According to International Data Corporation, or IDC, the U.S. wireline voice and data communications market’s revenues for 2004 were estimated at $215.8 billion. IDC estimates that businesses accounted for revenues of $118.5 billion in 2004, with the remaining $97.3 billion of revenues representing consumer spending. Of the total business-segment revenue, IDC estimates that small businesses, which it defines as those with fewer than 100 employees, accounted for $47.0 billion of revenues. The wireline market can also be segmented by service type, including local and long distance voice services, data transport and various enhanced services. In 2004, according to IDC, the small business segment accounted for an estimated $25.4 billion in local voice revenue, $12.1 billion in long distance voice revenue, $8.5 billion in value-added data services revenue and $1.0 billion in revenue from access charges and other services.

The managed network market encompasses a variety of services ranging from network monitoring, maintenance and customer premises equipment procurement and installation to hosted solutions such as security and IP telephony. Managed network services are delivered over a centrally managed IP platform and over secure broadband connections and include enhanced services such as IP VPN, website and intranet hosting, network security, storage, email and instant messaging.

Although small businesses have traditionally developed in-house solutions to many managed network needs, there is a trend towards third-party management. According to IDC, the primary reasons why small and medium sized businesses use or are considering using managed network services include a reduction in total cost of network operations, improvement of network availability and performance, the lack of appropriate level of information technology staffing and security concerns such as business continuity and firewalls.

Small businesses surveyed by Forrester Research use and outsource or plan to use and outsource web hosting (43%), intrusion detection (29%), business continuity / disaster recovery (27%), application hosting (27%), managed voice (26%) and firewalls (23%). Small businesses typically use a local carrier to procure their managed network services.

Each of the Company’s Voice packages includes local and long distance voice services and broadband Internet access, plus the customer’s choice of either an e-business pack (including email and web hosting applications) or a communications pack (including voicemail and other voice-related applications). The local and long distance voice services in the Company’s Voice packages include E911 and business class features, which include call forwarding, call hunting, call transfer, call waiting, caller ID and three-way calling.

In addition to the applications offered in its Voice packages, the Company currently offers other services which include secure backup and file share, VPN, calling cards, conference calling, 800 numbers and other voice features. In the future, the Company plans to offer other applications, such as network security, calendar share, fax to email and secure desktop. The Company’s enhanced services are sold on an a la carte basis to subscribers of the Voice bundled packages.

The Company offers its customers 24x7 support through live access to dedicated care representatives and through online resources.

The Company offers a broad range of capabilities online, including functions allowing customers to review their requested services and accept their installation (for new customers); view, pay and analyze their bills; view and modify their services and account features; view and modify account information; research products and troubleshoot issues using the section of the Company’s web site devoted to frequently asked questions, which is called Find-It-Fast knowledge base; and submit requests for account changes.

Cost of service increased $9.9 million, or 45.4%, from $21.8 million for the year ended December 31, 2003, to $31.7 million for the year ended December 31, 2004.

Depreciation and amortization expense increased $1.3 million, or 6.1%, from $21.3 million for the year ended December 31, 2003, to $22.6 million for the year ended December 31, 2004.

Interest expense increased $0.2 million from $4.9 million for the year ended December 31, 2003, to $5.1 million for the year ended December 31, 2004.

Net loss decreased $18.0 million from $29.5 million for the year ended December 31, 2003, to $11.5 million for the year ended December 31, 2004.