be required to adhere to specific CPNI rules targeted at marketing such services. Our failure to achieve compliance with any future CPNI orders, rules, filings or standards, or any enforcement action initiated by the FCC, other federal agencies, state public utilities commissions, or other state entities, against us could have a material adverse effect on our business, financial condition or operating results.

User concerns about our use and protection of personal data and the privacy of their communications and data protection breaches could harm our brand, reduce demand for our products and expose us to government proceedings and actions. Failure or perceived failure by us to comply with our privacy policy or legal or regulatory requirements in one or multiple jurisdictions could result in proceedings, actions or penalties against us.

        The effectiveness of our solutions relies on our customers' storage and use of data concerning their customers, including financial, personally identifying and other sensitive data. Our customers' collection and use of data for consumer profiling may raise privacy and security concerns and negatively impact the demand for our solutions. We have implemented various features intended to enable our customers to better comply with privacy and security requirements, such as opt-out messaging and checking, the use of anonymous identifiers for sensitive data, and restricted data access, but these security measures may not be effective against all potential privacy concerns and security threats. If a breach of customer data security were to occur, our solutions may be perceived as less desirable, which would negatively affect our business and operating results.

        In addition, governments in some jurisdictions have enacted or are considering enacting consumer data privacy legislation, including laws and regulations applying to the solicitation, collection, processing and use of consumer data. This legislation could reduce the demand for our solutions if we fail to

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design or enhance our solutions to enable our customers to comply with the privacy and security measures required by the legislation. Moreover, we may be exposed to liability under existing or new consumer data privacy legislation.

Our business is subject to certain risks associated with our ability to comply with the Communications Assistance for Law Enforcement Act.

        When we provide certain services we are subject to the Communications Assistance for Law Enforcement Act, or CALEA. CALEA requires us to have the capability to provide to law enforcement agencies certain information about traffic that our customers originate. This requires, among other things, that we have the capability to provide information concerning the origination and destination of communications traffic as well as the ability to provide real-time surveillance. CALEA further requires that we have the capability to deliver such information in a specific format and to a particular destination identified by law enforcement. The FCC's rules allow us to use third parties to comply with these obligations but we are ultimately responsible for compliance. We may be unable to comply with CALEA in all instances, subjecting us to fines, penalties and other enforcement actions.

The FCC may regulate transit service offerings and may subject transit to a regulated framework which may reduce our profitability or require us to substantially change our business practices.

        Among many other issues raised in the FCC Order, the FCC is seeking comment on whether it should regulate transit traffic, which is the exchange of non-access traffic routed through an intermediary carrier, typically through commercially-negotiated agreements that may be subject to state oversight and arbitration. The FCC could decide to treat our delivery of voice traffic to our peering partners as a "transit" service, could decide to treat the indirect peering arrangements provided to us by our peering partners as a "transit" service, or both.

        Additionally, since transit services include the same functionalities as tandem switching and transport services subject to a default bill-and-keep methodology, the FCC is seeking comment on whether the rates charged for transit services should be subject to a different approach from what applies to tandem switching and transport. Transport service is a tariffed exchange access service. At this time, we cannot predict whether the FCC will regulate transit services, will subject such services to bill-and-keep, and if it does subject services to bill-and-keep, whether there would be a transition period and how long the transition would last. Depending on the approach the FCC takes, it could affect our indirect peering compensation costs, our peering revenues, or both, in ways that we currently cannot predict.

        The FCC Order presents numerous questions and proposals regarding a wide range of issues. The process associated with the FCC Order is just beginning and we cannot predict how long it will take for the FCC to issue an order concerning the issues raised, nor can we predict what specific issues any order adopted by the FCC will address.

The FCC may transition all rate elements to a "bill-and-keep" framework which may reduce our profitability or require us to substantially change our business practices.

        The FCC is considering additional reforms that would impact additional rate elements. Certain rate elements (such as originating switched access, dedicated transport and tandem switching and tandem transport for some carriers) were not included in the transition to bill and keep by the FCC Order, but may be addressed in a future FCC order. The FCC Order states that the FCC will transition to a bill-and-keep framework for all of these rate elements. Under a comprehensive bill-and-keep approach, providers would not charge another carrier for originating or terminating traffic and instead generally would seek to recover such costs of origination and termination from their own end-user customers. Our compensation to peering partners for indirect peering arrangements depends in part on the intercarrier compensation charges permitted under FCC rules, and elimination of some

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or all of these charges would affect both our costs and our revenues for these peering arrangements in ways that we cannot predict at this time. At this time, we cannot predict the timing of any future FCC action, the specific reforms that may be adopted by the FCC, whether there will be a transition period for such rate elements and, if so, how long such a transition would last, nor the impact on our business at this time.

The FCC may adopt rules governing "network edges" which may impact certain lines of business.

        The FCC Order seeks comment on a number of additional reforms including whether the FCC should adopt competitively neutral locations as "network edges," the point where bill-and-keep applies. Under current rules, the obligation to terminate voice traffic under a bill-and-keep regime will apply only to traffic delivered to a switching point on the terminating provider's network; if that point is distant, the requirement to deliver traffic there may require routing by intermediate carriers or through intermediate tandem switches, both of which may involve charges that may impose additional cost on the delivering carrier. Our peering services permit efficient delivery of this traffic. Should the FCC require call delivery to competitively neutral locations rather than incumbent providers' network points, demand for our peering services may be reduced, which may decrease our overall profitability or require us to substantially change our business practices. At this time, we cannot predict what specific actions, if any, the FCC may take, nor can we predict the timing of any FCC action with respect to competitively neutral locations for network edges.

The FCC may subject IP-to-IP interconnection to statutory provisions that impose specific obligations on regulated service providers to engage in IP-to-IP interconnection as well as adopt other measures that may promote direct IP-to-IP interconnection. If the market transitions to direct IP-to-IP interconnection, the demand for our services may decrease, negatively impacting our profitability, and we may have to substantially change our business practices.

        Among many other issues, the FCC Order seeks comment on issues relating to measures the FCC can take to facilitate IP-to-IP interconnection. Specifically, for example, the FCC seeks comment on what statutory provisions IP-to-IP interconnection should be based and whether there are additional measures the FCC should adopt to encourage IP-to-IP interconnection. We believe that some of the current demand for our peering services for voice traffic is based on our ability to provide a seamless interface between IP networks and the legacy PSTN. Should the FCC require IP-to-IP interconnection under stringent regulatory requirements and/or adopt other measures to encourage IP-to-IP interconnection, the market may transition to direct IP-to-IP interconnection, reducing this segment of demand for our services which may decrease our overall profitability or require us to substantially change our business practices. At this time, we cannot predict what specific actions, if any, the FCC may take, nor can we predict the timing of any FCC action with respect to IP-to-IP interconnection.

The FCC is considering adopting call signaling rules for one-way Voice over Internet Protocol Services that may increase our costs for handling and offering such services which may result in reducing our profit.

        The FCC Order seeks additional comment on whether the FCC should adopt call signaling rules for one-way VoIP traffic. Currently, one-way VoIP traffic is subject to limited regulation at the federal and state level and none of the other call signaling rules adopted in the FCC Order apply to such traffic. It is unclear from the FCC Order what specific rules the FCC may adopt, what parties would be responsible for providing call signaling information, how such rules would be implemented, and how unique issues related to such traffic, like the absence of a telephone number, would be addressed by such rules. We cannot predict what rules the FCC may ultimately adopt, nor when the FCC may adopt such rules. Depending on the rules adopted, the costs associated with handling such traffic and offering such services may increase, reducing our profitability.

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Risks Related to Our Common Stock and this Offering

Being a public company will increase the administrative costs of operating our business, including maintaining and improving our financial controls and complying with rules and regulations, and may be a significant burden on our management team, thus requiring considerable expenditures of our resources.

        As a public company, we will incur additional legal, accounting and other expenses that we do not incur as a private company. The Securities Exchange Act of 1934, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules of the Nasdaq Global Market, will apply to us as a public company. Compliance with these rules and regulations will necessitate significant increases in our legal and financial budgets and may also strain our personnel, systems and resources. The Exchange Act requires, among other things, filing of annual, quarterly and current reports with respect to our business and financial results and condition. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. Satisfying these requirements involves a commitment of significant resources and management oversight. As a result of management's efforts to comply with such requirements, other important business concerns may receive insufficient attention, which could have a material adverse effect on our business, financial condition and results of operations. Failure to meet certain of these regulatory requirements may also cause us to be delisted from the Nasdaq Global Market. In addition, we currently have a relatively small finance staff and may have difficulty recruiting additional legal, accounting and financial staff with appropriate public company experience and technical accounting knowledge. The hiring of such personnel will also increase our operating expenses in future periods.

        We also expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to maintain coverage. If we are unable to maintain adequate director and officer insurance, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.

If we are unable to successfully remediate material weaknesses in our internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected.

        In connection with the audit of our financial statements for the year ended December 31, 2010, our management and independent registered public accounting firm identified two material weaknesses in our internal control over financial reporting and in connection with the review of our financial statements for the six months ended June 30, 2011, our management and independent registered public accounting firm identified an additional material weakness in our internal control over financial reporting. A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Our management and independent registered public accounting firm did not perform an evaluation of our internal control over financial reporting as of December 31, 2010 in accordance with the provisions of the Sarbanes-Oxley Act. Had we and our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional control deficiencies may have been identified by management or our independent registered public accounting firm, and those control deficiencies could have also represented one or more material weaknesses.

        Our management and independent registered public accounting firm identified material weaknesses related to (i) a lack of adequate control over the accounting for complex financial instruments, including accounting for certain stock warrants and convertible instruments, (ii) a lack of adequate control to identify, evaluate, monitor and adjust our accrued liability for peering partner disputes, and (iii) a lack of adequate control to record non-plan stock option grants in the appropriate period. These control deficiencies resulted in a more than remote likelihood that a material misstatement of our annual and interim financial statements would not be prevented or detected. As a result, audit

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adjustments to our financial statements were identified during the course of the audit. In an effort to remediate these material weaknesses, with respect to complex financial instruments, we have retained consultants to assist us in properly accounting for complex financial instruments and have also developed in-house knowledge and expertise related to the accounting literature surrounding complex financial instruments. With respect to peering partner disputes, we have developed, documented and initiated enhanced procedures over our peering partner disputes to improve our ability to make reasonable estimates with respect to the amounts for which such disputes will ultimately be settled. With respect to non-plan stock option grants, we have outsourced our stock administration function to a third party and we have implemented additional procedures to review non-plan grants to correctly assess the grant date.

        We cannot assure you that these measures will significantly improve or remediate the material weakness described above. We also cannot assure you that we have identified all or that we will not in the future have additional material weaknesses. Accordingly, material weaknesses may still exist when we report on the effectiveness of our internal control over financial reporting for purposes of our attestation required by reporting requirements under the Exchange Act or Section 404 of the Sarbanes-Oxley Act after this offering. The standards required for a Section 404 assessment under the Sarbanes-Oxley Act will require us to implement additional corporate governance practices and adhere to a variety of reporting requirements and complex accounting rules. These stringent standards require that our audit committee be advised and regularly updated on management's review of internal controls. Our management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that will be applicable to us as a public company. If we fail to staff our accounting and finance function adequately or maintain internal controls adequate to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to report our financial results accurately or in a timely manner and our business and stock price may suffer.

We may need additional capital in the future and such capital may be limited or unavailable. Failure to raise capital when needed could prevent us from growing in accordance with our plans.

        We may require more capital in the future from equity or debt financings to fund our operations, finance investments in equipment and infrastructure, acquire complementary businesses and technologies, and respond to competitive pressures and potential strategic opportunities. We believe that our existing working capital, together with the proceeds of this offering, will be sufficient to fund our working capital requirements, capital expenditures and operations for at least the next 12 months. However, the assumptions on which this assessment has been made may prove to be wrong, and it is possible that we could expend available financial resources sooner than we currently expect. Likewise, in the event that this offering is delayed, we will likely seek additional equity or debt financing. If we are required to raise additional funds through further issuances of equity or other securities convertible into equity, our existing stockholders could suffer significant dilution, and any new shares we issue could have rights, preferences or privileges senior to those of the holders of our common stock, including the shares of common stock sold in this offering. The additional capital we may seek may not be available or, if available, may not be available on favorable terms. In addition, our existing debt instruments limit our ability to incur additional indebtedness under certain circumstances. If we are unable to obtain capital on favorable terms, or if we are unable to obtain capital at all, we may have to reduce our operations or forego opportunities, and this may have a material adverse effect on our business, financial condition and results of operations.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

        We will be subject to rules adopted by the Securities and Exchange Commission, or SEC, pursuant to Section 404 of the Sarbanes-Oxley Act, which require us to include in our Annual Report on

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Form 10-K our report on, and assessment of the effectiveness of, our internal controls over financial reporting beginning with our year ending December 31, 2012. Our independent auditors will also be required to attest to and report on the effectiveness of our internal controls over financial reporting. If we fail to achieve and maintain the adequacy of our internal controls, there is a risk that we will not comply with all of the requirements imposed by Section 404. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. Any of these possible outcomes could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements and could result in investigations or sanctions by the SEC, our stock exchange or other regulatory authorities or in stockholder litigation. Any of these factors ultimately could harm our business and could negatively impact the market price of our securities. Ineffective control over financial reporting could also cause investors to lose confidence in our reported financial information, which could adversely affect the trading price of our common stock.

        Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. However, our management, including our chief financial officer and chief executive officer, does not expect that our disclosure controls and procedures can prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

There is no existing market for our common stock, and an active, liquid and orderly market for our common stock may not develop.

        Currently, there is no public market for our common stock. Investor interest in us may not lead to the development of an active trading market. The initial public offering price for the shares of our common stock will be negotiated between us and representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. You may not be able to resell our common stock at or above the initial public offering price.

The trading value of our common stock may be volatile, and you might not be able to sell your shares at or above the initial public offering price.

        Though our common stock has no prior trading history, the trading prices of technology company securities in general have been highly volatile. Accordingly, the trading price of our common stock is likely to be subject to wide fluctuations, and you may not be able to resell our common stock at or above the initial public offering price. Factors, in addition to those outlined elsewhere in this prospectus, that may affect the trading price of our common stock include:

•

actual or anticipated variations in our operating results;



•

changes in recommendations by any securities analysts that elect to follow our common stock;



•

the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;



•

the loss of, or significant decrease in use of our services by, a key customer;



•

market conditions in industry categories that we serve and the economy as a whole;



•

the loss of key personnel;



•

regulatory changes affecting the delivery or overall value of our services;

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•

lawsuits filed against us;



•

price and volume fluctuations in the overall stock market; and



•

other events or factors, including those resulting from war, incidents of terrorism or responses to these events.

Future sales of shares by existing stockholders could cause our stock price to decline.

        Attempts by existing stockholders to sell substantial amounts of our common stock in the public market after the contractual lock-up and other legal restrictions on resale discussed in this prospectus lapse could cause the trading price of our common stock to decline significantly. Based on shares outstanding as of December 31, 2011, upon completion of this offering, we will have outstanding             shares of common stock, assuming no exercise of the underwriters' over-allotment option. Of these shares, only shares of common stock sold in this offering to investors other than those subject to a 180-day contractual lock-up will be freely tradable, without restriction, in the public market. J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. may, in their sole discretion, permit our officers, directors, employees and current stockholders who are subject to a 180-day contractual lock-up to sell shares prior to the expiration of the lock-up agreements. The lock-up is subject to extension under certain circumstances. For additional information, see "Underwriting."

        After the lock-up agreements pertaining to this offering expire, substantially all of our shares will be eligible for sale in the public market, including shares held by directors, executive officers and other affiliates, which will be subject to volume limitations under Rule 144 under the Securities Act. In addition, shares subject to outstanding options and reserved for future issuance under our stock option plan will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, the lock-up agreements and Rules 144 and 701 under the Securities Act. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline. See "Shares Eligible for Future Sale" for more information regarding shares of our common stock that existing stockholders may sell after this offering.

If securities analysts do not publish research or reports about our business or if they downgrade our stock, the price of our stock could decline.

        The research and reports that industry or financial analysts publish about us or our business will likely have an effect on the trading price of our common stock. If an industry analyst decides not to cover our company, or if an industry analyst decides to cease covering our company at some point in the future, we could lose visibility in the market, which in turn could cause our stock price to decline. If an industry analyst downgrades our stock, our stock price would likely decline rapidly in response.

The concentration of our capital stock ownership with insiders upon the completion of this offering will likely limit your ability to influence corporate matters including the ability to influence the outcome of director elections and other matters requiring stockholder approval.

        We anticipate that our executive officers, directors, current five percent or greater stockholders and affiliated entities will together beneficially own approximately 68 percent of our common stock outstanding after this offering, assuming no exercise of the underwriters' over-allotment option. As a result, these stockholders, acting together, will have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other stockholders, including those who purchase shares in this offering, oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.

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        In addition, we have entered into a Stockholder Agreement with VantagePoint Venture Partners 2006(Q), L.P., or VantagePoint, and Kennet II L.P., or KII, pursuant to which, subject to maintaining specified stock ownership levels, they each have a right to designate a director and to approve certain specified transactions unless such transactions are approved by our stockholders. See "Description of Capital Stock—Stockholder Agreement" for additional information regarding the Stockholder Agreement. This Stockholder Agreement could prevent or delay a transaction that is otherwise deemed beneficial by a majority of our Board of Directors.

Participation in this offering by certain of our existing stockholders would reduce the public float for our shares.

        Certain entities associated with VantagePoint Capital Partners, Kennet II L.P. and IVS Fund II K/S, each of which is an existing stockholder of IntelePeer, as well as certain officers and existing stockholders of IntelePeer, have indicated an interest in purchasing shares of common stock with an aggregate price of up to $7,000,000 in this offering at the initial public offering price. Because these indications of interest are not binding agreements or commitments to purchase, these existing stockholders may elect not to purchase shares in this offering or the underwriters may elect not to sell any shares in this offering to such stockholders. If such stockholders were to purchase all of such shares, assuming no exercise of the underwriters of their over-allotment option, the executive officers, directors and 5% or greater stockholders of IntelePeer will beneficially own, in the aggregate, approximately 69.5% of the outstanding capital stock of IntelePeer upon completion of this offering.

        If our stockholders are allocated all or a portion of the shares in which they have indicated an interest in this offering and purchase any such shares, such purchase would reduce the available public float for our shares because such stockholders would be restricted from selling the shares by a lock-up agreement they have entered into with our underwriters and by restrictions under applicable securities laws. As a result, any purchase of shares by such stockholders in this offering may reduce the liquidity of our common stock relative to what it would have been had these shares been purchased by investors that were not affiliated with us.

Our management will have broad discretion over the use of the proceeds from this offering and might not apply the proceeds of this offering in ways that increase the value of your investment.

        Our management will have broad discretion to use the net proceeds from this offering. We expect to use the net proceeds from this offering for general corporate purposes, including working capital and the repayment of indebtedness. We may also use net proceeds for other purposes, including possible investments in, or acquisitions of, complementary products or technologies, although we have no specific plans at this time to do so. We may fail to use these funds effectively to yield a significant return, or any return, on any investment of these net proceeds.

You will incur immediate and substantial dilution and may experience further dilution.

        The initial public offering price of our common stock is substantially higher than $0.28, the pro forma net tangible book value per share of our common stock as of September 30, 2011, calculated on a pro forma basis for this offering. Therefore, if you purchase our common stock in this offering, you will incur an immediate dilution of $7.91 in net tangible book value per share from the price you paid, based on the assumed initial offering price of $10.00 per share. The exercise of options to purchase shares of our common stock outstanding as of December 31, 2011 at a weighted average exercise price of $1.82 per share will result in further dilution.

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Provisions of our certificate of incorporation and bylaws and Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, as a result, depress the trading price of our common stock.

        Our certificate of incorporation and bylaws contain provisions that could discourage, delay or prevent a change of control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions:

•

establish a classified board of directors so that not all members of our board are elected at one time;



•

require super-majority voting to amend some provisions in our certificate of incorporation and bylaws;



•

authorize the issuance of "blank check" preferred stock that our board could issue to increase the number of outstanding shares and to discourage a takeover attempt;



•

limit the ability of our stockholders to call special meetings of stockholders;



•

prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;



•

provide that the board of directors is expressly authorized to adopt, alter or repeal our bylaws; and



•

establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.

        These anti-takeover defenses could discourage, delay or prevent a transaction involving a change of control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take corporate actions other than those you desire.

We do not intend to pay dividends for the foreseeable future.

        We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

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FORWARD-LOOKING STATEMENTS

        This prospectus includes forward-looking statements, including statements that involve expectations, plans or intentions (such as those relating to future business or financial results, new features, products or services, or management strategies). You can identify these forward-looking statements by words such as "may," "will," "would," "should," "could," "expect," "anticipate," "believe," "estimate," "intend," "plan" and other similar expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in these forward-looking statements. These risks and uncertainties include, among others, those described under "Risk Factors" and elsewhere in this prospectus, including in our financial statements and related notes appearing in this prospectus, and the following:

•

our ability to maintain or improve our growth rate, and fluctuations in our financial performance;



•

intense competition from legacy and emerging communications service providers, including traditional telecommunications carriers and other providers of specialized communications services;



•

availability and performance of third parties and third-party facilities, equipment and services;



•

our ability to protect our intellectual property, technology and brand;



•

regulation of our business and the risk that compliance with regulatory requirements may be costly and may require that we change the services we offer, the price for our services or the way we do business in particular states or other regions;



•

the growth and availability of broadband Internet access;



•

our ability to retain key personnel;



•

risks associated with acquisitions and other strategic transactions;



•

our ability to expand our service offerings; and



•

the costs associated with being an independent public company and our ability to comply with the internal control and reporting obligations of public companies.

We do not intend, and undertake no obligation, to update any of our forward-looking statements to reflect actual results, changes in circumstances, assumptions or beliefs, or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

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USE OF PROCEEDS

        We estimate that the net proceeds from the sale of shares of our common stock that we are selling in this offering will be $64.3 million, or $74.8 million if the underwriters' over-allotment option is exercised in full, based on an assumed initial public offering price of $10.00 per share, the midpoint of the estimated price range shown on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

        A $1.00 increase or decrease in the assumed initial public offering price of $10.00 per share would increase or decrease the net proceeds to us from the offering by approximately $7.0 million, assuming the number of shares offered by us remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of one million shares in the number of shares of common stock offered by us would increase or decrease the net proceeds to us from this offering by approximately $9.3 million, assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        The principal purposes of this offering are to obtain additional capital, to create a public market for our common stock and to facilitate our future access to the public equity markets.

        We currently intend to use approximately $25.5 million of the net proceeds from this offering to repay our loans outstanding under our existing equipment purchase facilities and any accrued but unpaid interest thereon and other related fees, including approximately $0.8 million for repayment of our loans from Atel Ventures which are due in May and September of 2012 and bear interest at 15 percent; approximately $1.0 million for repayment of our loans from Compass Horizon Funding LLC which are due in April, June and October of 2012 and bear interest at 13 percent; approximately $2.5 million for repayment of our loans from Vogen Funding, L.P., which are due in installments until November 2013 and bear interest at rates between 10 percent and 10.75 percent; approximately $7.9 million for repayment of our equipment loans from Hercules Corporation II, L.P. and Comerica Bank which are due May 1, 2013 and bear interest at a rate of prime plus 7 percent and $5.5 million for repayment of our other obligations to Hercules Corporation II, L.P. and Comerica Bank which are due December 31, 2012 and bear interest at a rate of prime plus 2.05 percent; and approximately $7.8 million for repayment of our equipment loans from East West Bank which are due in installments through October 2014 and bear interest at a rate of prime plus 1 percent. We currently intend to use the remainder of the net proceeds received by us from this offering for working capital and general corporate purposes. We may also use a portion of our net proceeds to acquire and invest in complementary products, technologies or businesses; however, we currently have no agreements or commitments to complete any such transaction and are not involved in negotiations to do so.

        We cannot specify with certainty the particular uses for the net proceeds to be received by us from this offering. Accordingly, our management team will have broad discretion in using the net proceeds to be received by us from this offering.

        Pending the use of proceeds from this offering as described above, we plan to invest the net proceeds in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

DIVIDEND POLICY

        We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will be dependent on a number of factors, including our earnings, capital requirements, financial condition, future prospects and other factors that our board of directors deems relevant. Additionally, under the terms of our Loan and Security Agreement dated as of May 5, 2010 by and between us and Hercules Technology II, L.P., and Comerica Bank and our Loan and Security Agreement dated as of May 16, 2011 by and between us and East West Bank, we must obtain written consent from the lenders prior to paying any cash dividends.

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CAPITALIZATION

        The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2011, as follows:

•

on an actual basis;



•

on a pro forma basis after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock into 21,569,923 shares of common stock, assuming the conversion immediately upon the completion of this offering, and the resulting reclassification of the convertible preferred stock warrant liability to additional paid-in capital; and



•

on a pro forma as adjusted basis after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock into 21,569,923 shares of common stock assuming the conversion immediately upon the completion of this offering, the resulting reclassification of the convertible preferred stock warrant liability to additional paid-in capital, our receipt of the net proceeds from the sale of 7,500,000 shares of common stock offered by us in this offering, at an assumed initial public offering price of $10.00 per share, the midpoint of the estimated price range set forth on the cover page of the prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the net proceeds as described in "Use of Proceeds."

        You should read this table in conjunction with the sections titled "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes included elsewhere in this prospectus.

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        Each $1.00 increase (decrease) in the assumed initial public offering price of $10.00 per share, the midpoint of the estimated price range set forth on the cover page of the prospectus, would increase (decrease) the amount of pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders' equity, total capitalization and net proceeds we receive from this offering by approximately $7.0 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses. Similarly, each increase (decrease) of one million shares in the number of shares of common stock offered by us would increase (decrease) cash and cash equivalents, additional paid-in capital, total stockholders' equity, total capitalization and net proceeds we receive from this offering by approximately $9.3 million, assuming the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        If the underwriters' over-allotment option is exercised in full, pro forma as adjusted cash and cash equivalents, common stock and additional paid-in capital, stockholders' equity (deficit) and shares issued and outstanding as of September 30, 2011 would be $54.3 million, $131.4 million, $85.1 million and 35.5 million, respectively.

        The number of shares of common stock issued and outstanding actual, pro forma, and pro forma as adjusted in the table above excludes the following shares:

•

7,659,282 shares of common stock issuable upon the exercise of options outstanding, at a weighted average exercise price of $1.65 per share;



•

408,196 shares of common stock issuable upon the exercise of outstanding warrants to purchase common stock, at a weighted average exercise price of $1.57 per share; and



•

649,407 shares of common stock, on an as-converted basis, issuable upon the exercise of outstanding warrants to purchase convertible preferred stock assuming the conversion immediately upon the completion of this offering, at a weighted average exercise price of $1.73 per share.

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DILUTION

        If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the assumed initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after completion of this offering.

        Net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of shares of common stock outstanding. Our historical net tangible book value as of September 30, 2011, was $1.0 million, or $0.20 per share. Our pro forma net tangible book value as of September 30, 2011 was $7.4 million or $0.28 per share, based on the total number of shares of our common stock outstanding as of September 30, 2011, after giving effect to the conversion of all outstanding shares of our convertible preferred stock into common stock assuming the conversion immediately upon the completion of this offering and the resulting reclassification of the convertible preferred stock warrant liability to additional paid-in capital.

        After giving effect to our sale of shares of common stock in this offering at the assumed initial public offering price of $10.00 per share, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of September 30, 2011 would have been $71.8 million, or $2.09 per share. This represents an immediate increase in net tangible book value of $1.81 per share to existing stockholders and an immediate dilution in net tangible book value of $7.91 per share to purchasers of common stock in this offering, as illustrated in the following table:

        A $1.00 increase (decrease) in the assumed initial public offering price of $10.00 per share, which is the midpoint of the estimated price range listed on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share by $0.20, assuming the number of shares offered by us remains the same as set forth on the cover page of this prospectus and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        If the underwriters' over-allotment option to purchase additional shares from us is exercised in full, the pro forma as adjusted net tangible book value per share after this offering would be $2.32 per share, the increase in pro forma as adjusted net tangible book value per share to existing stockholders would be $2.04 per share and the dilution to new investors purchasing shares in this offering would be $7.68 per share.

        The following table presents on a pro forma as adjusted basis as of September 30, 2011, after giving effect to the conversion of all outstanding shares of convertible preferred stock into common stock assuming the conversion immediately upon the closing of this offering, the differences between the existing stockholders and the purchasers of shares in this offering with respect to the number of shares purchased from us, the total consideration paid, which includes net proceeds received from the issuance of common and convertible preferred stock, cash received from the exercise of stock options

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and the value of any stock issued for services and the average price paid per share (in thousands, except per share amounts and percentages):

        A $1.00 increase (decrease) in the assumed initial public offering price of $10.00 per share, which is the midpoint of the range listed on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors by $7.5 million, total consideration paid by all stockholders by $7.5 million and the average price per share paid by all stockholders by $0.22, in each case assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and without deducting the estimated underwriting discounts and commissions and estimated offering payable by us. Similarly, each increase or decrease of one million shares in the number of shares of common stock offered by us would increase or decrease cash and cash equivalents, additional paid-in capital, total stockholders' equity, total capitalization and the net proceeds to us from this offering by approximately $9.3 million, assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        If the underwriters exercise their over-allotment option in full, our existing stockholders would own 75.7 percent and our new investors would own 24.3 percent of the total number of shares of our common stock outstanding after this offering.

        The foregoing calculations are based on our shares outstanding as of September 30, 2011 assuming our outstanding convertible preferred stock converts into 21,569,923 shares of common stock and excludes the following shares:

•

7,659,282 shares of common stock issuable upon the exercise of options outstanding, at a weighted average exercise price of $1.65 per share;



•

408,196 shares of common stock issuable upon the exercise of outstanding warrants to purchase common stock, at a weighted average exercise price of $1.57 per share; and



•

649,407 shares of common stock, on an as-converted basis, issuable upon the exercise of outstanding warrants to purchase convertible preferred stock assuming the conversion immediately upon the completion of this offering, at a weighted average exercise price of $1.73 per share.

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SELECTED FINANCIAL DATA

        The selected statement of operations data for the years ended December 31, 2008, 2009 and 2010 and the balance sheet data as of December 31, 2009 and 2010 are derived from our audited financial statements included elsewhere in this prospectus. The selected balance sheet data as of December 31, 2008 are derived from our audited financial statements that are not included in this prospectus. The selected statement of operations data for the years ended December 31, 2006 and 2007 and the balance sheet data as of December 31, 2006 and 2007 are derived from our unaudited financial statements, which are not included in this prospectus. The selected statement of operations data for the nine months ended September 30, 2010 and 2011 and the balance sheet data as of September 30, 2011 are derived from our unaudited financial statements included elsewhere in this prospectus. The unaudited financial statements have been prepared on the same basis as the audited financial statements, and, in the opinion of management reflect all adjustments necessary for the fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the following selected historical financial data below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements, related notes, and other financial information included elsewhere in this prospectus. The selected financial data in this section is not intended to replace the financial statements and is qualified in its entirety by the financial statements and related notes included in this prospectus.

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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and elsewhere in this prospectus, particularly those discussed in the section entitled "Risk Factors."

Overview

        We are a provider of on-demand, cloud-based communications services to service providers and enterprises. Our customers can leverage our proprietary Communications-as-a-Service, or CaaS, platform, which we refer to as our CloudWorx CaaS Platform, to deliver multimodal communications services, including voice, unified communications, video and other rich-media applications, to communications devices with reduced cost and improved quality compared to existing alternatives. Our CloudWorx CaaS Platform allows customers to rapidly and easily transition from legacy network infrastructures to our flexible, software-based, multimodal, IP-based solutions.

        The global telecommunications industry is undergoing a shift to next-generation IP-based communications technologies from legacy telephone networks. This transition is being driven by the widespread availability of broadband Internet connectivity and the emergence of cloud-based infrastructures and on-demand service delivery models such as Software as a Service, or SaaS. We believe these trends, along with the inability of legacy infrastructures to support the convergence of business and next-generation communications services, such as VoIP and rich-media communications, will continue to drive demand for a flexible and high-quality cloud-based communications platform such as ours.

        Our revenue is derived principally from the delivery of communications services over our CloudWorx CaaS Platform. Substantially all of our revenue to date has been derived from the transmission of voice traffic and related value-added services. Service provider and enterprise customers direct communications traffic to us, which we route through our peering partners so that the traffic can be delivered to the ultimate recipient of the communication, which is the end-point device. We typically charge our customers based upon minutes of use for traffic delivered through our platform. Our revenue has grown from $43.4 million for the year ended December 31, 2008 to $111.5 million for the year ended December 31, 2010 and from $80.4 million for the nine months ended September 30, 2010 to $106.2 million for the same period in 2011. The minutes of use for traffic delivered through our platform increased from 3.8 billion in 2008 to more than 23 billion in 2011, and our number of customers increased from 78 to 365. Similarly, the number of our service provider peering partners increased from 34 in 2008 to more than 60 in 2011, and the number of telephone numbers and end point identifying addresses in our SuperRegistry directory increased to over 450 million in 2011. Our revenue growth has been driven by a combination of increases in revenue from existing customers and the addition of new customers.

        Historically, substantially all of our revenue was derived from service provider customers. In 2010, revenue from enterprise customers increased significantly but still represented a small percentage of our revenue. We have made investments in research and development to create services more targeted to enterprise customers and in sales and marketing to build and manage our enterprise focused sales channels. As a result, we expect that revenue from enterprise customers will represent an increasing percentage of our revenue in future periods.

        Our single largest cost is the amount we pay to our peering partners for delivering communications to the ultimate end-point device user. Peering partners are the parties with whom we have contractual arrangements pursuant to which we direct the communications traffic routed through our CloudWorx

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CaaS Platform. When the end-point device user is also a customer of one of our peering partners, we refer to this as direct peering, and when the end-point device user is not a customer of one of our peering partners, we refer to this as indirect peering. Our peering partner compensation expense has historically increased largely in line with our increases in revenue. As we continue to grow the size of our SuperRegistry directory, we expect an increasing portion of our traffic will be delivered as a result of direct peering and that our costs, as a percentage of revenue, will decrease.

        Our cloud-based software architecture has been designed to be scalable and enable us to continue to increase revenue without incurring a proportionate increase in our employee, infrastructure, and other operating costs. Since our platform is software-based, our CloudWorx CaaS Platform can be scaled quickly and efficiently and we are able to increase our revenue without making substantial investments in capital expenditures, regardless of geography. Because we have relied primarily on technology and software to respond to the increased demand for our services, our revenue growth has not required a proportionate increase in headcount. In addition, since we are able to use third-party data centers and third-party fiber networks to deliver IP-based traffic, we have a limited need for investments in our internal physical infrastructure.

        We operate in a competitive and dynamic pricing environment. We monitor and, as appropriate, update the pricing that we offer our customers based upon multiple factors as we seek to offer our customers competitive pricing while satisfying their needs for carrier level quality and reliability. Likewise, the amounts we must pay to our peering partners are subject to change. Our proprietary software enables us to collect and quickly analyze information on communications traffic and provide our services at a competitive price without compromising the quality of our service. In addition, as the volume of traffic through our CloudWorx CaaS Platform increases, we expect we will be able to enter into better pricing arrangements with our peering partners.

        Our contracts with customers and peering partners do not include volume or pricing commitments and a significant portion of our revenue has historically been concentrated in a relatively limited number of customers. Although we have periodically experienced significant period-to-period variations in the revenue we derive from some of our largest customers, our aggregate revenue derived from existing customers increased over the revenue from the prior period for each quarter since January 1, 2008, except that our revenue in the quarters ended March 31, 2009, 2010 and 2011 declined as compared to the revenue from the prior quarter. We have established and maintain deep relationships with our customers, allowing us to have significant visibility into our customers' changing business plans and deployment decisions. Additionally, because we serve a substantial number of the larger service providers in the U.S. market, we are able to monitor and benefit from the evolving trends among these service providers with respect to communications traffic shifting between wireline and wireless providers, the continued migration of networks from the PSTN to SIP/IP-based networks and the changes in end-user customers among service providers.

        We intend to continue to grow our business by generating additional revenue from existing and new service provider and enterprise customers. We also intend to continue to expand our relationships with channel and technology partners to increase our number of enterprise customers. To date, we have generated our revenue principally from customers in the United States. We expect to expand our business internationally in future periods.

        We have incurred losses since inception as we have grown our business and invested in our CloudWorx CaaS Platform and selling and administrative functions. As of September 30, 2011, we had an accumulated deficit of $46.3 million.

Key Metrics of Our Business

        We monitor revenue as a measure of our overall business performance. We continually analyze and adjust the prices we charge our customers based on market conditions. Although our revenue is generally not impacted by seasonality, our revenue is principally driven by business communications

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usage and is impacted by the weighted number of business days in each quarter. To derive the weighted number of business days in each quarter, we weight each day of the week and each holiday based upon historical traffic levels on those days.

        We also track operating margin to monitor operating costs, including peering partner compensation, infrastructure costs, capital expenditures and headcount, as a percentage of revenue. We expect our operating costs as a percentage of revenue will decrease as our business continues to grow.

Key Components of Our Results of Operations

    Revenue

        We derive our revenue primarily from service provider and enterprise customer usage of our CloudWorx CaaS Platform services to connect our customers' traffic to the ultimate end-point device and charge on a minute of use basis. Our revenue growth has resulted from a combination of delivering additional minutes from existing customers and adding new customers. The rates charged per minute are determined by contractual terms between us and our customers and are subject to periodic changes. To date, our revenue has principally been derived from service provider customers and substantially all of such revenue has been for voice traffic and related value added services. In addition to revenue based upon minutes of use from service providers, we also derive revenue from communication services provided to enterprise customers either on a minutes of use or on a monthly recurring basis per subscriber as the services are provided. While this revenue has not been a significant percentage of our revenue to date, we expect that revenue from enterprise customers will comprise an increasing portion of our revenue in future periods as we increase and expand relationships with our customers, channel partners and technology partners, and those customers and channel partners develop additional applications that utilize our services.

        Revenue is impacted by a variety of factors regarding the composition of the minutes of use, including whether they are wireless or VoIP minutes, on the one hand, or wireline minutes, on the other hand. Revenue from particular customers may vary from period to period as our contracts do not include volume or pricing commitments. Revenue from particular customers has also varied as a result of industry consolidation and as our customers have added or lost end-users, and their associated communications traffic, over time.

    Operating Expenses

        Operating expenses consist of peering partner compensation, infrastructure, operations, research and development, sales and marketing, general and administrative and depreciation and amortization costs.

Peering Partner Compensation

        Peering partner compensation represents the costs we incur to connect our customers' traffic to the ultimate end-point device. These costs consist primarily of charges for access to our peering partners' networks and are recorded at the time of usage. They are typically charged based upon minutes of use, and vary based upon negotiated rates with each peering partner. Peering partner compensation costs are impacted by a variety of factors relating to the composition of the minutes, including whether they are wireless or VoIP, on the one hand, or wireline, on the other hand. These costs are also impacted by whether the delivery is the result of direct or indirect peering. For indirect peering, our peering partner generally must pay another service provider who ultimately delivers the traffic to the end-user. As such, our peering partner compensation costs for this traffic increase accordingly. As we continue to grow the size of our SuperRegistry directory, we expect an increasing portion of our traffic will be delivered as a result of direct peering and that our costs as a percentage of revenue will decrease.

        We recognize peering partner compensation costs as they are incurred in accordance with contractual requirements. Invoices received from our peering partners often cover billing for millions of minutes. We perform monthly bill verification procedures to identify errors in peering partners' billing

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processes. These verification procedures include the examination of the bills, review of call detail records, comparing billing rates used with contractual billing rates, evaluating the trends of invoiced amounts by peering partner and reviewing the types of charges being processed. If we discover a billing discrepancy as a result of our review, we then proactively seek to resolve the matter with our peering partner. If we determine that we will need to pay our peering partner more than we previously accrued or if we determine that there is a doubt regarding the amount that we will ultimately pay to our peering partner, we record a charge to peering partner compensation and a corresponding increase to our reserve for disputes based on our estimate of the amount that will eventually be payable. If we subsequently determine that the disputed amounts will be settled for an amount different than the amount which we originally accrued, we will recognize the difference as an adjustment to peering partner compensation. We believe that our procedures are designed to properly assess dispute accruals, however, changes to the estimates used in its calculation could result in a material impact on our statement of operations.

Infrastructure Costs

        Infrastructure costs include the costs of utilizing third party telecommunications networks, amounts we pay for use of co-location facilities and interconnection services, and costs of equipment and software maintenance and support. The majority of these costs are fixed in nature. We make commitments for infrastructure usage in anticipation of our future growth, balancing cost against the length of the commitment to cost effectively offer the quality and reliability that our customers require. We seek to expand our capacity in advance of expected future growth needs. As such, our infrastructure costs may vary as a percentage of revenue in any particular period based upon the timing of these investments in additional capacity. However, we expect that these costs will decline as a percentage of revenue over time.

Operations

        Operations expenses consist of the costs of our administrative facilities and the costs related to our personnel who are directly responsible for maintaining and expanding our CloudWorx CaaS Platform. Although there may be fluctuations from period to period as we hire additional personnel to expand our operations, we expect that these costs will decline as a percentage of revenue in future periods.

Research and Development

        Research and development expenses consist of costs incurred for internal development projects and are comprised of personnel costs, testing and compliance services, and facilities costs. We are currently devoting substantial resources to the development of additional functionality for our existing products and the development of new application components and APIs. We generally expense research and development costs as incurred. Some direct development costs related to the internally developed software used to provide our services are capitalized and depreciated over their useful life. The capitalized cost of this internally developed software for use in providing our services may increase as we continue to develop additional functionality to facilitate the delivery of our services.

Sales and Marketing

        Sales and marketing expenses consist of personnel-related costs, sales commissions, travel costs and facilities costs and, to a lesser extent, costs associated with marketing and publicizing our products and services. We primarily use a direct sales approach for our service provider customers and an indirect approach using sales channels for our enterprise customers. We plan to continue to invest in sales and marketing to expand and grow our business. However, we expect that these costs as a percentage of revenue will decline in future periods.

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General and Administrative

        General and administrative expenses consist of personnel-related costs, professional services, and facilities costs related to our executive, finance, human resources and information technology functions. Professional services consist of outside legal and accounting services and information technology consulting costs. These costs have generally increased as we have invested in our administrative infrastructure to support our growth. Following the completion of this offering, we expect to incur additional expenses associated with being a public company, including increased legal and accounting costs, investor relations costs and compliance costs in connection with the internal control requirements of the Sarbanes-Oxley Act.

Depreciation and Amortization

        Depreciation and amortization expenses relate to our property and equipment and finite-lived intangible assets. Depreciation expense for property and equipment is primarily related to equipment that hosts our CloudWorx CaaS Platform housed at co-location facilities and is computed using the straight-line method over the estimated useful lives of the assets. This equipment is depreciated over seven years and all other equipment is depreciated over three years. Amortization for leasehold improvements is computed using the straight-line method over the shorter of the term of the lease or estimated useful lives of the assets. Amortization of finite-lived intangible assets is computed using the straight-line method over the estimated economic life of the asset. For the capitalized development costs related to our CloudCentral customer portal, the amortization period is seven years. For capitalized patent costs, the amortization period is the term of the patent, generally 14 years, or the estimated economic life if deemed to be shorter. We expect depreciation and amortization expenses to continue to increase on an absolute level as we increase our investments in equipment, but to decrease as a percentage of our revenue.

    Other Income (Expense)

Interest Expense, Net

        Interest expense, net consists primarily of interest accrued or paid on our equipment financing obligations and our loan and security agreements, as well as the amortization of debt discount and deferred financing costs.

Change in Fair Value of Warrant Liabilities

        The change in fair value of warrant liabilities consists of the change in the fair value of our warrants to purchase convertible preferred stock and those warrants to purchase common stock with price protection features. These outstanding warrants are classified as liabilities and, as such, are remeasured to fair value at each balance sheet date with the corresponding gain or loss from the adjustment recorded in our statement of operations. The fair value of the warrants is estimated using the Black-Scholes option-pricing model and incorporating considerations of the potential value associated with price protection features. We will continue to record adjustments to the fair value of the warrants until the earlier of the exercise or expiration of the warrants. Following the completion of this offering, we will no longer be subject to these charges relating to the warrants for the purchase of our convertible preferred stock as they will be converted into warrants for common stock and will not have price protection features. However, we will continue to adjust our existing common stock warrants with price protection features for changes in fair value until the earlier of the exercise or expiration of the warrants.

Internal Control Over Financial Reporting

        In connection with the audit of our financial statements for the year ended December 31, 2010, our management and independent registered public accounting firm identified two material weaknesses in our internal control over financial reporting, as defined in rules established by the Public Company

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Accounting Oversight Board, or PCAOB, and in connection with the review of our financial statements for the six months ended June 30, 2011, our management and independent registered public accounting firm identified an additional material weakness in our internal control over financial reporting. These material weaknesses related to (i) a lack of adequate control over the accounting for complex financial instruments, including accounting for certain stock warrants and convertible instruments, (ii) a lack of adequate controls to identify, evaluate, monitor and adjust our accrued liability for peering partner disputes, and (iii) a lack of adequate control to record non-plan stock option grants in the appropriate period. As a result, audit adjustments to our financial statements were identified during the course of the audit. In an effort to remediate these material weaknesses, with respect to complex financial instruments, we have retained consultants to assist us in properly accounting for complex financial instruments and have also developed in-house knowledge and expertise related to the accounting literature surrounding complex financial instruments. With respect to peering partner disputes, we have developed, documented and initiated enhanced procedures over our peering partner disputes to improve our ability to make reasonable estimates with respect to the amounts that such disputes will ultimately be settled. With respect to non-plan stock option grants, we have outsourced our stock administration function to a third party and we have implemented additional procedures to review non-plan grants to correctly assess the grant date. We cannot assure you that these measures will significantly improve or remediate the material weaknesses described above.

        Assessing our procedures to improve our internal control over financial reporting is an ongoing process. We are currently not required to comply with Section 404 of the Sarbanes-Oxley Act, and are therefore not required to make an assessment of the effectiveness of our internal control over financial reporting. As a result, our management did not perform an evaluation of our internal control over financial reporting as of December 31, 2010. Further, our independent registered public accounting firm has not been engaged to express, nor have they expressed, an opinion on the effectiveness of our internal control over financial reporting. We currently do not have an internal audit function.

        For the year ending December 31, 2012, pursuant to Section 404 of the Sarbanes-Oxley Act, management will be required to deliver a report that assesses the effectiveness of our internal control over financial reporting. Under current SEC rules, if we are an accelerated filer, our independent registered public accounting firm will be required to deliver an attestation report on the effectiveness of our internal control over financial reporting beginning with the year ending December 31, 2012.

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Results of Operations

        The following table presents our statement of operations for the periods indicated (in thousands):